Weekend Strategy Review March 6, 2016
Posted by OMS at March 6th, 2016
The Dow rose 63 points on Friday, closing at 17,007. It was up 367 points for the week. The NASDAQ was up 10 points on Friday and up 127 points for the week.
Friday’s high reached the 17,062 level, which was right at 200-day moving average. Several weeks ago, when the Dow was near 16 000, I talked about how the falling 200 was a natural target for the Dow on this retracement wave. Now this target has been reached.
So what will likely happen now?
It appears that wave ‘c’ up is very near completion. The market is EXTREMELY overbought at this point and the reward-risk ratio for establishing new long positions is very low.
On Friday, the A-D oscillator came in with another EXTREMELY overbought reading of 327.2 This reading was only 5 points from Thursday’s EXTREMELY overbought reading of 332.2. So with another small change reading on the Board, we need to be on the lookout for a BIG Move early next week.
IF this BIG Move is to the downside, it’s highly likely it will be the start of the next major wave down in the current Bear Market.
From an overall strategy perspective, I have moved to the sidelines and am waiting for signs that market is starting to roll over.
As of Friday, the only sign of a top is the EXTREME overbought conditions within the Ending Diagonal Pattern. This is not enough for me to start establishing short positions.
That’s because the Dow could still pull back in a small wave 4 retracement and then be followed another rally leg to form a ‘through over’ top. Hard to tell at this point.
The thing I’m watching now is the Money Flow indicators. At this point they’re showing some divergence, but they’re still very positive. As a minimum, I won’t begin to buy any inverse index ETFs until I see the Coaches on the cockpit turn negative. As long as these indicators remain positive, it’s likely the market will continue to chop higher during the next week or so to form the ‘through over’ top..
Doesn’t matter to me. I’m not gonna trade the long side now. Like I said earlier, the odds on the long side are not worth the risk.
I’d rather watch from the sidelines and wait for the indicators to turn negative.
Once they do, I should be able to establish inverse positions with reward-risk rations of 10-1 or better.
Those are pretty attractive odds, but for now we need to exercise a little patience.
So take some time this weekend to review what has happened in the last few weeks. Look at how the Dow formed a Wave 1 bottom on 20 January, and then rallied to 17,000 in an a-b-c retracement for Wave 2. Then look at the final Wave ‘c’ rally and how it’s forming an Ending Diagonal. In other words, try to get a perspective on how the market got to this point. Think about all the things you’ve learned in Class and how they are helped you understand what has happened and will likely happen next.
Then start thinking about the strategy you will be using once the indicators finally turn negative. Think about this now, so you will be prepared once the next stage of the current Bear Market starts to unfold. The next leg down could get pretty ugly. Now is the time to start preparing yourself for it.
Have a great weekend.
That’s what I’m doing,
h
Market Signals for
03-07-2016
DMI (DIA) | POS |
DMI (QQQ) | POS |
COACH (DIA) | POS |
COACH (QQQ) | POS |
A/D OSC | SM CHG |
DEANs LIST | POS |
THE TIDE | POS |
SUM IND | POS |
All of the commentary expressed in this site and any attachments are opinions of the author, subject to change, and provided for educational purposes only. Nothing in this commentary or any attachments should be considered as trading advice. Trading any financial instrument is RISKY and may result in loss of capital including loss of principal. Past performance is not indicative of future results. Always understand the RISK before you trade.
Category: Professor's Comments, Weekend Strategy Review