Professor’s Comments December 13, 2013

Posted by OMS  at December 13th, 2013

The Dow fell 104 points, closing at 15,739.   The SPX finally fell below 1780, getting as low as 1772.28 before closing at 1775.5.  Volume was moderate on the decline, coming in at 104 percent of its 10 day average.  There were  33 new highs and a whopping 275 new lows.  Those new lows are a Red Flag for the intermediate term.  Coming where they are in the pattern, they tell to expect more downside before the pattern completes.

It might not seem like it, but it was only 9 days ago and about 430 Dow points since I was saying “This is not the time to be buying stocks”.  I still don’t believe it’s time.  Maybe in about a week to 10 days.  That’s when it appears that the current pattern will have run its course.

One of the things you should note about the current decline in the SPX is that there is no downtrend underway.  The CCI is only 74.61, which still 25 points from entering the trend mode.  But should we expect a downtrend to begin now?  Probably not.

That’s because now that the SPX has broken the 1780 level, the current move down it likely part of wave “d” down. And from Class, you know that while the move down can be significant, wave “d” should have an a-b-c structure to it. So it’s likely that those 430 Dow points are either part or all of the ‘a’ wave of “d” down.  In other words, once wave ‘a’ down completes, the market should see a small rally for the ‘b’ wave and then a final leg down for wave ‘c’ to complete the pattern.  The ‘b’ wave up could begin today.

Corrective waves are notoriously difficult to predict, so I’m still gonna stick with my target for the SPX to bottom near 1740-1750 for now.  It could be a little lower or a little higher.  It’s not a Big Deal. Trying to determine the exact low is not what we’re looking for on this trip down.  What I want to see is the a-b-c structure of the move, which would tell me that it is part of a corrective wave.  If this happens and the correction forms the Blade of our Hockey Stick Pattern….that’s what I want to see.  That way I will be able to take the recent 1400 point Stick on the Dow and add it to wherever wave “d” bottoms so I can establish a target for wave ‘”e” up . That’s what I’m trying to do during the next week or so, as I watch the corrective waves unfold.

The A-D oscillator had another small change last night, so there could be a Big Move in the indexes within the next 1-2 days.  The reading was -164.98, which is only 2 points from the previous days reading. So now we have 2 consecutive days of oversold A-D oscillator readings of less than -150.  The 35 period CCI came in with a neutral reading of 27.32, so without a downtrend in place, and an oversold A-D oscillator, conditions could be setting up for a small rally.  This will likely be the ‘b’ wave.

The Professor came in with a neutral bias, with 8 longs and 9 shorts. These low numbers also tell me that no trend is in place.

BTW, just after noon yesterday with the Dow down 140 points, I received an email from a student asking why The Professor was not highlighting a bunch of shorts?  Hmmm?  Maybe it’s because The Professor is a trend algorithm, and didn’t see a trend underway.  As things turned out, just minutes after I received the email, the market started to rally for 92 points.  If my student had jumped in on the short side, like she wanted to do, she would have been creamed!   Remember, I use The Professor to confirm a DMI change, not to pick stocks.  If you want individual stocks to trade, you might want to pay attention to those being highlighted by Emeritus for the Honor Roll.

Emeritus is a also a trend algorithm that looks at stocks in the data base for the Member’s Watch List.  When he puts a stock on the Honor Roll, he’s telling you that there is a good chance that the stock could be starting to trend.  This is something you might want to pay attention to if you are scalp trading during corrective waves in the overall market.

The two recent shorts highlighted by Emeritus, Mosaic, MOS and Potash Corp, POT, fell another 55 cents and 33 cents after being placed on the Honor Roll. Both stocks are now in downtrends.  Once a stock goes into a downtrend, where the CCI is less than –100, I like to hold some of it.  I take a profit on a portion of my scalp trade and then hold a few shares to see what develops.  And once I have a profit, from that point on It’s all about money management.

Last night, Emeritus highlighted EEV, the Proshares Ultra Short Emerging markets ETF for the Honor Roll.  The ETF has been in a downtrend for the past 3 months during which time it formed a TLB Pattern.  The ETF is currently on the Dean’s List with a RS rating of 1.  It also has positive PT indicators.  Hmmm? Dean’s List, Pattern, and Indicators.  Where have I heard that before?  If you do decide to establish a relationship with EEV, remember it’s only a date.  The ETF is still in a downtrend, so you will need to dump her IF the indicators turn negative.

The thing that caught my eye when I looked at a chart of EEV was the diverging P-volume.  Something appears to be going on.  Even though the price is almost 9 points lower than it was back in late June, the P-volume is higher. Hmmm?

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
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.