Professor’s Comments February 20, 2014
Posted by OMS at February 20th, 2014
The Dow opened at 16,130, then rose 95 points only to see all of those points evaporate before falling 184 points to close down 89 points at 16,041. It was a wild day for traders. After noting several days of EXTREME overbought conditions from the A-D oscillator, the decline was expected. Volume was moderate, coming in at 104 percent of its 10 day average. There were 162 new highs and only 15 new lows.
The large intraday move was likely the Big Move predicted by the ‘relatively’ small change in the A-D oscillator.
The A-D oscillator fell back into more ‘neutral ’ territory, with a reading of 127.5. However this reading still allows for further downside over the short term.
The Dean’s List remains positive. Yesterday’s decline caused the DMI on the DIA to turn negative. The DMI on the NASDAQ (QQQ) remains positive leaving us with mixed signals. Also, yesterday’s decline did not change any of the breadth indicators. So at this point, it’s still likely that all the market did with yesterday’s decline was relieve some of its overbought condition. The odds still favor higher prices once the current decline completes.
I did a quick check on The Professor last night and he was sleeping. Only 4 longs and 4 shorts. So The Professor does not see a new trend developing either up or down. Like I said in yesterday’s Comments, it will be the nature of the current pullback that will determine the market’s next major move. But right now, with mixed indicator from the cockpit and no confirmation coming from The Professor, it’s too early to tell. However we must still protect ourselves against the possibility that yesterday’s trading action was the start of wave 3 down.
With the Dow overbought and near the top of the 16,100-16,300 trading zone I have been talking about, all I was doing yesterday was scalping a few shorts.
Going into yesterday, we knew that the market was EXTREMELY overbought. Several days of A-D oscillator readings at or above +200 were telling us that. And we also knew from the ‘relatively small change in the A-D oscillator, that a Big Move was coming. So when the market moved up almost 100 points, it set up almost perfect condition for scalping on the short term bars.
But the thing I was really watching was gold. After the market’s initial pop, it started to decline when a very poor housing report was released. But the thing that got lost in the shuffle was a comment made by one of the Fed members who said that not only would the Fed continue with its tapering program, but it is considering RAISING interest rates! As soon as the gold market heard this comment, it started to decline. Right now inflation caused by an increasing money supply is about all gold has going for it. So when a representative of the Fed is saying that more taping is in the cards, I do not see how gold prices can maintain their current levels.
As you know, I’m just watching gold.now for any signs that the rally since early January is ending. And yesterday I started to see the first signs.
Royal Gold, RGLD, has formed a clear THT Pattern on the 60s. If the PT indicators start to turn Red on the 60s, I’ll short a few shares as a Position Trade. I will hold this Position Trade overnight. Then IF the indicators turn Red on the Daily’s, I’ll look to short a few more shares. But I really want to see gold shares start to drop off the Dean’s List before I get serious about shorting gold. BTW, even thought I mentioned Royal, just about all of the mining stocks I looked at have the same THT pattern on the 60s. I’m only using Royal as an example, If I see some of the other gold stocks start to turn Red on the 60s, I’ll consider trading them too, but I don’t want to get over committed at this point. I’m just looking for a few trades.
Yesterday the Gold Miners Index, HUI, hit and was stopped dead by its 200 day moving average near 245. If gold, the metal, does start to move down toward the 1150 level as I expect, then I would also expect the HUI to trade back under 200, probably closer to 185 -190. In other words, gold stocks could drop over 20 percent in the next few months. It’s one of the reasons I’m interested in gold now. I’m just waiting to see the metals generate a few sell signals.
That’s what I’m doing,
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Category: Professor's Comments