Professor’s Comments November 6, 2013
Posted by OMS at November 6th, 2013
The Dow fell 22 points, closing at 15,617. Volume picked up on the decline, coming in at 101 percent of its 10 day average. There were 134 new highs and 32 new lows.
Yesterday’s small decline did nothing to change the overall technical picture. I’m still concerned that we remain close to an interim top in the Ending Diagonal Pattern. And I’m still in no hurry to buy stocks.
One of the reasons for this is that all of my breadth indicators turned negative yesterday. Breadth has been flip flopping for the past few days giving me a mixed picture. The A-D oscillator actually fell petty hard yesterday, falling to -57.2. I don’t know if the indicator is trying to tell me something or not, but I never like taking positions when all of the breadth indicators are going against me. You never know if breadth is supporting a small decline, or something much larger.
So at this point, I’m mostly on the sidelines. Besides, when I checked in with the Professor last night, he only had 10 longs and 7 shorts. This is not enough of a trend bias to get me excited about trading either way.
After I posted yesterday’s comments, I received an email from Charles G. asking about what I meant when I said “I would really like to see PM form more of a Blade before I bought it.” Charles wanted to know what I meant by this. Did I mean I wanted to see a deeper retracement or a longer time period? And do I have criteria for a proper blade?
Here’s the thing you need to remember from Class. The purpose of a Blade, on a turnaround stock is to allow time for the 50 to cross above the 200. Once this happens, the stock can start to move into an uptrend. So with a stock like PM, it needs to show me that it wants to do this. I need to see the stock trading above the 200, and pulling the 50 up toward it.
This is where you need to have some patience, mostly because it takes time to move the 50. But as long as it keeps moving up, I don’t worry. I’m also not in any hurry to buy the stock either, because it hasn’t started to break out yet. If PM started to move higher, that would be a different story, but right now that hasn’t happened. It’s still stuck in a trading zone near 90.
BTW, a lot of the turn-around candidates are doing this now. On the surface, it appears that they are just marking time. But we know differently. The blade that is forming for AAPL, ED, and others is a very strong indication that these stocks want to move higher.
If you’re looking for a low risk entry point on a turnaround candidate that is in the process of developing its blade, you might want to use the 2-period RSI Wilder. For example, look at APPL on 29 October when it fell to 514.54. At that point even though AAPL was still developing its Blade, it was CLEARLY in an Uptrend.
And what do we do when we are looking to buy a stock in an Uptrend? That’s right; we use Rifle Trades to buy them on pullbacks. Pullbacks where all of the PT indicators remain positive, but the 2-period RSI Wilder has become oversold.
Before I forget, I want to comment on Royal Gold, RGLD too. Recall that about a week ago, I mentioned RGLD. I noted how the stock had a recent Rope Jump, and looked like a turnaround candidate. But I also noted that the pullback was deeper than I like to see. It was not helping to move the 50 up toward the 200. In other words, it was still acting as if it wanted to go lower. And now, just about a week after making those comments, we can see that Royal has dropped about 5 points, and continues in its downtrend.
Anyhow I hope this helps Charles and others to understand what I look for in a wave 2 Blade. Simply put, the blade needs to look like it wants to pull the 50 above the 200. When you see this starting to occur, it’s likely that the start of a significant Uptrend is just around the corner.
I don’t ever worry about missing the train with turnaround stocks. If they are really going to start Uptrends, there will be plenty of opportunity for profit. They just need to show me. And the best way to do this is to have to 50 being pulled up to the 200 so it can cross. Then once it crosses, I know that I’m buying a stock in an Uptrend. It’s not a guarantee that the uptrend will continue, but it’s a lot safer than buying a stock in a downtrend and hoping it will turn around.
That’s what I’m doing,
BTW, China Pete, SNP, passed its half way point yesterday. It’s 10 point stick places the near term target at 86. So you might want to think about taking a few bucks off the table, placing a stop at your entry point, and let the rest ride. Remember, IF the stock does go into a major uptrend, there will always be opportunities for Rifle Trades.
|Market Signals for
Not sure of the terminology we use? Check out these articles
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.
Category: Professor's Comments