Professor’s Comments October 15, 2013

Posted by professor  at October 15th, 2013

The Dow fell 100 points early on news that debt ceiling negotiations had come to a stop, then rallied for over 150 points when the President offered a few words of encouragement.  It was a wild day to be a trader with the Dow finishing up 63 points on the day, closing at 15,300.  Volume was light, coming in at 84 percent of its 10 day average.  There were 189 new highs and only 32 new lows.

It’s hard to make anything from the data on a day like yesterday, because of the EXTREME volatility.  You can’t tell if the breadth and volume numbers were impacted by the early fall or the late rise.  Basically, we had two separate major moves on the same day. 

However, there are several things that I can tell you that resulted from yesterday’s trading. 

The first is that the DMIs on both the Dow (DIA) and the NASDAQ (QQQ) turned positive.  So now all of the cockpit  indicators are positive. In other words, you must now look at the markets with a positive bias.  Yeah, the ‘cloud’ is still hanging over Washington, but the bias now favors the upside.

The second is that when I ran The Professor because of the DMI turn, he confirmed the positive turn by highlighting another 52 stocks as entering the trend mode.  If you recall, The Professor has been very active for the past three days, highlighting over 100 stocks in each of the previous two days, and then another 52 yesterday. So The Professor is confirming the rally. 

We also get another ‘relatively’ small change in the A-D oscillator of 17 points.  So the odds are high that we will see a Big Move within the next 1-2 days.  Wow, what a surprise?  With the deadline on the debt ceiling approaching on Thursday, 17 October, I would have expected nothing less from the A-D oscillator.

Meanwhile, the Dean’s List has turned positive.  However if you look closely at the Relative Strength numbers that the Dean has assigned to the ETF, while positive, he hasn’t completely bought into the current rally.  The highest RS number he has given the top ETFs is a 2, and he hasn’t been very liberal handing out these relatively low numbers.  So the best that can be said about The Dean is that he’s positive, but cautious.

I believe that this is a good way to look at your trading right now.  Positive, but cautious.  

Here’s the deal:  If the current impasse in Washington gets resolved before Thursday, and I believe it will, the markets will likely start to rally toward 16,000+.  But we are already up almost 600 points from the lows that we saw last week. The volume numbers we have seen for the past few days have not been excessively robust, so it would not surprise me to see the market take a breather during the next day or so until things get sorted out in Washington.

As I have mentioned several times before, I believe this next rally leg, the final Wave E , will consist of several waves as it starts to moves up.  And right now, with the Dow up almost 600 points in the past 4 days, it appears that we could be getting close to the end of the first wave.   The pattern is telling me that we could see another 25 S&P points, which translates into about 200 Dow points before the current rally leg completes.  But after this we’ll likely see a significant pullback.

Remember, the one thing that the battle over the budget did was morph the old wave 2 into a D wave.  So because we no longer have a wave 2 in the pattern, there can’t be an impulse wave or a Wave 3 up.  No. this market will have to work its way higher.  And by this, I mean that the current Wave E will likely have significant corrections along the way.

So you might want to factor this into your trading as we approach the final top, which is likely going to happen toward the end of the year.  As a matter of fact, if the Congress and the President agree to push out the debate on the debt ceiling until 15 December, the conditions, pattern and timing for a top would be something to keep a close eye on.

Anyhow for now, I’m just holding a lot of the stocks I’ve been talking about for the past few weeks, and riding the current wave.  Yesterday was the kind of day that gave you an opportunity to buy several of those stocks on-sale.  Stocks like HAL and SLB were down over a point in the morning and then finished the day higher.  Same for banks like SBNY and DB.  BTW, the P-vol on SBNY is now at the highest level its been at in months and is screaming ‘positive divergence’.  And yesterday, DB pushed to the upper trendline of the triangle pattern it started in early February.  If it can break out of this pattern and start to move above 49.13, things could get very interesting. 

I’m also watching China Pete, SNP, as it continues to plod along trying to lift the weight of the 50 above the 200.  I mention this today not because I’m excited about SNP right now.  I’m really not.  But I want you to see how different stocks behave on a day like yesterday.  Most of the other energy stock , like SLB and HAL, had a nice day yesterday, gaining 1.15 and 0.68 points respectively.  But poor China Pete fell 0.09.  Hmmm?  Was this because China Peter is a bad boy?  No!  It has absolutely nothing to do with that.  It’s just that he’s not ready.  While SLB and HAL were out there playing in Uptrends, China Pete iwas still doing his homework.  He still needs to get the 50 above the 200 so he too can go out and play. 

You might want to watch how trading action with China Pete plays out in the days ahead.  That’s because I believe that eventually he too will be playing with all the rest of the Uptrend Boys, once he completes his homework assignment.

BTW, you might want to watch Apple, AAPL, too.  He just finished his homework and is now in an Uptrend.  He was out playing yesterday, up 3.23 points.  If you want your stocks to move up when the market rallies, buying those that are in well defined Uptrends is the easiest way to do it.

Watching.

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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