Professor’s Comments November 20, 2013

Posted by OMS  at November 20th, 2013

The Dow fell 9 points, closing at 15,966.  Volume was moderate on the decline, coming in at 98 percent of its 10 day average.  There were 80 new highs and 40 new lows.

Yesterday’s small decline was a lot worse than it appeared when you look at the internals.  The trading action was enough drop the A-D oscillator to -69.32 and turn the Summation Index negative again.  After pushing the market to new all-time highs, many of my indicators are starting to look tired.

We’re at a point in the pattern where the markets could push a few points higher before a significant decline starts to develop.  Yesterday I talked about 1810 as a possible high before the S&P starts to drop below 1780 which should lead to 1740, then possibly 1700.   Yesterday’s SPX low was 1784.72.  I’ll stay with those numbers.

I expect that the markets will be relatively quiet this morning as most traders will be waiting for the release of the Fed minutes at 2pm today.  From statements made by some of the committer members, it appears that the Fed’s decision to delay tapering was a relatively close call.  I believe that if the minutes confirm this, it could have an adverse impact on the gold market.

This is one of the reasons that I’m looking to short a few gold stocks.  If I’m right about gold’s pattern, it should trade down to 1150 or so now that it has broken the 1300 level.

Yesterday I received an email from Rebecca asking about my longer term outlook for gold.   She observed that several gold stocks were on my Lists and was wondering if something could be happening with the miners.  I reminded her that an appearance on the Dean’s List alone does not make a stock a Buy.  We use the Lists in combination with the other elements of the SIGN.  And right now, while gold and most gold stocks are in downtrends forming TLB patterns, their indicators are nowhere close to turning positive.

The last time we looked to trade gold was on 27 July, when the PT indicators on RGLD turned positive after a TLB pattern.  The move that followed was good for 17 points.  However, since Royal’s Rope Jump on 27 August, the stock has fallen below its moving averages and continues pull the averages lower, not higher.

So now RGLD is in a downtrend and has yet to form another TLB pattern.  With gold, the metal, looking like it wants to make one more leg down to complete its long term pattern, I’m not interested in buying gold stocks now.  However IF the Fed minutes confirm the hawkish discussion on tapering as some committee members have suggested, I will continue to look to short a few gold stocks.  At this point, I believe that any hint or suggestion of early tapering will send gold prices significantly lower.

Waiting.

That’s what I’m doing,

h

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