Professor’s Comments October 23, 2013
Posted by OMS at October 23rd, 2013
The Dow rallied 77 points, closing at 15,468. Volume on the rally was heavy, coming in at 116 percent of its 10 day average. There were 428 new highs and only 5 new lows.
Yesterday, the BLS reported that the economy only added 148,000 new jobs in September and unemployment fell slightly to 7.2 percent. Wall Street was expecting the number to be closer to 180,000, so when the weak number was announced, the markets rallied in anticipation that the Fed will continue its easy money policies well into 2014.
The incredibly poor number of 148,000 new jobs does not even keep up with population growth. And now over 90,600,000 Americans, almost 1/3 of the people in this country, are no longer even in the work force. Hmmm? So while the extremely weak jobs report caused the markets to rally, they did so for the wrong reasons. Traders celebrated in anticipation of getting more “juice’, and not more production. The economy is still in trouble. Wall Street may be doing just fine, but the average American is not.
Gold rallied on the news.
Here’s the thing: Last week, the market rallied into options expiration Friday. The rally caused the A-D oscillator to become EXTREMELY overbought. Yesterday’s reading of 199.46 was the fourth consecutive day with A-D oscillator readings over 150. With readings like this, the market usually corrects.
Also, the week after options expiration is usually not a very strong week. And as I discussed this past weekend, the S&P is still near the top of its upper trend line within the Ending Diagonal pattern.
So all things considered, while the easy money will likely continue to push the markets even higher into year’s end, I still believe that now is not the time to be buying stocks. I believe there will be better opportunities in the weeks ahead. Or at least when the current overbought conditions are normalized.
The one thing I was watching closely yesterday was Apple, AAPL. As most of you know, I had a short term target for AAPL near 530. The target was based on the small Hockey Stick Pattern that started to form off its 16 September low. So yesterday, after the stock hit a high of 528.44, I was not surprised to see the stock pull back to 519.86. Stocks go to targets, not to heaven. It didn’t matter what Apple’s leaders wee saying about their new products in San Francisco. What mattered once again was the Hockey Stick Pattern.
The Dean’s List remains positive and strong, as are the cockpit indicators, so any pullback from current levels will likely be temporary. I have been noticing that several gold stocks are making their way up the List. But the question remains, it this the time to be buying gold?
In my comments going into the jobs report, I mentioned that a weak report would likely cause gold to pop.. And this is exactly what happened. But one day does not make a rally.
Several gold stocks had their PT indicators turn Green yesterday, including ABX. However several others that I follow, including AUY and RGLD still have at least one PT indicator negative. So it’s still early. Yeah, I see that most gold stocks have TLB Pattern. These patterns are staring me in the face! But all TLB Patterns are not alike. Some are prettier than others. And what I mean by pretty is that the price action off the lows is starting to cause the moving averages to move closer together. They start looking like they want to cross. I’m still not seeing this on a lot of gold stocks. All I’m seeing is mostly flat lines. With a stock like ABX, the 50- period moving average is still over 4 points from the 200. So it still has a lot of work to do before it can enter an Uptrend.
But you also know my rules for entering a trade after a TLB Pattern. The key word being ‘trade’. So if you want to dance with a gold stock now, in anticipation of a possible “Rope Jump’, be my guest. Just remember that it’s a dance. It’s not the time to fall in love.
Something like ABX has a nice Hockey Stick Pattern that projects to the 24 area. It’s currently trading at 19.88. If you want to trade stocks like ABX for a possible ‘Rope Jump’, just remember to pay strict attention to the PT indicators. If they turn against you, get out! Gold, the metal still has a chance of falling to the 1150 level, and IF this happens, it will drag the miners along with it.
Bottom Line: I’m just gonna sit on the sidelines today and watch to see if the correction I mentioned above starts to develop. I don’t like buying anything when the A-D is so overbought.
That’s what I’m doing,
Class tonight at UNF: Hockey Sticks.
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