Weekend Strategy Review October 12, 2013

Posted by OMS  at October 12th, 2013

It appears the ‘cloud’ over Washington is being lifted. The House Republicans caved. This morning they are trying to figure out a way to save face by working on a bill that would lift the debt ceiling, re-open the government, fund Obamacare, and even restore the cuts made by the sequester. In exchange, they will likely get an ‘agreement’ to talk about future cuts to Federal entitlement programs and eliminate the tax on medical devises, which was never really critical to Obamacare.

Hmmm? Was all this really worth it? Did Washington have to put us through nearly three weeks of turmoil in the markets for this? It’s pretty ridiculous when you think about it.

Anyhow, all the turmoil did was morph the pattern that we were looking at three weeks ago into a slightly deeper decline. It really didn’t change anything. Before the fiasco in Washington, we were looking at a normal wave 2 correction as part of a 5 wave pattern for Major Wave C up. But now, because the correction deepened and formed a Wave D, it’s still part of the final wave up sequence, only now we have to label the final wave as E up of Major Wave C. It really doesn’t matter. The Dow will still likely trade over 16,000 on the Wave E rally, and could get close to the 17,000 level by year’s end.

This is what you should keep in mind this weekend, and not anything that is going on in Washington. I want you to remain focused on the Big Picture.

We got several ‘clues’ during the past few days that a deal on the debt ceiling was at hand. First, we got two VIX Buy Signals. These Buy signals occurred at a point where the market was EXTREMELY oversold. They also occurred when there was a ‘relatively’ small change in the A-D oscillator. So we knew that a Big Move was likely. On top of this, we saw The Professor highlighting over 100 stocks as entering the trend mode. BTW, he had another 144 yesterday. That number is his second highest of the year! The previous high was 188 in early January, which was the start of a 2,500 point rally in the Dow.

And finally, we saw the Dean’s List turn positive yesterday. Actually, while all of the positive index ETFs like DIA, QQQ, and SPY had dropped off the Dean’s List, the List never really turned that negative. Even during the one day when it was negative, the List was still very strong. If you get a chance during the next few days, you might want to review the Dean’s List on the ‘Day the Horse Died’. Now that was a negative List. Last Thursday’s List didn’t look anything like that List.

Also, the Member’s Watch List never turned negative. All during the Dow’s three week decline, the MWL continued to list many stocks that were doing just fine. The List told you not to worry about your stocks. Just seeing them on the List told you that they were still among the strongest stocks on the planet. And once the ‘cloud’ started to lift, these stocks exploded higher.

If you have some time this weekend, you might want to take a look at some of the stocks that we were talking about prior to the Dow’s decline and see how they fared. Stocks like SLB which reached a high of 89.48 on 18 September, the same day that the Dow reached a high of 15,709. From that point, the Dow fell almost 1,000 points to 14,719. However during the same period, SLB traded sideways for most of the period, and reached a new high of 90.29 on Friday. This is why you want to be in strong stocks from the Member’s Watch List. If you see your stock on the List, don’t worry!

If you see the market falling and your stock is trading sideways, you might want to buy more! Especially when it’s on-sale.

We talked about Baidu.com. On the day the Dow reached its high of 15,709, BIDU was trading at 145.69. Two weeks later, the Dow had fallen to 15,130. but BIDU went on to make a new high of 161.47! That’s what strong stocks do. They lead!

One more….Gilead Systems, GILD. GILD closed at 64.28 on 18 September, the day the Dow made its high. During most of the time when the Dow was falling, GILD traded sideways. It only fell below 60 during the three days last week when the Dow was taking its worst hit, dropping 300 points, but quickly recovered. On Friday, GILD closed at 62.69, after reaching a high of 63.48. So GILD is down less than 2 percent from its 18 September closing. The Dow is still down 3 percent.

And lest we forget Mako Surgical, MAKO. While the Dow was falling hard, MAKO was leading the MWL, being acquired and almost doubled!

Buying and trading strong stocks from the Member’s Watch List matters. It MATTERS!

I’m going to take a break now. Given that I believe the markets are starting to move higher in Wave E up, I want to look at a few stocks from the Member’s Watch List that I believe will participate in the rally.

I mentioned a few of them last week, but now I want to see how they are progressing. The things I’ll be looking for are Patterns and tight Bands. I also want stocks that look like they are about to enter the trend mode. A stock like Halliburton, HAL, is a good example. On Friday, Emeritus placed it on the Honor Roll. The stock has been in a well-defined Uptrend for the past year. And then in late June it started another rally, gaining over 10 points into its early September high. Since then it has pulled back a couple of points to form a nice Blade. And during its ‘Blading’ process, the Bollinger Bands have narrowed considerably. Hmmm? On the Member’s Watch List, with a HSw/Blade Pattern, with positive PT indicators and tight bands. Where have I heard this before?

I also see that DIG is on the Dean’s List with a similar pattern and positive indicators. Hmmm? Do you think I’m gonna look at a few more energy related stocks?

I’ll be back later this weekend with a few more stocks and thoughts. Meanwhile, do your own homework! The market appears to be getting ready for a significant rally into year’s end. It’s time to start picking your dancing partners.

Have a great weekend.

That’s what I’m doing,

h

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