Professor’s Comments December 17, 2013

Posted by OMS  at December 17th, 2013

The Dow rallied for 129 points, closing at 15,884.  It was likely the Big Move predicted by Thursday’s small change in the A- D oscillator  Volume was moderate on the rally, coming in at 102 percent of its 10 day average.  However, the market internals were not strong enough to turn the A-D oscillator positive.  There were 114 new highs and 81 new lows.  Forget the 114 new highs, they’re not important now.  It’s those 81 new lows that are troublesome at this point. You shouldn’t see that many new lows on a Big rally day like yesterday.  It’s a Red Flag.

It appears that yesterday’s rally was part of a small corrective wave within the complex structure wave “d” down.  The reason I say this is because if you look at wave ‘a’, the first leg down of “d” down, it was basically short and simple.  And from Class, if you recall what I said about the principle of alternation, you know that if wave ‘a’ is simple, then wave ‘c’ should be complex.  It should take longer to develop than wave ‘a’ and have a complex a-b-c- pattern as its major characteristic.

If I’m right about this, then during the next few days, the markets should start to decline again, with the S&P making its way down to the 1740 level or lower.  This is why I still believe it is not the time to be buying stocks.

It’s also not the time to start any serious shorting.  Like I always say, trading corrective waves can be harmful to your trading account.  Yesterday was a good example of what can happen if you’re short and the market turns against you.  It was also a good example of why I don’t hold scalp positions overnight.  If you went short the overall market on Friday, you probably woke up to a loss on Monday.

There was also something else to learn yesterday’s Big rally.  The fact that it was Big is a tell that the market is a downtrend. When the market is in an overall uptrend, it’s usually the declines that are Big.  The market tends to crawl higher, with sudden large dips.  However when the market is correcting, you see the exact opposite.  Because so many traders have taken early short positions, all it takes for a rally to start is to have a few Big Boys buy a few key Dow stocks.  Then the shorts panic and cover, and the rally is on.

On the other hand, if you were trading two of the recent shorts from the Honor Roll, you didn’t get hurt.. That’s because Potash, POT, was actually down 8 cents and Mosaic, MOS was up 11 cents.  This is pretty amazing when you think about it.  The Dow pops for 129 points, being up as much as 175 points intraday, and both stocks highlighted as shorts by Emeritus were either flat or down.  Hmmm?

If you get a chance today, you might want to look at the patterns of both POT and MOS.  This is what bad Hockey Stick Patterns look like.

But I don’t want to dwell on the shorts today.  It’s still not the time for them.  Why?

Well, last night the Dean’s list turned neutral. Yeah I have it shown as Red on the cockpit, but it’s neutral.  I don’t have a yellow color for the box, so I turned it Red because 2 of the 3 inverse index ETFs, DXD and SDS, are now on the List.

But here’s the real reason I’m not negative yet.  It’s because I’m not getting any confirmation from The Professor.  Recall that I always run The Professor algorithm when I get a DMI turn on the indexes.  So when the DMI on the QQQ turned negative on Friday with the DMI on the Dow (DIA) already negative, I checked in with the old boy.  Nothing!  He actually had a positive bias.  And after yesterday’s pop, he continues to have a slightly positive bias.  I can’t get serious about the short side until he gives say so.  And right now, he’s pretty quiet.

With the Fed Meeting scheduled for today and tomorrow, most traders will be on the sidelines until tomorrow when the announcement is made.  I don’t want to be holding a lot of stock in front of the announcement, as we could see a lot of volatility.

Bottom Line:  With mixed signals from the Cockpit and the Dean, and no confirmation from The Professor, I’m on the sidelines.  BTW, at this point I’m about 25-30 percent in the market with the positions split almost evenly between a few longs and shorts from the Honor Roll.

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.

The Dow rallied for 129 points, closing at 15,884.  It was likely the Big Move predicted by Thursday’s small change in the A- D oscillator  Volume was moderate on the rally, coming in at 102 percent of its 10 day average.  However, the market internals were not strong enough to turn the A-D oscillator positive.  There were 114 new highs and 81 new lows.  Forget the 114 new highs, they’re not important now.  It’s those 81 new lows that are troublesome at this point. You shouldn’t see that many new lows on a Big rally day like yesterday.  It’s a Red Flag.

It appears that yesterday’s rally was part of a small corrective wave within the complex structure wave “d” down.  The reason I say this is because if you look at wave ‘a’, the first leg down of “d” down, it was basically short and simple.  And from Class, if you recall what I said about the principle of alternation, you know that if wave ‘a’ is simple, then wave ‘c’ should be complex.  It should take longer to develop than wave ‘a’ and have a complex a-b-c- pattern as its major characteristic.

If I’m right about this, then during the next few days, the markets should start to decline again, with the S&P making its way down to the 1740 level or lower.  This is why I still believe it is not the time to be buying stocks.

It’s also not the time to start any serious shorting.  Like I always say, trading corrective waves can be harmful to your trading account.  Yesterday was a good example of what can happen if you’re short and the market turns against you.  It was also a good example of why I don’t hold scalp positions overnight.  If you went short the overall market on Friday, you probably woke up to a loss on Monday.

There was also something else to learn yesterday’s Big rally.  The fact that it was Big is a tell that the market is a downtrend. When the market is in an overall uptrend, it’s usually the declines that are Big.  The market tends to crawl higher, with sudden large dips.  However when the market is correcting, you see the exact opposite.  Because so many traders have taken early short positions, all it takes for a rally to start is to have a few Big Boys buy a few key Dow stocks.  Then the shorts panic and cover, and the rally is on.

On the other hand, if you were trading two of the recent shorts from the Honor Roll, you didn’t get hurt.. That’s because Potash, POT, was actually down 8 cents and Mosaic, MOS was up 11 cents.  This is pretty amazing when you think about it.  The Dow pops for 129 points, being up as much as 175 points intraday, and both stocks highlighted as shorts by Emeritus were either flat or down.  Hmmm?

If you get a chance today, you might want to look at the patterns of both POT and MOS.  This is what bad Hockey Stick Patterns look like.

But I don’t want to dwell on the shorts today.  It’s still not the time for them.  Why?

Well, last night the Dean’s list turned neutral. Yeah I have it shown as Red on the cockpit, but it’s neutral.  I don’t have a yellow color for the box, so I turned it Red because 2 of the 3 inverse index ETFs, DXD and SDS, are now on the List.

But here’s the real reason I’m not negative yet.  It’s because I’m not getting any confirmation from The Professor.  Recall that I always run The Professor algorithm when I get a DMI turn on the indexes.  So when the DMI on the QQQ turned negative on Friday with the DMI on the Dow (DIA) already negative, I checked in with the old boy.  Nothing!  He actually had a positive bias.  And after yesterday’s pop, he continues to have a slightly positive bias.  I can’t get serious about the short side until he gives say so.  And right now, he’s pretty quiet.

With the Fed Meeting scheduled for today and tomorrow, most traders will be on the sidelines until tomorrow when the announcement is made.  I don’t want to be holding a lot of stock in front of the announcement, as we could see a lot of volatility.

Bottom Line:  With mixed signals from the Cockpit and the Dean, and no confirmation from The Professor, I’m on the sidelines.  BTW, at this point I’m about 25-30 percent in the market with the positions split almost evenly between a few longs and shorts from the Honor Roll.

That’s what I’m doing,

h