Professor’s Comments August 21, 2013

Posted by professor  at August 21st, 2013

After being up by as many as 50 points for most of the day, the Dow fell into the close, dropping 7 points to finish at 15,003.  The Nasdaq and S&P 500 finished positive.  After noting three days of EXTREME oversold conditions from the A-D oscillator, the small early rally was expected.  But it was NOT the Bang I was looking for to signify the start of wave 3 Up. It was likely a small corrective wave within wave ‘c’ of 2 down.  In other words, it appears that wave 2 down has a bit more to go before it completes.

Volume was moderate on the NYSE, coming in at 98 percent of its 10 day average.  There were 28 new highs and 272 new lows.

The VIX closed at 14.92, dropping it below its Upper Bollinger Band of 15.06, meaning that a VIX Buy Signal has been generated.  As I mentioned yesterday, these signals are usually very reliable, however they can be a few days early.  So be patient.

If you were watching a few of the stocks on the Member’s Watch List yesterday for possible Rifle Trades, your patience was tested, as most never triggered on the 60s.  And just like we saw last week with Gilead Sciences, GILD, the indicators kept us out of the trade.  So we wait.

I have been saying that my target for the Dow on this leg down is between 14,850 and 15,000, with the later number being the minimum.  Yesterday we got as low as 14,992.  But because the early rally did not hold, and appeared corrective, it’s highly likely that the Dow will continue to decline during the next day or so, coming closer to the 14,850 level before it completes.  The corrective process still appears to be part of a normal wave 2 correction.

One of the reasons I say this is because of the Professor algorithm.  Even with the steady decline we’ve seen for the past two weeks, he’s still sleeping.  This is something I’m watching very carefully now, because with the A-D oscillator at EXTREME  oversold levels, the market could be in the process of crashing.  It is very common to see consecutive readings below –200 when the market is in a crash mode, so we need to be careful.  But so far, I’m not seeing the Professor kicking out a large number of shorts.  If this starts to happen, then something else could be developing besides a normal wave 2 correction.  But right now, it’s not.

All I’m doing now is watching and waiting for the 60s to turn on a few Rifle Trades.  The MWL still contains a lot of these trades, however you need to be careful.. That’s because IF the Daily indicators on the stock you have been watching have turned negative, the stock is no longer a Rifle Trade on the 60s.  If this is the case, now you need to go back to Basics, and wait until all of the elements of the SIGN are in place before the stock is a Buy.

A good example of this was EEV, the inverse Emerging Market ETF.  A few weeks back, I had been watching as EEV as a possible Rifle Trade as it pulled back from 30 to 24 as part of its Blade development process.  The stock remained in an Uptrend with the 50 >200.  However the PT indicators turned negative, so it was no longer a candidate for a Rifle Trade.  So I had to wait for the PT indicators on the Daily Charts to turn positive before all of the elements of the SIGN were in place.  That happened yesterday. EEV should continue to move up during the next few days to fill the ‘gap’ at the 26.7 level.  But what happens after that is the real question.  If the US markets start to rally, they could attract a lot of the money that had been going into the Emerging Markets.

Strong markets tend to attract the lion’s share of institutional funds.  On the other hand, there is a lot of money on the sidelines now, and some of this money could find its way into the Emerging Markets on a US rally, so watching what happens with EEV the next few days should be very interesting.

Also, there has been a lot of talk about a recovery in Europe lately.  Hmmm?  I don’t see it yet.  This morning the London FTSE is trading near 6,400.  That’s only 400 points away from what I consider a major concern level.  No, make that MAJOR concern level.  Same for the German DAX, which is trading near 8,280.   If the DAX falls below 8,000, it could get cut in half!  That’s right…half!  So keep at least one eye on Europe.  Like I said, the talking heads want to convince you that things are improving in Europe.  But that’s not what the charts are saying.  And you know what I pay attention to.  As long as the DAX stays above 8,000, things should remain steady in the world markets, including those in the U.S.  But a drop below 8,000 on the DAX could signal that some type of change is about to occur.  A change that we will need to assess and pay attention to.  I don’t want to speculate on what could cause this to happen.  Higher oil prices, closing the Suez Canal, Germany’s election, or another Bond crisis in Europe…who knows. But whatever triggers a fall below 8,000 on the DAX will be a signal to me that some serious stuff is going on.

Watching for a wave 2  bottom with one eye on the DAX.

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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