Weekend Strategy Review March 16, 2014

Posted by OMS  at March 16th, 2014

World markets had a rough time of it this past week, as Russia’s President Putin continued his bellicose actions, moving troops into the Crimea and threatening Estonia.  His actions even caused German Chancellor Angela Merkel to criticize his actions.  Now you know things are getting serious when Germany issues a warning to Russia, as the entire German industrial machine is inexorably linked to the oil and gas it receives from Russia.

Anyhow, the markets felt the increasing tensions and traders acted accordingly. They sold equities and bought god..

The Dow fell another 43 points on Friday to 16,065.  It was down 389 points for the week.  The NASDAQ was also down 15 points on Friday, closing at 4,249.  It was down 90 points for the week.  The declines in these two indexes dropped them off the Dean’s List and turned their DMIs negative. The DIA and QQQ were replaced by the DXD and the QID, the inverse ETFs for the DOW and NASDAQ respectively.

On the surface it looked like things were starting to fall apart.  But if you consider the two scenarios that I have been talking about for weeks now, remember that I said that IF the market was going to trade up near the 17,000 level, it would first need to form a Blade close to the 15,900+ level.  Friday’s low for the Dow was 16,046.  It was the lowest level in the past 2 ½ weeks, and even though it was still about 125 points from my original projection, the important thing to note was that it was the second low in the Blade.

Also, while the DIA and QQQ fell off the Dean’s List, the List is still pretty long.  There’s a lot of ETFs rated 2, 1 and O, but the SPY and RUT, the ETF for the Russell 2000 are still on the List.

So with two scenarios in place that allow for the decline, a Dean’s List that is showing length and two positive ETFs and a nice Hockey Stick Pattern in place, I still can’t get too negative.

There’s also a few other things that we need to keep in mind.  The VIX remains above its upper Bollinger Band,  and now almost any rally will generate a VIX Buy Signal.  We know that VIX Buy Signals are usually very reliable, but they are almost always early.  But right now, it’s nice to know that we have a Buy set-up in place, so IF the market does start to pop, we’ll have this signal in our corner.

But here’s the other thing that I found strange about Friday’s trading action that tells me not to get too Bearish.  It’s the Professor.  I stopped by his office several times on Friday, but seeing that he was busy working his numbers, I didn’t want to bother him.  He was acting very strange, like he had discovered something very unusual.  When he’s working like this, I’ve learned not to disturb him.  So I waited.   After the markets closed, I walked by his office again, but this time there was a sign on the door that said:  19 longs and 10 shorts.  I had to look again to see if there was a mistake.  How could The Professor identify 19 longs in this market?  But he did.

In other words, The Professor is identifying over 1/3 of the stocks required to issue a Buy Signal.  So I immediately looked ay my charts to see where the Daily DMI was located on the Dow and NASDAQ.  Hmmm?  Not too bad.  It could easily turn positive IF the market rallies from its relatively mild oversold condition in the next few days.  That’s about the time I checked the A-D oscillator and saw it had a reading of -94.39.  I noted that reading actually improved from the previous day’s reading of -117.28.  Hmmm?  So on a day when the Dow fell 43 points, the A-D oscillator improved?  Something is going on.

Bottom Line: All of the above tells me that IF Putin doesn’t do something silly over the weekend, and the situation in the Crimea is resolved, the markets should start a significant rally.

So the obvious question is ‘What stocks do I want to be trading?’

For the answer to that question, let’s start with the SIGN.  The SIGN says that students of The Professor’s Methodology ALWAYS need to pay attention to the three elements of the SIGN.  These elements are: The stock MUST be on one of the Lists, It MUST have a pattern, and finally, all of the PT indicators MUST be positive.

If I start by taking a quick look at the Dean’s List, after I get beyond the gold issues, I see DIG, the oil and gas ETF.  When I look at a chart of DIG, I see that it satisfies all of the requirements of the SIGN.  I also see that the 2-RSI Wilder is extremely oversold with a reading of 24.41. Perfect. I don’t have to look any further.. I’m going to focus on energy.  BTW, its mid-March and I love to trade energy in March – April..

So the conservative part of my portfolio, I can start with and ETF like DIG.  There are three other energy related ETFs on the List too:  PWB, PXE and VDE.  If I want to trade individual stocks, all I have to do now is pull up the Member’s Watch List and look for strong energy related stocks with nice HS patterns.

There are many on the MWL now.  Stocks like HAL, TOT, GPOR, SPN, and TSO.  All have nice patterns.  But the ones I find particularly attractive going into Monday are the ones that have an oversold  2-period RSI Wilder.  I have includes a chart of Halliburton as part of the WSR so you can see what I mean, but you might want to check out all of the others mentioned.

I still haven’t found my healthcare or pharma stock.  But that’s OK.  If the market does start to move higher, I’ll have plenty of time to find it.  There’s no rush. The Professor still hasn’t issued his Buy Signal.

Have a great weekend.

That’s what I’m doing,

h

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