Professor’s Comments March 21, 2014
Posted by OMS at March 21st, 2014
Traders hit the reset button on Thursday, deciding that Yellen’s comments about rising interest rates weren’t so bad after all. The Dow gained back almost all of Wednesday’s loss, finishing up 108 points to close at 16,331. Volume was moderate on the rally, coming in at 103 percent of its 10 day average. There were 97 new highs and 30 new lows.
Several things happened yesterday that make me believe that this market is heading higher.
While the rally did not turn the DMI on the Dow positive, it did turn the DMI on the QQQ Green. The Professor remained silent as the market rose, only highlighting 16 longs. The Dean’s List stayed positive.
So what is it that now causes me to believe that we’re heading higher? Hmmm. It’s the Pattern. I’m not sure what the exact pattern is for the near term…but let’s just call it a consolidation. All the back and forth trading that we’ve seen for the past three weeks is what happens when traders are trying to make up their minds on the next major move of the markets. One day they’re positive. Then some bad news comes out, like the Crimea invasion, and the markets fall. Then when it looks like Putin’s goals are limited, they rise again, only to shift their focus back to the Fed. Then traders become optimistic thinking no new changes will be announced, so they rise for a few days, only to tank when told there is an end to the party. Then once they realize that the rise in interest rates is over a year away, they rise again.
All this back and forth trading action has produced an area of consolidation between 16,100 and 16,500. And taken together with the large rise we’ve seen since the beginning of February, the pattern is starting to look like a significant Hockey Stick. In other words, the ‘just under 16,588’ or wave 2 scenario, is starting to morph into a pattern that favors a rise to 17,000 or possibly higher.
Take a look. If you measure the rise from the beginning of February to the 7 march high, it’s 1,165 Dow points. If I add this to the 7 March Blade low of 16,047, I get 17,212. This number is slightly above the ‘just under 17,000’ scenario” that I have been talking about for a market top. So the pattern could be morphing.
A few weeks ago, I mentioned how the odds were slightly in favor of the ‘under 16,588’ scenario. This was because the size of the Blade was small. I said that for the market to make a run near 17,000, it will need a larger Blade. Well now that nearly three weeks have passed with the market going nowhere, that large Blade has formed.
It might not look like much to the uninformed, but to followers of the Professor’s Methodology, it’s a thing of beauty. It might not be the Mona Lisa, but to someone who appreciates a Hockey Stick Pattern, it puts a smile on my face every time I look at it.
Ok, so what are we gonna do about it?
Well for starters, during my AIQ webinar and in Wednesday night’s Class at UNF, I talked about the consolidation period that usually takes place after the Fed meeting. This is the period where traders are trying to achieve consensus about the next major move in the markets. This is happening now.
Last night, there was a small change in the A-D oscillator. Actually, it was a very small change of only 8 points. So we need to be ready for a large move within the next 1-2 days. Looking at the pattern, I believe that this move will be up. I also believe that the move will test and possibly break the 31 December high of 16,588. That’s how strong the consolidation Blade is starting to look.
To play the potential move, I’m currently holding a lot of emery related issues. I would like to add a few non-energy stocks to the mix, but I haven’t seen any really strong sectors emerge at this point for me to buy into. So I’m gonna wait. Besides,The Professor hasn’t given me his signal yet.
But I’m not worried. If I’m right about this market going higher, there will be plenty of time to profit from the move. I have enough skin in the game now with my energy stocks to get started. Plus I added a few shares of TSCO to the stack. So for now I’m just gonna wait.
Before I close, I just want to mention one other thing. Yesterday, while I was out planting and tending to my flower and herb garden, I sat there playing in the dirt and thinking about how nice it was to feel confident about something. Today, it seems like we live in a world of whishy-washyness, where our leaders don’t seem to know what’s going on or even if they know, they’re hapless about doing something about it. We listen to the news and can’t believe that another person or group is getting something for nothing, or another person is abusing the system or wonder why someone isn’t doing something about it. We walk away from it completely frustrated.
So while I was digging, I thought about something that has been strong and consistent. Something that has been a tower of strength for me the past few months. Something that when all the prognosticators on CNBC have been talking silliness and whipping people into a frenzy, has been completely quiet, but right on. That fella’s name is The Dean.
Since the market started its current rally, has he ever wavered? No, he just stayed the course producing a long list of ETFs telling us to maintain a positive bias. Last week he bounced two of the index ETFs off the List when he started to see a potential weakness, but quickly put them back on. This is one of the reasons that I have to feel confident about the evolving Hockey Stick pattern that I talked about above. Because the pattern is developing in an environment where The Dean continues to maintain his positive bias, I have to believe that we’re going higher.
I admire people or things with quiet strength that stick to their convictions. You don’t see much of this happening anymore in this world.
That’s what I’m doing,
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Category: Professor's Comments