Professor’s Comments February 19, 2015
Posted by OMS at February 19th, 2015
The Dow fell 17 points, closing at 18,030. Volume was moderate, coming in at 90 percent of its 10 day average. There were 135 new highs and only 8 new lows.
There was a small change in the A-D oscillator yesterday, so we need to be on the lookout for a Big Move within the next 1-2 days.
Other than the small change in the A-D oscillator, not much changed in yesterday’s trading.
The Tide, Dean’s List, and PT indicators remain positive, so I’m still positive. The Dow and most other markets remain in Uptrends, as do the energy stocks that I’m holding. So all I’m doing now is being patient.
Actually, there’s not much I can do now with my energy stocks now. As I mentioned several days ago, only two things can happen. Either they stay in an Uptrend and ‘Jump the Ropes’ or I sell them if the PT indicators turn negative. That’s it.
I received an email from Lee K. yesterday after I posted a chart of 3-D Systems (DDD). Lee did not see DDD on either of my Lists and wondered if it was in the data base. (Lee follows the rules and always needs to see all of the elements of The SIGN in place before he considers a stock or ETF for purchase.) So he wondered why I posted the stock. Actually, I only posted it because I wanted to show students what can happen to a stock with a high P/E that is being ‘hyped’. As I mentioned, I’m really not that interested in DDD or any technology stock for that matter with the Dow currently trading over 18,000. I believe the risk-reward is much too high.
Right now, I need to have a good and compelling reason to buy anything! Remember, the markets appear to be tracing out the final leg of a Major Ending Diagonal Pattern, which is a termination pattern. The Dow will likely reach the 18,300 level before it completes, but I also know that Ending Diagonals have a tendency to truncate. So there are NO guarantees that prices will reach those higher levels.
All I’m doing now is trading energy, mostly because of its pattern and the fact that March and April are historically very positive months for the energy sector. In other words, I have a compelling reason to trade energy. If I wanted to trade anything else, I would have to be convinced.
Several days ago, I mentioned that TBT replaced TLT and TMF on the Dean’s List, so even if I wanted to move some money into Bonds now, I couldn’t. With TBT on the List, the Dean is telling me that the environment is no longer favorable for Bonds or any interest rate sensitive issue, like a Utility.
Last night two new stocks, Boyd Gaming (BYD) and Under Armour (UA), were added to the data base for the Members Watch List. I cringed a little when I added UA with its high P/E of 78. Somehow I just don’t understand why anybody would want to pay 78 X E for what is basically a high tech clothing manufacturer. But that’s me. I have seen far too many clothing manufactures come and go over the years. And they all had the same basic story. I remember when Crocks came out with those ugly shoes. People were buying them like crazy. They drove the stock price up to 75! Then the fad ended. The stock currently trades under 11 bucks. The company is hemorrhaging money. Its once enormous P/E is now non-existent. When a company has no earnings, it doesn’t have a P/E. BTW, the shoes are still ugly!
I suppose you could say the same thing for Boyd Gaming. BYD is also a fallen star. It too is currently losing money, and has no earnings. The stock traded as high as 54 several years back. Now it’s at 14. But I think Boyd is interesting from another perspective. It’s something that I would NOT invest in, but I find it interesting because the casino business is changing. If you’ve been to a major casino recently, you’ll understand what I mean. You don’t see a lot of people at the slots or the gaming tables anymore. The crowds of boomers have thinned leaving the casinos nearly empty during the daytime. At night, theses casinos turn into ‘hot spot’ night clubs where (mostly) young people pool their money to have a good time. Today, a large part of a casino’s revenue comes from entertainment and alcohol and NOT gambling. Years ago, the drinks were free. Not anymore. The business model has changed drastically. And like I said, it will be interesting to see if it works out for them. But while casinos try to figure out if the new model works, their stocks are NOT a place where I want to put my money. I don’t do fads. And spending over $1,500 for a bottle of booze to have a good time seems a bit pricey. Especially when a lot of these young people are living at home with Mom and Dad because they can’t find a job.
Be careful with fad stocks; whether its something like 3-D, or a trendy retailer like CROX or UA, or even a casino with a new business model. Stocks with high P/Es could get crushed in this environment. And even though a stock has fallen from 50 to 14, the low price is NOT a compelling reason to buy it. I’ve seen far too many fad stocks go to zero!
Trading energy.
That’s what I’m doing,
h
Market Signals for 02-19-2015 |
|
---|---|
DMI (DIA) | POS |
DMI (QQQ) | POS |
COACH (DIA) | POS |
COACH (QQQ) | POS |
A/D OSC | SM CHG |
DEANs LIST | POS |
THE TIDE | POS |
Not sure of the terminology we use? Check out these articles
The Hockey Stick Pattern
The Creation of Waves and Trends
FAQ
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