Professor’s Comments June 24, 2014

Posted by OMS  at June 24th, 2014

The Dow fell 10 points, closing at 16,937. Volume was moderate, coming in at 93 percent of its 10 day average.  There were 255 new highs and only 18 new lows.

Not much changed in yesterday’s low volatility session. The Dow and other indexes still appear trapped in a short-tern trading zone.  However with two small change signals from the A-D oscillator on the board, the index should be breaking out of that low volatility range with vigor, anytime now.  The direction of that breakout will determine the direction of the market for the next week to 10 days.

Looking at the charts, it’s tough to tell which direction the breakout will occur.  But IF the breakout is to the upside, the potential appears limited to 100-200 Dow points.  On the other hand, if the Dow starts to decline below 16,750,  the pattern suggests a drop to the 16,300 level could be in the cards.  So with an upside that appears limited, and the potential for a 600 point decline, I obviously don’t like the odds.

With tensions on the rise in the mid-east, energy and mining shares continue to dominate the Dean’s List.  But now that energy stocks like HAL appear to be EXTREMELY overbought, I am moving my stop to just under yesterday’s low.   I’m now looking to get stopped out.  It’s been a nice run since the PT indicators on HAL turned positive in early February, but as I always say, no stock, no matter how good, goes to heaven.

One of the reasons that I’m really tightening the stops on my energy issues is because one of the custom oscillators that I developed is at an EXTREME overbought levels on DIG, the Proshares Oils and Gas ETF.  The oscillator was at similar levels on 3 April and 7 May, and when this occurred, the period immediately after was characterized by lackluster trading that resulted in a pullback.  So with this oscillator at an EXTREME level on energy, it’s just another signal  that the risk now out weighs the potential for additional reward.  If energy pulls back closer to the moving averages, I’ll revisit the trade.  But right now, I’m managing money.

I’m still watching Apple (AAPL).  Yesterday, the stock declined 0.08 to 90.83.  At this point, the stock is EXTREMELY oversold with a 2-period RSI Wilder reading of 6.15.  With AAPL in a solid up trend and an oversold 2-period RSI Wilder, I would normally be looking at it as a potential Rifle Trade.  But not now.  The reason is because the P-volume is no longer positive.

I mention this today, because normally when I’m looking for Rifle Trades, I always want to do them when all of the PT indicators are positive on the Daily’s.  But once you do 2-3 Rifle Trades on any run-up, the odds start to diminish.  And now that a THT Pattern has formed on APPL, it’s time for caution and not Rifle Trades.  I’m mentioning this today because a lot of technology stocks are starting to look exactly like APPL.  IF the DMI and MACD on APPL start to turn negative, the stock will become a short…not a Buy.

Remember, the reason I’m watching AAPL now is because the Telcom Sector and the Computer Hardware Group within the Technology Sector are two of the weakest places to be now.  At this point, 96 percent of the Sectors I monitor still have positive T-Scores.  However, IF the Dow is going to start a 600 point decline, I would expect AAPL to turn negative and the Telcoms and Technology issues to lead the way.

I’m mostly on the sidelines, watching.

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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