Professor’s Comments February 14, 2014

Posted by OMS  at February 14th, 2014

As expected, the Dow dropped 100 points early falling slightly below the 15,900 level, and then spent the rest of the day recovering.  It closed up 63 points at 16,027.  The 100 point early drop was likely the Big Move predicted by the ‘relatively’ small change in the A-D oscillator.

Volume was light on the decline and subsequent rally, coming in at only 86 percent of its 10 day average.  There were 148 new highs and 21 new lows.

There’s not a lot to lean on this morning, so I’m going to stay with yesterday’s comments.  The market still hasn’t told us whether the current move is a wave 2 retracement rally or if it’s part of a larger move up.

All we know right now is that the Dean’s List remains positive with mixed cockpit indicators. So the odds favor a slight move higher toward 16,000-16, 300.  For the market to move beyond that, The Professor will need to get involved.

When I checked in with him last night, he only had 27 new longs and 3 shorts.  Numbers like that keep me on the sidelines, content to scalp trade.

As I explained in Class last night, scalping is what I have been doing for the past few days.  It’s what I do when I’m uncertain about the markets or uncertain about anything for that matter.  Even If I have a good feeling about a stock position, if I don’t feel good about something else, I scalp.  That’s because I don’t want to have to worry about what my position is going to do overnight.  I’m in, out, and back on the sidelines. 

When I scalp, all I do is trade the 5 or 15 min bars.  I look for a volatile stock that is in a well established trend on the Daily bars.  Then I look at the shorter-term bars that I want to trade.  If the PT indicators are Green on the shorter term bars and NO Trend is taking place (CCI between 100 and –100), I initiate the trade when the 2 period RSI Wilder becomes oversold and then dump it when the RSI becomes overbought.  When I say oversold, I’m really looking for the 2 period RSI Wilder to be well below the 30 level that I normally consider oversold.  I like to see it between zero and 10.  And because I don’t hold scalp trades overnight, I never initiate a trade in the last hour of trading.  There’s not enough time.

Royal Gold is a good example of the type of stock I have been scalping on the 5s and 15s for the past few days.  If you look closely at Royal’s 5 min chart, you can clearly see the 3 times where a scalp could have been initiated yesterday. 

The first was near the 10:30 mark when RGLD was trading near 64.50.  The scalp resulted in a profit anywhere between 40 to 60 cents.  There was another near 11:50 that was good for another 40-60 cents,  And yet another near 1pm..

That last trade turned out to be a good one, because the CCI went into the trend mode and stayed there into the close.  When I see the CCI telling me the stock is starting to trend on the shorter term bars, (CCI>100), I tend to hold it a bit longer to see what happens.  

I should point out that scalping is not an exact science.  It’s not like my Rifle Trades where we wait for all of the indicators to line up before the trade is triggered. There is much more judgment involved in scalp trades and you should  develop a feeling for them before you initiate any trade.

Also, with scalp trades, you need to be very quick in the decision making process.  That 2-period RSI Wilder won’t stay oversold very long.  And once it goes into overbought territory, you will need to dump your position quickly.  Sometimes the profit is only available for a few seconds!

The other thing you MUST do when you scalp is keep your positions small.  You’re looking for singles and NOT home runs.  If the position starts to turn against you at any time during the trade, get out.  All I try to do when I’m scalping is to get paid for the day while I’m waiting for the market to do something.

Like now.

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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