Professor’s Comments February 12, 2014
Posted by OMS at February 12th, 2014
The Dow rallied for 192 points, closing at 15,995. The rally was expected after the ‘relatively’ small change in the A-D oscillator. Volume was on the light side again, coming in at 95 percent of its 10 day average. There were 92 new highs and only 17 new lows.
OK, so now that the Dow has retraced 50 percent of the decline since 31 December, trading will start to become tricky. That’s because we’re at a critical decision point in the two scenarios I talked about yesterday. If the current rally is in fact a wave 2, then it should stop near or slightly above current levels and begin a massive wave 3 decline. IF this starts to happen…you’re going to know by the impulsive downside trading action.
On the other hand, IF the decline since 31 December was only a wave 4 correction in wave ‘c’ up, then wave 5 up should take the Dow back up toward the 17,000 level.
Right now I don’t have anything to tell me which scenario is the better bet. It was relatively easy to predict the move back to 16,000. But I want to be honest with you….from here on in, it will start to get a lot harder. If you find someone who’s telling you otherwise, he’s blowing smoke. Also, remember that we’re dealing with a pattern that could truncate at any time. So even IF the Dow does start moving higher, any king od unforseen event could cause the pattern to truncate, causing the next Major Bear Market to begin.
The Dean’s List turned positive last night, but the cockpit indicators are still mixed as the DMI on the Dow is still negative. And until it turns, I really can’t lean on The Professor for help.
BTW, I was running The Professor all day yesterday to see what he was saying. The best numbers he came up were near the close, when he had 28 longs and only 2 shorts. He finished the day with 27 longs and 2 shorts. This is still far short of the 50 needed to confirm a DMI Buy Signal.
IF you’re wondering why I’m a little gun shy about buying into the current rally, just think back to what happened a few weeks ago. Back then it appeared that the consolidation on the Dow was part of a wave 2 retracement. We were all waiting for The Professor to give say so before we took long positions. But as things turned out, his say so never came. And as we saw, the Dow dropped almost 1,000 points. This is why I’m willing to wait. I know that no matter what, IF I enter the long side now, it’s highly likely that I will be trading the final ‘e’ wave of an Ending Diagonal sequence. And during this rally, while most stocks will be pushed higher, some will not. And if I’m wrong in choosing my stocks, the probability of getting my money back will be slim to none. The decline could last for years.
Anyhow, that’s why I need to see a lot more information now. Remember, they call the pattern an Ending Diagonal for a reason.
I received several questions during the past few days about gold and gold stocks. As most of you have seen, the metals have been dominating the Deans List for the past few weeks, and stocks like Royal Gold, RGLD, have made really nice runs.
But the question is will the rally last? Is the current move in gold the start of a new rally or is it just a small wave 4 within the Major Wave 4 structure? The chart pattern still favors the latter. And if the charts are correct, then gold, the metal, should still have one more down leg left in it before the next major rally starts. This next down leg could take gold prices to 1150 or below IF it occurs.
If you look at a chart of GLD, you can clearly see that it still hasn’t had a ‘Rope Jump’, and the 50 is still below the 200. So for our purposes, it’ still in a down trend. Royal Gold, RGLD, my favorite gold stock, has been on a tear moving from 49 to 65 after it turned Green on the Daily’s. But that’s Royal. Several weeks back I talked about how I would like to date her when the conditions were right. But I couldn’t fall in love with her because she was still in a down trend. Well after a 16 point ‘date’, she’s still in a down trend. So she will need to be kissed good-by when the PT indicators turn against her.
Bottom Line: I don’t expect the current rally in gold to last. Even IF gold is starting a new uptrend, at some point it will need to pull back to form a wave 2 Blade. During this Blade forming process, IF the uptrend is really starting, the 50 will start to cross above the 200. This is when I will become serious about gold. Not now. If on the other hand, gold stocks start to drop from the Dean’s List, I’ll look to start shorting gold.
That’s what I’m doing,
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Category: Professor's Comments