Professor’s Comments January 24, 2014
Posted by OMS at January 24th, 2014
U.S. markets fell sharply yesterday on news of slowing growth in China. The Dow fell nearly 176 points, to close at 16,197. The SPX dropped to the 1820 level testing pattern support before recovering to close at 1828. Volume on the NYSE was heavy on the decline, coming in at 116 of its 10 day average. There were 95 new highs and 39 new lows.
The important take away from yesterday’s decline is that none of the patterns on the Dow, SPX, or NASDAQ were damaged. All of the trading action, while testing the resolve of most traders, was perfectly normal within the various forms of triangle or wedge patterns that appear to be developing for the current corrective wave.
One thing I did note was that even though the Dow was getting hammered, the NASDAQ (QQQ) finished almost unchanged. The index opened at 88.50 and closed at 88.48, down only 0.30 cents on the day. Probably the biggest reason for this was the fact that Apple, AAPL, was actually up 4.66 points to finish the day at 556.17.
As I have said many times before, it’s hard for me to imagine that a major advance could start without Apple’s participation. Well, on the flip side, it’s also just as hard for me to imagine that a major decline is starting without Apple turning negative.
And yesterday, the fast MACD on AAPL actually turned positive. So now 1 of the 3 PT indicators on the stock has turned positive.
The Dean’s List remains positive, as QQQ and SPY remain on the List. However the Dow ETF (DIA) has dropped off. As long as the SPX holds above the 1820 level causing the SPY to remain on the Dean’s List, I’m not worried. It’s normal. However as I said a few weeks ago, IF prices start trading below 1800, it’s likely that the current corrective pattern is morphing into something else.
The Professor seems to be seeing it that way too. Last night he had 9 longs and 5 shorts, so his bias remains positive. He doesn’t see a new down trend starting.
I should also mention that IF the Dow does experience another large drop today, I still wouldn’t be that concerned. The triangle pattern that it appears to be forming is slightly different from the patterns on the SPX and NASDAQ (QQQ). Right now the strongest pattern on the NASDAQ represented by the QQQ. As long as the Q’s remain above 87.68, the Upside break-out from the pattern remains intact. Yeah, I know that it’s hard to watch the Dow dropping big time, but remember it’s only 30 stocks. And most of these large Dow stocks have a lot of international exposure. Practically all of these companies generate a lot of their business from the overseas markets. So when China reports slower growth, they get hit harder. These companies also tend to keep a lot of their profits and reserves in European Banks where the currency is the Euro. The internationals are willing to accept a small decline in the Euro as long as they continue to sell more product. But when the Euro starts to strengthen like it did yesterday on the China news, they get scared. It means that their profits could be impacted.
I don’t expect that this rise in the Euro will continue longer term. But for the short term, it will likely impact the larger internationals more than most domestic companies.
One way to keep tabs on the Euro-Dollar relationship is to watch it on the on the Dean’s List. Two days ago, both the U.S. Dollar ETF (UUP) and short (inverse) Euro ETF (EUO) were on the Dean’s List showing that the Dollar was strengthening compared to the Euro. However when I looked at last night’s List, both ETFs had dropped off. This Dollar-Euro relationship will be something to watch in the weeks ahead, as the longer term chart of the Euro is starting to look pretty Bearish. If EUO starts to re-appear on the Dean’s List, I might give it another look for Marcia’s IRA. It has a TLB Pattern in place that needs positive PT indicators But owning this ETF is also about exciting as watching grass grow.
Today I’ll be watching the NASDAQ and SPX to make sure they don’t start doing something unexpected.
That’s what I’m doing.
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Category: Professor's Comments