by Hank Swiencinski, AIQ
TradingExpert Pro client for over 20 years, founder of ‘The Professor’s One
Minute Guide to Stock Management’. AIQ will be hosting a full day seminar with ‘The Professor’,  March 9, 2013 in Orlando, FL. More info CLICK HERE

_____________________________________________________________________________________

The Dow rose another 70 points on Friday, closing at 13,896. The Dow was up 246 points for the week. The Nasdaq was up 19 points on Friday, and the rise kept the index in the Green for the week, closing up 15 points at 3,150. Volume was right at its 10 day average. There were 347 new highs and only 12 new lows.

Big Picture Strategy: So where are we now? Hmmm? Back in the beginning of January, when all the worrywarts on CNBC were talking about falling off the ‘fiscal cliff’, we talked about how ridiculous this was. I said that it was not gonna happen. On the last trading day of the year, we saw the Dow dip down to the 12,884 level and I mentioned that the Dean’s List was still positive. I said not to worry. That was over 1,000 Dow points ago.

Back then I was talking about a rally that would take the Dow back up to the 14,000 level. And now we’re just about 100 points from that target. How did I get so close to the target? By watching a Hockey Stick develop. By NOT listening to the talking heads.

We saw the rise from the November lows, and then the pullback towards the end of December, when everybody in Washington was ‘cliffing’it. We didn’t care about the ‘cliff’. What we were interested in was the Hockey Stick Pattern that was developing and the Dean’s List. That’s all that mattered to us.

We saw that the November to early December rise was just shy of 900 points, and that if we added it to the low on 31 December, it projected a target just under the 13, 800 level. And that’s where we were on last Thursday. Friday’s 70 point pop was a bonus.

Anyhow, that’s how we got to where we are now. But that’s ancient history. You guys are always interested in what’s next. You always want to know we do we go form here?

But before we talk about this, we need to understand a few things. Remember, this is a teaching web site. I’m not like Lou. I don’t just give you a bunck of stocks on a list, and tell you to buy them. That’s NOT what I do. I try to help you understand why they might go up (or down). I give you my reasons. I try to walk you through a few scenarios, and help you understand why your stocks are performing like they are. And IF you make mistakes along the way, or didn’t sell something when the indicators turned against you, perhaps you’ll learn the next time. Trading is a learning process. It takes time and requires discipline.

You just can’t go to the Lists and buy things. Not from my Lists, not from Lou’s, not from any one’s list. If you just use Lists, you’re gonna lose! You need to pay attention to the SIGN: .The SIGN consists of three things; Lists, Patterns and Indicators. So if I’m going to buy something, it needs to either be on the Dean’s List or the Member’s Watch List. Then I need to see a pattern. No pattern, no trade. We need to see a pattern so it can propel the stock higher. And then finally, we need to see the indicators turn positive. We need all three conditions. You all know the drill.

And IF we’re buying something from the Lists that is pulling back with an overslod 2-period RSI Wilder, we need to know where it is in the original Pattern. That way we’re NOT buying something at the top of the pattern. Like with CNI that I’ll talk more about below. The reason I’m buying CNI on pullbacks now is because I have higher targets. Many of the stocks on the Lists now are getting very close to their projected targets. We’re NOT interested in stocks that are near their projected targets now. If a stock is near its target and completing its HS Pattern, It could be ready to start a decline.

OK, now let’s get back to what we could see happen in the markets next week.

Firstly, there was a small change in the A-D oscillator on Friday. The small change was less than 7 points, so we should see a Big Move within the next 1-2 days.

Also, the rise of the last few weeks has driven all of my oscillators into EXTREME overbought conditions. Can they remain this way? Sure. But odds are high that they will not. The odds favor a pullback now. At least on the Dow. At 13,900, we’re about 100 points above the projected target from the HS pattern. And we know that stocks do not go straight up. They go up in waves. So now that we have reached our target, it would be perfectly normal to see a pullback.

If the Dow does start to pullback next week, it would tell me that current wave is likely the first wave up of the 5 wave sequence for Major Wave ‘E’ up. Next would be a wave 2 down. On the other hand, iF we continue to push higher, then we’re likely in the impulse wave or wave 3 up in the sequence. A Big Move to the upside early next week would confirm the wave 3 scenario.

While the Dow has been steadily making new highs, the forgotten Nasdaq has not. Held down by the ’crash’ in Apple, the Nasdaq100 has basically traded sideways for the past month. BTW, did any of you see that Apple traded down to EXACTLY 435 on Friday? EXACTLY!!! I hear that some old geezer with a Hockey Stick pattern was saying 435 several weeks ago. Hmmm?

Anyhow, with Apple likely to bounce from its lows, and the Nasdaq having traded sideways for the past month, it sets up a rather favorable condition for that market. I don’t see money leaving the market now, but with the end of January approaching, the institutions might be looking to shift out of some of the overbought big cap stocks into the smaller sisters. The NDX closed the week at 2737. If the NDX starts to move higher early next week and breaks 2760+, it could lead to a nice rally.in the small caps. The rally could see the index approach the 2850+ level. So watch the small caps and technology next week.

As long as the Dean’ List remains positive, I will remain positive. If we start to pullback, I will view the pullback as a buying opportunity.

The kinds of stocks that I want to be trading now are stocks in well defined Up trends, where the 50 is above the 200, and forming railroad tracks. Stocks that are in the Free Willy Mode. Not the ones ‘In Jail’ being held captive by their moving averages. If the market pulls back, I will be looking to buy these stocks when their 2 period RSI Wilder becomes oversold on the Daily Charts. Once I see this condition, I’ll look to buy them using the shorter term bars. Jut like we did two days ago with CNI. Two days ago, CNI was sitting there at 93.40 with it’s two period RSI Wilder buried in oversold territory. One day later it was trading over 2 points higher. CNI is a Free Willy stock. Just about everybody in the stock has a profit!

BTW, during CNI’s recent pullback, it formed a small ‘Blade’. The low of that Blade was 93.3, so if the 6 point ‘Stick’is added to that low, the stock now projects a target near the 99 level. About a month ago, I mentioned that the transports appeared ready for a breakout, and that the way I planned to play the move was with CNI. So far the move is right on track. So now, the HS patterns on CNI have three targets: 97, 99 and 105. The stock closed at 95.41 on Friday..

Now I’m just using CNI as an example here. There are many stocks in the Free Willy Mode now that should be looked at on pullbacks. Just take a look at the Member’s Watch List.

American Express, AXP, is another example of a Free Willy Stock. Two weeks ago, the stock hit an new high of 61.97. The previous high of 61.42 was made in May of last year. So now almost everyone who owns AXP is a happy camper. In the past week, the stock pulled back to the 59 level, where its 2 period RSI Wilder became oversold. The stock is currently trading less than a point from that oversold condition..

Also at some point last week, I think I mentioned how Green Mountain Coffee Roasters, GMCR, had a nice HS pattern, with narrow Bands. The stock was trading close to 40. Now its 46 and moving higher. Take a look a the ‘stick’ on GMCR and make your own projections.

So basically I’m doing two things now. As I mentioned above, I’m looking to buy stocks in up trends when they pullback, stocks like CNI and AXP. And I’m looking for stocks or ETFs from the Lists that have nice HS Patterns. Stocks like GMCR.

I am NOT looking to buy stocks that are ‘In Jail’. This is NOT the time for ‘Hope’ stocks, project stocks, turn around candidates, or junk. Junk like Apple. No matter how you slice AAPL, right now it’s still JUNK! The 50 is below the 200, and the PT indicators are negative. That’s how I define JUNK!

Have a wonderful weekend.

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.