Professors Weekend Strategy July 20, 2013

Posted by professor  at July 22nd, 2013

The Dow fell 4 points on Friday, closing at 15,543.  It had been down over 50 points early, but managed to recover most of the loss by day’s end.  The Dow was up 70 points on the week in what appeared to be some type of sideways consolidation for a move higher.. 

At this point, it appears that the initial waves of final wave ‘c’ up are underway.  If I’m correct about all of this, then the final moves of wave ‘c’ up on the Dow should complete near the 16,800 level.

During the next week or so, the markets should start to form some type of wave 2 correction.  This correction could take the form of a sideways move or something deeper. 

Right now, all of PT indictors on the Dow and SPY are positive. The P-volume on the Nasdaq (QQQ) turned negative after Friday’s bashing of Microsoft, MSFT. 

For now, as long as the P-volume on the Dow and SPY remain positive, it’s telling me that there is plenty of gas in the tank to support higher prices.

But be careful with technology.  Remember, we saw the P-volume first turn negative on Apple, AAPL, on 24 September 2012 when it was trading at 689.  It was 6 months and 340 points later before the P-volume turned positive again on 15 March 2013.  This is one of the reasons that I have been very hesitant about jumping into the Dow until recently.  The P-volume has been sick.  It’s still not what I would call healthy, but it appears to be on the mend.

On Friday, The Dean added SSG, the Ultra Short Semiconductor ETF to his List.  SSG is currently forming a TLB Pattern, so IF the PT indicators turn negative now, I would be very careful with any chip stocks.  PSI, the positive PowerShares Semiconductor ETF is still on the List, but that ETF appears to be completing its pattern.  If you look closely at the Daily Chart of PSI, you can see that the ETF had a simple run-up into the late March period, after which it pulled back to form a ‘Blade’ in April.  And because the first run-up was simple, the Principle of Alternation tells us that the next move after the ‘Blade’ should be complex.  And that is exactly what happened.  So the move in PSI could be nearing completion.  Bottom Line:  Be careful with technology now.

The Dean also surprised me on Friday by placing FXP and EEV back on the List.  Wow!  I have to tell you that I did not expect to see this.  During the day, I was watching FXI and saw the PT indicators turn positive. I had mentioned that IF this happened, I would sell my shares of FXP and buy FXI.  But during the day, when I ran the Dean’s List, FXI was NOT on the List, so I couldn’t buy it.  Remember. I use the SIGN, and anything I buy MUST be on the List.  So even though the PT indicators on FXI had turned positive, I could not buy it because it was NOT on the List.  FXP was!

Truth be told, I really didn’t want to buy FXI anyway.  FXI is still in a downtrend, and only has a TLB pattern.   And while I do trade TLB Patterns, they are always a more risky trade than a straight Hockey Stick.  TLB Patterns are reversal patterns and when you trade them, you know before hand that the stock or ETF needs to do a lot of work (rope jump, form a Blade, etc.) before it can move into an Uptrend.  Sometimes the TLB Pattern fails, and the stock resumes its downtrend to make another lower low.  We saw this happen with gold and silver.   I’ll take a Hockey Stick Pattern every day over a TLB. And right now FXP is in an Uptrend and has a much stronger Hockey Stick Pattern, which appear to be completing.  If the PT indicators turn positive now, it could be starting a wave 3 up. I’d much prefer to be trading a wave 3 up than have to bother with the wave 1 and 2 that could be developing for FXI.  Anyhow now that FXP is back on the Dean’s List, next week could be very exciting IF the PT indicators start to turn positive.  Same for EEV, which has also developed a beautiful Hockey Stick Pattern and is back on the List.

I had mixed success with the two of the Rifle Trades I initiated late in the week.  After seeing a nice one-day gain in my shares of TBT, the ETF dropped 2.19 points on Friday to where it’s 2-period RSI Wilder is now oversold again. The PT indicators are still positive and TBT is still in an Uptrend.  In other words, it will be a Rifle Trade on Monday on the 60s.

VRTX on the other hand shot up another 1.72 points on Friday, more than off-setting my small loss in TBT.  The stock closed at 88.51 after being as high as 89.96.  My initial target for VRTX is close to 92.  But the reason I’m trading VRTX now is because of that 30 point ‘Stick’ that is not readily apparent on the chart.  Remember how in Class, when I relate the story of Winky Dink to you, I tell you to get out your crayon and draw in the ‘Stick’.   The ‘Stick’ is when the stock ‘gaped’ from the mid-50s to the mid-80s back in late April.  Then look at how the stock traded sideways for nearly 3 months in the mid-80s.  That’s the ‘Blade”.  And finally notice how the stock is starting to break out of the upper boundary (85) of its trading range and is starting to move higher.  As long as VRTX continues to move higher, I’ll let it run. I don’t know if VRTX is gonna achieve its full 30 point potential, but I never thought Netflix would be at 265 after its 40 point gap back in January.  A ‘gap’ is an indication of strength.  And a sideways consolidation after a ‘gap’ is even stronger.  It allows a stock to catch its breath, and form a base so it can move even higher.  With PBR, the Biotech ETF, high on the Dean’s List, I want to see what happens with VRTX, which had been a consistent Emeritus favorite.  You might also want to look at a 60 min chart of VRTX to see how the narrow Bollinger Bands are currently ‘Squeezing the Toothpaste’.

Crude oil continues to move higher and the oil related ETFs continue to lead the Dean’s List.  At 25.41, OIL appears overbought.  I would expect crude oil related shares to start their wave 2 pull back at anytime now.   The P-volume is not supporting current prices.  The longer-term chart for crude oil is suggesting a potential for significantly higher prices for crude oil.  But near term, I’m looking for a pullback.

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.