Professor’s Comments June 30, 2016

Posted by OMS  at June 30th, 2016

The Dow rallied for another 285 points, closing at 17,695.  Volume was moderate, coming in at 104 percent of its 10-day average.  There were 199 new highs and only 11 new lows.

Yesterday was fifth consecutive day that the Dow has made moves over 230 points. Volatility like this is usually a sign of an uncertain market.  Markets like certainty, and when they become confused about political events, like Brexit, we usually see large swings in price before they stabilize.  This is what’s happening now.

All of this uncertainty has caused the cockpit indicators to become mixed.  The Tide is neutral and the Dean’s List is negative.  However, for the very short-term, the VTI has changed direction and is now starting to move up. 

I’m showing the VTI as positive this morning, but this is a bit misleading.  It’s actually heading up, but still retains a negative bias by being below zero.  Last night the indicator had a reading of 36.77 which is still below the 50 level.  A reading above 50 is required for the VTI indicator to have a positive bias.

So right now, the markets have relieved the oversold conditions that were present immediately after Brexit, but are still NOT in the trend mode.

One of the things I mentioned yesterday was the 2-period RSI Wilder on the Dow.  I said that if this indicator moved above the 70 level intraday, I would start looking for inverse index ETFs to buy. And that’s what I did.  About an hour before yesterday’s close, the 2-period RSI Wilder on the Dow (DIA) had a reading above 70, so I bought a few shares of DXD.

BTW, if you use a trading platform with live data, you can always see when the market is either oversold or overbought by looking the 2-period RSI Wilder on a daily chart of the Dow.  If you were watching yesterday, you would have seen that as the day progressed, the Dow kept moving higher and higher until the 2-period RSI Wilder reached 70.  At that point, the markets became overbought and started to pull back into the close.

The 2-period RSI is something that you should always check when you consider purchasing a stock, because the odds are overwhelming against the stock moving higher if it is both overbought and NOT in an Uptrend.  This is one of the reasons that my Rifle Trades are so successful, because they focus on buying shares when the 2-period RSI Wilder is oversold.

You can easily see this with a stock like Barrick Gold (ABX).  Last week, I talked about ABX being ripe for a Rifle Trade.  On 21 June, its 2-period RSI was buried in oversold territory with a price of 19.16.  Four trading days later, ABX reached a high of 21.39 with the RSI showing an overbought reading of 90.83.  The following day it pulled back 0.48 cents.  In other words, if you bought ABX at the open the day after you saw the oversold RSI, you would have pocketed an 11+ percent gain in three trading days.

Anyhow, I might be early with my ‘trial’ purchase of DXD because the positive end-of-month and pre-holiday bias that currently exists should keep the markets well bid until after the holiday.  But once traders come back from the 4 July Holiday on Tuesday, things could be different. 

At that point, the Mutual Funds will no longer be doing end-of-quarter window dressing, and could be very vulnerable to the Hockey Stick pattern that has been forming for the past few days.  We’ll see.  But I want to have a few inverse shares working just in case.

By purchasing inverse index ETFs when the market is overbought with NO trend in place, I am just trying to increase my odds for a successful trade.

That’s what I’m doing,

h

Market Signals for

06-30-2016

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
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