Professor’s Comments September 29, 2016
Posted by OMS at September 29th, 2016
The Dow rose about 80 points early, then fell 49 before closing up 111 points at 18,339. Volume was heavy, coming in at 112 percent of its 10-day average. There were 105 new highs and 13 new lows.
Yesterday was the sixth consecutive day where the Dow had a 100 point (or near 100 point) move. When the volatility starts to increase like this, it’s usually because traders are worried and can’t make up their mind about directionality. They buy the dips when the market becomes oversold and then sell when they fear the market is becoming overbought. It keeps the market range bound.
And yesterday was no exception, although the market got a boost late in the day when OPEC announced it would cut production for the first time in eight years, sending oil prices more than 6 percent higher. Several of the energy stocks that I talked about last week saw nice gains, with Nabors (NBR) jumping 1.09 points to 11.26.
OPEC supplies about 40 percent of the world’s oil. So when the cartel said it would cut production to 32.5 million barrels a day from 33.25, energy stocks reacted. But I’m not so sure the announced cut will actually happen or if reducing the crude supply by 750KBD will change anything. There are many opposing forces at work in the mid-east, and agreements like the one announced yesterday are easily broken. But it’s a start. Yesterday’s pop put DIG and several other energy ETFs on the Dean’s List. So now I will be watching energy stocks to see if they will break out of their sideways consolidation patterns.
BTW, the VTI on DIG is only 41.7 with an RSI of 88.8. So its slightly overbought with No Trend. This is why I’m still only looking at energy stocks as trades.
Yesterday’s rally caused 3 of the 4 breadth indicators to turn positive. The lone holdout is the Hi-Lo indicator which remains negative. So now The Tide is neutral.
However, until all four of the breadth indicators turn positive, I still have to trade the overall market with a negative bias.
So yesterday, when the 2-period RSI on the Daily Chart of the Dow became overbought (above 70), I established a few ‘trial’ positions in DXD and SH, the inverse index ETFs for the Dow and S&P500. Yesterday, the closing VTI reading on the Dow was 41.8 (No Trend) with the 2-period RSI showing a slightly oversold reading of 76.4. These conditions were enough for me to establish the ‘trial’ positions, but with the RSI only slightly overbought, it’s possible that the market could push a bit higher. If it does, I will likely add to these ‘trial’ positions.
When I ran The Professor last night, he had 38 longs to go with 8 shorts. So while he maintains his positive bias, he’s not recognizing the start of a major uptrend yet. As long as The Professor and the VTI continue to show No Trend, I’ll continue to trade the overbought and oversold conditions shown by the fast RSI.
Gold fell slightly yesterday, but most mining stocks had a nice day. The rally in the miners pushed several to the top of the Dean’s List. Most mining stocks appear to be forming sideways consolidation triangles, of one form or another. This is what you would expect to see while the metal, represented by GLD, is forming a major consolidation triangle.
One of the gold stocks I’m watching is Royal Gold (RGLD). Royal is a very volatile stock! It’s not for everybody. The thing I’ve been watching is the rising lower trend line that has formed since the 31 August low of 71.67 and yesterday’s low of 76.89. As long as this trend line is not broken, RGLD should test the upper trend line of the triangle near 86.93. I’m looking at RGLD as a trade now, but if it starts to move above 86.93, this rabbit could run a long way.
Last June (6/6) when the VTI on RGLD entered the Trend Mode, the stock was trading at 62.64. When the VTI came out of the Trend Mode on 8/22, RGLD was trading at 83.11.
Right now the VTI on RGLD is at 54, so it still needs to do some work before it can start trending. But with gold now on a Buy signal, I’m willing buy and hold a few shares of RGLD near current levels (near the lower trend line) to see if it can test the upper trend line.
That’s what I’m doing,
h
Market Signals for
09-29-2016
DMI (DIA) | NEG |
DMI (QQQ) | POS |
COACH (DIA) | POS |
COACH (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | NEU |
SUM IND | POS |
VTI | POS |
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Category: Professor's Comments