Professor’s Comments February 21, 2014

Posted by OMS  at February 21st, 2014

The Dow rose 92 points, closing at 16,133. Volume was moderate, coming in at 98 percent of its 10 day average. There were 137 new highs and 24 new lows.

The Dow has spent the past 6 trading days making large intraday moves between 16,000 and 16,225.  It appears that the index is in the process of consolidating for a move higher.

So given that a consolidation pattern appears to be developing, let’s try to figure out how that pattern will likely play out in the days ahead.

If we start by saying that the 5 February low was the end of wave ‘d’ down in our Ending Diagonal Pattern, and the 5 wave rise into the 19 February high is likely all of wave “a” up, then we should have two more waves remaining before the market finally tops.

The picture would become much cleared IF…and it’s a Big IF, the Dow starts to move back toward the 15,900 level during the next week or so.  IF this pullback does occur, the odds will increase significantly that this retracement wave is wave “b”.

Right now the Dean’s List is very positive, so I don’t see any pullback as being much more than 200-300 points, if that.  And IF this pullback “Blade’ forms like I expect, then it would easily support a final rally above the 31 December high of 16,588.

Using the same scenario for the S&P, it should rise to 1840 –1850, then fall to 1810 (?) before rising back above 1850, eventually topping just under 1900.

Like I said, there are a lot of IFs in the above scenario, but given the lack of clarity in the pattern and the mixed signals on the cockpit, it’s probably the best that anyone can do.

The Professor has been very quiet during the past 6 trading days, with the highest number of longs being near 30.  I have to respect the fact that he has been quiet. He’s maintained a positive bias, supporting the very positive Dean’s List, but has still not given the all clear for the start of a final rally.  It should be interesting to see what he says  if we do fall back to the 15,900 and the market starts to rally from that level.

Right now, I’m just waiting and watching.   I see no need to participate in a market that is making 100 point intraday moves only to go nowhere.  I need to see a trend develop before I put my money at risk.  Without a trend in place, trading the final legs of this market is akin to a a crap shoot.

The Position Trade short with Royal Gold, RGLD, did not trigger yesterday.  The rally in gold appears to be tiring, but it’s not done yet.  Most of my daily volume indicators are still a bit too positive for a really good short trade to begin.  But I’m still watching the 60s on Royal and plan to short a few shares once the PT indicators turn negative.

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

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.