Professor’s Comments May 28, 2014

Posted by OMS  at May 28th, 2014

The Dow rose 69 points, closing at 16,675. Volume was moderate on the rally, coming in at 99 percent of its 10 day average.  There were 226 new highs and only 19 new lows.

It appears that market has broken out of its trading range and wave 3 up is underway.  I’m riding the train.  Next stop should be close to 17,000 on the Dow; 1920+ on the SPX.

I received several emails from students yesterday telling me how much fun they were having riding some of the stocks I have been talking about for the past few weeks.  And without exception, all of the emails had the same theme:  Yeah, I’m  having fun, but now I’m worried.  What should I do now that have a profit?  Hmmm?

Well, to tell the truth, all of these students already know what to do.  I know this because all of the emails talked about taking a few bucks off the table, and placing stops….just as the Professor’s Methodology says to do.  But when the train is starting to roll, like it is now, they don’t really want to do this.  They know what they should be doing, but the excitement of the train ride causes cognitive dissonance.

Ok, so let’s talk about this.

The Dow is currently just under 16,700.  My projection for the top of wave 3 up is near 17,000 plus or minus, so we’re about 300 points from where wave 4 down is likely to come in.  In previous Comments, I talked about how the current rally would likely be very quick, maybe 1-2 weeks, and once complete a significant retracement leg for wave 4 down would likely develop.  The key word being ‘significant retracement’.  In other words, we’re dealing with a potential rally of 300 points, and then a ‘significant retracement’.

So how do you trade something like this?  You want to continue to ride the train, but you also don’t want to give back any of your profit.  Does this sound about right?  Hmmm?

The first thing students need to understand is that it’s almost impossible to maximize profit and keep it all.  If you want to protect your profits, it comes at a cost.  And the best way I know to do this is with The Professor’s Money Management Methodology.  This is why I always take a few bucks off the table, place stops, and let the rest ride.  Then as the market starts to move up, I move my stops up.

Here’s the thing:  I am NOT afraid of getting stopped out now.  I EXPECT to get stopped out.  I want to get stopped out!  The current rally is NOT a trip to the moon!  It’s a train ride to near 17,000.  It’s NOT the time to be settling in for a long ride.  We’re starting to get close to the end of the line now.  We need to start thinking about getting off the train.

Basically, I’m trading two types of stocks now.  Those that are in well established Uptrends with Green PT indicators, like Apple, HAL and SLB.  All of these stocks have produced nice profits during the past few months, and now it’s just a matter of managing money to protect those profits.  The other type of stock that I’m trading now is something like UWM.  UWM has also given me a nice profit going from 75 to 81+ in the past week.  UWM is also in an Uptrend, but until yesterday, it was showing Red on all of the Daily PT indicators.  Stocks with Red indicators like UWM and AMGN need to be managed differently than something like HAL. 

Yesterday, even though UWM ‘Jumped the ‘Ropes’, its MACD remains negative.  Same for AMGN, only in this case, the P-volume is negative.  When a stock ‘Jumps the Ropes’, it usually requires a lot of effort.  It is NOT unusual for a stock to rest or trade sideways after a Rope Jump.  Yeah, both stocks could trade higher, but the odds now favor a rest period to form a Blade.

Hmmm?  So we need to ask ourselves…do we really want to hold stocks that will likely be resting when the overall market is pushing higher?  And what IF the Dow starts to turn lower in the ‘significant retracement‘ I expect, do we want to be in stocks with negative indicators or weak P-volumes?  No!  And this is why I’m aggressively managing the money I have in these stocks now.

Ok, now let’s talk about gold.  Yesterday gold got hammered. I received several emails from students who were having a great time trading DUST.  Most of these emails told me how they were managing money after yesterday’s 2.91 point pop.  As I mentioned last week, my target for DUST on the current move is a ‘Rope Jump’ above the 200.  I said I would start managing my money near 28.  Yesterday, DUST closed at 28.63.

The way I plan to trade DUST is to take a few bucks off the table now, then look for a ‘Rope Jump’ adjusting my stops on the remaining shares.  Remember, I’m still looking for gold to trade a lot lower.  But It’s NOT likely to go straight down (or for DUST to go straight up).  Gold, the metal, is currently trading at 1265.  I’m still looking for 1150 or lower.  Until DUST makes a ’Rope Jump’, I must consider it as a trade only.  This trade is exactly the type of trade I describe in the “Trading the Turns”  webinar I did for AIQ Systems. If you’re not sure how to Trade the Turns and need a refresher, you might want to check out the webinar on the AIQ web site (www.aiqsystems.com). BTW, AIQ is currently offering a special where you get all three of the webinars I did for them for $99. It’s a great deal!

I have a Basic Class that starts at 6:30 pm tonight at UNF, so I won’t be updating the Lists until after 9:45pm.  Then tomorrow morning I have some personal stuff I need to take care of that will keep me away from the trading desk for several hours.  If I see something start to develop, I’ll do a quick post.  Otherwise, my next post will be on Friday morning.

Riding the train and managing my money.

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.