Professor’s Comments November 20, 2015

Posted by OMS  at November 20th, 2014

The Dow fell 2 points, closing at 17,686. The OTC and SPX were also down. Volume was moderate, coming in at 101 percent of its 10-day average.  There were 84 new highs and 58 new lows.

Yesterday’s small decline in the markets caused three of the four breadth indicators that make up The Tide to turn negative. Because of this, I changed the cockpit breadth light to YELLOW.  The lone positive holdout is the Up-Down oscillator.  If this oscillator turns negative in the next day or so, and causes the Tide to turn negative, I will start watching the Dean’s List for INVERSE index ETFs to trade. 

From the looks of things, the first index that will likely turn negative is the Russell 2000.  Yesterday the RUT fell 12.6 points which was a significant drop compared to the other indexes. If the RUT declines today, it’s likely that its DMI will turn negative. The P-volume on TWM, the inverse ETF for the Russell 2K, continues to show positive divergence.  If TWM appears on the Dean’s List and the PT indicators turn positive, I’m a buyer.

The Dean’s List, PT indicators and Tide remain positive.  However they appear to be on the verge of changing.  This is not the time to be buying stocks to the long side.   Past history tells us that when The Tide is neutral, the best one can hope for is a sideways market.  On the other hand, IF The Tide is in the process of turning negative, long positions will have to fight The Tide.  This will not be an easy thing to do.  It’s always better to trade in the direction of The Tide and let it work for you.

Gold shares pulled back yesterday after several days of positive prints.  The pullback appears to be a normal ‘rest period’ which will enable mining shares to catch their breadth before moving higher.  With many gold and silver related issues on the Dean’s List, aggressive traders using the 60s should note that the 2-period RSI Wilder on several mining ETFs has become oversold.  This could set-up a few ‘Pistol’ trades on the 5s.  Just remember, most gold stocks and ETFs are still in downtrends on the Daily Charts, so any purchases at this point must be kept small and considered as speculative trial trades. 

This is because If you buy something like Barrack Gold (ABX), which is on the Dean’s List, the PT indicators on the Daily Charts are still negative.  So if you did buy the shares based on the Daily’s, you are trading against the indicators right from the get-go.  You have nothing to tell you when to get out.  The Daily’s are already negative!   So any purchase must be based on the shorter term bars.

With a stock on the Dean’s List, and a pattern (TLB), the 60s can be used to establish a trial position when the PT indicators on the 60s turn positive.  This position MUST be kept small…remember the stock is still in a down trend!  All I’m doing with any purchase at this point is putting a toe in the water. 

Right now if you look at ABX on the 60s you can see that the PT indicators are positive.  The 2-period RSI Wilder is oversold.  So with these conditions, I can drop down the 5 minute bars and look for an entry point.  If I buy when both the 60s and 5s are positive, I at least have something to base my exit criteria on while I watch the indicators on the Daily charts for a potential change.

I still believe that gold has a lot of work to do before it can move into a significant uptrend.  The shares still have to perform a ‘Rope Jump’, have a wave 2 pullback, and move the 50 above the 200 so they can start uptrends.  But with several mining shares on the Dean’s List, the metals could be starting the turn around process. 

I’m watching gold, but I’m really more interested in what could be happening with the overall market.

Right now, I just watching for a Tide change and the appearance of INVERSE index ETFs on the Dean’s List.

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.