Professor’s Comments August 29, 2014

Posted by OMS  at August 29th, 2014

The Dow fell 42 points, closing at 17,080. Volume was moderate, coming in at 91 percent of its 10 day average.  There were 135 new highs and only 10 new lows.

The market had every opportunity to start a significant decline yesterday, but it didn’t.  This tells me that  Bullish bias from the end-of-month / pre Holiday trading will likely cause wave ‘b’ up to form a more complex pattern into its top.  In other words, wave ’b’ up probably has one more rally wave left in it before wave ‘c’ down starts to take hold.  Be patient.

Yesterday’s weak decline did nothing to change any of my indicators.

The Dean’s List remains positive, but weak.  The DMI on the Dow (DIA) and the NASDAQ (QQQ) remain positive, as does the Breadth.  However I still believe that this is not the time to be buying stocks.

Today is the last trading day of the month.  Once traders come back from the Labor Day Holiday, the Bullish bias from the Mutual Funds rebalancing their portfolios won’t be there to support the markets.  That’s when I would expect wave ‘b’ up to top.

With a potential 100+ points of upside vs. 800 points of risk, the current reward-risk ratio is about  8:1 in favor of the downside.  This is why I’m on the sidelines now, just waiting. BTW, I used 100+ points of upside potential because Wednesday’s small change signal from the A-D oscillator is still on the board. I have to respect that signal.

Three days ago, when most of the energy stocks got a nice pop, I mentioned that the move was likely a false alarm.  The pop wasn’t enough to turn the PT indicators Green, and DIG was not on the Dean’s List.  So now, two trading days later, HAL has fallen over a point each day, and is now almost 2 ½ points below where it closed on Tuesday.  Hmmm?  That’s why I watch those ‘Sticks in the Sand’.

Speaking of ‘Sticks in the Sand’,  I see that TMF jumped another point yesterday as foreign money continues to pour into U.S. Treasuries.  TMF has been at or near the top of the Dean’s List for the past month.  Actually, the ETF has been on the Dean’s List since 9 July when it replaced TBT, the inverse Bond Fund which dropped off on 8 July.  When TMF came on the List, it was trading at 60.74.  Now its at 71.21.  And all the time, all you had to do was watch to see if it was on the List.  No indicators, no patterns, no trend lines, no nothing.  When it appeared on the List, the Dean was telling you to get long Bonds.

Now you know why I’m watching energy.  Last night, DUG, the inverse oil and gas ETF dropped off the Dean’s List.   But DIG, the positive oil and gas ETF has not replaced it yet.  So all I’m doing now is watching.

Same for DDM/DXD, UWM/TWM and …..gold.  Right now, the only gold stock on the Dean’s List is AUY.  It’s just hangin’ on the List near the bottom with negative indicators.  Because it’s the only gold stock on the List, it’s telling me that the gold fish aren’t biting yet.  The tide isn’t right.  But not to worry.  I have a feeling that I’m gonna know when the gold fish are schooling up for a feeding frenzy.  My fishing buddy,The Dean, likes to fish too.  But he waits until he sees lots of gold fish start to appear on his List. 

So all I’m doing now is watching my ‘Sticks’ and waiting for a Tide change.

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.