Professor’s Comments August 14, 2013

Posted by professor  at August 14th, 2013

The Dow rose 31 points, closing at 15,451. Volume was moderate, coming in at 97 percent of its 10 day average.  There were 139 new highs and 198 new lows.  The number of new lows continues to outpace the new highs.

Yesterday’s early decline, followed by a reversal rally was typical of wave 2s.  I would expect to see similar choppy trading in the days ahead, as the multiple waves of the corrective process continue to unfold.

All of my breadth indicators, including the Summation Index, Hi-Lo indictor and Up-Down oscillator, remain negative and are heading down.  The A-D oscillator remains in negative territory for the 12^th consecutive day.  In addition, the oscillator has been either making small change readings or just missing these readings for the past 10 days.  This is very unusual behavior for the indicator, and I’m not exactly sure what it’s telling us, if anything.  But with the breadth indicators being negative, it is not the time to be buying stocks.

The Dean’s List remains long and positive, but the top spots are being dominated by the metals, and not the positive index ETFs.  The DIA is barely hanging on near the bottom.  Also there are a lot of European and Asian country ETFs on the List at this point, with RS ratings above the DIA.  All this supports my view that the Dow is likely in a temporary wave 2 correction.

One thing to note is that the QLD and QQQ are relatively high on the List.  Most of this is because of the performance of one stock, Apple. Yesterday APPL jumped 22.21 points to 489.57 on news that Carl Icahn was taking a large stake in the company.  The PT indicators on Apple turned positive after forming a TLB pattern on 17 July at the 430 level.  Yesterday’s news caused the stock to ‘Jump the Ropes’ so now we too can put it on our watch list.  Instead of getting caught up in all the hype, if you like to trade APPL, now that it has moved above the ropes, look for the stock to start forming a Blade.  Remember, even with all the attention Apple is getting now, it is still in a downtrend with the 50 well below the 200.  If the stock is going to move higher, it will need to spend the next few weeks getting the 50 above the 200 so it can move into an up trend.  Once this happens, that’s when you will start to see the institutional investors start to move back into Apple.  Not now.  What you’re seeing now is one guy making a Big Splash.  But one Big Splash does not make an Up trend, even if the guy who dove into the pool is Carl Icahn.

BTW, APPL is another case of a stock moving more than 5 percent once the PT indictors turned positive after a TLB pattern.  APPL is now up 13 percent since 17 July. 

My Rifle Trade in Schlumberger, SLB, was triggered yesterday with the stock popping 1.98 points to the 82.22 level.  It’s still not clear if yesterday’s pop will be enough to move the stock out of its Hockey Stick Pattern on the Daily’s.  But as long as the PT indicators on the 60s remain positive, I’ll stay with the trade.

Same for TBT which jumped 2.17 points yesterday to 78.43.  The ETF could be breaking out here, but I’m still concerned that the Blade continues to appear incomplete.  I know that a lot of my students established Basic Positions in TBT when the PT indicators turned positive back in early May when the ETF was trading in the low 60s.  If you are one of those fortunate students, you might want to be extremely careful with this particular Rifle Trade, and treat it as more of a scalp to protect profits and reduce risk on your Basic Position.  A few students, like Linda S., did this on 1 August, when the ETF popped to 78.18, before pulling back in the Blade.  On the other hand, IF TBT makes a strong showing early today, there is a good possibility that the Blading Process is over, and the ETF is ready to move higher.  I’m going to let the 60’s be my guide.

Last night, Emeritus highlighted a few stocks for the Honor Roll.  One of these was Gilead Sciences, GILD.  Gilead has been in an incredible Up trend for the past year, and during that time, has produced many opportunities for nice Rifle Trades.  The current pullback appears to be no exception, as the oversold stock remains in a nice steady Uptrend, with positive PT indicators.  You know that I’ll be watching it on the 60s.  GILD has been Red on the 60s for the past 10 days.  The corrective wave 2 down in the overall market will likely continue to pressure the stock, so just remember to be patient.

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

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.