Professor’s Comments September 24, 2013

Posted by OMS  at September 24th, 2013

The Dow fell 63 points, closing at 15,401.  NYSE volume was moderate on the decline, coming in at 94 of its 10 day average.  Moderate volume on a day with a 63 point decline is positive. There were 81 new highs and only 36 new lows.

Yesterday I received two similar questions from students asking about my purchases on Friday.  Tony K. wrote:  “I noticed that the 60’s were still negative for the stocks you bought late Friday so these were obviously not rifle trades.  Did you buy them based on positive PT’s and an oversold RSI Wilder only? (as well the other elements of the SIGN of course).  If so, did you size them like rifle trades or are they sized like a basic position?”

Actually, to fully understand what I did on Friday, you need to understand where I was at going into last Wednesday’s Fed Day.  Back in early September, I saw that we were just finishing up what appeared to be Wave 2 of a five-wave sequence.  With the Dow trading under 15,000, I believed that major wave 3 Up was about to begin, so I was looking for stocks from the Member’s Watch List that had pulled back slightly or traded sideways during the Wave 2 pullback.  I knew that any stock that traded sideways and did not go down with the market was a strong stock.  So I went to the middle of the Member’s Watch List and found stocks like SLB, BIDU, GILD and others.  Many of these also had formed nice Hockey Stick w/Blade Patterns with tight Bollinger Bands during the pullback.

So seeing the Patterns, tight bands and knowing there was a good chance that the next move up would be a Wave 3, I started to load up.  And then once I saw The Professor start to highlight more than 50 stocks, I knew wave 3 up was starting.  I not only bought stocks aggressively, I used a lot of margin.  From Class, you know that I like to trade aggressively whenever I believe that a trend wave is about to begin. The train was leaving the station.

As we entered the Fed Day, stocks like SLB, which I had purchased near 81 with a target of 95, were trading near 87 and then jumped to over 89 after the announcement.  It was a gift!  I knew that stocks don’t go straight up, and with the market EXTREMELY oversold, I knew that it was time to take a few bucks off the table.  I also wanted to get out of my heavily margined position.   After the Fed announcement, the Dow rallied hard and was trading as high as 15,709, more than half way to my target of 16,200-16,300.for Wave 3 up.  It was time to lighten my position.

Anyhow, that’s why I sold a few shares.  And then as expected, the market started to pull back, mostly to relieve the EXTREME overbought conditions.  It was time for Wave 2 of 3 to come in.

And then on Friday, when I saw that SLB had pulled back over 2 points from where I sold it, I bought a few shares based on an oversold 2-period RSI Wilder.  All I was trying to do was re-establish my Basic Position.  Going into the Fed announcement I had a lot more shares than I wanted for my Basic Position.  Then after the announcement, I sold a good part of that position, and on Friday all I tried to do was buy back a few shares when they were on ‘on sale’.   All of this was just an adjustment to my Basic Position.  In the days ahead, IF SLB drops another point or so,  I will look to fill out my Basic Position with a possible Rifle Trade.

If you did not establish a Basic Position in socks like SLB, you might consider doing so with a Rifle Trade on the 60s.  Then this will become your Basic Position.  And you can continue to use Rifle Trades to purchase and trade additional shares IF the stock continues to move higher.

You can also watch something like AAPL.  The stock jumped 23 points yesterday on initial sales data of its new I-phone. The jump moved the stock back above its 50 and 200 period moving averages.  So now as long as AAPL remains above the averages it will continue to pull the 50 above the 200.  Once this happens, AAPL will be in an Uptrend.  And IF AAPL enters an Uptrend, it should take the entire Nasdaq higher.

Right now, 2 of the 3 PT indicators are positive on AAPL.  The MACD is the lone holdout.  BUT the one thing that is still missing with AAPL is that it’s NOT on the Member’s Watch List.  Last week, the stock briefly moved to the bottom of the MWL, but then fell off.  So we know it’s lurking just below the cut off.  IF in the days ahead, AAPL continues to strengthen such that it’s PT indicators turn positive AND it re-appears on the MWL, I’m a buyer.  But not right now.  I need to know that yesterday’s 23 point pop was the real deal, and not just part of the sales hype.

There are too many stocks that are currently in Uptrends now that have pulled back as part of this Wave 2 of 3 Up.  Too many for me to bother with a stock like AAPL that is still technically in a downtrend.   It is far easier for a stock to move higher once it is in an established Uptrend, then for one to get into an Uptrend.  So during the next few days, I will continue to look for stocks that are already on the Member’s Watch List, with patterns that are oversold.

The Dow appears to be in the process of forming a Wave 2 of 3 Up.  Last week, I mentioned that this Wave 2 could take a week to 10 days to develop, and drop the Dow 160 to 200 points.   I also mentioned the SPX could test the 1690 level.  So now we’re at 1701 on the SPX, after being at 1729 right after the Fed announcement. 

Keep in mind that the Dean’s List remains long and strong, so IF we do fall to the 1690 level or lower, I would view it as a buying opportunity.  The way I’m looking at the market now is that we’re in the impulse wave.  Yeah we could fall another few points, but on the other hand we could see a significant rally develop at any time.   So I want to own stocks.  It doesn’t really matter to me if I buy them ‘on-sale’ or with Rifle Trades,  as long as see a Positive Dean’s List, positive indicators and oversold RSI Wilder’s, there is a good chance that Wave 3 of 3 Up is just around the corner.  And IF I start to see The Professor start to highlight more than 50 stocks again, it will be my signal to get back aboard the train.  And perhaps even use a little margin again.

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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