Weekend Strategy Review December 27, 2015

Posted by OMS  at December 27th, 2015

The Dow fell 50 points on Thursday, closing at 17,552.  It was up 424 points for the week.  The NASDAQ was up 3 points on Friday and up 125 points for the week.

The cockpit indicators remain mixed and with two scenarios on the board that could support moves either up or down, Thursday’s shortened pre-Holiday trading didn’t resolve anything.

Because of this, I want to talk about something a little different this weekend.  I want to review how I use the Emeritus algorithm with the Summation Index.

A few months ago, I added the Summation Index to the cockpit because of the research I did using it to as a trigger for stocks from Honor Roll. 

As you know, the Summation Index is one of the four breadth indicators that make up The Tide.  But there’s a good reason why I break it out separately and put it on the cockpit.  This week, I want to remind you why it’s there.

Back in early October, after consolidating for about two weeks, the Dow started to move higher.  The consolidation period was very similar to what the market is doing now, only the current consolidation period is a lot longer.  The current consolidation or Wedge Pattern has lasted almost two months.  So once the Dow starts to move out of the pattern, the move should be even sharper. 

This is why I want you to start paying attention to the Summation Index and any stock that is being highlighted by Emeritus for the Honor Roll.

When I go back and look at all of the stocks highlighted by Emeritus on 5 October, the day after the Summation Index turned positive, all of them turned out to be nice winners.

Remember, Emeritus is a trend algorithm, and once Summation Index turned positive, it’s clear that the stocks you wanted to be in were those that were trending.

This is especially true now, because now is not the time to be involved with just any stock.  With two scenarios on the Board that are both termination patterns, you should have a very good reason for putting your money at risk.  If stocks start to move lower in the next few days causing the Dow to fall below 17,200, the Dow could be headed below 16,000.  So IF the Summation Index turns negative, I’ll start looking for Honor Roll stocks to short as the Ending Diagonal Pattern is likely taking over. 

But if the Dow continues to stay above 17 200 and the Summation Index remains positive, there is a good chance that it could break out of the Wedge Pattern and start moving toward 18,350+ as wave 5 of the Five Waves to a Top (FWT) Pattern unfolds.  If this is what’s happening, then I’ll look to trade positive stocks from the Honor Roll.  When I look at the performance of Honor Roll stocks after October’s consolidation period, it’s more than enough reason for me to put my money at risk.

And IF the rally continues and The Tide turns positive, I’ll continue to look for Honor Roll stocks to trade.  For example, once the October rally began, Emeritus continued to highlight stocks as they entered the trend mode. One of those stocks was Weight Watchers International, (WTI) which moved from 14 to 28 in just a month after being highlighted.

Last week I mentioned HCN and CAH, two stocks that fell just short of Honor Roll criteria after the Summation Index turned positive. The stocks were highlighted because they were part of a strong sector, but did not meet the algorithm’s Trend criteria. This is what usually happens just before a group or sector is about to break higher. HCN and CAH were up 0.78 and 0.87 the following day.  Both presented opportunities for easy scalp trades.

But here’s the thing: I know that a lot of you do not like to scalp trade the consolidation periods. You much prefer to buy and hold. So do I.

So IF the Dow starts to move higher this week, please pay attention. Wave 5 up could be starting. Wave 5s are trend waves. In a trend wave, I start holding Honor Roll stocks using the indicators I use to scalp trade, only now I’m using them on the longer 60 minute or Daily charts.  Again, I’ll only be doing this with stocks from the Honor Roll.  Remember, with two potential topping patterns on the Board, I’m only interested in stocks that are entering the Trend Mode.

Have a great weekend.

That’s what I’m doing,

h

Market Signals for

12-28-2015

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