Professor’s Comments April 11, 2014

Posted by OMS  at April 11th, 2014

The Dow fell 267 points yesterday, closing at 16,170.  The decline erased all of Wednesday’s 181 point gain and turned all of the breath and momentum indicators negative again. Volume was moderate, coming in at 111 percent of its 10 day average.  There were 62 new highs and 31 new lows.

Looking at the charts, it still appears that all of the consolidation patterns I have been talking about for the past few weeks remain in place.  However, the markets are now at or very close to the lower trend lines of these consolidation patterns.  We do not want to see the Dow fall below the 16,100 level as a drop this low would confirm that something else is occurring.  That ‘something else’ could be a 3-3-5 Flat Pattern which could cause the Dow to fall to the 15,850 level. 

This past weekend, I posted a chart of the biotech’s that showed a potentially negative Hockey Stick Pattern.  I warned that IF the Blade lows were broken, the biotech’s could suffer a sever decline.  That’s what happened yesterday.  And after yesterday’s big decline, the Dow could be developing a similarly negative pattern for the current consolidation.  Right now, the odds of this happening are low.  But if the current trend lines are broken, and the DOW drops below 16,100,  the odds for a continuation down to 15,850 increase significantly. 

Late yesterday afternoon, with the  Dow down over 200 points, I started to run The Professor to see if he would be confirming the negative DMI turn on the Dow.  He didn’t.  He only identified 14 stocks as shorts at the 3pm mark.  He finished the day by highlighting 16 stocks as shorts.  This is not enough for me to get concerned about a new downtrend starting…yet.

The Professor has been spot on for the past few weeks, keeping me from putting additional money to work in issues besides energy and medical devices.  Yesterday, while the biotech and technology issues on the NASDAQ were getting hammered, most of my energy issues only had slight declines.  Gulfport Energy (GPOR) only fell 0.09 cents and was actually flirting with a new high at one point yesterday, while the Dow was dropping over 200 points.  Pretty amazing!

I received an email from Dave M. yesterday who after watching yesterday’s slaughter of the biotech’s and high P/E techies observed :

“After today’s big sell off on the NYSE and NASDAQ, it was interesting to see what happened to the 4 stocks highlighted on the Honor  Roll.  McDonald’s was up over a buck. OIL was even on the day. REMX was down a few cents, and EQT was down a little over 2 dollars, but just over 2% compared with the broader market issues that got hammered much worse. WOW! What does that say about stocks listed by Emeritus? It says….pay attention to me.”  Dave M.

Anyhow, all I’m doing now is waiting.  It’s pretty obvious that this market is still trying to digest all of the recent statements of the Fed.  It’s all a part of the normal process to achieve consensus which forms the consolidation waves.  So give the markets time to sort things out.  But just like the chart of the biotechs I showed last weekend, we need to keep one eye looking at the 16,100 level.  As long as we stay above that level, we should be OK.

When I looked at the sectors last night, I still saw a lot of Red trend scores.  But the important thing was that not many of them changed.  We went into yesterday’s session with 12 of the 20 sectors I monitor being negative.  Last night, when I checked, those same 12 sectors remain negative.  This tells me that yesterday’s decline was mostly limited to overpriced biotechs and technology.  It did not spread to the rest of the markets.  The strong sectors stayed strong; the weak sectors got hammered.

BTW, I received an email from Ron early yesterday asking about BIS, the  ProShares UltraShort Biotech ETF.  Ron wondered how BIS could be on the top of the Member’s Watch List with a ranking of 8 after Wednesday’s rally when biotechs were such a big contributor to the gains in the NASDAQ.  Hmmm.  I told Ron that maybe the algorithm was trying to tell us something.  We saw this same thing happen many times before, when things like Bonds and Gold were being ranked high on the List, when our emotions were telling us one thing and the Lists were saying something else.  And yesterday, we were once again reminded that the Dean assigns his rankings for a reason.  Like Dave M. says…its up to us to pay attention.

Watching.

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.