Professor’s Comments April 10, 2014

Posted by OMS  at April 10th, 2014

The Dow rallied for 181 points yesterday, with most of the rally coming after the minutes of last month’s Fed meeting were released.  The Dow closed at 16,437.  Volume was moderate, coming in at 98 percent of its 10 day average.  There were 81 new highs and 11 new lows.

The rally was enough to turn the DMI on the Dow (DIA) positive, but not enough to turn the indicators on the broader SPX and technology laden NASDAQ.   So we’re back to having mixed signals from our indicators.

The Dean’s List remains negative, with all of the inverse index ETFs still on the List.  The List did lengthen with yesterday’s rally, but until DXD, SDS, QID, and TWT drop off the List, any rally is still suspect..

Just before 2pm yesterday, with the Dow up about 75 points, I started to run The Professor.  I wasn’t sure what to expect, given that he highlighted 22 longs going into Wednesday’s session.   I knew he was wide awake but with all of the cockpit indicators still negative, there wasn’t any Buy signal to confirm.

At 2pm, The Professor had 31 longs.  An hour later, at 3pm, he had 38 longs.  He finished the day with 45 longs.  So he’s getting very close to generating a new Buy Signal. 

At this point, with the Dean’s List still negative, and a lot of Red showing on the cockpit, it’s still somewhat premature to be talking about a new Buy Signal.   But on the other hand, seeing The Professor highlighting 45 new longs is nothing to sneeze about either.  It tells me that the start of a new rally could be right around the corner.

All of the indexes are still within their consolidation patterns. And because these patterns support higher prices, we need to be ready for a breakout.  But this breakout will not likely be the same kind of breakout we have seen in past rallies.  It will likely occur in stages, with the strongest sectors moving first followed by sectors like biotech and technology. But once the rally begins, it’s likely that most sectors will participate. The only difference is that some sectors will make new highs, while others will only see retracement highs.  It appears that a few of the weaker sectors have already topped and will only be forming wave 2 Blades.

Yesterday’s rally also turned 3 of the 4 breadth indicators positive.  The lone holdout is the Hi-Lo indicator.  Once this indicator turns positive, all of the breadth indicators will be in a position to support a rally.  I have said many times that I hate to take substantial positions in the market when the breadth indicators are not fully aligned and in my favor.

So we wait.  At this point, I’m holding a lot of energy stocks and a few medical equipment issues.  I still do not see any groups or sectors, besides the two mentioned, starting to emerge from the pack.  Most of the sectors that I watch are still showing negative trend scores.  Once these trend scores start to turn positive, it will be another indication that the next major rally leg has begun.

Bottom Line: The markets appear to be in transition. All of the major indexes have nice patterns that support higher prices.  Because of this, I’m currently in a hold mode with about 75 percent of my funds invested, waiting for a new Buy Signal before I put the rest of my money to work.

That’s what I’m doing,

h

Not sure of the terminology we use? Check out these articles

The Hockey Stick Pattern
The Creation of Waves and Trends
FAQ

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.