Extreme caution warranted
Today the market moved still higher on a short trading day. As a result, the daily score of the RumWave is, literally, off the chart. It is higher than it has been since I've been keeping track of scores and it far surpassed my benchmark for a pivotal high.
The internal components of today's scores included lots of pink and red numbers. The last time this happened I stated on this blog that such internal numbers should have been a red flag indicating a imminent decline. This time I took it to heart and put a 3x short position on the UltraWave near the end of the trading day. I intend this to be a very short hold period, likely 2 trading days or less.
As a method, the RumWave is intended to be a much less volatile trading mechanism. The intent is for followers to be able to check the blog once a day and have a good idea about how to position themselves for the next 10-20 trading days. It is not intended to be a 1-2 day holding mechanism, however the numbers today just seemed too high to let the opportunity pass without action. I think a couple red candlesticks are in order, and then we will resume the bullish push.
|DJIA 4 Hr Chart|
The candlesticks on the 4 hr chart (above) continue to compress while the red line on the slow stochastic remains high and the purple line is reaching higher points. %B is relatively high, but not super high. The MACD is still looking positive without signs of collapse, but it is a lagging indicator which is why it's not my favorite.
The daily chart below shows the slow stochastic at high levels. The %B is also high. This tells me we are up against some natural resistance from a reversion to the mean perspective.
|DJIA Daily Chart|
So, the bottom line is that the RumWave is waiting for an opportunity to buy while the UltraWave has taken a short position in anticipation of an imminent decline.