Professor’s Comments August 2, 2013

Posted by professor  at August 2nd, 2013

The Dow rallied for 128 points, closing at 15,628. It got as high as 15,650 intraday, which is only 50 points of my target. After posting Wednesday’s small change in the A-D oscillator, the Big Move was expected. Volume picked up on the rally, coming in at 117 percent of its 10 day average. There were 403 new highs and 85 new lows.

With the jobs report coming out at 8:30 today, I don’t want to speculate on how the market will react to the news. I have found that it’s better to wait and see how the market reacts, and then trade accordingly.

We know that the Dow could be getting very close to the top of wave 1 up, and that wave 2 down could begin at any time. And the Jobs Report is always an event that has the potential to move the markets. In this case, it could trigger the start of next wave down. So let’s just see what happens at 8:30.

Yesterday was an interesting trading day for several reasons. That’s because the whole market was one big Rifle Trade. All of the major indexes were in Up trends, with positive PT indicators, and had pulled back to the point where they were oversold on the Daily’s. And with a small change signal from the A-D oscillator on the board, the market exploded higher right out of the gate.

You could have taken just about any stock on the Member’s Watch List and done well. SLB, the stock I was trading, gained over 2 points. TBT was up 2.88 points to 78.18. I was stopped out of my trade in SLB late in the day as I kept moving my stops up as the stock advanced. The reason I did this was because I really didn’t want to be in the market in front of an uncertain Jobs Report. So I paid my $6 commission and moved to the sidelines. That’s what I do when I’m facing high risk situations. In Class, I demonstrate this by getting up on a chair whenever the lions, tigers, and bears start to enter the valley. I pay the 6 bucks commission and move to the safety of my castle.

However there’s another reason why I don’t have a problem taking a profit at times like this. I know that I can always get back in when the danger goes away. And it only costs me 6 bucks.

Think about it. This is probably a good time to talk about taking money off the table because many of you have likely experienced this situation during the past few days. Let’s use both TBT and SLB as examples. Lets suppose you took the Rifle Trade I talked about in TBT, and started to worry about the trade when it reached its initial target above 77 and became overbought. So you sold. Nothing wrong with that. You breathed a sigh of relief when you saw TBT fall to the 75 level after the Fed announcement, and were happy that you dodged that bullet. But later that day, you looked at the indicators on the 60s, and probably saw that they never turned negative. Hmmm? Then with yesterday’s rally, you were probably somewhat frosted when you saw TBT start to move up again, but this time you weren’t aboard the train. Hmmm? What to do? What to do? Do you need to wait until the RSI becomes oversold again on the Daily’s again to begin another Rifle Trade? Hmmm?

Same for my Rifle Trade in SLB. I got out of the trade, even though the PT indictors remain positive. So now I’m safely on the sidelines. But suppose today’s Jobs Report is interpreted as positive, and the market starts to take off. How will I get back in the trade? Hmmm?

OK, I asked you to think about all of this. Here’s what I will be doing.

I will use a Pistol Trade to re-enter the trade. A Pistol Trade is exactly the same as a Rifle Trade, only in miniature. Instead of using the Daily’s to identify the oversold condition, I use the 60s. And then as long as the stock or ETF remains in an Uptrend on the 60s, I wait for a time when it becomes oversold, and then look to enter the trade when the shorter term bars, like the 5s or the 15s, give the OK. If you want to make your Pistol Trade look like an exact miniature of a Rifle Trade, use the 10 min bars as the trigger. That’s because there are 6 hourly bars (actually 7 bars, with the first bar only having 30 min of data) in each trading day. So if you use the 10s, then you get 6 ten minute bars in each hour.

IF SLB starts to move higher today, I’ll consider getting back into the trade when it becomes oversold on the 60s. If this happens, and all of the indicators remain positive, I’ll look to buy the stock on the 5s or10s. Just remember, that every time we use a Rifle Trade, or Pistol Trade, we need to correctly size the position to reduce risk. In other words, a standard Rifle Trade is always half (or less) the original Basic Position. The Rifle Trade is my ‘eatin cake’ in the larger BTC-ETC Strategy. The position is sized as a trade. So IF you want to get back into the stock with a Pistol Trade, the position must be half what you had on with your Rifle Trade. Don’t just buy the same number of shares you sold in your Rifle Trade. That would be a mistake! No, it should be smaller.

This is because you always want to be managing your money. IF the Pistol Trade starts to turn against you, you don’t want to give back all the money you made in your Rifle Trade. IF the indicators start to turn negative, exit the Pistol Trade, and then wait for another opportunity to begin the process all over again with another Rifle Trade. As long as the stock remains in an Uptrend on the Daily’s, continue to look for opportunities for Rifle Trades.

Waiting for the Jobs Report.

That’s what I’m doing,

h

BTW, thank you for all the nice emails I received telling me about your success with TBT and SLB. I really appreciate them :>)

Ron H. asked what I saw in WFM that caused me to mention it as apotential short yesterday. One my algorithms kicked it out after the DMI tunned negative after a THT pattern. I didn’t want to short the stock because of today’s Jobs Report, so for now, I’m just watching.

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.