Professor’s Comments March 5, 2014

Posted by OMS  at March 5th, 2014

The Dow rallied hard yesterday after Russian President Putin told his troops to go back to their bases.  The Dow which had been down over 150 points the day before, rallied for 227 points on the news, closing at 16,396.

It might be a stretch to relate yesterday’s big rally back to last week’s string of small change signals in the A-D oscillator. For sure, Monday’s Big Move was tied to Friday’s small change signal, and because this signal is good for 1-2 days, yesterday’s 227 point rally could also be related to it.  But it looked a lot more like short covering to me.

There were a lot of investors who started to get short on Monday fearing the worst from the situation in the Crimea.  And then when Putin changed his mind and withdrew his troops, all those short sellers were busy buying back stock….at significantly higher prices. It was a bad day for the shorts.

For the past two weeks, I have been talking about the Dow rising to the 16,450+ level as a minimum.  Well yesterday, it got as high as 16,419.  That’s getting pretty close.  But what I had really hoped to see as the Dow moved toward 16,450+ was if it would leave a few clues as to what would happen after reaching that level.  Was it setting up for a significant move higher?

Unfortunately, yesterday’s trading action did little to answer that question.  So the two scenarios that I have been talking about for the past several weeks are still in play.  Both patterns still suggest 16,450+ will be achieved, but beyond that it’s still questionable as to whether the Dow tops “under 16,588” or pushes to “just under 17,000”.

One of the reasons I’m still cautious at this point is because while both of these scenarios project higher prices, make no mistake about it…they are entirely different scenarios.  The “just under 17,000” scenario assumes that the Bull Market is still intact. It assumes that the Dow is still in Major wave “e” up within the rising Ending Diagonal Pattern.

On the other hand, the ‘’topping below 16,588”  scenario assumes that the Dow actually topped back on 31 December 2013, and the past two months of trading action is nothing more than a wave 2 retracement wave, with a significant wave 3 down just around the corner.  So we can’t get too comfortable.  We must be looking to protect ourselves against this 50-50 odds possibility. When the odds are only 50-50, trading becomes just like going to a casino. In the Professor’s Methodology, when the odds are poor, we don’t make large casino type bets. This is when I only play the nickle slots.

Right now the Dean’s List and cockpit indicators are still very positive, so I’m really not that concerned.  But last week, we started to see the Coach, my primary indicator for measuring Money Flow, turn negative.  This tells me that a lot of the institutional money is starting to get nervous. It’s one of the first signs that a top is nearing.

Also, there are several Fibonacci turn dates approaching as we move deeper into March.  And as I’ve discussed in past Comments, the time period near the Ides has not been very friendly to traders.  There have been too many Major Market turns in mid-March for me to consider the turning pattern as random.

Anyhow, some of the stocks I have been holding had a nice day yesterday.  My half position in Halliburton recovered most of Monday’s small loss, and remains in a solid up trend.  I’m just letting this position ride for now, but IF it pops another point or so, I’ll start moving my stop up, which is now at my entry level. For the moment, I’m not interested in buying additional shares of HAL, even if it pulls back a little.  Last week, when I bought the stock on a 2-period RSI pullback, the CCI was still in a very healthy trend mode.  This is no longer the case.  If HAL pulls back now, the CCI will move back under the 100 level, telling me the current uptrend is over.  At this point, with the possibility of a Major Trend reversal fast approaching, I DO NOT want to be holding stocks that are NOT in the tend mode.

Same for Omega Healthcare REIT, OHI.  But the situation with Omega is a little different.  Omega has spent the past month forming a nice ‘Blade’.  And yesterday, the stock jumped 0.80 cents to 32.97.  In the process, it broke out of its consolidation pattern and reached its highest price in the past three months.  With narrow bands, Green PT indicators, and now supporting a CCI that is entering the trend mode,  I’m willing to let Omega show me what it can do.

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
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