Professor’s Comments December 3, 2015
Posted by OMS at December 3rd, 2015
The Dow fell 159 points, closing at 17,730. Volume was heavy, coming in at 117 percent of its 10-day moving average. There were 69 new highs and 119 new lows. The unusually high number of new lows is something that needs to be watched in the days ahead as it could be an indication that the market is starting to weaken.
Although the Dow pulled back yesterday, it still did not change any of the two scenarios currently on the Board. Right now, the five wave stair-step rally to 18,350+ is still my primary scenario. However IF the Dow does not exceed the 17,978 level and the Dean’s List and Tide turn negative, the Ending Diagonal scenario will come into play.
Yesterday both The Dean’s List and The Tide turned neutral. As long as they don’t turn negative, I still have to look for opportunities to Buy the current market.
Yesterday’s late pullback caused the 2-period RSI Wilder to come in with a reading of 32.29, very close to the oversold reading of 30. It was close enough for me to add a few shares to my position in DDM.
Remember, IF I’m correct about the Dow being in a five wave move to a top, by definition the move will not be straight up. The trading will be choppy and there will be pullbacks. So as long as the cockpit indicators do not turn negative, I will continue to hold my basic position and then add shares when the RSI is oversold and sell them when it becomes overbought.
One of the sectors that got hit hard in yesterday’s market was energy, particularly crude oil. It caused DIG to drop off the Dean’s List. But the interesting thing about this is that DUG, the inverse energy ETF did not replace DIG. This is what normally happens, but this time one ‘Stick in the Sand’ did not replace the other. Very strange. And anytime I see something like this, I look for opportunities.
It’s been a while since I talked about energy. Earlier this year after energy completed its seasonal March-April run up, the indicators turned negative and it was time to exit the trade. The oil service holders, OIH, fell from a May high of 39.79 to a late August low of 26. They got hammered! The summer is NOT the time to be long energy.
But it’s December now. And with the Christmas season fast approaching, I’m always looking to see if there are any signs of a bottom in the energy trade. Signs that could support higher prices as we move into the new year.
So when I saw DIG re-appear on the Dean’s List recently, I started to look at a few energy charts. I have to tell you that I liked what I saw.
Let’s face it, energy stocks have been getting slammed during the past few months. Nobody wanted to own energy. The news media keeps talking about the price of crude oil as if it is going to zero! But with OIH and PXJ on the Dean’s List, I don’t think lower prices are likely. The Dean just doesn’t put weak ETFs on his List. He always alerts you to strength.
So when I saw that he took DIG off his List yesterday, I also noticed that he didn’t replace it with DUG. Very strange. Hmmm? In other words, he didn’t feel that DIG was strong enough to deserve a positing, but not weak enough to cause the inverse DUG to appear.
Here’s the thing: Anytime I see DIG, my positive ‘Stick in the Sand’ for energy on the Dean’s List, I’m interested in trading energy. And I’m especially interested in energy if the calendar is approaching the March-April time period. OK, so it’s December. The very favorable March-April time period for energy is still a few months away. And now DIG is off the List.
But let’s look at recent history.
Last year, the energy trade didn’t get started until mid-March. But in 2014, it started in mid-February and lasted for 5 months. It was a very nice trade!
The energy trade also started early in 2013. On 2 January 2013, DIG was trading at 47. By mid-March it was just under 57. OIH was at 39 on 2 January 2013. It got as high as 45 by mid-March.
So even though DIG is not on the List now, OIH, and several other energy related issues are on the Dean’s List, and we need to pay attention, especially if DIG re-appears during the next few days.
OIH and DIG have both formed TLB patterns. Since late September, they have bounced off their lows. The DMI on OIH has turned positive. I’m always interested in a stock that has formed a TLB Pattern when the DMI turns positive. This is when I start looking to establish my ‘trial’ position.
I’m also looking at the Money Flow indicators. Yesterday the Money Flow indicator on both OIH and DIG turned negative. But just barely negative. They had been positive and showing positive divergence for weeks which means that somebody, probably the large institutions, are slowly accumulating energy.
So IF the Money Flow indicators turn positive and DIG re-appears on the Dean’s List, I’m going to look for entry points on the shorter-term bars to establish a few ‘trial’ positions in energy. I might be early, but with a TLB pattern in place, positive indicators and a Dean’s List positing, I’m willing to take a chance.
That’s what I’m doing,
h
Market Signals for
12-03-2015
DMI (DIA) | POS |
DMI (QQQ) | POS |
COACH (DIA) | NEG |
COACH (QQQ) | POS |
A/D OSC | |
DEANs LIST | NEU |
THE TIDE | NEU |
SUM IND | NEG |
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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Category: Professor's Comments