Professor’s Comments December 12, 2013
Posted by OMS at December 12th, 2013
The Dow finished down 129 points, closing at 15,843. The decline was the Big Move predicted by the small change in the A-D oscillator. Isn’t it nice to know two days in advance that a move of over 100 points is coming? That’s why The Professor’s Methodology pays a lot of attention to the A-D oscillator. It tells us when to expect a Big Move.
But a small change signal is not the only way we use the A-D oscillator. For example, last night the oscillator closed with an oversold reading of -162.75. The first thing I do when I see a reading like this is check the CCI indicator. If the CCI is not in the trend mode, the market tends to pause or rally with an A-D oscillator reading below -150. It doesn’t have to, but this is what usually happens. The odds for a rally increase dramatically when there are 3 or more days of oversold readings below -150 on the A-D oscillator. And IF the readings start to exceed EXTREMELY oversold conditions lower than -200, I look for a bounce the next day. The key is the CCI. If the CCI starts to move into the trend mode, then the A-D oscillator can remain oversold. This is what usually happens when a major crash is starting.
At this point, the CCI is a neutral 26.89, so the odds favor a pause in the decline, or even a small rally from current levels rather than a crash. Also, there are at least three other tells that are saying that a downtrend has not started (yet).
The first is the fact that the SPX still has not broken the 1780 level. During yesterday’s trading, the SPX tested 1780, dropping to a low of 1780.09 before closing at 1782.22.
The second is that The Professor algorithm is still relatively quiet. He’s awake, but because he only highlighted 15 stocks as shorts last night, he’s not confirming the start of a downtrend.
Also, Emeritus only highlighted one stock, Potash Company, POT, as a short. Recall what I said yesterday about how I like to trade the short side when Emeritus is highlighting several stocks for the Honor Roll as shorts. With only one short on the Honor Roll, I still can’t get that excited.
On the other hand, POT is interesting here because it has a pattern that is almost identical to Mosaic, MOS, yesterday’s Honor Roll short. We saw how MOS opened at 45.37 yesterday and then dropped over a point to close at 44.34. It made for a nice scalp trade on the short term bars. Because of the similarity in patterns, POT looks very interesting.
The Dean’s List remain positive, with DIA, QQQ and SPY still on the list. However 3 of the 4 cockpit indicators have now turned negative. The lone hold out is the DMI on the Nasdaq100 (QQQ) which remains positive. So we have mixed signals.. I don’t like to trade under these conditions.
With 3 of 4 cockpit indicators turning negative, the odds are increasing that wave “d” down has started.. However, I still do not have a confirmed Sell Signal. That’s why when I saw the DMI on the Dow (DIA) turn negative, I checked in with The Professor for confirmation. And as I mentioned above, he’s still not highlighting the required number of shorts I need to see, so yesterday’s DMI turn on the Dow is NOT confirmed. This is something we need to watch in the days ahead.
With mixed signals, IF the market starts to decline today, I will be running the Professor and posting the results after 11am. If the number of shorts starts to increase, it could signal that wave “d” down has begun. That’s when I will get aggressive with the short side. Not now.
For today, because the 1780 level has not been broken, the Dean’s List remains positive, and The Professor hasn’t confirmed anything, I plan to remain on the sidelines. If I do anything, it will likely be with the scalp short of POT on the 5s.
That’s what I’m doing.
h
BTW, the setting I use for the CCI is 35, and NOT the standard 90. I have found that 90 is too slow to be used with my faster PT indicators. With a CCI set for 35, I define an Uptrend as a CCI reading above 100 and a downtrend below -100. When the CCI is between 100 and -100, there is no trend. This is when I like to scalp trade :>)
| Market Signals for 12-12-2013 |
|
|---|---|
| DMI (DIA) | NEG |
| DMI (QQQ) | NEG |
| COACH (DIA) | POS |
| COACH (QQQ) | NEG |
| A/D OSC | |
| DEANs LIST | POS |
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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The Dow finished down 129 points, closing at 15,843. The decline was the Big Move predicted by the small change in the A-D oscillator. Isn’t it nice to know two days in advance that a move of over 100 points is coming? That’s why The Professor’s Methodology pays a lot of attention to the A-D oscillator. It tells us when to expect a Big Move.
But a small change signal is not the only way we use the A-D oscillator. For example, last night the oscillator closed with an oversold reading of -162.75. The first thing I do when I see a reading like this is check the CCI indicator. If the CCI is not in the trend mode, the market tends to pause or rally with an A-D oscillator reading below -150. It doesn’t have to, but this is what usually happens. The odds for a rally increase dramatically when there are 3 or more days of oversold readings below -150 on the A-D oscillator. And IF the readings start to exceed EXTREMELY oversold conditions lower than -200, I look for a bounce the next day. The key is the CCI. If the CCI starts to move into the trend mode, then the A-D oscillator can remain oversold. This is what usually happens when a major crash is starting.
At this point, the CCI is a neutral 26.89, so the odds favor a pause in the decline, or even a small rally from current levels rather than a crash. Also, there are at least three other tells that are saying that a downtrend has not started (yet).
The first is the fact that the SPX still has not broken the 1780 level. During yesterday’s trading, the SPX tested 1780, dropping to a low of 1780.09 before closing at 1782.22.
The second is that The Professor algorithm is still relatively quiet. He’s awake, but because he only highlighted 15 stocks as shorts last night, he’s not confirming the start of a downtrend.
Also, Emeritus only highlighted one stock, Potash Company, POT, as a short. Recall what I said yesterday about how I like to trade the short side when Emeritus is highlighting several stocks for the Honor Roll as shorts. With only one short on the Honor Roll, I still can’t get that excited.
On the other hand, POT is interesting here because it has a pattern that is almost identical to Mosaic, MOS, yesterday’s Honor Roll short. We saw how MOS opened at 45.37 yesterday and then dropped over a point to close at 44.34. It made for a nice scalp trade on the short term bars. Because of the similarity in patterns, POT looks very interesting.
The Dean’s List remain positive, with DIA, QQQ and SPY still on the list. However 3 of the 4 cockpit indicators have now turned negative. The lone hold out is the DMI on the Nasdaq100 (QQQ) which remains positive. So we have mixed signals.. I don’t like to trade under these conditions.
With 3 of 4 cockpit indicators turning negative, the odds are increasing that wave “d” down has started.. However, I still do not have a confirmed Sell Signal. That’s why when I saw the DMI on the Dow (DIA) turn negative, I checked in with The Professor for confirmation. And as I mentioned above, he’s still not highlighting the required number of shorts I need to see, so yesterday’s DMI turn on the Dow is NOT confirmed. This is something we need to watch in the days ahead.
With mixed signals, IF the market starts to decline today, I will be running the Professor and posting the results after 11am. If the number of shorts starts to increase, it could signal that wave “d” down has begun. That’s when I will get aggressive with the short side. Not now.
For today, because the 1780 level has not been broken, the Dean’s List remains positive, and The Professor hasn’t confirmed anything, I plan to remain on the sidelines. If I do anything, it will likely be with the scalp short of POT on the 5s.
That’s what I’m doing.
h
BTW, the setting I use for the CCI is 35, and NOT the standard 90. I have found that 90 is too slow to be used with my faster PT indicators. With a CCI set for 35, I define an Uptrend as a CCI reading above 100 and a downtrend below -100. When the CCI is between 100 and -100, there is no trend. This is when I like to scalp trade :>)
Category: Professor's Comments