Professor’s Weekend Strategy Review Part 2, July 14, 2013

Posted by professor  at July 15th, 2013

OK, given what I discussed yesterday in Part 1 of this WSR, let’s finish the discussion by talking about Crude Oil and Bonds.

Is this the time to Buy Crude Oil? Hmmm?  Let’s begin by looking at a chart of OIL, the Crude Oil ETF.  You could also look at USO, which has the exact same chart.  But I’ll use OIL.

OIL started to appear on the Dean’s List a few weeks ago and has recently moved to the top of the List.  The ETF is now in an Uptrend with the 50 >200 after forming a small Hockey Stick Pattern since mid-April.  OIL became a Buy on 1 July when all the PT indicators turned positive. It had all of the elements of the SIGN:  Dean’s List, Pattern and Positive indicators. 

That’s why I started talking about OIL, and mentioned that it could trade to the 24+ level, which was the target of the HS Pattern.  On Friday, OIL closed at 24.80.  So now that OIL has reached its target, what should we expect to see now?

Well, before we start our analysis, let’s think about OIL in view of what we recently saw with FXP and EEV, two inverse ETFs that we have been watching.  OIL is currently at the same place in its pattern that FXP was three weeks ago when that ETF was completing its wave 1. OIL has reached its target, and now needs to pull back to form a wave 2 Blade before it can move higher.  Just like what happened to FXP and EEV.  OIL is currently overbought with an RSI Wilder reading of 80.01.  But remember, OIL has now moved into an Uptrend.  This is the key: OIL is in an Uptrend, and anytime a stock or ETF reverses its downtrend and moves into an Uptrend, I start to implement the trading portion of my BTC-ETC Strategy.  I say ‘trading portion’ because my initial position (Basic Position) is always established at the DMI turn after a TLB Pattern.  This is ALWAYS where I try to establish my Basic Position.  But once the stock starts to move into an Uptrend, and all of the PT indicators remain positive, I start to look for Rifle Trades, which are the trading portion of my BTC-ETC Strategy.  I should mention that if for some reason I did NOT establish a Basic Position at the DMI turn, then I use a Rifle Trade at first pullback to establish that Basic Position.

So getting back to my original question:  Is now a good time to Buy OIL?  Well, here’s what I will be looking for next week.  Because OIL has moved into an Uptrend with positive indicators, I will be looking for its 2-period RSI Wilder to becomes oversold.  If this happens, that’s where I will look to Buy additional shares of OIL using a Rifle Trade.  BTW, sometimes I feel that trading Crude Oil is like watching grass grow. The price of  OIL is exactly the same now as it was at the beginning of January of 2009, over 5 1/2 years ago!  Talk about something being flat lined!  So why am I becoming interested in Crude now?  Well, for the first time in over a year, OIL is showing signs of life.  The 50 has crossed above the 200 for the first time since May 2012.  So something could be happening with crude.  Maybe it’s related to what is currently going on in Egypt, or maybe its has something to do with all of Bernanke’s printing?  Who knows?  But something has caused Crude to move from a downtrend into an Uptrend.  And when stocks go into an Uptrend…I don’t care what caused it to happen.  I just know that all newly started Uptrends are always opportunities to establish Basic Positions, and then look for opportunities to Buy some Eatin Cake.

Bonds:  TBT, the inverse 20+ year Treasury Bond ETF, is in a similar position.  It’s currently ranked high on the Dean’s List and has also just started an Uptrend.  All the PT indicators are positive.  The ETF  ‘Jumped the Ropes’ in late May, and appears to be nearing the completion of its wave 1.  If this is the case, it is highly likely that a small wave 2 pullback could be in the cards.  On Friday, the 2-period RSI Wilder closed at 36.29, so the ETF is not oversold to a level where I can look at it as a Rifle Trade. So right now, I need to be patient and wait.  As long as TBT remains in an Uptrend with positive indicators, I’ll look to Buy the ETF when it becomes oversold as a Rifle Trade.  Meanwhile I’m just polishing my Rifle.

Just remember this.  Buy the Cake-Eat the Cake is an overall strategy that I use to trade trending markets.  And right now, the final wave ‘c’ up of Major Wave E could be starting.  This wave up should be a trend wave, and be somewhat similar to wave ‘a’ up that occurred between January and late May.  So IF the market is starting to trend, then my BTC-ETC Strategy will allow me to establish a Basic Position which I will hold until the PT indicators turn against me.  Then the trading portion of the BTC-ETC Strategy, (Rifle Trades) will allow me to trade additional shares of the same stock as it starts to trend up.  Please understand that Rifle Trades are the trading component of the BTC-ETC Strategy that allow me to Buy or Trade a trending stock on pullbacks.  However as I mentioned in Part 1 of this WSR, if I miss the initial DMI turn after a TLB or HS Pattern, I can always use a Rifle Trade to establish my initial position.  If I do this, I simply manage that initial position on the Daily’s…not on the 60s as is usually the case for a Rifle Trade.  Then once my initial position (the Cake I want to hold) is established, I use Rifle Trades to buy and trade my Eating Cake.

Hope this helps.  Have a great rest of the weekend.

TWID,

h

BTW, I received several notes of Thanks, after posting Part 1 of this WSR.  I want you to know that I really appreciate hearing how my Comments have contributed to your knowledge and success as a trader.  Hopefully Part 2 of this WSR will contribute even more.  Thank You! 

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