Professor’s Comments October 2, 2013
Posted by OMS at October 2nd, 2013
The Dow rallied for 55 points, closing at 15,191. Volume was moderate, coming in at 95 percent of its 10 day average. There were 202 new highs and only 23 new lows.
A good portion of yesterday’s volume was due to short covering, so even though The Professor generated a Buy Signal by highlighting 201 stocks, it is likely that we could see one more test of the 1660-1665 level before the next rally leg starts to take hold.
The A-D oscillator also turned positive yesterday, coming in with a reading of 44.1. The oscillator turned negative last Friday, after being positive for nearly a month. What this tells me is that despite the fact that the Dow has been pulling back for the past few weeks, there is a significant amount of underlying strength in the market.
Yesterday was the first day of a government shutdown. And even though the markets rallied, I do not believe we are anywhere near removing the ‘cloud’ from the fight over Obamacare and the debt ceiling. That ‘cloud’ will likely be with us at least until 17 October. So even though The Professor generated a strong Buy signal, we will likely need to have some patience. On the other hand, 201 stocks moving into an Uptrend is a lot of stocks.
One of the reasons that I’m cautious about The Professor’s new Buy signal is because I usually only run the algorithm whenever there is a DMI turn to confirm the turn. But this time, the DMI on the Dow (DIA) remains negative. So there is nothing to confirm.
The DMI on the NASDAQ (QQQ) did turn positive yesterday, but ordinarily, I do not use The Professor to confirm mixed signals. So we need to be careful at this point. Like I said, it would not surprise me to see the SPX test the 1660-1665 level before the next rally leg starts to unfold.
Meanwhile I’m just looking to pick away at a few stocks. Old favorite SLB held up well during the Dow’s recent pullback, and closed up 0.69 cents yesterday. This is the type of trading action that I like to see in a stock. In other words, while the overall market has been correcting for the past several weeks, SLB has traded sideways. And then on a day when the market rallied, SLB led the way higher.
I mention this because stocks like SLB are the type of stocks that you should be considering for the next leg higher. What you don’t want to own now are stocks that have pulled back more than the overall market, or stocks that have not participated in the rally since early September and are still in downtrends.
Remember, the current correction is likely part of wave 2 of c up of final Wave E, or is Wave D of the Ending Diagonal Pattern. In either case, it is likely that we are in the final stages of the final rally leg that started last November. If we start to move higher, which I fully expect that we will, it is NOT the start of a new Bull market. And even though the Dow will likely rise above 16,000 on the next leg up, possibly pushing to 16,800 IF the current corrective leg is a wave 2, you need to understand that we are likely within several months of seeing a market top. So I’ll say it again. Be careful with the type of stocks that you own now. All of the stocks you own should be in Hockey Stick patterns, poised for the next leg higher. They should have pulled back slightly or traded sideways during the past month.
If you are looking for stocks to take advantage of any further weakness in the current corrective leg, look for stocks with patterns. This is not the time to be shopping for bargains or stocks that will need a lot of time to complete their turn around. .
A stock like GILD is good example of a stock that has remained strong despite the current market weakness. The past few weeks of sideways trading action has cause the Bollinger Bands to narrow considerably as the stock consolidated between 62 and 64. As long as the PT indicators remain positive on GILD, there is a good chance that the stock will start to break above its recent high of 64.73 And IF it does that, it will enter the Free Willy zone, where everyone who has ever owned the stock is making money. I like Free Willy stocks, especially in the late stages of a market rally. Nobody knows how high they can go.
A stock like Apple, AAPL is also very interesting candidate now. For the past 2 months, AAPL has been moving sideways as it completes the Blade of its Hockey Stick Pattern. It Jumped the Ropes back on 13 August, and has used the past 2 months to form a Blade. During this time, the 50 which has been negative since mid-December of last year, has moved to the point where it is just about equal to the 200. If the 50 crosses above the 200 in the days ahead, the stock will attract all sorts of attention from the institutions, as it will finally be in an Uptrend. Remember from Class, how I talk about how institutions are not interested in Buying and owning stocks that are in downtrends. But if AAPL starts to move into an Uptrend, look for institutional money to pour into the stock.
At this point, AAPL has a large 125 point stick. If these 125 points are added to the recent low of 447, it produces a target of 572. That’s about 85 points or 17 percent from where the stock closed yesterday at 487.
With the NASDAQ being the strongest index now, and AAPL representing a substantial portion of that index, it could be a nice place to be for the final ride higher.
That’s what I’m doing,
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