Professor’s Comments March 4, 2014

Posted by OMS  at March 4th, 2014

The Dow plunged over 250 points early yesterday, and then recovered about 100 of them to close at 16,168. After noting a ‘small change’ in the A-D escalator, the Big Move was expected.  Volume was on the light side for such a scary drop, coming in at 98 percent of its 10 day average. There were 86 new highs and 19 new lows.

Yesterday’s large price decline really wasn’t all that bad when you look at the breadth indicators.  The only breadth indicator to turn negative after yesterday’s trading action was the Hi-Lo indicator.  The Summation Index remains positive and the A-D oscillator only dropped to a reading of 50.41.  In other words, no real damage was done to the internals.

On the other hand, the markets appear to be trapped in the trading range we have been in for the past 2 weeks..  Yesterday’s low dropped the Dow down to 16,071, which is still 40 points from the previous low of 16,031 made on 19 February.  Yesterday Big Move was just another brick in the wall to build the ‘Blade’.  It did nothing to take either of the two scenarios I have been talking about for the past few weeks off the Board.

If anything, the pullback increased the probability of my “Dow topping under 16,588 scenario”.  The reason is because yesterday’s pullback could have been the ‘b’ wave of an a-b-c pattern that should take the Dow up closer to 16,588 before topping.  We’ll see.

I still feel the Dow will have a tough time getting beyond 16,588 if it doesn’t pullback closer to 15,900+.  So in a way, maybe we did learn something from yesterday’s Big Move.  If the Dow rallies today, like I expect, it will be interesting to watch the strength of the rally.  It will also be interesting to watch The Professor during the next few days.

Last night, when I checked in with The Professor, he was sound asleep.  He only had 3 stocks to the upside and 3 down.  So The Professor didn’t appear to be worried that yesterday’s downdraft would continue.  So is this the time to be buying stocks?  Hmmm? 

Not for me.  Last week I said that I wouldn’t get serious about the upside until The Professor gave say so.  And when he’s sound asleep, he’s not saying anything.

The Dean’s List remains positive, as are all of the cockpit indicators.

Bottom Line:  With no change to the overall sideways consolidation pattern, a positive Dean’s List and positive PT indicators, odds are that the market will chop higher.

But they’re gonna do it without me.

Before I close, I want to say a few things about two of the ETFs I have been watching. Both TMF, the 20-year+ T-Bond ETF, and EEV, the inverse Emerging Market ETF, moved higher yesterday after Russia placed troops in the Crimea.  So the dollar and Bonds are still attracting money in a time of crisis.  As you know, I’m looking for a higher dollar in the first half of 2014 and higher Bond prices. However I do not expect TMF to move substantially higher until it does a bit more work in forming its Blade.

EEV is another story.  It came off a TLB Pattern in October and ‘Jumped the Ropes’ in early February.  For the past month, the ETF  has been busy forming its Blade.  During the pullback, the 50 has moved closer and closer to the 200, and is now only a few points from crossing above the 200.  If this happens, it will put EEV into an Uptrend.  So all I’m doing now is watching the PT indicators on the Daily’s.  If they turn positive, I’m a buyer.  As I’ve said before, you don’t need a TV set to tell you what’s going on in the world.  The first ETF to react to trouble will be EEV.  And from the pattern that appars to be emerging, it’s starting to look like the crisis in the Crimea is only beginning.

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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