Professor’s Comments February 5, 2014

Posted by OMS  at February 5th, 2014

The past few days were days when you had to go beyond the indicators to make money in the markets.  You had to anticipate what was going to happen.

For instance, when you saw that TMF was jumping the ropes as part of a Turn Around Pattern, you were starting to manage money on Monday. Yesterday was too late.  Yesterday TMF opened at 52.06, almost 2 points below the previous day’s close of 54.03.

Knowing that a ‘Rope Jump’ identifies the move as a potential wave 1, the odds were high that a wave 2 pullback would start once the ‘Rope Jump’ was completed. It takes a lot of energy for a stock to make a ‘Rope Jump’. It’s usually exhausted once it performs the move.

If you entered TMF when the PT indicators turned positive on 19 January at the 46 level, you had an 8-point profit by the day of the ‘Rope Jump’.  That’s almost a 20 percent profit in 16 trading days.  On a Bond Fund!  After something goes up 20 percent, you have to ask yourself if it’s going to continue to move higher without a correction?  Is this a realistic expectation? Hardly.

Same for taking advantage of yesterday’s early pop.  On Monday, I mentioned that the VIX had closed above 20 and that it also closed above its Upper Bollinger Band.  Knowing this on Monday placed the odds heavily in favor of an opening pop on Tuesday’s open.  And as we saw at yesterday, the DOW Diamonds, DIA, opened over 40 cents higher than Monday’s close. A position taken near the close would have resulted in an immediate profit.

The Indicators did not factor into either of these trades.  Other knowledge from The Professor’s Methodology did.

On this web site, I’m always talking about the two patterns I use in my trading: Hockey Sticks and TLB (or the inverse THT).  I also talk a lot about using the PT indicators to trigger the trade with these patterns.  Like on Monday, when I was using the indicators on the short-term bars to trade DUST.

But sometimes, you need to use the other tools in the toolbox to make money.  .  Last week, we saw how a small, change in the A-D oscillator resulted in Big Move in the indexes. The Small Change in the A-D oscillator told us that a Big Move was coming.  All we needed to do was climb aboard the train once we knew the direction the train was headed.

In mid-March, I will be doing a webinar for AIQ Systems that will talk about several of these event driven trades.  But if you have attended my Classes and been a member of this web site for a while, you probably already know about all of these event driven trades.  All I’m trying to do today is highlight the fact that these methods are also a big part of The Professor’s Methodology.  Too many of you just focus on Trading the Turns after a TLB Pattern, and Rifle Trades once the stock starts to move into an Uptrend.  There’s nothing wrong with doing this.   But when the market is in transition, like it has been for weeks, these event driven trades are a big part of the Methodology.  

As an example, you might want to look at the period from the last week in December until the final week of January.  During this time, the Dow traded in a very narrow range.  If you were buying and holding stocks during this period, you had your money at risk even though the market wasn’t going anywhere.  I kept talking about the pattern, which appeared to be wave ‘e’, the final wave of an Ending Diagonal Pattern where the risk of truncation was high.  So during the consolidation period, we waited for the Professor to signal that a new Up leg was starting before putting new money to work.  The signal never came.

However while the market was consolidating during those 20 trading days, there were 10 times where the Dow made moves of more than 60 points. There were 5 times when the Dow made moves of over 100 points. And just about all of those moves were identified by event driven trades, and NOT triggered by the PT indicators turning positive or negative.

So the next time you hear me talking about some of these even driven trades, you might want to pay more attention. There’s a lot more to The Professor’s Methodology than watching stocks on the Dean’s List for a few lines to cross.

In Class, I talk a lot about learning how to use all of the tools in the trading toolbox.  If you’re only using my Lists and indicators, you’re leaving a lot of money on the table.

One more thing.  If the Dow does start a correction rally in the days ahead, and starts to move back up to the 16,000 level like I expect, please make sure that you start taking steps to protect your money.  The downside risk on the Dow is still about 100 points below Monday’s low near 15,356 before wave 1 completes.  

But yesterday, we quietly saw the VIX generate a new Buy Signal by closing back under its Upper Bollinger Band. It might take another day or so for the market to stabilize, but now that the Dow is back above the 200 day ma support, we should start to rally from these oversold levels to form the wave 2 Blade.  It might take awhile before the indicators catch up, so we need to be on the lookout for event driven trades.

Watching for more clues.

That’s what I’m doing,

h

BTW, beaten down CORN finally turned positive on the Daily’s after a TLB Pattern.

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.