Weekend Strategy Review August 17, 2013
Posted by professor at August 18th, 2013
The Dow fell another 30 points on Friday, closing at 15,081. It was off 344 points for the week. On Friday, the Dow hit an intraday low of 15,054, coming within 54 points of my target. The Nasdaq was down 3 points on Friday, closing at 3,602. It was off 57 points for the week.
Big Picture Strategy: For the past two weeks, I have been saying that it was not the time to be buying stocks. This was mostly due to the fact that all of my breadth indicators were negative and heading down. And during the past two weeks, we saw how the market responded by dropping over 600 Dow Points. In the process, the market has become EXTREMELY oversold.
The A-D oscillator has been negative for the past 15 days, and has had readings below -200 for the past two days. Readings below -200 are EXTREME readings. The market does not stay this oversold unless it is in the process of crashing. And we’re not crashing. So odds are that we’re gonna bounce.
The other thing to note with the A-D oscillator is that Friday’s reading came within 15 points of Thursday’s number. That’s a pretty small change for such a big negative number, so we need to be on the lookout for a Big Move within the next 1-2 days.
And coming where we are in the pattern, that Big Move could be to the upside.. So while I have been negative on the markets for the past two weeks, now I’m telling you to get ready. The start of the next rally wave could be getting very close. And if I’m right about the next wave being a wave 3 up, the rally could be a good one.
During the past few months, we have picked up several new sunscribers who are now in the process of learning how to use The Professor’s Methodology and my Lists. So this weekend, I want to spend a little time talking about how I use the Lists to select stocks. I believe this discussion will not only help the newbies, but will be a good review for most of my old timers as well.
But before I talk about the Lists, I need to say a few things about where we are in the overall pattern. It’s important that you understand where we are in the pattern, because we look for different things at different points. For instance, back in late June, when Major Wave ‘B’ was completing, we were looking to establish Basic Positions in the stocks we selected. The ‘B’ wave had caused the PT indicators to turn negative on most stocks in the market, so we were using the Lists to identify stocks and ETFs with either Hockey Stick Patterns and/or a Three Lows to a Bottom (TLB) Pattern. Then once we saw these stocks re-appear on the Lists, we had two of the three elements of the SIGN necessary for a trade. All we needed was indicators. When the indicators turned positive, we bought our Basic Positions.
But things are different now. Since 24 June, when Major Wave ‘B’ ended, we have been in Major Wave ‘C’ up. This Major Wave should consist of five waves, eventually taking the Dow to just under the 17,000 level. Minor wave 1 of ‘C’ up completed on 2 August at the 15,658 level. And for the past 2 eels, we have been in minor wave 2 down. My point is that IF this wave completes near the 15,000 level as I expect, it will only be a minor wave, not a Major. The pullback that occurred since 2 August has not turned the PT indicators on most stocks negative. Most of the stocks on the member’s Watch List are still in Uptrends with positive indicators.
So now, with minor wave 2 coming to an end, we don’t have to wait for the indicators to turn positive. And because all of the Basic Positions we established back in late June remain positive, we’re still in these positions. Stocks like TBT and SLB.
Anyhow, because the market is already in an uptrend (Major Wave ‘C’ up), the stocks I will be looking for this time will be strong stocks that have pulled back. Stocks that are already on the Dean’s List, already in Uptrends with positive PT indictors. In other words, I’m looking for Rifle Trades.
Let’s take a quick look at a few candidates. First of all, I will be ignoring all of the gold and silver related stocks and ETFs at the top of the Lists. They already had their run, and are approaching targets. No, I’m looking for stocks that are in Uptrends but have now become oversold.
So instead of looking at the top of the List, I’m going to drop down to the midle of the List. If I look at the top, all I will see are stocks that are completing strong runs. The time to buy these was a few weeks agio. Not now. No, I want to find stocks that have pulled back a bit during the wave 2 corrective process. The stocks at the top of the List, like the metals, made strong runs BECAUSE the other stocks pulled back. Money flowed out of the decling stocks and into the metals as the market sold off. So I want to look at the middle of the List to find stocks that are now on sale. I always like to buy good stuff when it is on sale; and not pay top dollar. The metals are not on sale now. If you buy the metals now, you’re paying premium prices.
Here’s my list: MYL, DOW, CMI and TDC ,to name a few. There are others, but for now, all I want to do is show you a few stocks that have pulled back, remain in Uptrends, and have positive PT indicators. You could also look for stocks that have pulled back and remain in Uptrends, but have NEGATIVE indicators. But with negative indicators, they are NOT Rifle Trades. If you want to buy these stocks, then you must wait until you have all of the elements of the SIGN. To qualify, the stock must be on the List, have a pattern and then wait for the indicators to turn positive. Then you can establish a Basic Position in these stocks.
But for this discussion, I’m only looking at Rifle Trades. OK, take a quick look at the stocks I highlighted above. Go on…I’ll wait. If you look closely, you will see that all of them look pretty much the same! Now take a close look at the 2-period RSI Wilder. What do you see? Hmmm? Correct, they’re all oversold. They’re all candidates for Rifle Trades.
OK, now I want to get your interest up. I want you to look at a few other stocks on the List. Stocks like NFLX, RTN, PSE and EMR. Compare them to the other stocks above. They look almost the same, don’t they? But there’s a difference. Look at where the 2-period RSI Wilder was on Thursday on each of these stocks. Note how it was oversold on Thursday. And then look at what happened to each stock on Friday. NFLX popped 5.46 points, RTN was up 1.14, PSE was up 0.40, EMR was up 0.39 cents. All of these stocks were up on a day when the Dow fell 30 points. Pretty amazing!
That’s why I’m only looking at Rifle Trades now. Several of you sent in stocks for the Update Class. And while many of these stocks are in Uptends with nice patterns, the indicators are negative. This means that you have to wait for them to turn positive on the Daily’s before buying.
If I’m right and wave 2 down is coming to an end, I don’t want to have to sit around waiting for indicators to turn positive on the Daily’s. No. If wave 3 up is starting, it should start with a Bang, not a whimper. Impulse waves don’t start with a whimper. You’ll know when it is starting. You’ll hear the Bang!
And when I hear it, I just want to get into a few Rifle Trades on the 60s. By taking this approach, I already know that I have positive indicators working for me on the Daily’s. All I’ll need to see is for the hourly bars to turn Green, and the stock should start popping. Then I can manage the trade. If I really want to buy something that is not a Rifle Trade, I can always wait until the Daily’s turn. But now I want to be ready. We could be approaching the time when I will be looking to buy stocks again.
Also…think about this. If there are so many stocks setting up as Rifle Trades now, what do you think will happen if all of them start to turn positive on the 60s? What do you think the market will do? Hmmm? This is just one of the many ways I use my Lists.
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.