Professor’s Comments April 2, 2014

Posted by OMS  at April 2nd, 2014

The Dow rose 75 points, closing at 16,532.  The Dow got as high as 16,566 during the day, which is only 22 points from the 31 December high of 16,588. Volume was moderate on the rally, coming in at 96 percent of its 10 day average.  There were 173 new highs and only 6 new lows.

For the past few weeks, I have been talking about two scenarios for the Dow.  Both scenarios involved a re-test of the 31 December highs.  So with yesterday’s rally  to 16,566, we’re there now.   The question now is will the December highs be broken with a rally to 17,200+, or will the markets fail to break trough 16,588 and begin a sharp decline? 

At this point, it’s hard to tell.  All of the patterns for the major indexes are very Bullish consolidation patterns.  And as we know, prices usually leave these consolidation patterns in the same direction that they enter the patterns.  In other words, the odds favor higher prices.

However while the Dow and SPX have shown considerable strength during the past few weeks, the tech heavy NASDAQ has not.  It has lagged badly with a negative and diverging P-volume.  As I have been saying, it is difficult for me to picture the Dow moving toward 17,000+ without participation from  the technology sector.

Last night, when I looked at the sectors, it appears that technology and healthcare are in fact starting to improve.  Healthcare has now strengthened to the point where it is pushing energy as the strongest sector.  But right now, only 5 of the 20 sectors that I monitor have positive trend scores.

So the market is still in transition.  If you have been watching the Dean’s List the past few days, you probably noticed that the two inverse technology index ETFs, QID (NASDAQ 100)  and TWM (Russell 2000), were on the List.  However last night, QID moved to the bottom of the Dean’s List, and TWM dropped off. So slowly but surely, the list is starting to turn positive.

I believe this bodes well for a continuation of the rally.  It still appears that the SPX could make one more small decline to the 1870 level,  before its pattern completes.  But right now, I can make a strong case that the Dow and NASDAQ are starting to break out of their consolidations patterns.

Bottom Line:  I’m focusing my buying on three areas now.  Energy (which I have a lot of), healthcare equipment, and technology.  Late yesterday, I bought a few shares of Medtronic (MDT) and Stryker Group (SYK).  I really like the pattern in SYK, which has been consolidating above the moving averages for the past 6 weeks, while the P-volume has continued to gain strength. Medtronic, which was identified several days ago, has already started to move higher off its ‘Blade’.  The seven point ‘Stick’ projects to the 66 level, so at a current price of 61.66 I’ll be looking to add shares on any pullback. 

The two technology stocks that I have been watching, Agilent Technologies (A) and Juniper Networks (JNPR) also have nice Hockey Stick Patterns.  The DMIs turned positive on both stocks yesterday, however the MACD and P-volume are still Red.  If the NASDAQ starts to move higher in the days ahead, the patterns on both stocks could support nice gains. 

At this point, I’m about 75 percent invested, mostly in energy and healthcare equipment.  I also bought very small positions in Diamond Offshore Drilling (DO) and Rowan (RDC) yesterday as trades.  These stock are NOT like some of the other energy issues I currently own, as both are still in a downtrends.  However  the PT indicators turned positive on both issues yesterday after forming a TLB Pattern.  So I added these drillers to my energy mix as ‘trades only’.  If the indicators turn negative, I’ll dump both in a heartbeat.

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

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