Professor’s Comments August 8, 2013

Posted by professor  at August 8th, 2013

The Dow fell another 48 points yesterday, closing at 15,470. At one point during the day, the index was down over 97 points, but managed to rally into the close. This is the type of down-up-down trading action we should expect as the a-b-c waves of wave 2 down start to unfold. Volume on the NYSE was slightly less than normal, coming in at 95 percent of its 10 day average. There were 61 new highs and 178 new lows. Notice how the number of new lows is now starting to exceed the number of new highs.

When I got home from Class last night and tried to take a download, I noticed that my data provider was off-line. They remain off-line this morning. This precluded me from updating the Lists on the web-site. I will be investigating the problem this morning, and will be updating the Lists as soon as yesterday’s data is available.

Meanwhile, I did notice that many of the stocks I have been watching, including TBT and SLB, are setting up as Rifle Trades. However, you need to be careful now, because many other stocks, while overbought, have at least one PT indicator negative. This makes them ineligible for Rifle Trades. Because the indexes appear to be in a corrective wave now, it’s highly likely that many of the stocks you are trading or thinking about trading are also in corrective waves.

For example, the past few days, I have been talking about the possibility of TBT pulling back to form a Blade before pushing higher. Well yesterday, TBT dropped 1.11 points to 76.01. The ETF is still in a nice Uptrend on the Daily’s and all of the PT indicators remain positive. But you should realize that because the ETF appears to be forming a blade, any Rifle Trade at this point in the pattern will likely to be limited by the recent high of 78.63. So the question is should a trade like this be taken, where the upside appears to be limited? Hmmm?

Here’s the thing. Even though on the surface, it appears that this might not be a worthwhile trade, you have to ask yourself why you are interested in TBT anyway? Is it for 2.5 points? Or are you looking at the larger picture, where TBT has the possibility of reaching 90 once the Blade completes? If TBT is in the process of developing its Blade, then it could make one more move down to the 73 level. However if TBT has finished its Blade, and yesterday’s low was the bottom, then the next move up could be the start of the move toward 90. At this point, we don’t know. There is no way to tell.

But here’s what we do know. The ETF is oversold. And anytime a stock is in an Uptrend and pulls back such that its 2-period RSI Wilder becomes oversold…it’s on sale. The price may not be the final sale price. It’s like that fishing shirt that I occasionally find on the clearance rack in the back of the store. Yeah, it’s market down 50 percent, and I know that if wait, it might be reduced to 80 percent off next week. But next week, it might not be there. Same for TBT.

So here’s what I’m gonna do. If the indicators turn Green on the short term bars, I’m going to buy a few shares and hold them as long as the indicators remain positive. If they turn negative, I’m out. I will be entering the trade knowing that I might have to leave early. But that’s OK. If I make a small profit or take a small loss, that’s OK. But at some point, with the ETF in an Uptrend, there is a good chance that TBT will start to break out of the 78 level and start to move higher. And when it does, I want to be aboard that train. So by buying a few shares now, who knows, I might get lucky and get my ticket to ride on-sale.

One final thought. If you have been watching any of the business channels lately, you probably noticed that every Tom, Dick, and Jane that has any connection to the Fed, is being interviewed for what they think about ‘tapering’. Even non-voting members of the Fed are being interviewed…like their opinion matters! Give me a break! This is even worse that what happened during the sequester, or what happened last December with the ‘fiscal crisis’. Stop already! Enough! I don’t even care what a voting member of the Fed thinks. Or for that matter, what Chairman Bernanke thinks. The only thing that matters to me is what the Dean thinks. And right now, he’s still positive.

We saw how the Dean was slightly negative last December during the fiscal crisis. He put a few US inverse index ETFs on the List, but maintained a strong List by having many foreign ETFs present. So we knew the problem was limited to the US only. The rest of the world was still OK. And then we saw how he turned VERY positive on 2 January, telling us to get into the market. The ‘fiscal crisis’ was over: it was not the end of the world. Then we saw the same thing happen again this spring when the all the talk in Washington was about the ‘sequester’ The Dean told us to be cautious, but once the sequester date came and went, he told us to get back into the market. That’s why I don’t listen to the talking heads. They will try to make you think that ‘tapering’ is the most important thing in the world. It’s NOT! At some point the Fed will start reducing its Bond purchases. And the ‘juice’ that has been supporting the markets will end. We all know this is going to happen. But getting worked up into a frenzy about the exact date when tapering will start is pure nonsense. I don’t care if the date is October, or December or whenever. I’m gonna let the Dean tell me when I should get concerned. Not some non-voting Fed member. I listen to the Dean. When he says something, I pay attention. And right now, the last time I checked, (2pm yesterday) DIA, QQQ and SPY were still on his List. So was TBT.

Waiting for my data provider to come back online.

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

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.