Professor’s Comments July 31, 2013

Posted by professor  at July 31st, 2013

The Dow was flat yesterday, rising 1 point, closing at 15,520.  Volume was slightly heavier than normal, coming in at 108 percent of its 10 day average.  There were 121 new highs and  40 new lows. 

The fact that the volume was heavier than normal without moving the prices of the averages is the first sign of distribution I have seen in several weeks.  Taken together with a falling Summation Index and Hi-Lo Indicator, it is warning that the end of wave 1 up could be approaching.

The overall pattern and wave count still suggests that we should have one more small rally, possibly a few hundred Dow points, before wave 1 ends.

There was a small change in the A-D oscillator last night, so we should be on the lookout for a Big Move within the next 1-2 days.  BTW, the A-D oscillator reading came in at -53.08 , so it too is negative at this point.  This is another sign that the market is not exactly short-term healthy now.  Once this wave 1 rally completes, I’ll start looking for intermediate term buying opportunities on the wave 2 pullback.  Not now.  Right now, I consider everything to be a trade.  Mostly Rifle Trades.

The Fed will be announcing its plan for the tapering program later today, so most traders will likely remain on the sidelines until they hear what Bernanke has to say.  I understand that the Chairman will not be making any post- announcement  comments.  Apparently he has learned from the last time he did this and dropped the markets several points.  Right now, it appears that keeping the markets pumped up is a priority for the Fed, so I don’t expect them to say anything that would rattle the markets.

The Dean’s List remains long and positive, but it’s certainly not strong at this point.  There are a lot of 1s, and 0s on the List now,  with DIA and SPY only supporting RS ratings of 1.  The top of the List is dominated by gold and silver issues that are coming off potential TLB reversal patterns.  These stocks still need a LOT of work to do before I will even think about considering them for purchase.  Right now, as long as they remain Green, they are trades.  But for the longer term, I need to see Blades start to form.

Emeritus highlighted a few more stocks last night for the Honor Roll.  Most of his recent picks had nice pops during the past two days, including LRCX, up 0.94 and PETM, up 0.36 and 0.38 since being highlighted.  If the markets does make one more rally to the 15,700+ level, I would expect his Honor Roll picks to lead the way.  All have very nice short-tem patterns, and most are oversold on the Daily’s making them candidates for Rifle Trades.  BTW, did you notice where the 2-period RSI Wilder closed on the Dow (DIA) yesterday?  13.81.  Hmmm?

TBT closed up 11 cents at 75.81 as it continues to consolidate and form a Blade to support a move higher.  The Blade development will likely continue for a bit longer, before the ETF starts to test its recent high of 77.47.  But please, if you’re trading TBT, do not expect it to go to the moon yet.  A moon shot is simply not in the cards right now. We could see a moon shot IF the Fed announces that the tapering program will begin sooner than expected.  But IF the Fed announces any form of stimulus or an extension to its tapering program, it will likely put pressure on TBT.  Remember what I said yesterday; TBT could drop to the 71-72 level and still be perfectly OK.  But IF the 60s turn Red, I’m out of this particular Rifle Trade.  What’s driving TBT now is the expectation of higher Bond yields in the future. The closer we come to meeting those expectations, the higher TBT should move in price.

I have an early dentist appointment today, so I’d better get going.  I’ll be back later today after I have a chance to digest what the Fed has to say.

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

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