Professor’s Comments February 19, 2016

Posted by OMS  at February 19th, 2016

The Dow fell 40 points, closing at 16,413.  Volume was moderate, coming in at 90 percent of its 10-day average.  There were 36 new highs and 28 new lows.

Not much changed after yesterday’ action.  The small pullback was expected after three days of a strong wave ‘c’ rally.   Once the pullback completes, I would expect the rally to resume and complete somewhere between the wave ‘a’ high of 16,585 made on 1 February and a declining 200 day moving average near 17,000.

Yesterday’s early rally was stopped at the 11 February high of 16,511.  This tells me that there is strong resistance near this level and the Dow will likely trade between current levels and 16,511 before making its final run toward 17,000.  However, because yesterday’s pullback reached a low of 16,390, it now appears the Dow will complete wave ‘c’ up closer to the 16,700-17,000 level.  This is IF yesterday’s low holds.  

I used yesterday’s pullback to Buy and scalp several energy stocks, including GPOR and EQT.  I also traded several shares of SLB, but they didn’t do much.  Almost all of my gains came from GPOR and EQT which made several nice intraday moves.

Remember, DIG, my ‘Stick in the Sand’ for energy, is now on the Dean’s List.  So I’m focused on energy as we move into the March-April time period which is usually very favorable for energy.  

Ordinarily, with a positive Tide and a growing Dean’s List, I would trade a few index ETFs from the Dean’s List.  But because we are on the doorstep of the March-April seasonality trade for energy, I’m focusing on energy stocks from the Member’s Watch List.  But not all of them.

Right now there are several energy stocks on the Member’s Watch List, including LNG, EQT, GPOR, HP, NBR, SLB, BP, TOT, and SNP.  So while the list is long, it’s telling me that energy is getting stronger.  But not all of these stocks are in the same stage of development.

If you look at each of the stocks mentioned above, most are starting to see strong inflows of money.  So from a money flow perspective, energy stocks are getting their share of attention during the current rally.

But if you look at the patterns, this is where they differ.  Right now the three stocks that have bounced off a bottom of a TLB pattern and formed a small Hockey Stick are EQT, GPOR, and SLB. 

You might want to look closely at SLB to see how it bottomed on 20 January and then bounced to form its ‘Stick’ and ‘Bade’ into mid-February.  Now the stock is moving up from that Hockey Stock pattern.

Stocks like GPOR and EQT have also formed nice Hockey Stick patterns off the TLB pattern, but are still in the ‘Blading’ process.  GPOR’s blade was probably delayed by its earnings release.  The stock pulled back yesterday creating a nice scalping opportunity.  And even though the stock closed down, the money flow indicator closed at its highest level in 5 months. 

The pattern still suggest the next move will be an attempt to cross above the 200 day moving average currently located at the 32.25 level.

Same for EQT where the 200 is located at 67.09.

So when selecting stocks to trade, students should compare the Money Flow and patterns of stocks like EQT and GPOR with a stock like LNG where the Hockey Stick pattern off the bottom is still in the process of developing.

Trading is all about putting the odds in your favor.  And energy stocks with well-developed Hockey Stick patterns and strong Money Flow indicators going into the March-April time period have the best odds for a successful trade.

Trading energy.

That’s what I’m doing,

h  

BTW, there was a relatively small change of 15 points in the A-D oscillator yesterday. So even though this is outside my 10 point window for a small change signal, we still need to be on the lookout for a Big Move within the next 1-2 days.

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.