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Professor’s Weekend Strategy Review July 13, 2013

In this week’s WSR I want to talk about three areas that I’m currently watching. They are the foreign inverse ETFs, Crude Oil and Bonds.

The reason I want to do this instead on talking about the overall market is because at this point, the U.S. markets are all overbought, and I never like to buy into an overbought market. Yesterday the A-D oscillator had a second consecutive reading over 150, (184.6 on Friday and 217.32 on Thursday), and as I discuss in Class, readings like this usually lead to some type of pullback.

So IF the market starts to pullback next week, I want to be ready for a few possible trades. Remember, at this point my stock trading strategies Dean’s List is starting to become positive, telling us that wave ‘c’ up could be starting. And IF this is happening, I want to start looking for entry points using the Dean’s List and the SIGN to tell me what stocks or ETFs to buy.

So before I even think about buying something, let’s quickly review what I need to see for a Buy. This is what the SIGN is all about. The SIGN simply says, for a stock or ETF to be a Buy candidate, it needs to be on the Dean’s List. It needs to have a Pattern, and then the PT indicators need to turn positive. That’s it.

So IF I wanted to Buy the overall market now, could I Buy something like DIA? It’s on the Dean’s List. It has a nice Hockey Stick Pattern. The problem is that DIA is still showing a negative P-volume and that P-volume is diverging from price . So I can’t buy DIA. I have to wait.

But what about FXP or EEV. These two inverse ETFs dropped off the Dean’s List on Friday, after falling to the bottom on Thursday. What about them? Should they be sold now that they are no longer on the List? Hmmm? Well remember, we only use the Dean’s List to help determine which stocks to Buy, and not to manage our Sells. It’s entirely normal for a stock or ETF to fall off the Dean’s List during a wave 2 pullback. All the Dean is telling us is that FXP and EEV are no longer Buy candidates…at least not now.. All he’s doing is telling us the ETFs are pulling back and the Relative Strength is weakening. But because all of the PT indicators are not negative yet, the ETFs do not qualify as Sells. So I’m just holding them for now.

Let’s play what IF for a moment so you can see the logic behind the above Methodology. Let’s suppose my stock trading strategies PT indicators on FXP and EEV turn negative next week. Then they become Sells. They would not be on the Dean’s List and the PT indicators would be negative. A Sell signal. I’ll take a small profit. Then in order to become Buys again, they would have to re-appear on the Dean’s List, have a Pattern, and then have the PT indicators turn positive again. If the PT indicators turn negative, I don’t want to be holding these ETFs because there is a chance that a much larger degree pattern (the large inverse Hockey Stick with the Blade that started to form back in early January) could be the dominant pattern. If this is the case, the 50 could start to drop below the 200 on both ETFs and they could start major down trends. But right now, the charts are not telling us that this is happening. Just the opposite. Right now, both are still in Uptends, and are pulling back to complete the Blade of a smaller Hockey Stick Pattern that started in early May. This pattern supports higher prices, mostly because price experienced a second “Rope Jump’ in early June indicating wave 1, which caused the ETF to move into an Up trend, and the recent two wave pullback suggests a likely wave 2.

If FXP starts to rally next week, there is a good chance that wave 3 of 3 up will be starting. If this happens, I’ll continue to hold my current shares and look to add more whenever the 2-period RSI Wilder becomes oversold, as in Buy the Cake, Eat the Cake. If the indicators turn negative, I’m out, and will have to use the SIGN to re-enter the trade.

But let’s suppose that these inverse ETFs do turn negative. Then what? Suppose you are starting to like trading the foreign ETFs and you don’t want to wait for FXP and EEV to turn positive again, what could you do? Well, for one thing, EEM and CAF, the positive Emerging Market ETF and the positive China ETF have now appeared near the bottom of the Dean’s List. They could become Buys. But are they Buys now? Hmmm? NO!

Looking at a chart, it appears that both ETFs are starting downtrends, with the 50 just crossing the 200 to the downside. And if we use the SIGN to help guide us on our Buys, while both ETFs are on the Dean’s List, and both have a TLB Pattern, all of the PT indicators are still RED. However IF the PT indicators start to turn positive, there is a chance that the current downtrend will reverse. If this starts to happen, it will give us an opportunity to move out of our inverse ETFs (FXP and EEV) and into these longs. But not now.

The other things I want to talk about this weekend are Crude Oil and Bonds. But this WSR is starting to get a bit long. I’m going to grab a cup of coffee and then think about what I want to say. I’ll post my comments as Part 2 of this WSR later this weekend.

Have a great weekend. That’s what I’m doing.



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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.