Weekend Strategy Review October 11, 2015
Posted by OMS at October 11th, 2015
The Dow rose 34 points on Friday, closing at 17,084. It was up 612 points for the week. The NASDAQ was up 20 points on Friday and up 122 points for the week.
It appears that Major Wave 2 up is nearing completion.
On Friday, in my intraday Update, I mentioned a possible Head & Shoulders pattern that was forming on the 5 min bars. This pattern broke its lower trend line and then continued to develop 5 waves down and then 2 waves up for the rest of the day. In other words, it is very possible that Major Wave 2 up topped early Friday morning.
It’s still too early to tell if this analysis is correct, and only a decline below 16,502 will confirm that Major Wave 3 down is underway. However this analysis has several things going for it.
The first is the pattern on the 5 min chart. Five waves down and two waves up usually mark the start of a new down trend.
The second is that the current market is EXTREMELY overbought now. Friday marked the third consecutive day with an A-D Oscillator reading above 200. The actual reading came in at 281.44. The previous day’s reading was reading was 303.03, so yesterday’s reading was only 21.6 points from Thursday’s reading. Now 21 points is outside my normal 10 point range for a Small Change signal. However, given the EXTREME reading of the A-D oscillator, I have to give the 21 points serious consideration.
One of the things I did last night was look at the A-D oscillator on the NASDAQ. After seeing the relatively small change from the NYSE data, I wanted to see what the indicators on technology stocks were saying.
When I looked, I found that Friday’s reading of 165.19 was only 2.4 points from Thursday’s reading of 167.58. So the A-D oscillator on the OTC market had a very small change reading. Hmmm?
Now to be honest, I have NOT done as much research on small change signals on the OTC market as I have on the NYSE. And one reason for this is that I stopped doing this research after I found that small change signals on the OTC market were not as reliable as those using NYSE data. But that was years ago, and the OTC market has changed significantly since I did this research. Back then, the OTC market used to consist of a lot of junk. Stocks that couldn’t qualify for the NYSE.
However today, the NASDAQ as a whole is probably more representative of what’s going on in America than the NYSE. So it’s likely that the index (and its indicators) deserve another look for predicting changes.
Anyhow, with this thought in mind, I started to re-look at the A-D oscillator on the OTC market. What I found was very interesting and to be sure, requires more analysis. But nevertheless, the results were interesting.
On the second chart attached to this WSR, I have highlighted the times when there was a small change reading in the A-D oscillator on the OTC market. And while you might not be able to see it from the chart, there was usually a Big Price Move on the index within 1-2 days. Now realize that when I say Big Price Move, it’s not as large as the 100+ Big Move on the Dow. But percentage wise, it was still a Big Move.
But that’s NOT what I wanted you to get from the attached chart. What I wanted to point out to you is that besides being able to identify a Big Move, it appears that small change signals on the OTC also have an uncanny ability to identify market tops.
So when I saw Friday’s small change of only 2.6 points, it got my attention. Could the A-D oscillator be telling us that the Wave 2 top is in? We’ll see.
I’m also including a third chart with this WSR. This chart shows the volatility index or the VIX. The thing to note here is that a VIX Sell (market) signal was generated on Thursday-Friday when the VIX rose from below it lower Bollinger Band to close above the Band. I have found that VIX Buy Signals tend to be a lot more reliable than VIX Sell Signals, but still it’s something that suggests lower prices.
One other thing to note about the VIX is how it has formed a large Hockey Stick pattern as the market rallied during the past few weeks. So now if the market starts to decline, the VIX is suggesting that the magnitude of the next move down could be very significant. This is exactly what I would expect IF Major Wave 3 down was about to begin.
Anyhow, next week should be very interesting. If the market starts to decline, continue to watch for an impulsive wave down. The 5 min chart suggests that a wave 3 down could start once minor wave 2 completes. And both the A-D oscillator and the VIX suggest the next move down could be significant.
So continue to watch any move down toward the 16,502 level.
Have a great weekend. That’s what I’m doing.
h
Market Signals for
10-12-2015
DMI (DIA) | POS |
DMI (QQQ) | NEG |
COACH (DIA) | POS |
COACH (QQQ) | POS |
A/D OSC | |
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.
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Category: Professor's Comments, Weekend Strategy Review