Professor’s Comments August 6, 2013

Posted by professor  at August 6th, 2013

The Dow fell 46 points, closing at 15,612.  Volume was extremely low on the NYSE, coming in at only 80 percent  of its 10 day average.  There were 206 new highs and 111 new lows.  Notice how the number of new highs and lows are starting to get closer together?

The increase in new lows has causes my Hi-Lo indicator to turn negative.  It now  joins the Summation Index and the A-D oscillator in negative territory.  In other words, my breadth indicators are now clearly warning that the markets could be approaching an intermediate term top.

The pattern also suggests that we are nearing completion of wave 1 up in what should be a five wave sequence for wave ‘C’ up.  I have been using 15,700+ as my target for wave 1 up.  So far the high has been 15,658.

While the markets could easily make one more push higher in the next few days, I do not believe the risk-reward is favorable to support new purchases.  At this point, I would view any rally as more of a selling opportunity to book profits.  But I’m not ready to play the short side yet.

The Dean’s List is still way too positive.  And as long as he stays positive, I can’t be short.  For me to even look at the short side from these levels, I would need to see at least one of the positive index ETFs, like the DIA, SPY, or QQQ, fall off the List.  And right now, that’s not happening. 

TBT gave us an opportunity for a small Pistol trade on the 5s yesterday.  The set-up for the trade was Friday’s oversold conditions on the 60s.  The ETF popped at the open and at one point was up just over a buck.  TBT remains positive on the Daily’s, and appears to be forming a Blade to support a move higher.  If it can take out last Thursday’s high of 78.63, the large ‘Stick’ would project a move into the low 90s.  The downside risk, if the consolidation continues, is near the 73 level.  TBT is currently trading at 77.44.  I would like to see it pull back during the next week or so and become oversold again, setting up yet another opportunity for a Rifle Trade. 

At this point, there’s not a lot to watch on the Lists.  Gold is pulling back as expected from last week’s overbought conditions, but it is still not clear if the recent pullback will turn into something more significant, or if it is just forming a Blade to support a move higher.  GLD reached a high of 130 the week before last after turning Green on the Daily’s.  During the rally, it flirted with a move above the 50 period moving average.   But it didn’t have enough strength to stay above the 50 and is now sitting just below that average at 125.  I would have really liked to see GLD move above the 50 and then ride atop it as it formed its Blade.  This would have been a much stronger pattern for the next move in gold and the metals in general.  But it didn’t happen.  So for now, we’ll just have to wait and see if GLD can move above the 50 again.  Meanwhile I’m not interested in the metals, even though many are on the Dean’s List now.

Remember, a stock like Royal Gold, RGLD, which is leading the Dean’s List and supporting positive indictors, is only coming off a TLB Pattern.  A TLB Pattern is only a ‘potential’ reversal pattern; it is NOT as strong as a Hockey Stick.  It can easily fail.  Before we can get serious with a stock like RGLD, we need to see it ‘Jump the Ropes’.  Despite its recent strength, Royal is still in a down trend.  And while it has moved above the 50, and appears to be forming its Blade above the 50, unlike GLD which is forming it below the 50, the stock can only be considered a trade at this point.  If it turns Red…pay attention to any sell signal.

One of the things I will be watching closely today is FXP, the inverse China ETF.  While the ETF has fallen off the Dean’s List, the pattern still appears to be very much in tact.  There has been a lot of positive news coming out of China recently, which has caused the ETF to pull back and form a really nice Blade.  I still believe that China is in trouble, and the positive words from the mouths of Chinese bureaucrats can only do so much.  And while all the positive press has depressed the ETF,  FXP remains in an up trend.  The 50 is still above the 200, but just barely.

Here’s the thing: IF the news coming out of China is really bogus, the smart money will know.  IF FXP is really completing its wave 2 Blade and ready to move higher, the institutional traders will see that the ETF is trading about a buck below the 200.  In other words, it will represent a bargain to them, and they should push it higher within the next few days.  What will interest me is what happens after that.

If the institutional push, which I expect, is enough to put FXP back on the Dean’s List…. we could be in business again.  We already have a nice Hockey Stick Pattern in place. Now all we need is to see it appear on the Dean’s List and have the indicators turn positive.  This shouldn’t be too difficult for or a stock that’s already in an Uptrend.  We’ll see.

Same for EEV.

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

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