Professor’s Comments November 15, 2013

Posted by OMS  at November 15th, 2013

The Dow rose another 55 points to a new all time high, closing at 15,876. Volume was moderate on the rally, coming in at 94 percent of its 10 day average.  There were  252 new highs and only 22 new lows.

Yesterday’s rally pushed two of my breadth indicators into positive territory.  However, the A-D oscillator is still negative and the Summation Index is still headed down.  The A-D oscillator has been negative since 5 November when the Dow was trading at 15,617.  And yesterday, with the Dow closing over 250 points higher, the A-D oscillator is still negative.  Interesting.  It’s telling me that there is not a lot of breadth behind the current rally.

However, as we saw again yesterday after Yellen’s testimony, it’s not wise to fight the Fed.  This market is living on easy money juice, and as long as the juice continues, it’s likely that the market will push higher. 

A few weeks ago, I mentioned that I expected the Dow to trade above 16,000 by year’s end.  So now we’re only 125 points from that target.  I also said that the path to 16,000 would be choppy as the legs of the Ending Diagonal Pattern unfolded. I don’t know about you, but I feel completely worn out by all the up-down-up trading action we’ve seen during the past few weeks. 

However the Dean’s List remains positive and the cockpit indicators are positive, and as long as they remain positive, I have to stay positive.  But I have also adjusted my strategy during the past few weeks.

Because I felt we were in some type of triangle pattern, I started to shorten up on the time periods and the amounts of my trades.  I have also been scaling back on the trades I have been making, becomming more selective, and taking profits quicker. For example, back in September when I was getting ‘ALL IN’ signals from my indicators and algorithms like The Professor, I was more than 100 percent invested.  But during the past few weeks, I have been scaling back. Two weeks ago I was down to about 40 percent, and then last week to about 30 percent.  And while I was moving out of stocks like SLB which had reached its target, I was moving into a few stocks, like ED, SNP, MPC and TSO with much stronger patterns.

For the most part, this strategy has proven to be a good one as yesterday I took even more profit from the refiners. And after yesterday’s market claming comments by new Fed Chair nominee, Janet Yellen, I feel even better about my dividend producers. After her comments, we saw most utilities, including ED, start to move up.  At this point, after selling a large chunk of MPC, ED represents my largest holding.  I am very comfortable with the stock as we move into year’s end, especially now that the new Fed Chair has basically said QE forever. 

BTW, wasn’t it only about a week ago that the dividend payers fell hard after the poor jobs report? I said I wasn’t worried because the report was terrible!  And now, after hearing Yellen’s comments, I’m still not worried.  It appears that the Fed will continue to print for the foreseeable future.  But this does not mean that we’re out of the woods yet.  No!  I’m still very concerned that there could be a credit downgrade in the near future.  And there’s always China and the ‘cloud producing ‘ budget problems that we will likely see early next year. A few weeks ago, I mentioned that the problems with Obamacare would likely cause the Repubs to become emboldened in their budget fight. Hmmm? What do you thinks gonna happen now that the Affordable Care Act appears to be imploding?

But for the moment, with a positive Dean’s List and positive indictors, I have to remain positive.  However there is a short term problem that I want to talk about today.  With mixed signals from breadth and positive indicators, I’m still seeing a lot of rotation going on in this markets.  And as I metioned yesterday, there’s the problem with revenues. I talked about how Cisco Systems, CSCO, missed on revenues and got hammered. Walmart also missed. So we’re seeing some really big names reporting revenue misses. This is NOT healthy sign. So I can’t just plow in and take a bunch of positions like I did in September.  Now I have to be more selective.  My strategy for the past few weeks has been to identify a few stocks with strong patterns and go after them aggressively.  And as we have seen, the strategy has been a good one. But now with MPC and TSO approaching their short term targets, and most of the other stocks I watch looking toppy, I find myself reduced down to a bare bones position. 

To tell the truth, I’m very comfortable being in this position now.  I’m a pattern, target, and risk guy.  And now that most of my stocks have reached their targets, and I don’t see a lot of new patterns developing, I’m only about 30 percent invested.  If the market continues to push higher during the next few weeks, that’s OK.   But because the larger pattern is an Ending Diagonal, and we could be getting very close to the ‘Ending’ part, I feel that I need to be extremely selective with my stock picking now.

So during the weekend, I will be spending even more time looking at the Member’s Watch List for a few candidates with strong patterns.  If you see one or two that you would be interested in discussing, please send them along and we’ll talk about them this weekend.

The only two patterns that I will consider now are Reversals and Rifle Trades. 

BTW, I am no longer interested in BIDU as a short.  Yesterday, BIDU had a nice pop from its negative Hockey Stick Pattern causing the DMI and P-volume to turn positive.  Also, the stock re-appeared on the Member’s Watch List.  So even though the stock remains in a negative pattern, I will not be looking to scalp it to the short side for the time being.  Now I need to wait until it moves off the List and turns negative.  If this happens during the next few days, I’ll look to scalp it again.  But not now.

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

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