Professor’s Comments December 3, 2013

Posted by OMS  at December 3rd, 2013

The Dow fell 77 points, closing at 16,008.  Volume on the NYSE was moderate, coming in at 104 percent of its 10 day average.  There were 161 new highs and 68 new lows.

Yesterday’s decline might have been the Big Move suggested by Friday’s small change in the A-D oscillator.  The Dow was actually down 100 points at one point during the trading session, so it could have been the Big Move. But given where we are in the overall pattern, there could be more downside follow through today.

The SPX closed at 1800.9 after reaching a high of 1810.02.  My target for the SPX on this really leg was 1810, so the target has been achieved.  Now the number to watch is 1780.  If the SPX breaks 1780, it will project a move down to 1740, possibly to 1700. That’s about 500 to 800 Dow points from where we are now.

In recent Comments, I talked about how this is not the time to be buying stocks.  I still feel that way.

Most of the stocks that I have been talking about the past month have reached their targets.  Now it’s time to manage your money.  I believe the current risk vs. reward does not favor long traders at this point.

I know it’s only Tuesday, but next Friday, the BLS will be releasing the November Jobs Report.   This is the Big Elephant in the room.  Odds are that nothing of significance will happen in the markets until Friday.

While most traders will be focusing on the payroll data, I believe it’s a mistake.  First of all, I do not believe that there is any truth at all to what the government is reporting as new jobs.  They have been using a use a large fudge factor to calculate the actual number.  It is NOT an actual measurement. They use the fudge factor to guess at the number. And then traders take the fudged number seriously and use it to move markets. It’s crazy!  The number I believe that is more important is the number of people who have actually stopped looking for work.  Last month, the BLS reported that 720,000 Americans stopped looking for work because there weren’t any jobs.  That’s right…720,000.  Incredible!!!

This number was more than twice the number reported in any previous month.  If we see a number anywhere close to or above 300,000, it would tell me that there are some economic and social forces at work in this country that we haven’t seen in years.  Actually most of us haven’t seen numbers like this in our lifetime.

I don’t know about you, but numbers like this scare me.  Don’t think about them as numbers.  Think about them as real people living in cities. Cities like Jacksonville, or other medium to large sized cities.  We’re seeing entire cities stop looking for work because there aren’t any jobs.  This hasn’t happened since the Great Depression. And in this environment, I don’t care how much money the Fed continues to print to buy Bonds or mortgages, it ain’t gonna work.  So make sure you watch ALL of the numbers in the Friday’s Jobs Report.

Here’s the thing:  If the BLS releases a new jobs number of more than 200,000, it’s likely that the Fed will begin tapering at their December meeting.  I would not want to be holding equities or gold in this environment.   On the other hand, IF the jobs number is below 100,000, then tapering will likely be delayed until March.  I believe that this would provide continued support for equities and the metals for a while longer.  But please understand what you’re doing IF you’re investing in the markets now.  The markets are no longer being driven by sound economic fundamentals.  They are being driven by the printing of funny money.  By juice.  Most folks on Wall Street think that the Fed can print forever pushing the markets to much higher levels. But always remember that someone will have to buy that paper. And when lenders stop buying those bonds, or want more compensation as they invariably will, the game will be over. Money will stop flowing into ‘risky’ equities and back into higher paying bonds.  That’s how it worked in the past. The same thing will happen at some point in the future.

Putting money to work in this market is not investing.  It’s more like a game of liars dice.   The game works until it doesn’t.  It works as long as you can sell your equities to a higher bidder. But once you can’t, a lot of people will be heading for the exit at the same time.

So in the next few weeks, just make sure that you pay close attention to the Dean’s List and Member’s Watch List.  Like I’ve been saying, as long as the Lists remain positive, I will remain positive.  But sometime today, you might want to take a close look at the Dean’s List. It’s nowhere as strong now as it was a few weeks ago. It’s starting to weaken. There is only one ETF with a Relative Strength of 3 on the List now. All the rest are 2s, 1s and 0s.  It is NOT a strong List.

Also, the current pattern suggests that we are very close to a top.  The SPX has now made four attempts to move above 1810, and each time has failed.  Usually when this happens, traders start to pull in their horns as they see upside momentum waning.

Yesterday we also saw the first signs of a shift in money flow, as the Coach on the DIA turned negative.  The Coach has been positive since 10 October.  Now it’s negative.

Same for the A-D oscillator, P-vol on the DIA, Summation Index, Hi-Lo indicator and Up-Down oscillator.  All negative.

So a lot of my indicators are starting to turn negative. They’re not negative enough for me to start shorting, but not positive enough for me want to buy into this market.

I’m just watching from the sidelines.

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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