Weekend Strategy Review September 27, 2014
Posted by OMS at September 27th, 2014
Last week, with the Tide going out, I was mostly focused on my Breadth indicators.
However Breadth wasn’t the only indicator that was generating Sell Signals. I didn’t talk much about The Professor, my trend algorithm during the week, but on 22 September, the day after the market appeared to top, The Professor quietly generated a Sell Signal with 61 stocks identified as trending down.
Actually, starting on 19 September, The Professor had 27 shorts, then 61, then 27, 19, 32, and finally 11 on 26 September. In other words, he’s been very busy highlighting stocks that are starting down trends.
So even though the Dow rallied for 167 points on Friday, with Breadth being negative, a negative Dean’s List, and The Professor highlighting more than enough down trending stocks to generate a Sell Signal, I still don’t think it’s a good idea to be long stocks now.
The A-D oscillator rose to -137.61 on Friday. It was the 15th day in a row that the A-D oscillator has been negative. This is not something you want to see if you’re Bullish. The last time we saw the A-D oscillator negative for 15 consecutive days was back in May when the Dow was in the process of shedding over 700 points.
The A-D oscillator has also turned negative on a Weekly basis. Past data shows that when the oscillator is negative on a Weekly basis, the best the market can usually do is to trade sideways. On the other hand, there are many instances where after 3 weeks of negative readings, like we are seeing now, the Dow went on to drop anywhere between 900 and 2,600 points.
Most of the time, I use the A-D oscillator as an overbought-oversold indicator. But when it starts to become overbought or oversold for several weeks, it is usually a good indication that a major trend is developing. For example, the oscillator turned positive and stayed positive on a Weekly basis from early-February until mid-July 2014. During the 5 month period, the Dow gained 1,800 points.
In the 5 month period in early 2013 when the oscillator started to put together a string of positive readings, the Dow gained 2,600 points.
But now the A-D oscillator is negative, and it’s been negative for weeks.
It’s also negative at a time when all of the other Breadth indicators I use to determine the Tide are also negative.
There are times when all of my indicators and Lists are positive. This is usually a good time to own stocks. Then there are times when my indicators are mixed. This is a time when you need to be more selective with your purchases. And finally there are times, like now, when all of my indicators and Lists are negative.
Let me give it to you straight. This is not the time to be heavily involved with stocks. The risk is way too high!
I’m NOT saying that the market will crash in the weeks ahead. Nobody can say that for certain.
But I can say that the kind of conditions I’m seeing on the Board now have preceded all major market crashes in the past.
Does a crash have to happen? No.
But you know me. I’m an odds guy. And when I see something that looks like a duck, quacks like a duck, and waddles like a duck, I tend to bet that the thing I’m looking at is a real duck.
This market might not be a duck, but until my indicators turn positive, you’re NOT going to see me buying stocks or talking about buying stocks.
All I’m doing now is protecting myself.
That’s what I’m doing,
h
Market Signals for 09-29-2014 |
|
---|---|
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
COACH (DIA) | NEG |
COACH (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEG |
BREADTH | NEG |
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.
Category: Professor's Comments, Weekend Strategy Review