Professor’s Comments January 17, 2014
Posted by OMS at January 17th, 2014
The Dow fell 64 points, closing at 16,417. Volume was moderate on the decline, coming in at 102 percent of its 10 day average. There were 204 new highs and 24 new lows.
Yesterday’s small low volume decline was exactly what I wanted to see after the trading action of the past 10 days. The decline appeared to complete a small triangle pattern that can now support a move higher.
Recall that earlier in the week, the market was making Big Moves; first to the down side, which were followed by Big Moves to the upside. All of these moves were nothing more than the legs of a consolidation triangle. One way we knew that the markets were consolidating and NOT starting a new trend was because of The Professor. He never gave us a signal. He didn’t see a new down trend starting when the SPX fell to the 1820 level, nor did he get excited two days ago when he saw the same index rally back up to 1848.
All this up, down, up trading action without the markets going anywhere formed the legs of a small triangle. So going into yesterday, all we needed to complete the pattern was a small low volume decline. And that’s exactly what we got. BTW, this is something that you should note for future reference, because the final wave of any Bullish triangle or wedge pattern is always a small low volume decline, where traders are still nervous about the direction of the market, but are no longer at the point where they fear a new down trend starting. They saw that the market had already tested the 1820 level and held. So yesterday, while the market at 1848 resistance and still not ready for any type of breakout, it pulled back as traders watched from the sidelines Only this time when the market started to fall, the buyers started to re-appear. They went bargain shopping.
And that’s what I started to do yesterday. As of yesterday’s close, I’m back up to about a 70 percent long position. I’m saving a few bucks for when I get Buy Signals from The Professor.
But right now, after yesterday’s small pullback, I’m starting to feel more confident that a rally is coming. I talked about consolidation patterns a few weeks ago, when most markets were completing a major triangle for wave “d”. At the time, I mentioned that the wave “d’” triangle would likely to have a Bullish resolution. This was because the direction that a stock enters a triangle is usually the direction it leaves the triangle. All triangles do is enable the markets to catch their breadth after a Big Move. Triangle are nothing more than consolidation patterns.
And this brings us to the current triangle pattern. The pattern started after the rally that began on 18 December completed on 31 December. After gaining almost 800 points, the market needed to rest. But the thing to note is that before the market rested to form the small consolidation triangle, it entered the triangle after an 800 point rally that formed the ‘Stick’. This is very important information. It swings the odds for a continuation move heavily in favor of a rally once the triangle or ‘Blade’ completes. So yesterday when the market was pulling back, I was busy adding to my long positions just like I said I would in yesterday’s Comments.
Are you with me so far? OK, so now here’s what I’m gonna do next. I’m gonna watch for a breakout now. I’ll let The Professor tell me when the market is starting to resume its upward trend. With an 800 point stick to lean on, a small triangle for a Blade, and a positive Dean’s List with positive indicators, I’m willing to risk a few bucks on stocks that were recently highlighted by Emeritus and placed on the Honor Roll. These are stocks that have already started to trend higher.
I also added to my REIT position after seeing yesterday’s strong trading action in that sector. While the markets were falling yesterday, all of my REITs were rising. If you do own a few REITs now, just remember NOT to fall in love with them. Most of them are still only trades, and MUST be kissed good-by if the indicators turn negative. I’m only holding REITs now because the indicators turned positive after a TLB Pattern. I’m still looking for a Rope Jump and for them to enter Uptrends.
That’s why I still have some money in reserve. I want to use this money to buy stocks that are already in Uptrends when The Professor tells me the overall market is moving higher. I want to be in front of the Big Boys and use their money to push my socks higher.
Here’s the deal: Yesterday, The Professor was neutral. He only highlighted 6 longs and 6 shorts Again, this is exactly what wanted to see. He’s telling us that there is NO trend underway and last weeks trading was nothing more than a consolidation triangle. About now you might be wondering why I was so excited to see a 6-6 from The Professor. Well, this now loads the gun. Now, from this neutral clean slate position, IF he starts to highlight a bunch of longs, I’ll know that the next leg of a rally is underway. Remember, I’m expecting a rally and NOT a decline because of the triangle.
So now all we need is a trigger. Hmmm? What could that be?
Well, last night the A-D oscillator had a very small change. The difference between Wednesday’s reading and yesterday’s was only 1.29 points. So we’re set-up for a Big Move within the next 1-2 days. The gun is loaded and the odds suggest an upside breakout.
All I’m doing now is waiting for it to happen.
That’s what I’m doing,
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Category: Professor's Comments