Professor’s Comments July 16, 2013

Posted by professor  at July 16th, 2013

The Dow rose 19 points, closing at 15,484.  Volume was light on the advance, coming in at 90 percent of its 10 day average.  There were 320 new highs and only 20 new lows.

There was a small change in the A-D oscillator yesterday, so the markets could experience a Big Move within the next 1-2 days.

The markets remain overbought as evidenced by the A-D oscillator, which had a reading of 192.  This was the third consecutive A-D oscillator reading above 150 and usually leads to some type of pullback.

If the markets do pullback during the next 1-2 days, I would view it as a Buying opportunity.  Remember, the market remains in an Uptrend with positive PT indicators.  So any pullback should present opportunities for Rifle Trades on the 60s.

The Dean’s List remains long and positive, with crude oil, biotech and the Russell 2000 leading the List.  Shares of QQQ, SPY and DIA are all on the List now, but are only supporting a RS rating of 1.

The biggest concern I have about the rally at this point has to do with volume.  It’s NOT very strong.  You might want to take look at the P-volume on the DIA and SPY.  The P-volume on the DIA is still negative!  And while the P-volume on the SPY is currently positive, it is showing severe negative divergence with price.  If the market does pullback during the next few days, the P-volume will be something to watch closely.  That’s because IF this final wave ‘c’ up is going to be consistent with the predictions of the chart pattern, it will need to have a lot more P-volume than we’re currently seeing.

Yesterday I posted a few comments about what I was doing with my shares of FXP now that the indicators have turned negative.  I mentioned that when I swing trade ETF pairs, I usually find that when one ETF generates a Sell Signal, the opposite ETF, in this case FXI,  generates a Buy.  But right now this is not the case.  The indicators on FXI are still negative.  So I’m still holding FXP.  IF FXI turns Green, that’s when I’ll switch horses.  Like I said yesterday…I can NEVER Buy an ETF that is in a down trend unless I see positive PT indicators after a TLB Pattern.

I received an email that asked why I would be holding FXP if I really believed that the US markets were in a rally phase.  The logic being that if DIA and SPY were moving up, wouldn’t the inverse international index ETFs start to move down.  Hmmm?

Not necessarily.  The one thing I have learned over the years is that markets are not logical.  For instance, if you recall what happened to Bonds back in August 2011.  When Standard and Poor’s downgrade Treasury Bonds from AAA to AA, a lot of people thought it would be terrible for Bonds.  But two months later, Bonds were trading significantly higher.  What happened was that even though US Bonds were downgraded, they were still a lot better than all of the European bonds, and a lot of European money flowed into US treasuries causing prices to rally.  The move made perfect sense in retrospect.  But the Dean called the shot before it happened.

Now I’m NOT saying the same thing will happen with FXP and EEV.  They very well could be starting a significant decline.  But right now, both ETFs remain in Uptrends and the pattern does not support anything negative.  On the contrary, the pattern is very bullish.  And IF growth in China is really slowing, despite what Chinese officials are saying, international investors could continue to sell Chinese stocks and move their money into US markets.  This would cause both FXP and US stocks to rally.  We’ll just have to see.

Most of the European markets are off slightly this morning, with the Shanghi Composite and the Hang Seng closing flat.  India is off almost one percent.  Trading in Europe should set the tone for the US markets for the first hour or so.  It will be interesting to see if that negative tone starts to develop legs once US traders start to take over.  Remember, we have a Small Change signal on the board for the next 1-2 days, so a Big Move is possible.

Watching.

That’s what I’m doing.

h

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