Weekend Strategy Review July 6, 2013

Posted by professor  at July 9th, 2013

For the past few weeks in this WSR, I have been talking about how the markets were in a corrective pattern for wave ‘b’ down. I also mentioned that wave ‘b’ down would likely unfold in three waves, with the final (c) wave down being either simple, which would take it near 14,500 or a complex zig-zag which could drop it significantly lower.

On 24 June, the Dow dropped to 14,551 level. However because of the heavy volume associated with the move, it appeared to be the end of wave 1 of (c) down and NOT the end of (c) down of ‘b’ down. So IF the drop to 14,551 was only wave 1 down of a 5-wave sequence, then wave 2 up could take the Dow up near 15,100 and to 1620+ on the S&P.

On Friday, the Dow closed at 15,135 with the S&P closing at 1631.

In other words, both the Dow and S&P have either reached or exceeded my targets for wave 2 up.

A few weeks ago, I mentioned that trading wave ‘b’ down would be tricky because of the extreme volatility of the corrective waves. I said that you could either wait it out on the sidelines or trade it favoring the downside. I also said that if you decide to trade, think short-term mostly because corrective periods are characterized by mixed indicators that lead to multiple changes in direction with large short-term swings. I believe that’s what we’re seeing now.

So the question for this weekend is have we reached a top for wave 2 up or is this the start of a new rally phase? Hmmm? It’s a good question?

On Friday, the Dean’s List turned positive, with all the positive index ETFs making an appearance. We also had the DMI turn positive on the Dow (DIA), but not yet on the Nasdaq (QQQ). However the P-volume on both indexes is still very negative. I find it hard to believe that a new rally phase will start unless it is supported by the P-volume.

Also, Friday’s pop occurred on EXTREMELY light volume in response to a supposedly strong Jobs Report. But as I warned earlier in the week, it is relatively easy for the markets to experience large moves when the volume is exceptionally light due to the July 4 Holiday.

Anyhow let’s look at the Jobs Report. Was it really that good to support a 147-point rally in the Dow? The BLS reported that the economy created 195,000 jobs in June, which beat extremely low expectations of 166,000 new jobs. Heck 195,000 barely covers the 175,000 new jobs necessary just to keep pace with population growth. So even if you believe that 195,000 is an accurate number, which it is not, it’s still nothing to get excited about. Friday’s report showed that only 58.7% of the 245 million adults in America were working last month. And that only 47% of these adults had full-time jobs, as companies start to cut back on working hours in response to the increased costs of Obamacare. Folks, these numbers do not support an improving economy. It’s an economy on life support, with the Doctor almost ready to pull the plug!

It was only 10 trading days ago when Bernanke talked about his tapering plan that sent the Dow into a tailspin, dropping 353 points. The fear then was that the economy was improving, so Bernanke could afford to lighten up on his Bond purchases. So Friday, we get a ‘good’ Jobs Report, confirming an improving economy (if you believe the numbers) and the market rallies 147 points. Go figure? You would think that the markets would interpret a ‘good’ jobs report – improving economy as something that would cause Bernanke to stop the stimulation even faster, causing the markets to fall. Hmmm?

Anyhow, I can’t read much into what happened on Friday mainly because of the low volume. I’m going to wait until next week, when the normal trading volume returns before I make any decisions on trading the major markets.

Right now, all I’m doing is trading EEV and FXP. The shares of EEV that I bought last Tuesday are now up about a buck with Green indicators. The shares of FXP are up about 10 cents, with 2 of the 3 PT indicators still Green on the 60s. As long as the indicators remain Green, I’ll continue to hold my Eating Cake.

On Friday I received an email from Charles asking how I trade Honor Roll stocks, especially the shorts. If you recall, earlier in the week, I posted UNF and WFM as potential short candidates. However although both stocks are currently showing patterns that have shorting potential, the PT indicators are still very positive on the Daily’s, so I’m not interested in either right now. If the market starts to head lower in the days ahead, I will revisit these issues based on the pattern. At this point UNH has a THT pattern, and I’m always interested in stocks with a THT Pattern…..when the DMI turns.

Have a great weekend.

That’s what I’m doing,

h

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.