Professor’s Comments December 30, 2015

Posted by OMS  at December 30th, 2015

The Dow rose 193 points, closing at 17,721.  Volume was low again, coming in at 72 percent of its 10-day average.  There were 100 new highs and 31 new lows.

Yesterday’s low volume rally was stopped by the upper trend line that has been in place since early October.  And as I mentioned yesterday, the next major directional move of the market will be determined by a break of this upper trend line or the lower trend line near 17,100.

Because the Dow did not have enough strength to break through its upper trend line yesterday, it’s likely that it will pull back today to consolidate yesterday’s gains before re-testing the upper trend line.  However, because most of the cockpit indicators turned positive yesterday, I have to believe that once the pullback completes, the next rally will break through the 17,750 and take the Dow toward 18,350+. 

So IF the market pulls back today, I have to view it as a buying opportunity.  I’m still not going to get too aggressive at this point, mostly because my trend indicators are still not in the Trend Mode.  But now that these indicators have moved out of negative territory, I can begin to do some selective buying.

I plan to start with a few inverse index ETFs from the Dean’s List.  This is what I do whenever Tide turns positive.  With a positive Tide, I start buying index ETFs as they start to appear on the Dean’s List.  I also plan to trade a few of the stocks that Emeritus highlighted for the Honor Roll.

With the Dow near 17,700, if it pulls back 50-100 points today or tomorrow, I can establish an intermediate term position trade in DDM with a reward-risk ratio of about 7:1.  I’m assuming a stop near 17,550.  Anything lower than 17,550 will likely mean a re-rest of 17,100 is underway and I don’t want to stick around if this is happening.  Besides the positive Tide and Dean’s List, the trade also has Bullish end of year and seasonality factors going for it.  The risk to the trade is the low volume.  Most pros are on vacation now, so it’s important to understand that the current rally is being driven by small retail investors.  Things could change rapidly once the Big Boys come back. 

Yesterday I had a nice day scalping Seagate Technology (STX).  And even though the Dow opened up 200 points higher and then spent the rest of the day trading sideways, STX had several small up-down-up moves that resulted in a nice payday.

I will likely continue to look for scalp trades today, but now that most of the cockpit indicators have turned positive, I will start holding some of my positions overnight.  The reason I’m willing to do this now is because the trend indicators have turned positive. In other words, there is a good chance that the next re-test of 17,750 could send these indicators into the Trend Mode.  So I’m willing to risk a few bucks for the opportunity to catch the early moves of a rising trend. 

Bottom Line:  I’m on Buy Signals, but being very cautious about what I’m buying.  The risk-reward now favors the long side.

That’s what I’m doing,

h 

The markets will be closed on Friday for the New Years Day Holiday. My next update will be the WSR. Happy New Year!

Market Signals for

12-30-2015

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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