Professor’s Comments October 21, 2014
Posted by OMS at October 21st, 2014
The Dow fell about 90 points early and then recovered to finish 19 points higher at 16,400. The Dow would have been significantly higher if not for the shares of IBM which shed almost 13 points. The NASDAQ and QQQ both had a nice rally day rising 58 and 17 points respectively. Volume on the NYSE was extremely light, coming in at only 78 percent of its 10-day average. There were 39 new highs and 20 new lows.
In my WSR, I mentioned that the market would likely bounce during the early part of the week as the wave 4 retracement completes. We got the bounce, so now I want to see a day or two of flat trading before I add to my inverse ETFs.
The story of the day was IBM’s negative earnings release which seemed to catch most analysts by surprise. But was the negative announcement and subsequent decline really a surprise? I think not!
While listening to the commentators on CNBC discuss IBM’s decline in the futures market which shaved 90 points off the Dow, I decided to look at a chart of IBM to see what really led to the decline. And after looking at the chart…there really wasn’t much of a surprise. Looking at the Weekly chart, it was pretty obvious that IBM topped back in March 2013 at 215.90 after forming a THT Pattern.
By mid-October, the stock had fallen to moving average support near 170 where it ’Jumped the Ropes’ to the downside indicating the start of a new down trend.
From its low of 170, IBM then rallied in a two wave pullback to just under the 200 level, after which it started its Major Wave 3 down. It was dead meat when the PT indicators on the Weekly’s turned negative last week as the stock set up for a break of the moving averages.
A look at the Daily chart shows the PT indicators going negative on 26 September near 190 which caused the 50 to approach and cross below the 200 late last week.
In other words, as of last Friday, IBM was officially in a downtrend.
As I often say, institutions don’t like to own stocks in a down trend. They NEVER buy them! So early yesterday, after IBM released its negative earnings report, the Big Boys simply saw the stock trading below the 200 and dumped it. They didn’t care that Warren Buffet owned a ton of it or that the new CEO was trying to turn it around….the institutions didn’t wait. They unloaded. They were not going to hold a stock that was entering a down trend. And IF an institution won’t hold a stock in a downtrend…you shouldn’t either.
The decline in IBM was a classic example of The Professor’s Methodology at work.
There was a THT pattern, then a ‘Rope Jump’ on both the Daily and Weekly Charts. The PT indicators turned negative, and finally the stock started trading below its moving averages which caused the 50 to fall below the 200 putting it into a down trend.
There was nothing surprising about what happened. Everything about the decline, including the resulting 15 point drop was straight from my webinar on ‘Trading the Turns’.
OK, so now that we saw how IBM dropped, let’s compare it with TWM, the inverse Russell 2K ETF that I have been trading recently..
If you look closely at its chart, you can see that it is the exact opposite of IBM. It recently had a positive ‘Rope Jump’ after a TLB Pattern and now has positive PT indicators. The ETF continues to trade above its moving averages and as long as it does, the 50 will continue to be pulled up toward the 200. Then once the wave 2 pullback completes, the 50 will likely cross above the 200 putting the ETF into an UP Trend. What do you suppose will likely happen then? Hmmm?
Well, the move will likely be just like IBM’s, only in reverse! Right now, the Big Boys are just watching TWM. We know that some of them have already started buying because of the diverging P-volume. But once the 50 starts to move above the 200, putting the ETF into an uptrend….the institutions will have the Green light to Buy.
At this point, the Big Boys are looking for things to buy. But no matter how cheap something like IBM looks, they will NOT buy it. I repeat…they DO NOT buy stocks that are trading below the 200.
But they DO buy things that are trading above the 200…like TWM ;>)
Gold stocks and ETFs continue to appear on the Dean’s List near the bottom. At this point, the DMI and MACD on GLD are positive. However the P-volume is still negative and there is no significant divergence showing. Because of this I’m still not interested in gold shares. I believe that there will be better buying opportunities available in the next day or two in the inverse ETFs.
That’s what I’m doing,
h
Market Signals for 10-21-2014 |
|
---|---|
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
COACH (DIA) | POS |
COACH (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEG |
BREADTH | POS |
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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Category: Professor's Comments