Professor’s Comments November 12, 2013

Posted by OMS  at November 12th, 2013

The Dow rose 21 points, closing at 15,782.  The holiday trading volume was extremely light, coming in at only 73 percent of its 10 day average.  I heard one floor trader describe the day as a waste of a clean shirt and bus fare. There were 131 new highs and only 36 new lows.

There was a ‘relatively’ small change in the A-D oscillator yesterday of 15 points.  I mention this today because my research has shown that Big Moves of more than 100 points have occurred within the last 2 years with readings of up to 15 points.  So even though the reading is a bit outside of my normal 10 point range, we need to be on the lookout for a Big Move within the next 1-2 days.  And given that it appears the market is very close to a short term top, I would expect the Big Move to be down.

As I mentioned yesterday, it also appears that the market is consolidating and wants to develop a series of triangles.  Because of this, I have scaled back my current holdings.  As you know, triangles can be very difficult to trade as the many legs produce a series of up down-up-down moves.  Because of this, I expect a lot of choppy trading during the next few weeks within a range of about 30-50 S&P points.

I have also moved into my scalp treading mode.  In yesterday’s Comments, I mentioned 4-5 stocks that I was watching closely.  Among them were BIDU, MPC and CORN.  So yesterday, I switched over to the 5 min bars and started to scalp trade a few of these stocks.

When I say ‘scalp’, I mean that I’m trading smaller positions using the short term bars, where I’m taking profits quickly, and NOT holding anything overnight.   

That’s what I did yesterday with Marathon, MPC.  As I mentioned yesterday, MPC appears to be forming a Blade after a TLB Pattern and a Rope Jump.  And because the price continues to trade above the moving averages, it is currently pulling the 50 up toward the 200.  So MPC is doing everything I want to see in a turn around candidate.  But the 50 has still not crossed above the 200 to put it in an Uptrend, and the P-volume is still negative, so I can’t establish a Basic Position in the stock.  But I can scalp it.  And that’s exactly what I was doing  yesterday.

Here’s the thing.  I believe the odds are heavily stacked in my favor with MCP.  It might not be ready to start its major up move yet, and might need more Blade development.  But at some point, it’s very likely that the stock will start to break out from its Blade and start to move higher.  If this occurs while I’m scalping it, I’ll just let it run.  All I do is watch the CCI to see if the stock is starting to trend.

BTW, you can do this on the 5s, 15s, or even the hourly bars.  As long as the CCI is showing trend mode, I let it ride.

So let’s take a closer look at what I was doing yesterday with MPC.  First of all, I knew MCP was a stock I wanted to trade.  It was on the Member’s Watch List.  It had a pattern, and the 2 of the 3 PT indicators were positive.  So MPC satisfied most of the requirements of the SIGN.  But with only 2 of the 3 PT indicators being positive, I couldn’t establish a Basic Position.  All I could do is scalp trade it while I was waiting for the indicators to turn.

All morning long, I waited.  The 5’s were still RED.  But by 12:30, the DMI and MACD had turned Green.  The only hold out on the 5s was the P-volume.  Then at 12:45, the P-volume also turned Green, so I bought the stock.  And because I was scalping, I only bought half of my usual position.  The average price was about 71.15.   Fifteen minutes after I made my purchase, MPC entered the trend mode.  The stock continued to move higher for the rest of the afternoon, finally closing at 72.18.  I exited my position just before the close, taking a 1 point profit on the trade.  I got paid for the day.

I mention this trade today because it is likely that I will be doing a lot of this during the next few weeks.  When I believe that the market is forming a triangle, I like to scalp.  But I always want to scalp something that I believe has a good chance of going higher.  Right now, MPC is still not in the trend mode on the Daily’s, and it still has a negative P-volume.  But that’s OK.  I’m patient.

BTW, when Oil prices are dropping like they are now, I really like to trade the refiners.  Falling crude prices means that refiners like MPC can replace the crude they refine with even cheaper crude.  It makes for big, fat, profit margins.  When I talked about energy a few weeks ago, I mentioned that longer term, my charts are showing the possibility of significantly higher crude prices.  When crude prices are rising, it is not be the best environment for the refiners as they have to pay more for the crude they refine which impacts their margins negatively.  But not now.  As long as crude prices keep dropping, stay stable, or rise moderately, the refiners should do well.

Scalping.

That’s what I’m doing,

h

BTW, If the market opens lower today, I’ll be looking for shorts to scalp.  Yesterday I mentioned the possibility of BIDU dropping to the 130 level, or lower.  The stock has formed a small negative Hockey Stick Pattern on the Daily’s, and is Red after a THT Pattern.  Right now, all of the PT indicators on BIDU are negative.  I’ll be watching it on the 5s.  Don’t forget, the A-D oscillator is telling us that we could see a Big Move within the next 1-2 days.  If the market opens down today, that’s the direction I will be looking to trade in.

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.