Professor’s Comments October 30, 2013

Posted by OMS  at October 30th, 2013

In a surprise move before the Fed announcement, the Dow rose 111 points, closing at 15,680.  The Big Move was likely caused by Friday’s small change in the A-D oscillator. I thought yesterday would be a relatively quiet day and the Big Move would happen today after the Fed announcement.  Like many traders, I was surprised. Volume was moderate, coming in at 98 percent of its 10 day average.  There were 232 new highs and only 7 new lows.

Today is the actual Fed announcement day, so even though we had a nice pop yesterday, the market should remain strong going into the announcement.  Once the announcement is made at 2pm, well, that’s another story.  As we’ve seen from recent Fed announcements, they can have a significant impact on the markets.

Today is also the next to last trading day in October, so the markets should be well bid early in the day as mutual fund managers rebalance their portfolios.  This rebalancing will end on Friday, when the market bias starts to change from positive to negative.

Also, we had a ‘relatively’ small change in the A-D oscillator of 11.72 points yesterday.  While this number is outside my normal limit of 10 points for a small change,  I have mentioned several times how my old limit of 10 points appears to be expending as we have seen some really Big Moves with small changes of up to 15 points. One even occurred with a change of 17 points.  So given where we are with the Fed Day, end of month, pattern, and ‘relatively’ small change, we need to exercise caution during the next few days.

Here’s the thing:  During the past week, several of the stocks that were ranked high on the Member’s Watch list in August have started to pull back recently. We took some really nice profits from some of these stocks, but once they hit their targets, they quickly pulled back.  And they did this while the Dow was moving higher.  Check out these symbols:

UNH is down 7 points since its high, TKR -10, TSLA -30, NCR -5, GPOR -7, RGR -6, CMI -10, LSTR -4.  There are many more.

In the process of moving higher, all of these stocks formed THT patterns.  Most of these stocks turned negative after reaching their targets and are now starting to move toward a ‘Rope Jump’.

For example, Cisco Systems, CSCO, is now forming a wave 2 Blade after a negative rope jump. The stock turned negative after THT on 16 August at 24.27.  The PT indicators are still negative with the stock now at 22.83.

Same for IBM.  It started to turn after a THT pattern on 11 June when the stock was trading at  204.  A month later, the 50 moved below the 200.  Last week, IBM was trading near 170.  The interesting thing about IBM was that while the stock was starting its down trend, most of us were looking for stocks to buy from the Member’s Watch List.  We were all using The SIGN to find stocks on the List, with patterns, and with positive PT indicators. 

Caterpillar, CAT, is another example of a big name stock that hasn’t done anything in the past 7 months. The reason.  It entered a downtrend on 1 April, and has traded sideways with its 50 below the 200 ever since. 

Bottom Line:  There are two things to take away from the above discussion:

1.)  It pay$ to trade stocks that either are in Uptrends, or are turn around candidates getting ready to enter Uptrends.  It also pays to avoid stocks that are in established downtrends, especially when the major indexes are moving up.

2.)  With so many stocks developing THT Patterns and reaching their targets, we need to be on the lookout for any change in the PT indicators.  I don’t care how strong your stock has been during the past few months, a THT Pattern is a  topping pattern and when you start to see a bunch of big name stocks forming theses patterns,  it’s usually a sign that the market is very close to a top.  In other words, be careful.

In this environment I’m still not sold on gold or the metals.  Last week I mentioned that I was looking at taking a small ‘trade’ position in Royal Gold, RGLD.  But it now appears that the recent pop since 14 October is looking more and more like the Blade of a negative Hockey Stick.  As I mentioned before, I’m still troubled buy the fact that RGLD does not appear to be pulling the 50 back up to the 200, as usually occurs in a turn around.

My #1 turn around candidate, AAPL, pulled back 13 points yesterday to 516 after hitting its target of 530.  The 50 is now at 491 and rising.  So If Apple does what it’s supposed to and forms a new Blade, I would become very interested in the stock IF it starts to approach its 50 day moving average.  Right now, the pattern is complete and I need to see a new pattern develop.

The other turn around candidate I’m watching is China Pete, SNP.  The stock has been forming a wave 2 Blade after it ‘Jumped the Ropes’ in September.  On Friday, the stock appeared to put in its second low, falling to 76.59.  But yesterday, it popped 3.61 points back to 80.25.  If the stock can hold the 80 level, it will continue to pull the 50 above the 200, which will allow SNP to start its uptrend.  Currently 2 of the 3 PT indicators are positive.

Watching and waiting for the Fed announcement.

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.