Professor’s Comments May 19, 2022
Posted by OMS at May 19th, 2022
The markets opened lower yesterday and continued to fall throughout the day. The Dow fell 1,164 points, closing at 31,490. It was the 9th worst point loss in the history of the index. The NASDAQ and S&P lost 566 and 165 points, respectively. The Russell 2k lost 65 points, with IWM shedding 6.4 points to 176.24. It wasn’t too long ago that I was talking about downside targets for IWM of 183, 177, then 160 to 150. We’re well on our way. The Dow Transportation Index lost 1,196 points, its worst loss ever.
Yesterday’s impulsive decline appeared to be the start of wave 3 down of Wave 3 down. There should be a lot more downside to come in the days/weeks ahead, as the Dow works its way lower toward my targets near or below the 30,500 level. I should caution that one of my targets for wave 3 of Wave 3 down is as low as the 28,500 level IF it is an extended (2.62 X wave 1) decline. Students should understand that the decline will likely NOT be straight down. There should be corrective rallies along the way, some that could be very strong if driven by short covering. However, I would view any rally now as a shorting opportunity. The Bear is running wild now…and this is only Wave 3 down.
There were no changes to the Market Timing Indicators or the Dean’s List and MWL after yesterday’s action. They are still negative.
Because of this, I will continue to look for opportunities to short the market. Yesterday was another huge trading day for me. It was my best day of the year! The shorts I put on earlier in the week from the 32,700 level paid off handsomely. I hope that you got paid as well. My Doctor’s Trade with TZA generated another confirmed Green Arrow on the second bar of the day. So now we’re back in the trade for another go. Students should note how this simple trade kept us out of the recent wave 2 retracement, avoiding the 8-point loss, and put us back into the trade with another Green Arrow. My Doc friends got to be loving life now! (So are their patients!)
The Sector Ratio stayed at 6-18 negative after Wednesday’s session. The top five strong sectors are Telecoms (4), Energy (3), Utilities (3), PharmaBio (0), and Transportation (0). The top five weak sectors are Retail (-7), Food Drug (-4), Autos (-4), Media (-4), and Banks (-4). All the weak sectors got pounded unmercifully yesterday. I keep telling you to avoid these week sectors as they will lead the market lower.
I still don’t see any reason to be buying gold, Bonds or crypto.
My Best Bets remain the inverse index ETFs. Why? They are still at the top of the Dean’s List.
BTW, one of the things I try to give students in my Comments is a roadmap of where the indexes are in their overall patterns. For example, on Monday, I talked about how the Dow could retrace to the 32,700 level before wave 2 of Wave 3 up is complete. In other words, I was trying to warn them that a complex retracement wave could be starting, a wave that would consist of several up and down moves that would frustrate a lot of traders.
One of the ways to find this retracement wave is coming is by using the new Bias Indicator. If you look at a 60 minute chart of the DIA, you will see what I mean.
The Bias turned started to decline on Thursday, 21 April, the day after the Fed announcement. It turned negative on Friday, 22 April. Except for a brief period on 4 May, the Bias stayed negative until Monday, 16 May, when it turned positive. The fact that the Bias turned negative and then positive is not the point I want to make today. But it’s helpful to see how easy it is to trade the downside when the Bias is negative. Scalping on the short term bar using inverse index ETFs becomes a lot of fun.
Going into yesterday, with the market retracing and the Bias being positive, a lot of students were becoming frustrated again. So, here’s something that can help you end your frustration.
I want you to look at how the Bias as it rises and falls above or below the zero line. For example, starting just after the Fed Announcement, the Bias started falling into the morning of 27 April. During this time, trading or scalping inverse index ETFs on the short-term bars was a breeze. These were multiple cigar days for me. The key to my success was the negative and falling Bias Indicator.
But then on Wednesday, 27 April, and again on Monday, 2 May, the Bias started rising. It was still negative (below the zero line), but it was still rising. This made trading the short side more difficult.
But then things changed. On Thursday, 5 May, the Bias turned negative and started falling. Trading the short side became easy again. You felt like a champ! That is until last Friday, when the Bias started to rise again as the market retraced. If you were still trying to buy or trade TZA and SDOW during this time, you probably found yourself confused again.
The Bias is a wonderful tool. I use it to tell me the direction I should trade the short-term bars every day. But like any tool, it has its limitations. When used on the shorter-term bars, it does not see the larger picture…. the picture that is being presented on the longer term bars…like the 60s.
Before I used the Bias, I used to use the concept of ‘High Cover’. In other words, I always told students to check a chart of the longer term bars, to see where they were in the battle. If the sky was clear on the 60’s you could safely trade the shorter-term bars. We’ll it’s no different now that I’m using the new Bias Indicator. I’m still checking the 60s when I’m scalping the shorter-term bars.
It helps me know if I’m trading with or against the overall flow of the battle.
That’s what I’m doing,
h
BTW, students should note that the Bias on the 60s started to turn down yesterday after the first bar generated a confirmed Green Arrow. It was my signal that wave 3 down Wave 3 down was underway.
05-19-2022
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEG |
THE TIDE | NEU |
Index | Signal | Signal Date |
---|---|---|
DOW | NEG | 09 May 2022 |
NASDAQ | NEG | 03 May 2022 |
GOLD | NEG | 29 Apr 2022 |
U.S. DOLLAR | POS | 18 Feb 2022 |
BONDS | NEG | 11 Apr 2022 |
CRUDE OIL | POS | 12 May 2022 |
CRYPTO | NEG | 21 Apr 2022 |
Not sure of the terminology we use? Check out these articles
The Hockey Stick Pattern
The Creation of Waves and Trends
FAQ
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