Weekend Strategy Review November 2, 2013

Posted by OMS  at November 2nd, 2013

The Dow rose 67 points on Friday, closing the week at 15,613.  It was up  42 points for the week.  The NASDAQ was only up 2 points on Friday, closing the week at 3,922.  But it was down 21 points on the week.  So the NASDAQ, which had been outperforming the Dow for the past month, is starting to weaken.  Hmmm? Dow up; NASDAQ down? I smell rotation.

In my comments on Friday, I mentioned that all of the breadth indicators were starting to turn negative.  And even though the Dow was up 67 points on Friday, my breadth indicators continued to move down.  When breadth starts to turn, it’s usually a sign that something is happening with the markets. At the end of the day, it is usually breadth that wins over price.  I never like to take longer term positions when the breadth indicators are going against me.

On Friday, China Pete, SNP, rose 1.18 points to 81.55.  The PT indicators turned positive with the move, and now the moving averages are only 0.17 points apart. As long as SNP stays above 78.80 on Monday, the 50 should cross above the 200, putting the stock into an Uptrend.

The reason I’m highlighting China Pete this weekend is not because I’m terribly excited about its prospects. It does have a target near the 90 level which is derived from the interim high between the first two lows of its TLB pattern. But this is not why I’m highlighting it this weekend.

No, the reason I’m highlighting SNP is because it is a good example of how a stock moves from a down trend into an uptrend.  If you become familiar with how stocks make this transition, you will start to understand the reversing process. And by understanding the process, you will be better prepared for the time when stocks start to change direction from uptrends to downtrends.

If you have some time this weekend, you might want to take a closer look at how China Pete started to move up once the DMI turned after the TLB Pattern.  Then note the Rope Jump and the sideways trading action when it formed a Blade.   Also note that when the price was trading above the moving averages, how it started to pull the 50 up toward the 200.

In the weeks ahead, I plan to talk more about China Pete.   Same for Apple, AAPL, which fell 2.32 points on Friday on a day when the Dow was gaining 67 points.  Hmmm?  Can you see what’s going on?  Why did Apple drop over 2 points while the Dow was rallying?   Before you answer, take a really close look at Apple’s chart. 

That’s right.  Apple fell because of its pattern.  It reached its target four days ago, and is now pulling back to form its Blade.  It needs to pull back!  It can’t move higher unless it pulls back.  Doesn’t matter what the Dow did on Friday, Apple needed to  pullback to form its Blade.

That’s what I like about Apple. It has a mind of its own.  Time and time again, Apple has demonstrated that its gonna do its own thing.  For most of this year, while the general market was rallying, Apple was in a down trend.  And now that the market is starting to look toppy, Apple appears to be starting an Uptrend. Why is this?

In previous comments, I mentioned that because money is NOT leaving this market, mostly because with interest rates being so low, there is no place for it to go.  Earlier this year, when money managers were busy moving money into other stocks, it was pretty obvious that they were not buying Apple.  Why?  Well think about it.  Apple was in a downtrend with its 50 below the 200.   No money manager in his right mind is going to buy a stock in a down trend.  So they stayed away from Apple and bought a lot of other things.  But things have changed.  Apple recently moved into an Up Trend, and its 50 is now above the 200.  Hmmm?  Do you think money managers are going to buy Apple now?  Where do you think they are going to get the money from?  Will they start by selling some of the overpriced stocks they have been trading for months? Stocks that have reached their targets?

Think about it.  Then after you have rolled this around in your mind. I want you to go back and review the process I outlined for you in Trading the Turns.   As long as interest rates remain low, I believe money will remain in the equity markets and NOT flow into Bonds.   But I also believe that money will start to move from overpriced stocks into those with more value.  In other words, I believe we’re going to see a lot of rotation in the weeks ahead.

That’s why I want you to become familiar with the process. I want you to review the process for stocks going from a down turn into an Uptrend AND from an Uptrend to a Down trend.  This could be something very important know in the weeks ahead.

Sector Rotation: It’s my Big Picture Strategy for this weekend.

Have a great weekend.

That’s what I’m doing,

h

BTW, if you want look for stocks that are just starting uptrends, look for stocks that are just starting to come on the List. Then look for a TLB or HS Pattern. After that, watch for the indicators to turn positive. In other words, use the SIGN.

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