Professor’s Comments June 19, 2014

Posted by OMS  at June 19th, 2014

After the Fed announced that its monetary policy would remain accommodating for the foreseeable future, the Dow started a small rally that grew to over 100 points during Janet Yellen’s follow-on press conference.  She said exactly what the market wanted to hear.

But while she was talking about how the Fed planned to keep interest rates low, traders seemed to ignore the fact that the reason for this was because the growth rate for the US economy was expected to fall from from 2.7 percent to 2.2 percent. Yet the market rallied for over 100 points. Go figure? The market is only focusing on what it wants to hear and not on reality. When this kind of selective listening starts to happen, it should raise a Red Flag for all investors.

The rally appeared to be the Big Move predicted by Monday’s small change in the A-D oscillator 

But did the 100 point intraday move on the Dow really change anything?  Hmmm?  We knew that a Big Move was coming. But now that the Big Move has occurred, where are we? We still have two valid VIX Sell Signals on the Board. And last night, when I checked in with The Professor, he was only able to identify 14 stocks that were entering Up Trends. So The Professor does not see a new Up Trend starting. Not yet anyway.

The other thing arguing against the start of a new Up Trend is the pattern. It still appears that the Dow is in a corrective wave 2 up. As long as the Dow remains below 16,946, the pattern must be viewed as a corrective wave 2 until proven otherwise. So the odds remain high that yesterday’s pop was only a correction within wave 4.  On the other hand, IF the Dow does start to rally past 16,946, the odds will start to favor the wave ‘C’ scenario I discussed yesterday.  This is not something to get excited about as it would mean that the final top for the Ending Diagonal Pattern is fast approaching. 

Gold remained pretty much unchanged before, during, and after the Fed announcement.  The metal finished up fractionally. The pattern still appears to be a corrective wave 2 within a 5 wave down sequence.  It could still have a few more points to go before it completes.

So what to do?  I’m still very comfortable to remain on the the sidelines.  At this point, I believe that even IF the Dow does start to rally past 16,946, the upside potential is limited.  I will to continue to hold the small positions in energy that I still own, raising my ‘tight stops’ until I get stopped out. 

Basically, I just don’t see any point in buying into this market until we get a significant correction.

I will be away from the trading desk today, traveling to the Washington, DC area. So my next update will be on Friday morning. 

That’s what I’m doing,

h

BTW, have you noticed how the stocks highlighted by Emeritus have been performing recently? Two days ago, SBNY popped over 2 points after it was highlighted. Yesterday, PRU popped almost 1.5 points after the open.. It made for an easy Fed Day trade on the 5s. The small change told you a Big move was coming. Emeritus told you which stock to trade. And the PT indicators put you into the trade at the 12:40 mark.

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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