Professor’s Comments November 26, 2013

Posted by OMS  at November 26th, 2013

The Dow rose 9 points to a new all-time closing high of 16, 073.  Volume was low on the rise, coming in at 94 percent of its 10 day average.  There were 249 new highs and 61 new lows.

After turning positive on Friday, the A-D oscillator moved back into negative territory with a reading of -21.28.  The Hi-Lo oscillator also turned negative.  This means that 2 of my four breadth indicators are negative again, giving me mixed breadth signals.  I don’t like to trade with mixed breadth signals, especially when the market appears close to a short term top.  The breadth indicators are usually the first sign that the market could be turning.

However, the Dean’s List and the cockpit indicators are still positive, so I will remain positive for the short term.

One of the things I was watching yesterday was the SPX as it approached my upside target of 1810.  The SPX actually got as high as 1808, before pulling back to close at 1802.  So now the key number to watch is the 1780 level.  If the SPX starts to break 1780, it would likely signal a move to 1740 or lower.

I’ll say it again.  This is not the time to be buying stocks.

Yesterday I received an email from a student who told me he had lost money buying Lumber Liquidators, LL, on Friday.   So I looked at the stock, and after seeing it fall over 13 points, I wondered why he would be interested in buying the stock.  It had a nice uptrend going for it, but the uptrend was getting long in the tooth and a clear THT Pattern had formed.

When I see stock like LL, the only way I can buy it on sale using a Rifle Trade.  So I wondered why my student was considering the stock when Thursday’s 2-period RSI Wilder only had a reading 54.03.  It was NOT oversold and on sale yet.

Anyhow, I decided to look at LL on the 60s to see how Friday’s 13 point decline actually took place.   What I found was pretty interesting, and is the reason why I’m talking about LL today.

Here’s the thing:  As the Dow has moved higher in the past month, many stocks have participated in the rally, just like LL.  But now, many of these same stocks have formed THT Patterns.  And because most stocks are in Uptrends, the only pattern I see in place now is the THT Pattern.  I’m NOT seeing a lot of Hockey Sticks or Reversal Patterns which would allow me to establish a new Basic Positions.  So the only way I can buy something now is with a Rifle Trade. And if I do make a purchase, it must be a small position. Rifle Trades are NEVER used to establish full Basic Positions.

So knowing that the 2-period RSI Wilder on LL did not meet Rifle Trade criteria on Thursday, I thought I would check out the 60s anyhow, just to see if there was a possibility of a RT, even though the 2-period RSI was not below the oversold 30 level.

Nope!  The 60s were negative right out of the gate on Friday, and stayed negative all day.  So criteria for a Rifle Trade buy were never in place.  LL was never a Buy.

For the past week or so, I have been saying over and over that this is not a good time to be buying stocks.  Yeah, the Dow is making new highs, and the folks on CNBC are really hyping the rise.  But if you look at the A-D oscillator, it has been negative for 5 of the past 6 sessions.  The oscillator is telling us that even though the indexes are moving higher, the majority of stocks on the NYSE are NOT.  This is NOT a healthy market.

So IF someone puts a gun to your head in the weeks ahead, and says that you must buy a stock, at the very least, please do it with a Rifle Trade.  And if you do buy something, make sure that you exit the trade IF the PT indicators start to turn against you.

To otherwise could result in significant losses, just like what happened with LL.

I wish all of you a wonderful Thanksgiving holiday and hope you can share some quality time with your family.

I will be departing for my cruise later today.  The markets will be closed on Thanksgiving, so my next Update will be either Friday or Saturday.

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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