Professor’s Comments August 22, 2013

Posted by professor  at August 22nd, 2013

The Dow fell another 105 points, closing at 14,897.  The Dow is now within 47 points of my lower target of 14,850.  I have been looking for the index to bottom between 14,850 and 15,000.

Wave 3 up should start from these levels very soon.  I’m expecting it to be an impulsive rally of about 1,200-1,400 Dow points, taking the index above 16,000 before wave 4 starts to develop.  Right now my actual target is closer to 16,200, but I won’t make the call until I see where wave 2 down actually completes.

Volume was moderate on the decline, coming in at 97 percent of its 10 day average.  Yesterday’s decline occurred after the Fed released the minutes of the July 30-31Meeting.  It appears that the decline was not caused by any real concern with the minutes, but simply by a lack of buyers.  Traders appeared to be standing on the sidelines, waiting for some type of event to signal that the current down wave was over.  It was like they were waiting for a Blue Light to come on, like K-mart used to do when a special sale was starting.  The action appeared to be part of a normal wave 2 corrective process.  There were 29 new highs and 150 new lows.

Yesterday’s late decline caused the VIX to close back above its Upper Bollinger Band, generating another set-up for a VIX Buy Signal.   If the market rallies today, it will cause the VIX to fall back below its Upper Band, generating a second VIX Buy Signal.  Actually, I was not surprised to see the set-up for the second signal appear because I felt all along that we would trade down closer to the 14,850 level.  This is the level where support comes in from the interim low between the first two highs of the THT Pattern for wave 1 up.

The A-D oscillator had another EXTREME oversold reading, this time at -223.79.  This is the fifth consecutive reading below -150, and the fourth reading below -200.  The market should rally with these EXTREME readings.

The Dean’s List remains negative with all of the inverse index ETFs on the List.  Once these inverse ETFs start to drop off the List and are replaced by the positive index ETFs, it will be confirmation that wave 2 down has ended. For the past three weeks, I have been saying that this is not the time to buying stocks.  But now, because we are in the ‘zone’, that time could be getting close.

Actually I have started to buy a few stocks during the past few days.  I bought EEV when the PT indicators turned positive on the Daily Charts.  I talked about how EEV would likely ‘fill the gap’ at 26,70.  It did just that, getting as high as 26,72 yesterday before pulling back to close at 26.58.  The ETF is now overbought on the Daily’s, and if the market starts to rally, it could put pressure on the ETF so it  needs to be watched closely.   A pullback to the 25 level would not be unexpected.

I also bought a few shares of Boomer favorite, Royal Caribbean, RCL, as a Rifle Trade.  Yesterday’s sideways action on the 60s appeared to be part of a small Blade.  If this is the case, the next up move should challenge the 14 August high near 40.  BTW, the longer RCL can stay in its Blade between 37.5 and 40, the more I like the stock.  I’m patient, especially when I see a potential 9 point stick.

The Rifle Trade in TBT hit a high of 82.80 and remains Green on the 60s, as well as on the Daily’s.  However the P-volume appears to be on the decline.  This tells me the ETF could be running out of gas.  Did I mention that I was starting to manage my money on TBT?  It’s simply a matter of risk vs.reward at this point, and when the odds start to shorten up, I always like to take a few bucks off the table.

BTW, one of the things you should be thinking about now is the odds.  Like I always say, trading is an odds game, and all I try to do with my Patterns, Lists and Indicators is place the odds in my favor.  That’s all you can ever do.  Trading is NOT an exact science.  At some point, when the odds start to favor a trade, you need to step up to the bar and pull the trigger.

In this case, I will be using Rifle Trades to trigger the purchase of stocks I have been watching.  For the past few days, I have been paying close attention to several stocks from the middle of the Member’s Watch List.  The ones I’m looking at all have the same characteristics.  They are all in Uptrends, with positive PT indicators, and have pulled back to the point where they have become oversold.

Some of these stocks, like Landstar, LSTR, have already started to move up.  LSTR satisfied RT Criteria on 7 August, when it pulled back to the 53 level.  Now it’s trading at 56.3 as it starts to move up from a nice Hockey Stick pattern.  Decker Outdoors, DECK, is in the same boat.  The stock was oversold on 16 August at 56.  Now its at 59.69.  Remember…this is why these stocks are on the List.  They are strong stocks!

Some stocks, like RCL, are in the process of triggering now.  If I’m right about wave 3 up starting, many of the stocks on the MWL should be starting to trigger on the 60s in the days ahead.  Stocks like RTN, LMT. MYL, TOT, BUD, DOW, SLB, and SBNY just to name a few.  There are many more on the List.  And that’s my point.  If all these stocks start to trigger as Rifle Trades in the days ahead, especially from the current oversold levels, which are at pattern targets, what do you think might happen to the overall market?  Do you think we might start a rally?  Hmmm?  That’s why I talked about trading being an odds game today.  I like the current odds. 

Watching for a bottom.

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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