Professor’s Comments October 25, 2013

Posted by OMS  at October 25th, 2013

The Dow rose 95 points, closing at 15,568.  Volume was slightly heavier than normal again, coming in at 108 percent of its 10 day average.  There were 255 new highs and only 9 new lows.

Despite yesterday’s big gain in the Dow, the gain in the S&P was more moderate.  Price is still hovering near the top of the upper trend of its Ending Diagonal Pattern.

Yesterday’s breadth was not especially strong, and the A-D oscillator remains overbought.  All of these conditions argue that the markets could be ready for a correction. 

Also, there was a very small change in the A-D oscillator yesterday, so we could see a Big Move within the next 1-2 days.  The small change was only 3.34 points.  And given that the S&P is at its upper trendline boundary, the Big Move could be down.

I was watching Royal Gold yesterday as it popped over a point to 51.95.  I still haven’t bought my ‘initial trading position’ of RGLD., mostly because the 2-period RSI Wilder never gave me a really good entry point.  Right now, RGLD is trading above its 50 period moving average.  However if it is going to gather enough strength to “jump the 200”, it will in all likelihood need to pullback for a few days so that it can form the blade of a small Hockey Stick pattern.  If it does this, AND the PT indicators remain positive, that’s where I’ll look to buy a small ‘trading‘ position. 

I want to point out again that even though Royal had a ‘Rope Jump’ in late August, indicating a possible wave 1, the wave 2 pullback did not stay above the ‘ropes’.  It actually fell significantly back below the ropes, and “Jumped’ them to the downside which pulled the moving averages down instead of up which usually happens when a stock is moving from a down tend to an uptrend.  If you get a chance this morning, take a quick look at Apple, AAPL, and you will see what I mean.

Why am I so concerned about this and pointing it out to you this morning.  Do I not believe that gold is going higher?  Hmmm?  Well truth is and I keep reminding you of this in my Updates, gold (the metal) is still in a pattern that could take it to the 1150 level.  Right now gold futures are trading near 1340, so 1150 is a loooong way down.  Right now, it’s still way too early to tell.

But here’s the real reason I’m not in any hurry to get aboard the gold train yet.  It has to do with where the stock price is in relation to the 200.  Its still below the 200, which means the stock is still in a downtrend.  And from my Basic Class, you know that institutions do not buy stocks in downtrends.  They either short them or remain on the sidelines.  This simple fact means that institutions will not be entering the gold playground anytime soon.  It’s just like there’s a fence around it, saying ‘Keep Out”.  And without the Big Boys on the sidelines, it means that only the kids are playing.  Kids never drive stock prices higher.  Never!

If you want to see what I mean, just go back and take another look at Apple.  But this time, take a closer look.  What I want you to note is how the stock price started to move up…AFTER the 50 crossed the 200.  Once this happened, the stock moved into an Uptrend.  Now the Big Boys can play.  

So if you have a chance today, or over the weekend, take a look at some of the stocks you have been trading recently.  If they went through a turn around process within the last year, note how they too started to move higher once the 50 moved above the 200.  That’s when the Big Boys entered the playground.  And then when you’re done looking, go back to the chart on Royal.  Hmmm?  Are you still as anxious to get into the trade? 

Like I teach in my PT Class and in the Trading the Turns webinar I just did for AIQ Systems, the turn around process takes time.  And you need to see real signs, not fake ones.  I’m at the point with Royal where I’m seeing some real signs, like diverging and increasing P-volume, but I’m also seeing some that I’m not still sure about.

So I’m still on the sidelines, watching. 

BTW, IF gold is going to turn around from here, the next leg up should be the impulse wave, or wave 3 up.  We all know about impulse waves and how much fun they are to trade.  But there’s also one other thing we know about these waves.  They usually don’t start with the 50 below the 200.  They usually need to have a wave 2 blade develop before the impulse wave can start.  This will take time.

That’s why I’m really in no hurry to buy gold right now. If I do buy a few shares, it will most likely be when the 2-period RSI Wilder gives say so. That way I know I’m not paying up. And IF I do get an opportunity to purchase a few shares, it will only be a small initial trading position.  These shares will get dumped immediately IF the indicators turn negative. 

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.