Professor’s Comments March 18, 2016

Posted by OMS  at March 18th, 2016

Stocks were mixed again yesterday.  The Dow rose 156 points, closing at 17,481.  The NASDAQ100 (QQQ) was down fractionally.  Volume was moderate, coming in at 103 percent of its 10-day average.  There were 177 new highs and 14 new lows.

The Dow reached an intraday high of 17,529 yesterday. That high could have marked the top. The much weaker NASDAQ 100 closed within its previous day’s candlestick to form a Harami pattern.  This type of candlestick pattern is often seen at a top.

It appears that the Dow and other markets are getting very close to completing the final waves of important topping patterns.  Once complete, the markets should begin a significant Major Wave 3 down decline.

I received an email from George S. yesterday.  George has been trading DIG, the energy ETF, during the current rally.  He said, “I just wanted to tell you that I have tracked DIG from the time you illustrated your Volume Trend Indicator (TVI) and TLB on 2-26-16.  The results are very impressive.  It went from a low of $26.34 on 2-26 to a high of $31.35 on 3-7.  That was a 19% gain over a two-week period.  WOW!  You should update your students on this gain.”

George went on to ask if I could somehow incorporate the VTI into the web site.

In my response to George, after thanking him for his comments on my new indicator, I told him that while it appears to be performing well, I’m not sure that it is all that different from the Coaches (Money Flow indicators) that are already on the cockpit. 

For example, back on 6 January, when the VTI turned positive on gold (GLD), the Money Flow indicators turned positive on the same day, so the VTI didn’t add anything. 

In the case George cited for DIG, the Money Flow indicator actually turned positive on 20 January, well before the VTI caught the move.

So right now, even though the VTI appears to be performing well, I’m still not sure if this new indicator is any better than what I’m using now.  I still using the two Money Flow indicators on the cockpit as my primary indicators.  And I’m still using them with my ‘Stick in the Sand’ approach to trading energy.

BTW, DIG was up another 0.94 cents yesterday to 32.49, making the gain George mentioned over 23 percent.

The important thing that I want students to take away from the above discussion is that while I use the indicators to trigger the trades, the reason I’m trading energy at all depends on whether DIG or DUG is on the Dean’s List.

Earlier this year, when I saw a TLB pattern forming in energy stocks, I simply waited for DIG to appear on the Dean’s List. When it did, I used the indicators to trigger the trade. The appearance of DIG on the List told me that it was a favorable time to be long energy.

This is something that students and financial advisors should always remember. When DIG is on the List, you want to be long energy. When DUG is on the List, it’s time to get out of energy. It’s a very simple strategy.

For example, when DIG appeared on the Dean’s List last spring, it led to a 28 percent rise in energy.  When DIG dropped off the List in May and was replaced by DUG, the inverse energy ETF, it signaled a decline in energy that saw DIG fall from 59 to the low 20s.  Always pay attention to the ‘Sticks in the Sand’ if you’re trading energy.

Waiting for the market to roll over.

That’s what I’m doing,

h 

Market Signals for

03-18-2016

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.