Professor’s Comments December 4, 2013
Posted by OMS at December 4th, 2013
The Dow fell 94 points, closing at 15,914. The Dow was off almost 150 points before recovering into the close. Volume was heavier than normal, coming in at 116 percent of its 10 day average. There were 52 new highs and 87 new lows. Note that the number of new lows is now exceeding the number of new highs on the NYSE. The DMI on the Dow also turned negative. Hmmm? So the Dow now has a THT Pattern with 2 of its 3 PT indicators showing negative. The only thing missing for a short trade is a negative MACD.
When I saw the DMI on the Dow turn negative, I checked in with The Professor to see if a down trend was starting. He was sound asleep with only 2 shorts. If he wakes up and starts to highlight more shorts in the days ahead, I’ll let you know. If you don’t know how we use The Professor algorithm to verify a DMI trend change, you might want to check out the chart of the Dow I posted last week. It needs no explanation. And while I don’t show any Sell Signals on the Chart, they too are very effective.
Yesterday I received an email from my friend Sal G. In his email, Sal expressed a few things that I believe a lot of you are feeling, so I thought I would share both his email and my response with you.
Sal started by saying “I know you have been saying for some time now that is not the time to be buying stocks, and I get it except for the idea around short ETFs. If you are anticipating a significant downturn in the market wouldn’t the short ETFs be the best place to make money. I currently own TBT and YCS which I starting to watch as they entered the list. Once they showed they were on their wave 3 and all indicators turned positive I purchased and now I am just monitoring the indicators. I have a few others I am keeping my eye on EEV, EWV, DRR, and PST) but each of these still need to jump the ropes, get through their wave 2, and remain positive before I even think of buying. I just wanted to check in with you regarding this strategy to make sure I am not off base.”
Here’s what I said in my reply to Sal:
“Besides saying that it’s not time to buy stocks, I have also been saying that it’s still too early to start shorting. At this point I’m still not sure that we are going to get a significant downturn. I need to see the SPX break 1780 before I get serious about the short side. It might turn out that 1780 holds, and IF this happens, then it might turn out to be a significant buying opportunity. Right now, it’s too early to tell.
As for TBT and YCS, you know I can’t comment on them, but it’s GREAT to see you following the SIGN :>). Like I always say: Lists, Patterns, and Indicators.
I also like the fact that you’re still watching some of those other ETFs. The key word being WATCHING.
From what you told me in your email. …it’s pretty obvious that you have learned a LOT in the past few months and are now moving to the head of the Class :>)”
BTW, I wonder how many of you were like Sal and caught YCS? Hmmm? The ETF was at the top of the Dean’s List, in a nice Uptrend, with a nearly perfect HS Pattern, turned Green on 1November……and now it’s up almost 8 points!
In my reply to Sal, I didn’t mention another reason why I’m being cautious about the short side. Yesterday, the VIX closed above its upper Bollinger Band generating a new set-up for a VIX Buy Signal. So now, all the VIX needs to do is close back below its Upper Band and we will have a new Buy Signal on the Board. If you recall from past discussions about VIX Buy Signals, you know that while they are usually very reliable, they tend to show up a bit early. I would expect the same thing to happen when this VIX Buy Signal triggers.
I also received an email from newbie Judy W. in Texas. Judy joined the web site recently and had a few questions about the Coach and the Dean’s List rankings. Because we have picked up several new members in the past few weeks, I thought I would also share my response to Judy with you.
Remember, I’m on vacation and supposed to be working at a reduced schedule. But after looking at today’s market, I have to tell you that I really don’t have a lot to say. So today’s Comments are filler for most of you. But it’s good filler that often needs repeating.
Here’s what I said to Judy:
First of all let me say Thank You for joining us on our web site.
As you have observed, because the web site evolved from my Classes at UNF, on occasion I do use a few terms that are not included in a glossary or in the FAQ section.
The Coach is simply an indicator that I use to measure institutional money flow. It tells me what the Big Boys are doing. I believe this indicator is so important that I include it in my cockpit indicators. When it is Green, institutional money is flowing into the market. When it’s Red, it’s one of the first danger signals that the institutions are starting to sell stocks.
The Dean’s List is our primary method for trading the market. But we NEVER use it by itself. As you correctly observed, the higher the ranking on the Dean’s List, the stronger the stock. But sometimes a stock that has been in a strong uptrend receives a very strong ranking. This by itself does NOT make it a Buy. The stock could be nearing the end of its rally.
So to avoid this situation, we use the Dean’s List in combination with something we call the SIGN. Like in make a SIGN and paste it to your computer.
The SIGN contains three things: First, the stock needs to be on one of my Lists, either the Dean’s List or the Member’s Watch List (MWL). The Member’s Watch List is composed of stocks sent in by subscribers. Each new subscriber is allowed to send in one stock. If it passes some basic criteria for volume, earnings, and debt, the stock is included in the data base for the Member’s Watch List where it is rated and ranked by the same algorithm that generates the Dean’s List.
Anyhow, the first requirement for a stock to be a Buy is for it to be on one of the Lists. It MUST be on one of my Lists. It doesn’t necessarily need to be near the top of the List. Many times, stocks that are forming the Blade of a Hockey Stick pattern are pulling back. When this is happening, the stocks usually move toward the middle or bottom of the List. Just remember that all stocks on the List are strong stocks. They wouldn’t be on the List if they weren’t.
The second thing we look form is a Pattern. There MUST be a Pattern. And the two patterns we use in The Professor’s Methodology are the Basic Hockey Stick Pattern and the Three Lows to a Bottom (TLB) or its opposite, the Three Highs to a Top. All of these patterns are described in my book or in the webinars I did recently for AIQ systems.
The final thing we MUST see before a stock becomes a buy is for all of the PT indicators to turn positive. The PT indicators consist of a 14 period DMI, a 10-20-0 MACD and a 21 period moving average signal line on the P-volume.
So make yourself a SIGN: Dean’s List, Pattern, and Indicators.
Hope this helps,”
Relaxin’ and watching the 1780 level on the SPX.
That’s what I’m doing,
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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.
Category: Professor's Comments