Professor’s Comments January 15, 2014

Posted by OMS  at January 15th, 2014

After falling 179 points on Monday, the Dow rallied to gain back 116 points to close at 16,373.  Volume was moderate, coming in at 105 percent of its 10 day average.  There were 111 new highs and only 19 new lows.

Just after Christmas, I mentioned that the markets would likely enter a consolidation period where we would see a lot of choppy trading.  On 26 December, the Dow was trading at 16,479.  Yesterday. It closed about 100 points below that level.  So being on the sidelines actually saved us a few points.

But the twelve trading days since Christmas where the markets have essentially traded sideways have not been lost.  They provided us with a considerable amount of information.

If you recall when the year end rally was starting, I mentioned that the rise was likely the start of wave “e” in an Ending Diagonal Pattern.  I said that after the rise, the SPX would likely top near the 1860 level, and then consolidate between 1820 and 1860 to form the Blade of our Hockey Stick pattern.  And that’s pretty much what happened.

Two days ago the SPX closed at 1819.2, and my major concern was that it hold that level.  Well, yesterday’s 116 point rally answered that question.

So now the question is where do we go from here? Is the market ready to break higher, or will it start one more leg down before wave “c” resumes it’s upward course?  Hmmm?

The other question I have now is  “Will the break out be worth trading?” That’s the real question I want to talk about today.  That’s because after successfully testing the 1820 level, the odds are high that after the current consolidation period completes, the markets will likely move higher.  But will it be enough to push it above 1900 on the next run-up? Or will it re-test the 1860 area and run out of gas?  If you look at the P-voume of the Dow (DIA) and QQQ, you can clearly see why I’m concerned. The P-volume on the Nasdaq, which is my gas gauge, is simply horrible! The gauge on the Dow isn’t much better.

That’s what I want to focus on today. And to do so, I want to talk about The Professor.  Recall that on 18 December, the day the Dow rallied for 293 points, The Professor was busy highlighting 49/49 stocks.  He was telling us that a tradable rally was about to begin.  But by only highlighting 49/49 stocks, he was telling us that the rally wouldn’t be that strong.  This is why I lowered the projected near term target for the S&P from 1900 to 1860.  I was concerned that the markets would either face stiff resistance at the half way point, or worse…..truncate and start a Major decline.  Well, that last possibility is still on the table.

And that’s why I’m watching The Professor very closely now.  I want to see what he says about the strength of the next move in the markets before I put a lot of my money at risk.

Here’s the deal:  If The Professor starts to highlight 50 or more stocks in the days ahead, I’ll start to putting more money to work.  All I’m doing now is holding a few REITS, Utes, and Bond ETFs.   If the number of longs highlighted starts to exceed 50, but remains close to that level, I’ll take it slow.  However, IF he starts to exceeds 100 or more stocks, I’ll get more aggressive.  If he doesn’t highlight 50, I’ll just hold my current positions.  I don’t see any point in risking more money without The Professor giving say so.

Think about it.  When The Professor started to approach the 1840 level on the recent rally, he went to sleep. The rally died at 1849.  And as the SPX started to fall, he continued to sleep, telling us that a Major downtrend was NOT starting.  This was pretty comforting, given that the talking heads on CNBC were starting to act like a bunch of Chicken Littles.  No,The Professor was not worried at all.  He maintained his calm by only highlighting 16 shorts. 

In case you’re wondering what The Professor thought of yesterday’s 116 point rally, he had 26 longs and 2 shorts.  So he’s wide awake, but still below the 50 required for me to take action.

That’s why I plan to remain on the sidelines today.  I’m still concerned that the current rally could only be the ‘b’ wave of an a-b-c consolidation.  With a positive Dean’s List, I’m not worried about the market heading south right now.  But I’m also wondering if the next wave up will be worth the risk of a trade.

I’ll let The Professor tell me.

That’s what I’m doing,

h

The Basic Class at UNF starts tonight.  Valerie tells me that 22 students have registered, so she still has a few seats available.  Please tell your friends.  Thanks.

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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