Professor’s Comments December 18, 2013

Posted by OMS  at December 18th, 2013

The Dow fell 9 points in lackluster trading, closing at 15,875.  Volume was moderate, coming in right at its 10 day average.  There were 82 new highs and 87 new lows.  So now the number of new lows is outnumbering the new highs.

For the past month, the Dow has traded sideways.  Back on 14 November, the Dow was trading at 15,886.  Now it’s at 15,875.  It’s tough to make money when the market Is not moving.

However  the lack of movement could start to change after today.  The Fed will conclude it’s FOMC Meeting today with an announcement on its tapering plans scheduled for 2pm.

There was a very small change in the A-D oscillator again last night, which tells me that a Big Move is likely during the next 1-2 days.  The change was less than 4 points.  In the past, we have seen that small change signals from the A-D oscillator are usually very reliable in predicting moves over 100 points on the Dow within 1-2 days.  I expect this signal to be no different.

My indicators are showing mixed signals going into this announcement, so I will continue to remain on the sidelines.  I  believe that whatever the Fed’s decision, there will be plenty of time to get long or short once the market shows its hand.

Right now, it appears that the indexes are forming an a-b-c pattern associated with wave “d” down of an Ending Diagonal.  The pattern appears incomplete with one more wave down (wave ‘c’) likely.   This wave, if it develops, should take the SPX down to the 1740 level. 

However, because the Dow and S&P have been trading sideways to down for the past month, a significant ‘Blade’ has developed.  If the market interprets the news from the Fed as positive this ‘Blade’, which comes on the tail of a 1,400 point Dow ‘Stick’, could start the final wave “e” up rally.  We’ll see.

The Dean’s List remains neutral even though I’m showing it as Red on the cockpit.  That’s because right now, there is one positive index ETF (QQQ) on the List and one negative (SDS).  The ETFs for the Dow are notably absent.

Also, the cockpit is showing the DMI for the Dow (DIA) as negative and the QQQ as positive.  You can’t get any more mixed than that.

And finally, there’s The Professor.  When the DMI the Dow turned negative last week, I started to run this algorithm.  All I got from him was silence.  During the past few days he’s been showing a slightly positive bias.  But this bias is not enough to trade on.  BTW, his bias last night was 15 positive and 4 negative.

So with mixed signals, I really don’t have any choice to be on the sidelines until after the Fed announcement.  There’s been a lot of speculation about what Bernanke might or might not do during his final meeting as Chairman.  Some say that he could start the tapering process at this meeting, while others believe that with Yellen coming in, we could see QE 4 forever.  I don’t like to speculate.

The Professor’s Methodology is not about speculation.  That’s for the talking heads on CNBC.  I would rather wait for the market to show its hand, and then trade it accordingly.  To do otherwise is not trading; it’s gambling.  And right now, that gamble is an even money bet.  I’d rather wait until the indicators put the odds in my favor.

I’m on the sidelines.

That’s what I’m doing,

h

BTW, I want to say something about gold too. For the past few months I have been saying that gold, the metal, could trade down the 1150 level bfore it completes its pattern. The metal has been trading near the 1250 level for the past few weeks. This sideways trading has formed a small ‘Blade’ of a negative Hockey Stick Pattern.

Here’s the thing: Gold appears to be the final leg of a Major Wave 4 down. Some would say that gold is responding to the Feds plans for QE4. But this argument doesn’t make any sense, given that the Fed had continued to stimulate throughout gold’s decline. But putting this aside, if the Fed decides to taper, logically I don’t see how this can help the case for gold. It will likely trigger golds final leg down. I believe that gold continues to respond to its pattern, and not any Fed decision on tapering. That’s why all I’m doing now is watching the pattern and indicators on RGLD. Both are still negative.

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.

The Dow fell 9 points in lackluster trading, closing at 15,875.  Volume was moderate, coming in right at its 10 day average.  There were 82 new highs and 87 new lows.  So now the number of new lows is outnumbering the new highs.

For the past month, the Dow has traded sideways.  Back on 14 November, the Dow was trading at 15,886.  Now it’s at 15,875.  It’s tough to make money when the market Is not moving.

However  the lack of movement could start to change after today.  The Fed will conclude it’s FOMC Meeting today with an announcement on its tapering plans scheduled for 2pm.

There was a very small change in the A-D oscillator again last night, which tells me that a Big Move is likely during the next 1-2 days.  The change was less than 4 points.  In the past, we have seen that small change signals from the A-D oscillator are usually very reliable in predicting moves over 100 points on the Dow within 1-2 days.  I expect this signal to be no different.

My indicators are showing mixed signals going into this announcement, so I will continue to remain on the sidelines.  I  believe that whatever the Fed’s decision, there will be plenty of time to get long or short once the market shows its hand.

Right now, it appears that the indexes are forming an a-b-c pattern associated with wave “d” down of an Ending Diagonal.  The pattern appears incomplete with one more wave down (wave ‘c’) likely.   This wave, if it develops, should take the SPX down to the 1740 level. 

However, because the Dow and S&P have been trading sideways to down for the past month, a significant ‘Blade’ has developed.  If the market interprets the news from the Fed as positive this ‘Blade’, which comes on the tail of a 1,400 point Dow ‘Stick’, could start the final wave “e” up rally.  We’ll see.

The Dean’s List remains neutral even though I’m showing it as Red on the cockpit.  That’s because right now, there is one positive index ETF (QQQ) on the List and one negative (SDS).  The ETFs for the Dow are notably absent.

Also, the cockpit is showing the DMI for the Dow (DIA) as negative and the QQQ as positive.  You can’t get any more mixed than that.

And finally, there’s The Professor.  When the DMI the Dow turned negative last week, I started to run this algorithm.  All I got from him was silence.  During the past few days he’s been showing a slightly positive bias.  But this bias is not enough to trade on.  BTW, his bias last night was 15 positive and 4 negative.

So with mixed signals, I really don’t have any choice to be on the sidelines until after the Fed announcement.  There’s been a lot of speculation about what Bernanke might or might not do during his final meeting as Chairman.  Some say that he could start the tapering process at this meeting, while others believe that with Yellen coming in, we could see QE 4 forever.  I don’t like to speculate.

The Professor’s Methodology is not about speculation.  That’s for the talking heads on CNBC.  I would rather wait for the market to show its hand, and then trade it accordingly.  To do otherwise is not trading; it’s gambling.  And right now, that gamble is an even money bet.  I’d rather wait until the indicators put the odds in my favor.

I’m on the sidelines.

That’s what I’m doing,

h

BTW, I want to say something about gold too. For the past few months I have been saying that gold, the metal, could trade down the 1150 level bfore it completes its pattern. The metal has been trading near the 1250 level for the past few weeks. This sideways trading has formed a small ‘Blade’ of a negative Hockey Stick Pattern.

Here’s the thing: Gold appears to be the final leg of a Major Wave 4 down. Some would say that gold is responding to the Feds plans for QE4. But this argument doesn’t make any sense, given that the Fed had continued to stimulate throughout gold’s decline. But putting this aside, if the Fed decides to taper, logically I don’t see how this can help the case for gold. It will likely trigger golds final leg down. I believe that gold continues to respond to its pattern, and not any Fed decision on tapering. That’s why all I’m doing now is watching the pattern and indicators on RGLD. Both are still negative.