Professor’s Comments September 27, 2013

Posted by OMS  at September 27th, 2013

 The Dow rose 53 points, closing at 15,328.  Volume was light on the advance, coming in at 89 percent of its 10 day average.  Light volume tells me the advance was weak and part of the corrective process, and not the start of a new rally leg.  There were 119 new highs and only 23 new lows.

Yesterday’s rally was the first positive close in the past 6 days. But the thing that made this noteworthy is the fact that the A-D oscillator has remained positive for all six days.  Intraday, the Dow was up over 113 points.  It was likely the Big Move that yesterday’s relatively small change in the A-D oscillator predicted.  The fact that the 2-period RSI Wilder was extremely oversold at 4.68 also helped contribute to yesterday’s bounce.

The Summation Index remains positive, and the A-D oscillator finished the day with a reading of  81.85.  This tells me that the overall the market remains in a very healthy state with most socks on the NYSE in Uptrends.

Same for the Dean’s List which also remains very positive.

There reason I mention this today is because both positive breadth and a positive Dean’s List are telling me that there is underlying strength in the market.  It also tells me that IF the current political ‘cloud’ associated with funding the government can be removed, the markets should resume their rally.

However for the very short-term, it’s still not clear if the current wave structure is part of the wave 2 of 3 corrective process or if it is part of a larger degree wave D down.  Yesterday’s rally could have been the ‘b’ wave in a simple a-b-c move for wave 2..  If this is the case, the markets should remain under pressure during the next few days, until wave 2 completes.

On the other hand, I cannot ignore the possibility that the current correction is part of a larger Wave D down within an Ending Diagonal Pattern.  If this is the case, the 1690 level should be tested and broken during the next few days, with the SPX potentially trading as low as 1660-1665..  The SPX is currently trading just under 1700 at 1698.67, so there is a potential for a 40 point decline.  Forty S&P points is over 300 Dow points, so we need to be careful in the days ahead.  I would only expect wave D down to form if an agreement on the Continuing Resolution cannot be reached over the weekend and the government actually shuts down for a few days next week.

The fact that The Professor has not been very active for the past few days makes me very cautious about buying any new stocks now.  I’m just going to hold what I have until I see him start to highlight 50 or more stocks, telling me that the next wave up has begun.

I made a few changes to the data base of the Member’s Watch List.last night.  Mako Surgical, MAKO, was removed and Tesla Motors, TSLA, and Cardinal Health, CAH, were added at the request of a new subscriber.

I don’t want to spend a lot of time talking about gold this morning, but you should keep your eye on Royal Gold, RGLD, during the next few days. A few weeks ago, I mentioned that gold and gold stocks would come under pressure after their ‘Rope Jumps’ and would likely see one more leg down. At the time it wasn’t clear as to wether this down leg was part of a normal wave 2 corection in the process of turning the stock around, or IF it was just a small rally leg within a larger correction. Fact is that I still don’t know. However, RGLD has now had a 2-wave correction since its Rope Jump, and anytime I see something that looks like an a-b-c correction after a Rope Jump, I have to lean toward the pullback as being part of a wave 2. If this is the case, and RGLD starts to appear on the Dean’s List in the days ahead, you might want to pay attention. Wave 3 up could be starting, and RGLD has a potential 28 point stick!

Watching and waiting,

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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