Professor’s Comments July 6, 2016

Posted by OMS  at July 6th, 2016

The Dow fell 109 points, closing at 17,841.  Volume was low, coming in at 83 percent of its 10-day average.  There were 230 new highs and 28 new lows. 

Yesterday’s intraday decline of over 164 points was the large move predicted by Friday’s small change in the A-D oscillator.  The move was enough to turn the DMI’s on the Dow (DIA) and NASDAQ (QQQ) negative.  The move was also predicted by an overbought 2-period RSI Wilder with NO Trend showing on the VTI indicator.

This morning I want to talk about the latter.  BTW, the following discussion is a bit lengthy, but I believe it’s necessary to help you understand how I use the new VTI indicator. 

This past weekend in my WSR, I showed you how the combination of the VTI and the 2-period RSI Wilder can significantly help your trading. I posted a chart of the Dow that showed the VTI in a No-trend mode with an overbought 2-period RSI Wilder.  I concluded my WSR by saying I was concerned about a pullback starting next week. And as we saw yesterday, the Dow dropped over 100 points.

This condition where the VTI is showing No Trend with an oversold 2-period RSI Wilder is something that students can take advantage of in real time. You don’t have to wait until the next day to take advantage of this trade. In other words, by simply knowing that the market is overbought with No Trend in place, you can establish high probability positions the day before the market starts to decline.  As far as I know, no subscription service of any kind provides this capability.

For example, going into Friday’s trading, a student could have looked at the VTI indicator on the cockpit and seen that there was No Trend in place. The Indicator was simply showing a positive bias (Green), meaning that the value was above the 50 level.  But the key was that there was No Trend in place at the same time that the 2-period RSI Wilder was showing an oversold reading of 87.29.  So with no trend in place, the dominant indicator was the 2-period RSI Wilder.

On Friday, knowing that there was No Trend in place, a student could have simply checked the 2-period RSI Wilder on a ‘live’ Daily chart of the Dow and observed that the market was still overbought near the close.  Seeing this, the student could have bought a few shares of DXD.  With No Trend in place and an overbought market, the student was making a high probability trade.

He could have done the same thing by selling short several of the stocks that were recently highlighted by Emeritus for the Honor Roll. 

For example, a stock like Royal Caribbean (RCL), was highlighted for the Honor Roll last week.  After an initial fall in post-Brexit trading, the stock rallied a few points such that it’s 2-period RSI Wilder became overbought. If a student was watching a daily chart of RCL, he would have seen that the stock was still in a downtrend and the small rally had only served to form the Blade of an inverse Hockey Stick pattern. The fact that both the stock and the overall market had become overbought was an opportunity to establish short positions near the 69 level. On Tuesday, the stock fell 1.80 points.

Students should remember that once a stock is highlighted for the Honor Roll, the fact that it is not on the Honor Roll the next day should not be a deterrent. I keep a list of these stocks on my trading platform, knowing that they were highlighted by a trend algorithm.  Then when my short-term trading indicators give say so, I initiate the trade. If a stock does not move as expected for a few days after being highlighted, it does not eliminate the stock for consideration.  It just means that I need to be patient.

As a general rule, students should look to buy or short stocks from the Honor Roll whenever they become oversold or overbought. This is basic concept behind my Rifle Trades. In other words, I look for stocks that are in trends and trade them whenever they become overbought or oversold.

So now that the VTI indicator has been added to the cockpit, students might want to take note if this indicator is showing ‘Trend’ or simply a positive or negative bias.  If the word ‘Trend’ is NOT being shown, students should check a ‘live’ chart of the Dow to determine the value of the 2-period RSI Wilder before entering or exiting a position, especially if the RSI is showing extreme overbought or oversold conditions.

Remember, as this market continues to develop its Broadening Top Pattern, it will likely stay in the No Trend Mode. The next trend will likely start once the Topping Pattern is complete and the market starts to head down.  This move should also be confirmed by The Tide and the Dean’s List.  Until then, there will be many opportunities to trade the market whenever it becomes overbought or oversold.  And many of these trades should be good for several hundred Dow points.

This is why I have been talking so much about Trends and No Trends lately.  When there is No Trend in place, the odds are EXTREMELY high that the market will pull back from either oversold or overbought conditions.

So after yesterday’s trading, the VTI is still showing No Trend with the 2-period RSI Wilder at a neutral reading of 49.2.  With yesterday’s negative DMI change and a neutral RSI, it’s likely that the market will continue to fall today until one of two things happen. Either the market becomes oversold with No Trend, or a new down trend starts to develop. Either case will determine its next major move.

IF the market continues to decline today, I will also be watching to see IF the VTI changes direction and becomes negative.  If this happens, I will start looking to short stocks highlighted by Emeritus for the Honor Roll.

That’s what I’m doing,

h

Market Signals for

07-06-2016

One hour video recorded from May 28, 2016 The Professor’s Signs of a Major Market Turn – Prospectives and the Projected Timing and Levels One hour streaming video – includes webinar handouts The Professor usually holds an update class whenever the Market looks like it may be making a major turn. If you have been following the Professor’s Comments you know that a turn is due….. LEARN MORE

Not sure of the terminology we use? Check out these articles

The Hockey Stick Pattern
The Creation of Waves and Trends
FAQ

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