Professor’s Comments April 9, 2014

Posted by OMS  at April 9th, 2014

The Dow rose 10 points, closing at 16,256. Volume was moderate on the rally, coming in at 112 percent of its 10 day average. There were 33 new highs and 14 new lows.

Yesterday’s 10 point rise might not have looked like much on the surface, but it was just what the Doctor ordered.  It stopped the bleeding right at the lower trend lines on all of the indexes.  So now, we’ll have to watch our breadth indicators to see if a reversal will take place.

Right now all of the breadth indicators, including the A-D oscillator, are still negative or heading down.  It usually takes about one or two days of healthy market action before these indicators can reverse.

The Dean’s List and the cockpit indicators are still negative, but like I said yesterday, they are not that negative for me to be concerned about the start of a new downtrend.  There are too many domestic, sector and foreign ETFs on the List for that to occur.

Also, when I checked in with The Professor last night, he had 22 longs.  This is not what you would see if a new down trend was starting. But it’s exactly what I would expect to see a few days before the start of a new uptrend.

The DMI on the Dow (DIA) is still negative, but it’s at a point where 1-2 days of positive action will turn it positive.  And IF The Professor starts to highlight more than 50 stocks as longs, it would confirm the start of a new uptrend.

So all I’m doing now is watching.

Just about all of my energy stocks rebounded from extreme oversold conditions yesterday, making for some nice Rifle Trades on the shorter-term bars.  HAL was up 1.15 and GPOR up 1.28.  SLB was only up 0.84 cents, gaining back most of its two-day decline.  It  appears to be forming the Blade of a small Hockey Stick Pattern.  If you have some time this morning, you might want to look at how all three of these stocks reacted to the recent market pullback and compare it with the decline in a few technology and biotech issues.

For example, Halliburton (HAL) and the other energy issues were in Uptrends with positive PT indicators going into last week’s pullback.  All they did on the pullback was move closer to their moving averages.  They never turned RED, and as a result, are in a much better position to continue their rally IF the market starts to turn up.  On the other hand, biotechs like Biogen, (BIIB), and Amgen (AMGN), while still in Uptrends, had formed a THT pattern where the DMI turned negative.  They fell below their 50 and some even approached their 200 during the pullback.  So these issues will have a tougher time moving back above the 50 and participating in the next rally phase.

Most likely, all the next rally will do is form a negative ‘Blade’ in the Biotechs.  A ‘Blade’ that could  take them significantly lower once the rally is complete.

You might want to look at your stocks after you compare HAL and GPOR with AMGN, BIIB or Facebook (FB).  Most likely, all of the stocks mentioned will participate in the next rally leg.  But the rally will serve different purposes for each stock.  For some, it will help drive prices to even higher levels.  For others, it will only be a short-term bounce.  And once traders start to realize that the bounce is likely the wave 2 in a Major down move, they will start to move money into the stronger issues, setting the stage for the next decline in the weaker issues.  That’s how it works.

So today, take a good look at your stocks.  Are they in nice, healthy uptrends, or are they starting to look tired?  If they’re in the later category, you might want to think about what you’re going to do with these issues during the next rally phase, especially IF you see a Blade starting to develop.

The market is starting to warn us about high priced, momentum stocks with little or no earnings.  Stocks like Tesla Motors (TSLA) with negative earnings, or Facebook (FB) with a P/E of 95.  If the music stops, stocks like these are going to have a tough time of it.  The same folks on CNBC who were hyping these issues on the way up, will be wondering what happened as everyone heads for the exits.  Don’t wonder.  Start looking at the patterns.

Watching.

That’s what I’m doing,

h

Not sure of the terminology we use? Check out these articles

The Hockey Stick Pattern
The Creation of Waves and Trends
FAQ

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