Professor’s Comments February 20, 2015
Posted by OMS at February 20th, 2015
The Dow fell 44 points, closing back under 18,000 at 17,986. Volume was low, coming in at 84 percent of its 10 day average. Low volume on a decline is what you want to see if you’re Bullish. There were 154 new highs and only 13 new lows.
It appears that a small corrective wave within wave ‘e’ up started yesterday. If this is the case, then the Dow could fall to the 17,900 level before resuming its assault on 18,300 or higher. If the decline does happen, I believe it will provide students with yet another opportunity to buy a few energy stocks On-Sale.
For the past two days, I have been receiving emails, mostly from new students, asking if the recent pullback in energy stocks is a good time to buy. Several of them saw the pullback, but after looking at the indicators, they couldn’t decide if it was time to pull the trigger. Hmmm?
As you know, when someone writes to me asking a question like “Is it a good time to buy?”, I usually don’t reply to the email. I never respond to questions about a particular stock or ETF or a an individual’s buy or sell decision. I just don’t.
But here’s the thing: As most of you know by now, I am trading a lot of energy. The reason I’m doing this is because I believe that the overall market is approaching a Major top, and I need to be very selective about what I’m buying now. Like I said yesterday, there needs to be a compelling reason for me to put my money at risk with the Dow hovering near 18,000.
The compelling reason for me to buy energy is the calendar. We’re fast approaching a period that has been EXTREMELY positive from a historical perspective. Seasonality data clearly shows that March and April are usually very good times to trade energy.
Also, most of the energy stocks that I’m trading have all of the elements required by The SIGN. They’re on the Dean’s List, with a pattern, and have positive PT indicators. Also, the Tide is positive. So all I’m doing now is trading the odds.
As I have said many times before in my Comments, trading is an odds game. There are never any guarantees. Never! All we ever do with the Lists, patterns and indicators is to increase the odds for a successful trade.
The other thing I try to do is buy my energy stocks when they are ’On-Sale’. Remember, even though the indicators are currently Green for most energy stocks, they are still in down trends, with the 50 below the 200. Stocks that are in down trends can easily stay in downtrends, despite favorable conditions like Green indicators and favorable seasonality data. This is why always limit my purchases to a half position.
So right after yesterday’s open, with Halliburton dropping to the 43 level, I got another… ‘Is this a good time to buy question’. Hmmm?
Here’s what you need to ask yourself. Why do you want to buy an energy stock like Halliburton in the first place? What’s your reason? Are you going to trade it in hopes of making a point or two? Or are you buying it because the pattern suggests higher prices?
I’m buying HAL because the 200 is currently at 51.3. That’s about 8+ points from yesterday’s low of 43.08. Also, the ‘Stick’ that has developed since the 19 December low is about 7 points. So if I add these points to the Blade low of 41.6. I get a target near 49. In other words, I like the potential risk-reward’s I’m seeing in energy now. I don’t see the same potential in the overall market now.
So back to the question…Is this the time? Hmmm.
Well, right after yesterday’s open, the 2-period RSI Wilder on HAL became oversold on the 60s. With the stock near 43, it was down over a point and a half from the previous day’s high. It was On-Sale! If you bought HAL near its low, you’re currently sitting on a one point profit. But remember…why are you buying HAL in the first place? If you only want a point or two form the trade, maybe it’s time you sold your shares?
But If you’re like me, and want to play the odds for a possible trip above the ‘Ropes’, then maybe you hold on. All yesterday’s move down did was give you another opportunity to enter the game.
There’s an old adage on Wall Street that say’s it’s never too late to buy a stock that is going up, and never too early to sell one that is going down. So if you believe that HAL has a shot of making a ‘Rope Jump’ above the 50 level, what difference does it really make if you pay a few cents more or less for the stock? Again, all the 2-period RSI Wilder told me yesterday was that HAL was trading at a fair price. A fair price to play the energy game as we move into the March – April time period.
Again, there are NO guarantees about anything when it comes to trading. None. And even though past history shows that the months ahead are very favorable for energy, AND DIG, my energy ‘Stick in the Sand’ is telling me the conditions are favorable for trading energy…things could change. A stock like HAL could still drop like a rock. You never know for sure.
Trading the odds.
That’s what I’m doing,
h
Market Signals for 02-20-2015 |
|
---|---|
DMI (DIA) | POS |
DMI (QQQ) | POS |
COACH (DIA) | POS |
COACH (QQQ) | POS |
A/D OSC | |
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
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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