Professor’s Comments May 20, 2014

Posted by OMS  at May 20th, 2014

The Dow rose 21 points, closing at 16,368. Volume was moderate on the rally, coming in at 98 percent of its 10 day average.  There were 103 new highs and 12 new lows.

At this point, the chart patterns are not clear.  The Dow could still be in the process of completing a small corrective wave within wave 3 up, or IF it breaks below 16,300, completing wave ‘d’ down.  There is no way to tell.  All we know is that the market is still correcting and not in a trend mode.

There was a very small change in the A-D oscillator last night, so we need to be on the lookout for a Big Move within the next 1-2 days.  The small change reading was less than one point which is very unusual.

The Dean’s List is positive and appears to be strengthening.  However the cockpit indicators remain mixed.  The DMI on the Dow (DIA) and QQQ remain negative.  Because of this, and my concern about the negative P-volume, I plan to remain on the sidelines until the situation is resolved.

If the Dow breaks above 16,600 and the trading action is impulsive,  it would tell me that the wave 3 rally toward 17,000 is underway.  In this case I’ll look for trending stocks to trade.  On the other hand if it starts to break below 16,300,  I’ll just wait and look for a bottom near the 16,000 level before doing anything.  BTW, if the Dow does trade down to 16,000 it would clarify the current pattern and could set-up a very nice buying opportunity.

The sectors are split about 60-40 now, with Healthcare starting to emerge as a leader.  The thing that caught my eye when I looked at Healthcare last night was the strong P-volume.  I still have my shares of Stryker (SYK), which has been forming a small ‘Blade’ for the past 5 days.  Two days ago, SYK fell to 78.84 where the 2-period RSI Wilder was EXTREMELY oversold.  Since then it has bounced to 80.90.  If the market starts to rally, the stock should be able to tack on 3-5 points from current levels, at which point I’ll start to do some money management.  But right now, I’m just watching.

BTW, the Energy Sector remains in a strong Uptrend. I have included a chart of the Energy Sector so you can see how it is just resting above its moving averages, and forming a new Blade.

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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