Professor’s Comments December 5, 2013

Posted by OMS  at December 5th, 2013

Not much changed yesterday with the technical picture.

The Dow finished down 25 points, closing at 15,889.  It had been off over 100 points at one point during the day.  The SPX fell to 1780 level, held, and then bounced to close at 1790. Usually when a market tests a critical support level, it tests it a second time before anything is decided.

The VIX did not close below its Upper Bollinger Band, so the set-up for a VIX Buy Signal remains in place.

The A-D oscillator finished with a reading of -103.44 which is not terribly oversold. The reading allows for additional decline before a technical bounce would set up.

The Dean’s List and cockpit indicators remain positive, except for the DMI on the Dow, (DIA). It turned negative yesterday.  On the other hand, the Coach, my primary Money Flow indicator, which had been negative, turned positive.  So at this point, institutional money is NOT leaving the market; it is simply rotating out of overpriced stocks and finding new homes.  As long as money does not leave the market, the odds remain high for another rally leg after the current correction completes.  Be patient.

A few months ago, I gave two targets for the final waves of the Ending Diagonal Pattern.  The first target was above 16,000, probably closer to 16,200-16,300.  Last week, the Dow reached a high of 16,174.  My second target was just under 17,000. I’ll still go with under 17,000 for the time being.  Of course, it will take the development of another Hockey Stick Pattern for the Dow to push to the 17,000 level, so a lot depends on where the low of the current correction completes.  This is one of the reasons I’m on the sidelines.  I want to see the Blade develop so I can determine the potential reward vs. risk for the trade.  T

With the jobs report due out tomorrow at 8:30am, I believe most traders will be on the sidelines today.  And with mixed indicators and a weakening Dean’s List, the sidelines looks like a good place to be.

That’s what I’m doing,

h

BTW, I received an email from Linda S. yesterday discussing the pattern on TBT.  As you know, TBT is the 20+ year inverse Bond fund.  Linda pointed out that TBT is currently in an uptrend, has a pattern and positive PT indicators.  The thing that attracted her to TBT was the rather large Hockey Stick and Blade Pattern that developed since last May.  Linda talked about the 27 point stick which currently projects to the 99 level.

The only thing that troubles me about the pattern is the fact that I currently have a target of about 126-127 on the long Bond which is only a few points lower than where Bonds are trading now.  After that, bonds could see a significant rally, which would indicate that interest rates will remain low for the foreseeable future.  Also, the gold market is currently supporting this logic, as the chart shows that once the current rally completes, gold prices could fall significantly lower.  Maybe to the 1150 level or even 1050.

So right now I have mixed feelings toward Bonds.  But I don’t trade on feelings or emotions.  I trade on Lists, Patterns, and Indicators.  And right now, all are positive on TBT.  Sal and Linda both saw this, along with the large stick.  So from a risk-reward perspective, I have to agree with them….as long as the indicators remain positive.  If they start to turn negative, I’d run like a dog.

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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