Professor’s Comments August 20, 2013

Posted by professor  at August 20th, 2013

The Dow fell another 70 points, closing at 15,010.  It got as low as 15,005, only 5 points from the minimum target I talked about several weeks ago at 15,000.  We’re there now.

Volume was moderate on the decline, coming in at 96 percent of its 10 day average.  The low volume is a positive at this point.  It tells me that yesterday’s decline was likely part of the normal wave 2 corrective process.  It’s a good indication that most traders are on the sidelines waiting.  So we could have a bit more downside today before the buyers step in and take over.  There were 17 new highs and 479 new lows.

Late yesterday, I mentioned that the VIX would likely close above its upper Bollinger Band generating a set-up for a VIX Buy Signal.  It did.  So if the market starts to rally, causing the VIX to fall below its Upper Band, a VIX Buy Signal will be generated.  VIX Buy Signals are usually very reliable.  However they can be a few days early.

The A-D oscillator had another EXTREME oversold reading last night, this time at -310.30.  This is the third consecutive reading below -200, which usually leads to a rally within the next 1-2 days.

The market is very oversold now as wave ‘2’ down appears to be nearing completion.  So all I’m doing is waiting for signs that wave 3 up is starting.  Remember, this next rally wave should be an impulsive wave.  It should start with a Bang!   Possibly a several hundred point Bang!  So IF you see this happening in the next few days, understand what is occurring.  The next rally train could be leaving the station.  You might want to think about buying a ticket to ride.

The Dean’s List is negative now, so if the positive index ETFs start to appear again,  it would be confirmation that wave ‘3’ up is underway.  While I’m waiting for this to occur, I already have a selected few stocks from the middle of the Member’s Watch List that I will be looking to Rifle Trade.  I mentioned some of these stocks in my WSR.  But don’t be limited by these few.  Remember, IF I’m right about this rally, and it’s a Big IF, the next leg up towards 16, 880 should take the Dow above the 16,000 level.  It should be a nice ride, and many stocks will participate.  If your favorite stock or ETF is on one of my Lists now, or shows up in the next few days, odds are that it will also participate in the rally.  So start looking for a dancing partner.  Just make sure the stock is in an uptrend and the indicators are positive.  Remember, this rally leg should be wave 3 up of a 5 wave sequence.  So even though the rally should be a good one, we are in the final waves of the party.  This is NOT the time to be looking for hope stocks, story stocks, turn around candidates, or junk.  If a stock didn’t participate in the ‘a’ and ‘b’ waves of this rally, odds are that it will not participate in the final waves, even though the final rally could be as much as 2,000 Dow points.  Stay away from junk.  That’s why I use the Dean’s List: No junk!

Anyhow with yesterday’s decline, I got bounced out of my trade in SLB for a small loss.  However yesterday’s $1.36 gain in TBT more than made up for it.  Two of the 3 PT indicators on SLB remain positive on the Daily Chart, so the stock remains a Rifle Trade on the 60s, even though I got bounced.  It’s wave 2 Blade on the Daily’s still appears to be very much in tact.  As for TBT, the ETF has now moved up over 4 points since it broke out of its Blade.  But don’t get too comfortable with this inverse Bond ETF.  Remember, although it has performed nicely, it is still only a trade.

A few months ago, when the 30 year treasury was trading above 147, I talked about how it could trade down to the 125 level.  So now we’re near 130 and approaching my target.  It’s time to be thinking about managing money.   I do not believe that TBT is going to the moon on this leg.  Hardly!  The chart  for Bonds is telling me that once they reach the 126-127 level, another strong rally leg should begin.  This rally leg could take Bonds back above the 150 level.  That’s right…above 150!  Why?  I don’t know.  Right now, there’s no apparent reason.  Everything I look at besides the Bond Chart tells me that interest rates will be rising, not falling.  So bonds prices should continue to fall.  Maybe the chart is telling me the next Fed Chairman is going to take quantitative easing to an even higher level.  Who knows?  But the chart that I used to trade Bonds that took them from 147 down to 130 is still calling for a major rally once we get a bit lower.  I don’t know about you, but when a chart give me a nice winner, I pay attention to what it says for the next move.

That’s why I will be paying close attention to TBT now.  If my Rifle Trade turns Red, I’m out.  If the Daily’s turn Red, I’m out.  And if I see TBT fall off the Dean’s List and TLT starts to appear, and I see all of the elements of the SIGN in place, I’m a buyer.

BTW, I see that EEV, the inverse Emerging Markets ETF re-appeared on the Dean’s List  a few days ago.  The ETF has remained in an Up trend while forming what appears to be a nice Hockey Stick Pattern.  It currently has 2 of its 3 PT indicators positive, with a very strong P-volume.  So now, to have all of the elements of the SIGN in place, I just need the MACD to turn positive.

Watching for signs of a bottom and preparing for a rally.

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

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.