Weekend Strategy Review February 23, 2014

Posted by OMS  at February 23rd, 2014

The Dow fell 30 points on Friday, closing at 16,163.  It was down 51 points for the week.  The broader SPX fell 4 points on Friday, closing at 1836, which was a decline of 2 points for the week. There were 185 new highs and 11 new lows.

Friday’s low for the Dow and SPX were 16,093 and 1835 respectively. So the markets continue to consolidate, forming what appears to be a wave ‘b’ Blade.   Once this Blade completes, the markets should start to move higher.

Big Picture Strategy:  All I’m doing now is waiting for the Blade to complete.  On Friday, I talked about the Dow falling to the 15,900 level, with the SPX likely seeing 1810.  I’ll stay with these numbers for now.

As long as the market doesn’t do something silly, these levels should provide very attractive entry points for the final move higher.

There are a couple of things to consider as we wait for the wave ‘b’ pullback to complete.  The first is that from now to the final ride to the top, you should  be looking at all new purchases as ‘trades’.  The final leg of an Ending Diagonal Pattern is NOT the time to be falling in love with your stocks.  On the other hand, I do not believe that traders should stay on the sidelines after the pullback.  If The Professor starts to get active once the wave ‘b’ Blade completes, the final wave ‘c’ rally could be good for 700 to 1,000 Dow points.  We’ll just have to pay close attention to The Professor’s Money Management techniques.

Also, IF The Professor does generate a Buy Signal, I will likely trade the potential rally using ETFs like the DIA and SPY, and not a bunch of individual stocks.  The exception will the energy stocks I have been talking about for the past few weeks.  Last week I mentioned Halliburton and others like it in the Oilfield Service Group.  They had a nice week.  I still like them going into March-April.   But If The Professor starts to sing, I don’t want to be holding a bunch of junk.  Remember, the Professor bases his signal on the broader market.  So I want to have some money in an index ETF that reflects the broader market during this period.   The thing I don’t want to happen is for the rally train to be leaving the station, with me holding stocks without a ticket to ride.

Here’s something else to keep in perspective.  After the Dow made its all time high of 16,588 on 31 December, 2013, it fell 1,200 points to a low of 15,360 on 5 February.  Since then, it has recovered about 900 of those Dow points.  Hmmm?  So in 2 months, all the Dow has really accomplished was give you a lot of heartburn.  When the Dow dropped to 15,360, it was more than heartburn.  It hurt and you were probably starting to experience real fear!  I want you to remember this.

But just think about what The Professor was doing during this time.  Absolutely nothing. Was he worried?  Nope, he continued to sleep through all the market gyrations. You were worried, he was sleeping.  Hmmm?

Back in mid-December when the Dow was trading near 16,000, The Professor was telling us to get involved in the market.  Before that in early October, he was waving flags, telling us to enter the market for a 2,000 point ride.  But recently he’s been very quiet.  However, he’s been bullishly quiet.  Every day for the past few weeks, he has been highlighting an average of 7-15 stocks to the upside.  And as long as he remains bullishly quiet, I’m not worried about a market crash.  Besides, the Dean’s List is way to positive for something like that to happen now.

But here’s the key point:  I’m also not worried about missing any rally!

So all I’m doing now is waiting for the wave ‘b’ pullback blade to complete, and watching for The Professor to signal that another significant rally is starting.  To determine my target, I can measure the ‘Stick’ of wave ‘a’  from the 2 February low which is about 900 Dow points and add it to wherever the low of the current decline stops.  Right now, assuming the low is between 15,900 and 16,000, then my upside target should be between 16,800 to 16,900.  For months I’ve been saying that the Dow should top just under 17,000. Looks like things are right on track.

That’s my Big Picture Strategy.  Have a great weekend.

That’s what I’m doing,

h

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