Professor’s Comments March 26, 2014

Posted by OMS  at March 26th, 2014

The Dow rose 91 points, closing at 16,368. Volume was moderate on the rally, coming in at 95 percent of its 10 day average.  There were 85 new highs and only 15 new lows.

Even though stocks had a nice rally day yesterday, they were unable to break through recent highs.  The highest the Dow got yesterday was 16,407, which is still almost 50 points below last Friday’s high of 16,456.  So until we start to see the Dow pushing some of these recent ‘Blade’ highs, its likely that the market will remain in its consolidation zone.

One of the things to note about this ‘zone’ is that it is forming different patterns on the different indices.  The consolidation pattern on the Dow is a rather straight forward sideways triangle.  However the ‘zone’ on the SPX looks more like a wedge pattern, while the pattern on the NASDAQ appears to be a descending wedge.  The one thing that all of these patterns have in common is that they are all Bullish patterns.  However the reason that I’m mentioning this today is because even though they are all Bullish, they will probably not all start to break out at the same time.  Right now, the pattern with the best chance for an immediate breakout is the Dow.  The least likely is the NASDAQ, with its heavy concentration of biotechs weighing it down.

It’s the same for energy now.  Right now, most of the drillers, explorers and equipment manufactures are having a nice time of it.  The oil producers, refiners and distributors are lagging.  This could be because companies in the first group are starting to receive special attention as the crisis in the Crimea goes on.  It’s a lot easier for the US to sell fracking equipment to Poland so they can drill for their own oil and gas than to ship gas and oil to them or construct a pipeline.

My point is that in the days ahead, as the market starts to move higher, it should lift most ‘boats’.  However, some stocks will likely be lifted higher than the others.  And the reason for this will be things like what is happening in Europe and Ukraine.  So when you are choosing a stock to participate in the final rally, it will be important for you to look for an ‘edge’. 

The final ‘c’ wave of an Ending Diagonal Pattern is not the time to be riding ordinary stocks.  If you see that your stock is not participating in the next rally, ask yourself why it is not going up.  If the indicators are going against you, this could be a good time to  do some pruning.  Remember, not all stocks will participate in this final rally.  Some stocks may have already topped and could be starting downtrends.  So observe the indicators and be mindful about what they are telling you.

For the past two weeks, when I looked at the Lists, it was pretty easy to tell where the strength was in this market.  ETFs like OIH, PXJ and PXE were leading the Dean’s List and stocks like HAL, SLB, CJES, and ATW were near the top of the Member’s Watch List.  The Lists told you where to focus.

So in the days ahead, as the indexes start to break out of their consolidation patterns, it will be particularly important to pay attention to any group or sector where several stocks or ETFs from the same sector are starting to move up the Lists

Also, when you see Emeritus start to highlight individual stocks for the Honor Roll, keep track of these stocks over a period of days.  For instance, in the energy sector, stocks like HAL and SLB were being highlighted by Emeritus within days of each other.  When ever I see several stocks from the same sector or group being highlighted, I pay attention.  It tells me that stocks from this group could be starting to trend.  Think back to early January when all the gold issues were dominating the Dean’s List and Member’s Watch List.  Hmmm?

Anyhow, we still have mixed indicators on the cockpit and a mixed Dean’s List, so the rally that I believe is coming hasn’t started yet.  The Professor only had 18 longs last night, so even though we had a DMI change in the Dow yesterday, he’s telling me not to get too excited yet.

In the webinar I did for AIQ and during my Class About Nothing, I talked about how the market needs time to digest the news after the Fed Meeting.  Today will mark one week of trading since the Fed announcement, and the markets are starting to move toward consensus.  Once consensus has been achieved, it usually results in a strong move over an extended period of time.  I’m estimating 4-6 weeks. 

So all I’m doing now is waiting and watching the Lists for strong stocks and sectors that I want to ride during the next leg up.

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
FAQ

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