Weekend Strategy Review May 25, 2014
Posted by OMS at May 25th, 2014
The Dow rose 125 points on Friday, closing at 16,606. It was up 115 points for the week. However, even though it appears that wave 3 up is underway, the P-volume on the Dow (DIA) has still not turned positive.
I talked about the lagging P-volume in my WSR on 10 May when the DIA was trading at 16,583. So now, two weeks later, the P-volume is still negative and the Dow, even with Friday’s rally is only 23 points higher. Hmmm? No P-volume=No Gas=NO movement in stock prices.
On the other hand, on the NASDAQ (QQQ), an index where we saw an increase in P-volume, the Q’s are trading 3 points higher.
During this period, the Dean had the QQQ and QLD on his List. It’s only within the past few days that he started to mention the Dow (DIA). Hmmm?
Anyhow, even though the Dow is still lagging, it appears that wave 3 up is underway. This wave should take the Dow close to or slightly above 17,000 before wave 4 starts to develop.
So for the time being, all I plan to do is ride the train. I have my tickets to ride in Energy and Healthcare, and have established a few ‘speculative’ positions in Gold (short), the Russell 2000, and Biotech. I’m about 90 percent invested and being real choosy about where to put my last 10 percent.
I used the term “for the time being” for a reason. I don’t expect the train ride to last too long. Maybe a few weeks. If I’m right about the pattern on the charts, this wave up could be fast and furious. So instead of talking about a Big Picture Strategy this weekend, where I try to give you a feeling for what I see during the next few months, I only want to focus on the next few weeks. That’s because once the Dow gets closer to the 17, 000 level, things will start to get very tricky. Remember, the P-volume on the Dow is not only lagging, its warning! It’s warning for a reason: The Banks and Financials are NOT participating. And as long as they don’t participate, we need to stay on our toes.
During the past two months, while the Dow has been struggling to advance, a bank stock like Bank of America (BAC) reached a top near 18, and has quietly pulled back to the 14 level. The stock remains in an Uptrend (50>200), however during the recent pullback, the stock ‘Jumped the Ropes’ to the downside. Hmmm? A negative ‘Rope Jump’ is usually the first sign that something bad could be developing. And when this happens with the banks and financials, it’s never a good sign for the overall market. If you need a reminder, just look at what happened in 2007 when the banks started to move south. Things started to get real ugly after that.
Anyhow, I’m not really all that concerned about the banks for now. They should rally along with the market during this leg up. But it’s likely that their rally will only be a retracement wave 2. Once we get closer to 17,000, the banks and financials might become prime candidates for the short side. We’ll see.
Before I close, I wanted to say a few words about UWM. As you know, I have been accumulating shares of the ETF as a trade, looking for it to turn positive on the Daily’s. On Friday, the ETF rose 1.69 points to close at 79.28. So now, I have a pretty nice profit in these shares. But here’s the problem. The stock has still not turned Green on the Daily bars. All of the PT indicators are still Red.
This is what sometimes happens when you start to establish early positions in a stock like UWM, based on the shorter term bars. Ordinarily when I’m taking positions against the Daily bars, it’s only a scalp trade. I’m out by the end of the day, so I’m not holding a position that is opposed to the Daily indicators.
But with UWM, I now have a 3 point profit in my ‘early’ shares, but find myself holding them overnight when the Daily’s are still negative. Hmmm? What to do?
Here’s the thing: I still need to protect my profit. I cannot just sit and watch, hoping that the indicators on the Daily’s will turn Green. Once ahead, I need to ensure that I will make some kind of profit on the trade IF the ETF starts to give back its gains.
So I can do several things. The first thing I can do is to sell all of my shares. Remember, I entered the position as a trade only. Nobody is gonna say anything if I take a 3 point profit now. Remember, the PT indicators on the Daily bars are still RED, and the Dow is still RED. If I sell my shares now, I can always re-enter the position when the Daily bars turn Green.
The second is to sell a few shares and place a stop at a price that represents my cost for the position. This will ensure a small profit on the position and give me a ticket to ride.
It really doesn’t matter all that much when you’re dealing with small positions. But the reason I’m mentioning this today is because I want you to get in the habit of protecting ALL of your positions, small or big. And IF I know anything, I know that some of my students are probably trading large positions in UWM now. And I want to point out that IF you’re doing this (trading against the indicators), you MUST protect yourself. ‘Nuff said.
The U.S. markets will be closed on Monday in observance of the Memorial Day Holiday. So my next update will be on Wednesday morning.
One more thing: The Memorial Day Weekend has always been special for me. It’s a time for me to remember, reflect and give thanks to those who have served. So if you’re out and about this weekend, and you see an old timer with one of those Navy hats on that says USS something or other, thank him for his service (you will never see a woman wearing one of those hats). Or if you’re at an airport waiting for a plane and you see service members dressed in a uniform, go up to them and say thank you. Offer to buy them a sandwich or a drink. Talk to them about their service. It will not only make them feel good, but it will make you feel great for doing it. Service men and woman are proud people. They are willing to give their lives to ensure your freedom and protect our way of life. They ask very little in return. This weekend, please let them know that what they do is appreciated.
Also, Wednesday night is the start of the next Basic Class at UNF. If you have a friend, relative, or neighbor that could benefit from The Professor’s Class, please tell them about it. Terrorist threats are not the only thing we need to protect ourselves against these days. We need to think about protecting our money and investments. Understanding how to use The Professor’s Methodology is the best way I know of to do that.
Have a great weekend.
Remembering and giving thanks to all those who have served.
That’s what I’m doing,
h
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.
Category: Professor's Comments, Weekend Strategy Review