Professor’s Comments March 20, 2014

Posted by OMS  at March 20th, 2014

The Dow fell 40 points immediately after yesterday’s Fed announcement.  But a half hour later, when Chairman Yellen put an actual date on when interest rates could start to rise, the Dow started to plunge.  It dropped over 200 points when traders realized that the ‘potential’ date was only about a year away.  The Dow recovered about half of those points into the close, finishing down 144 at 16,222.  It was a wild afternoon that caused the DMI on the Dow to turn negative.  The DMI on the NASDAQ (QQQ) and SPX remains positive. Volume on the decline was moderate, coming in at 99 percent of its 10 day average. There were 122 new highs and 24 new lows.

OK, so where does that leave us now?  What if anything did we learn from yesterday’s Fed announcement?

Well, the Fed said they plan to continue with their tapering program.  We pretty much knew this going in.  But once they announced that the stimulus would be reduced another $10 Billion per month to $55 Billion, gold started to tumble, again as expected.  The decline generated a Sell Signal in many of my gold indicators.

With the DMI on the Dow turning negative we’re back to mixed signals again.  It is not unusual to see mixed signals immediately after a Fed announcement, as it sometimes takes traders several days to sort out what the news really means.  The first reaction of traders is always to sell news that they don’t fully understand.  And when they heard that the Fed could be removing the punch bowl as early as early as next year, they dumped stocks.  But once traders realize that this is really not new news, and that next year is still a long way off, odds are that they will come back to the party and it will continue for a bit longer.

In other words, I don’t believe that anything was said or done yesterday to impact the two scenarios that we have on the board.  I still believe the markets will trade higher in the weeks ahead once traders have time to digest the announcement..

The Dean’s List remains positive, and we still have a VIX Buy Signal on the Board.  I mentioned that it is not unusual for the VIX Buy Signal to occur several days early, and this appears to be the case this time.

Tuesday’s Professor Buy Signal was ‘temporarily’ negated by the DMI on the Dow turning negative.  However, I also mentioned that the current Buy Signal was a relatively weak signal, being generated on extremely light pre-announcement volume.  So during the next few days, as the markets digest the news, I’ll be looking for signs that another rally is beginning.  And if the indicators start to turn positive again, I’ll be running The Professor to see if he confirms the rally.

At this point, I’m not worried about any significant decline starting.  All of my Lists and Indicators are still too strong.

I’m about 60-65 percent invested, mostly in the energy stocks I have been talking about for the past few days.  Things like HAL, GPOR, TOT and Tractor Supply (TSCO).  TOT and TSCO were bought on yesterday’s dip.  I shorted RGLD yesterday before the announcement, based on the 60s, but covered the position late yesterday feeling too uncomfortable to hold it overnight.

If Royal starts to turn negative on the Daily’s, I’ll look to short it as an intermediate term position.  But I need to see Red indicators before I do this.  RGLD has formed a THT Pattern on the Daily bars, so if the PT indicators turn negative, I’ll trade it just like I do with any other stock when I ‘Trade the Turns’.  Only this time I’ll do it as a short.

Anyhow, all I will be doing today is watching.  It will likely take the markets a few more days to sort out everything that was said yesterday.  But once the smoke clears, and traders arrive at a consensus, I believe the next move will be up.

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
FAQ

All of the commentary expressed in this site and any attachments are opinions of the author, subject to change, and provided for educational purposes only. Nothing in this commentary or any attachments should be considered as trading advice. Trading any financial instrument is RISKY and may result in loss of capital including loss of principal. Past performance is not indicative of future results. Always understand the RISK before you trade.