Professor’s Comments November 5, 2013

Posted by OMS  at November 5th, 2013

The Dow rose 26 points, closing at 15,639. Volume was lighter than normal, coming in at 91 percent of its 10 day average.  There were 149 new highs and 13 new lows.

Nothing has changed with respect to the technical picture. It still appears that we remain close to an interim top in the Ending Diagonal Pattern. I’m still not in any hurry to buy stocks, given the possibility that the S&P could trade down to 1700 if the pattern holds true.

In my WSR, I talked about how stocks change direction. moving from downtrends into uptrends.  I also asked if any of you could identify some of these turn around candidates from the Member’s Watch List, so you could start to prepare yourself for time when the market starts to roll over, moving from an uptrend to a downtrend.

At least one of my students was busy this weekend looking for turn- around candidates.

Gene S. not only identified PM as his candidate, he sent in the following analysis to go along with it.

“I have identified PM as a turnaround candidate.  Looking at the Weekly Chart, PM has been in an uptrend for well over 2 years.  Looking at the Daily, on May 1 of this year, it reached a high of 96.73 and started to turn down, crossing the ropes in the process, until it appears to have bottomed on August 29 at 82.86.  After the TLB, it jumped the ropes in mid-September reaching a high of 91.25 on September 19.  It pulled back to 84.16 on October 9, forming a beautiful a-b-c blade.  It has since rallied, again jumping the ropes, and closed at 89.76 on Friday.  As long as PM stays above the 200 day MA of 88.42 it will continue to pull the 50 up and cross the 200 putting it in an uptrend.”

I couldn’t have done a better analysis myself, but I would really like to see PM form more of a Blade before I bought it.  Remember, on turn around candidates, we look for stocks that will be going into an Uptrend. And if PM is going to do this, the 50 must cross the 200. Right now, PM is still trying to do that. Thanks Gene!

BTW, I also asked Gene if he was able to spot a few others.  He mentioned HCN, MCD, EE, DDS and ED  :>)

When Gene mentioned Consolidated Edison, ED, it put a smile on my face.  As many of you know, I’m always looking to trade ED once November arrives.  It’s how I pay for Christmas.  ED is usually good for a few points into December, and this year it looks particularly interesting because of its potential reversal pattern. 

ED completed a TLB pattern in early October.  It turned Green on 11 October at the 56 level where it could have been purchased as a trade.  The stock then proceeded to Jump the Ropes on 23 October moving to 58.

The distance from the recent low of 54.38 to the high of the Rope Jump is about 4-5 points.  So adding 5 points to the low of 57.41 gives me a target near 62.

BTW, 4-5 points is about what ED has done in the past.  The thing I like about the trade is that it has been very reliable. There are times when you want to go dancing with Miss Reliability instead of Miss Fancy Dancer.  The way the market has been trading lately, this could be one of those times. 

I’m less than 40 percent invested 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

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.