Professor’s Comments July 30, 2013

Posted by professor  at July 30th, 2013

The Dow fell 37 points, closing at 15,522. Volume was light on the decline, coming in at 91 percent of its 10 day average. There were 92 new highs and 42 new lows.

Once again the Dow had every opportunity to fall hard, but it didn’t. After being down by as much as 76 points, the Dow rallied back in what appeared to be another small leg of the wave 4 triangle. If I’m right about this, the markets should make one more rally, probably near 15,700+ on the Dow before wave 1 up of ‘C’ up completes.

Last night, Emeritus highlighted several stocks that could participate in the final rally leg of wave 1 up. The fact that he is becoming active now supports my belief that the markets are ready to rally. The Dean’s List also supports one more move higher, as do the cockpit indicators, and the positive end-of-month bias. Just don’t get too comfortable IF we start to approach 15,700 on the Dow.

One of the stocks (ETF) that Emeritus highlighted was OIL, the crude oil ETF. I mentioned OIL about a week ago, when it was high on the Deans List, saying that it was overbought and could pull back. I’m in no way enamored with OIL at this point, mostly because the P-volume looks terrible. But it has pulled back enough to support a Rifle Trade. If I were to do something related to OIL now, it would probably be with something like Schlumberger, SLB. It has a much healthier P-volume with all the ingredients necessary to support a short-term Rifle Trade.

I also continue to watch Europe. Last week I talked about how the major European indexes were forming inverse Hockey Stick Patterns. Since I talked about Europe, the DAX and FTSE have fallen several hundred points and have become closer to my trigger points. The DAX is currently trading at 8,267 as I write this. If it starts to fall below 8,000, it will likely set up a test of key support at 7,800. A break of this level will put pressure on all of the European markets, and could send world markets reeling.

A similar thing is happening in Asia. In the past two days, Japan’s NIKKEI has fallen almost 1,000 points. The NIKKEI is recovering a bit today and now sits at 13,870, up over 200 points in overnight trading. However it too has developed an inverse Hockey Stick Pattern that should be watched closely. EWV, the inverse Japan ETF has appeared on the Dean’s List for the past few weeks after a TLB Pattern. And now 2 of the 3 PT indicators have turned Green. If the lone PT indicator holdout, the MACD, turns Green in the days ahead, I might start thinking about establishing an initial position. But there are probably better options.

Options like FXP and EEV. There is a BIG difference between EWV (inverse Japan) and these two ETFs. Both FXP and EEV have developed nice Hockey Stick patterns, and are already in Up trends. They are much more advanced in their patterns than EWV. EWV is just coming off a TLB Pattern, indicating a possible trend reversal. But as we know from Class, it still has a lot of work to do before it can enter an Up trend. It still needs a ‘Rope Jump’, a wave 2 pullback and move into an Up trend.. On the other hand, FXP and EEV are already in Up trends, and appear to be nearing completion of their wave 2. So all we need now from these two ETFs is to see them re-appear on the Dean’s List and have their indicators turn positive. We already have a Pattern (Hockey Stick). So be patient, and wait for all of the elements of the SIGN to appear.

That’s what we did with TBT a few moths back, and now it’s moved into an Up trend. My Basic Position is established and now I’m just doing Rifle Trades. My current Rifle Trade in TBT popped 0.93 cents yesterday closing at 75.7. The current pattern projects to the 77+ level where the recent high of 77.74 should be tested. If this level is exceeded, then the next leg up should develop with gusto. Otherwise, expect TBT to pull back to form a stronger Blade to support a potential move higher. Traders of TBT should keep the Big Picture in mind as they watch the ETF do its thing. The Big Picture is that TBT has a 19 point stick!!! And when this stick is added to the low made on 22 July, it projects to the 92 area. But it needs to move above 77.74 first. This is why I’m interested in TBT . And IF it can start to move up, it should produce several nice Rifle Trades all along the way.

Gold appears to be overbought now, and could start a pullback. A few of the gold rabbits, like RGLD, are showing positive PT indicators after a TLB pattern. But the gold rabbits are still in downtrends and must be watched carefully. Any change in the indicators could send the shares lower. My biggest concern with gold is that GLD, the physical shares ETF, is still showing a negative P-volume. And this P-volume is diverging negatively. It did not rise with price on the recent rally. GLD is currently sitting right at its 50 now, so the next 1-2 weeks will be critical for the metal. If GLD trades sideways, a nice Blade will form to support a move higher. However, IF GLD starts to drop away from the 50 and moves lower, it will likely test the late June lows. I’m just watching gold and the other metals from the sidelines now.

That’s what I’m doing,

h

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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