Weekend Strategy Review August 10, 2013
Posted by professor at August 10th, 2013
The Dow fell 72 points on Friday, closing at 15,425. It was down 232 points for the week. The Nasdaq fell 9 points on Friday to 3,660. It was down 29 points for the week. Last week was the first weekly decline for the markets in 6 weeks.
Big Picture Strategy: It appears that the markets have started their much anticipated wave 2 correction. As I’ve been saying, this is not the time to be buying stocks.
The DMI on the Dow (DIA) turned negative on Friday. When this occurs after a THT Pattern, it usually leads to a 5 percent correction. A five percent decline from the Dow’s high of 15,658 would drop the index to 14,875. This is exactly where the interim low between the first two highs of wave ‘1’ up bottomed. So for now, I’ll stick with the targets I mentioned last week, which are between 14,850 and 15, 000. In other words, I expect the markets to be trading lower 2 weeks from now.
However we know that any move lower will not be straight down. Remember, wave 2’s are usually made up of several individual a-b-c waves. And each of these waves has smaller waves within them. So expect choppy trading during the next few weeks. Also remember that wave 2’s have a mind of their own, and can easily morph into something more complicated.
The one thing that concerns me more than anything else at this point is the fact that the Bollinger Bands have become extremely narrow on the Dow (DIA) after nearly six weeks of sideways trading. The Bands on the SPY (S&P500) are also tight. And from Class, you know that tight Bands usually mean that a Big Move is coming. Tight Bands do not tell us the direction of the move. We need to look at other indicators, like the DMI for that. But with a negative DMI on the Dow, negative and diverging breadth and volume indicators, AND tight Bands, we need to be especially careful.
Also on Friday, there was another small change in the A-D oscillator. So the A-D oscillator is also telling us to be on the lookout for a Big Move within he next 1-2 days.
The Dean’s List remains positive. However on Friday, DIA and DDM dropped off the List and were replaced by DXD, the inverse Dow ETF. SKF, the inverse Financial ETF also appeared. However QQQ and SPY remain on the List, but their RS ratings are very low now. This tells me that we need to be cautious, especially since a few big cap technology stocks, like IBM, have now entered downtrends. The DMI on the Q’s is still positive, however the P-volume is negative and showing EXTREME negative divergence. Also, the Q’s are in a THT pattern, so IF the DMI turns negative now it could easily lead to a 5+ percent correction. In other words my Big Picture Strategy for this week is to remain cautious.
As long as the indicators, especially my breadth and volume indicators, continue to head down, I will remain on the sidelines and look for the apparent wave 2 to play out. If the market starts to approach my downside target, and the indicators start to improve, that’s where I’ll look to get back in. But meanwhile, I’m mostly on the sidelines. I say ‘mostly’, because I am still looking at a few Rifle Trades, like SLB. The PT indicators on the Daily Chart of SLB remain positive, as it appears to be forming a Hockey Stick for a wave 2. SLB was identifies by Emeritus last night, so I will be watching it on the 60s.
TBT has fallen off the Dean’s List, being replaced by TLT, as it corrects in an apparent wave 2. This is perfectly OK. The Daily Chart of TBT remains Green; with the RSI telling me it’s oversold. Being on the Dean’s List is NOT a condition for a Rifle Trade. Being in an Up trend, with positive indicators, AND being oversold is.
The Dean’s List is currently being dominated by the metals, so we need to ask ourselves is this strength for real, or is it only temporary? On Friday, Emeritus highlighted Hecla Mining, HL, as something to watch. HL is one of those low priced mining stocks that always seem to attract a lot of attention when the metals start to shine. Traders who like to dabble in the metals gravitate to HL at times like this, but if you look at its chart, you can clearly see that its performance has been anything but stellar. At this point, we still don’t know for sure if this move in the metals is for real. We won’t know that until we start to see a lot of the mining stocks start to ‘Jump the Ropes’. And while HL has moved above the 50ma, it is still over 0.75 cents from its 200ma. Now 0.75 cents doesn’t seem like a big move, but for a stock trading at $3.30, it is.
On Friday, I reported that the DMI on SLV, the physical silver ETF also turned positive. So something appears to be happening with the metals. SLV is also coming off a TLB Pattern with a target of 23.7 derived from the interim high between the first two lows. But this target is still well below where the 200 currently resides at 24.42. If SLV starts to move up from its current level of 19.76, it will likely meet severe resistance as the 200 comes down to greet it. Then IF a ‘Rope Jump’ occurs, there will likely be another sideways to down move for the Blade to form, which could take another few weeks. The reason I’m going over this with you this weekend is because I know that many of you are starting to get excited about the metals now that they are appearing on the Dean’s List. But you need to be aware that the upside on SLV is likely limited to 3+ points for the immediate term. A similar analysis can be made for the other gold and silver stocks that you might be looking at. So IF you decide to trade them, just realize what you are dealing with. On the other hand, knowing that a DMI turn after a TLB Pattern usually leads to a 5 percent or more move, it’s nothing to sneeze at, especially when the overall market appears to be correcting.
Also, IF the metals are bottoming here, then you could be picking up your shares at bargain basement prices. Remember, right now all of the elements of the SIGN are currently in place and are working for you. So it might be worth risking a few bucks. I always try to establish my Basic Position in my BTC-ETC strategy using the SIGN. After that, IF the stock starts to move into an Up trend, I use Rifle Trades. So IF you do plan to establish a Basic Position in the metals now, just make sure that you pay attention to the indicators. If they start to turn negative, get out of the trade.
Have a great weekend. That’s what I’m doing.
All of the commentary expressed in this site and any attachments are opinions of the author, subject to change, and provided for educational purposes only. Nothing in this commentary or any attachments should be considered as trading advice. Trading any financial instrument is RISKY and may result in loss of capital including loss of principal. Past performance is not indicative of future results. Always understand the RISK before you trade.