Professor’s Comments July 29, 2014

Posted by OMS  at July 29th, 2014

The Dow rose 22 points, closing at 16,983. Volume was moderate, coming in at 92 percent of its 10 day average.  There were 94 new highs and 60 new lows. Note how the number of new lows is rising and starting to approach the number of new highs. A few weeks ago, when the market was rising, these numbers were telling a very different story. But now, the number of new lows is increasing. Be careful!

Not much changed yesterday.  Breadth continues to decline and while one more pop on the SPX to about 2000  is still possible, it is starting to appear that any rally during the few days will be a better shorting opportunity.

We’re in the end-of-month time period now which is usually very Bullish for stocks.  But once we move into August, this Bullish period, where Mutual Fund managers are rebalancing their portfolios, will be behind us. If breadth continues to deteoriate, it will set-up a very Bearish situation when the end-of-month Buying disappears.

There was another ‘relatively small change in the A-D oscillator yesterday of 16 points.  So once again, we need to be on the lookout for a Big Move within the next 1-2 days.

Yesterday, even though the Dow rose slightly, the DXD dropped off the Dean’s List and DIA re-appeared.  So now 3 of the 4 positive index ETFs are on the Dean’s List, swinging the odds temporarily to the positive side.

Sector Trend Scores also remain slightly positive coming in at 64-36. This positive bias tells me that the majority of Sectors have not rolled over yet, and because of this, it is still too early to start shorting.

The only trade I have going at this point is my long in TWM which finished up 43 cents yesterday at 46.86. With positive PT indicators, I continue to hold.  BTW, the 2-period RSI Wilder on TWM closed at an overbought reading of 91.17.  Last week, students had an opportunity to purchase the ETF near 45 when the 2-period RSI Wilder was at 22.03.  I mention this today because IF the market rallies during the next few days, it is likely that TWM will re-visit the 45 level dropping the 2-period RSI Wilder back into oversold territory.  If this happens, and TWM remains on the List with positive PT indicators, it will present us with another potential Buying opportunity.

The MACD on DXD, the inverse Dow ETF, stayed negative yesterday preventing me from entering the ‘trade’.  But now that DXD has dropped off the Dean’s List, I will have to wait until it re-appears before looking at it as a potential Buy candidate.  I’m just being patient.

With a positive Dean’s List, negative breadth, and mixed PT indicators, I plan to remain on the sidelines.

That’s what I’m doing,

h

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The Hockey Stick Pattern
The Creation of Waves and Trends
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