Professor’s Comments February 28, 2014

Posted by OMS  at February 28th, 2014

The Dow rallied for 74 points, closing at 16,273.  Volume was moderate, coming in at 103 percent of its 10 day average.  There were 135 new highs and only 15 new lows.

After noting several days of small change readings from the A-D oscillator, and a pattern that suggested higher prices, yesterday’s rally was not surprising.  The real surprise, to me at least,  was that the rally didn’t push prices even higher!

Ok, so we didn’t break out of the trading range between 16,100 and 16,300.  This tells me that the Dow will either have to spend a few more days consolidating for a larger move higher, or the current rally will end just under the 31 December high of 16,588.   I have been talking about both of these scenarios for the past few days, so today I want to talk about something else.

Let’s start with Halliburton.  During the past few weeks, we have had several new members join the web site, so today’s comments on HAL are mostly for them.  However the comments will also serve as a good review for students of The Professor’s Methodology who have been with me for some time now.

Just after 10:00am yesterday, I mentioned that I was buying shares of HAL as a Rifle Trade.  The stock was in an Uptrend and had pulled back such that its 2-period RSI Wilder had become oversold.

Halliburton was first identified as a candidate for purchase several weeks ago.  It was on the Dean’s List with a beautiful Hockey Stick Pattern.  When the PT indicators turned Green on 7 February, it became a Buy at the 52 level. This was a basic SIGN Buy: List, Pattern and Indicators.

The stock easily moved to the 57 level at which point I mentioned that it might be a good time to be taking a few bucks off the table, as there was a very good chance that HAL would need to pull back to form a Blade for yet another move higher.  So I sold half of my original shares.

So going into yesterday, I had a half position of HAL that had a 3 point unrealized profit and 5 points of realized profit in my pocket.  I also had a stop back at my original entry point.  So this lot of HAL was all neatly packaged, just waiting for something to happen.  Either I will get stopped out and break even on these remaining shares or sell them IF and when HAL reaches its target.

So with my half position salted away, and with HAL pulling back to the 55 level, it  was time to look for an opportunity to add additional shares.  This opportunity came just after yesterday’s open when HAL dropped below 55 and became oversold.  The 2-period RSI Wilder on the Daily chart had moved below 30.  Perfect!

Remember, the stock was in a well established Uptrend on the Daily Chart with Green indicators.  This condition spells Rifle Trade!

And as we know with Rifle Trades, I only buy half positions. So that’s what I did.  There wasn’t anything fancy about the trade.  I just simply looked at a Daily chart, saw the Uptrend, saw the oversold condition and added a few shares.

About an hour later, the stock was up over 0.70 cents, and the 2-period RSI Wilder on the Daily’s had moved out of oversold territory, and was approaching a point where it appeared that I would have to make another decision.

And that’s mostly why I wanted to talk about HAL today. I want to talk about the difference between my original shares of HAL and those I purchased yesterday.  I already mentioned that my original shares were packaged and just sitting in a corner with a nice bow around them.  I’m not worried about them any more.  They are either going to move closer to their target where I’ll take another profit, or I’ll get stopped out and break even on the remaining shares.  But the point is I have no other decision to make on this original lot.  It’s going to be either one or the other.

So now let’s review the shares I purchased yesterday.  First of all, these shares will be managed as a separate lot.  They were only purchased as a Rifle Trade, with the key word being TRADE.  I bought them when the 2-period RSI Wilder was oversold, and will sell them when the same 2-period RSI Wilder becomes overbought or IF the PT indicators on the Daily Chart turn Red.  That’s it!

If I sell my Rifle Trade shares, I will be back to my original position, only now I will have pocketed a 5 point profit on my original shares, plus whatever profit (or loss) I make on the Rifle Trade.  I will also have a ticket to ride if HAL starts to move higher, by holding the half lot of my original shares

Now, IF you DID NOT buy your Basic Position back in early February, and yesterday’s entry point was your initial position, (remember, the max allowed for any Rifle Trade is still a half position), you still need to be thinking about managing your money. Only now, IF the 2-period RSI Wilder moves into overbought territory on the Daily’s, you might want to consider selling half of the half position and placing a stop back at your entry point. This will allow you to participate in any future rally and/or future Rifle Trades at reduced risk.

Remember, we are in a very Bullish time period now, especially for Energy, but we are ALWAYS thinking about managing risk and protecting ourselves. Remember too that there is always another trade. And that includes additional Rifle Trades if HAL continues to move higher.

BTW, now that you have read the above comments, you might want to look at a few of the stocks in your portfolio to see if any of them are in Up trends with patterns and positive PT indicators.  If they are, you might want to start watching for periods when they too are ‘on-sale’.

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.