Weekend Strategy Review May 22, 2022
Posted by OMS at May 22nd, 2022
The markets fell to new lows yesterday, before rallying into the close. The Dow was down 618 points intraday hitting a low of 30,635 before rallying to close 8 points higher at 31,261. The large cap index was down 2.9 percent for the week making it the eight straight weekly loss. You must go back 99 years, or back to 1923 to see eight straight weeks of losses on the Dow. And this Bear is only starting.
In Friday’s brief comments, I said that I would start shorting the Dow if it rallied to the 31, 500 level. It did, getting as high as 31,516. A confirmed Red Arrow appeared on the Dow at the 10:05 mark, where the fun began. As soon as I saw the Dow’s Red Arrow, I started buying SDOW,, I exited the trade at 11:30 on its Red Arrow. Another Green Arrow put me back into the trade at 12:00 with another exit at 13:30. The two morning trades alone produced a multiple cigar day. But the day was not over….
With the Dow now trading at 30,635, it was now close to 30,500, the first target I had been previously mentioned for Wave 3 down. So, after exiting the trade, I was cautious about entering the rally that I expected might be coming. So even though a Green Arrow appeared on UDOW, the 3X positive ETF for the Dow, I passed on the trade…until the 15:20 mark when another confirmed Green Arrow appeared , this time with a positive bias. The trade into the close was good for another 2-points…another cigar.
From a technical perspective, it’s hard to say whether Friday’s low was the completion of Wave 3 down or just another temporary stopping point in a series of wave 3 of 3 lows. I think it’s the later. The reason I say this is because in Friday’s brief comments, I mentioned that the Dow could fall significantly lower than 28,500 level I had been using for my lower target. The price action going into Friday appeared to be developing the right shoulder of another Hear & Shoulder pattern that has a target closer to the 26,500 level. You can see this pattern by drawing a trend line from the 24 February low and connecting it with Thursday’s low. The trend line is the neckline of this pattern. So, IF the neckline is broken to the downside, which it was yesterday, there’s a good chance the Dow could fall another 4,670 points from yesterday’s close before Wave 3 down is complete. I just thought I’d mention this….
It’s also possible that yesterday’s decline to 30,635 was the completion of a complex wave ‘b’ down in an upward flat pattern. I need to mention this too, because if yesterday’s rally was the start of a wave ‘c’ in a flat pattern, it could take the Dow back to its 17 May high of 32,689. If the Dow stays above yesterday’s low next week, the odds will tend to favor this scenario. On the other hand, a break of Friday’s low will eliminate this scenario and send the markets reeling. Doesn’t matter too much if you have the Arrows and bias indicator. Just follow the Arrows.
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 next week
BTW, there was a very small change in the A-D Oscillator on Friday, so we could see another Big Move in the next 1-2 days. This would not be a surprise with all the volatility we’ve been seeing lately.
The Sector Ratio weakened to 5-19 negative after Friday’s session. The top five strong sectors are Telecoms (10), Utilities (2), Energy (1), PharmaBio (1), and Food (0). The top five weak sectors are Retail (-7), Autos (-6), Food Drug (-5), Media (-4), and Banks (-4). All the weak sectors got pounded again yesterday. Avoid these week sectors as they will lead the market lower.
I still don’t see any reason to be buying Bonds or crypto. Gold is another story. The Market Timing Indicators for gold moved to a neutral signal on Thursday, so its possible that gold could be nearing completion of its corrective wave 2 down. It’s still way too early to tell if this is happening. The danger is that IF wave 2 down is not complete, gold could still drop over 1,500 to 2,000 points lower…maybe to the 1,600 level or lower. That’s way too much risk for me for me to be even thinking about buying gold now. But I am watching the metal closely. BTW, if gold is not nearing completion of its Wave 2 down, it could be another year or so of downside for the metal. Gold closed at 1,845 on Friday.
Best Bets: I continue buy/trade the inverse index ETFs at the top of the Dean’s List, especially on any rallies. I’m still scalping them on the shorter-term bars, mostly the 3s and 5s. I’m currently on the side-lines with my Doctor’s Trade on TZA. The green 4-hour bars that appeared on TZA on Thursday and Friday did not generate a Green Arrow, so I’m not in the trade.
The above strategy has been a consistent winner for me during the past several weeks. I start every day fresh, using the new Bias Indicator to tell me the direction I should trade that day, either up or down. Then once I know the direction , I trade leveraged ETFs in the direction of the Bias. I exit all trades on Red Arrows. Simple! I see no reason this strategy for now.
BTW, during the week, someone asked me to comment on Cathy Wood’s ARKK Technology Innovation Fund. Hmmm? Another asked about TSLA. Well, you all know I never comment on individual stocks. I don’t give opinions or make recommendations. I just don’t. But I will say this….The Bias Indicator on Cathy’s Fund has been negative since last November. During this time, ARKK has fallen from 125 to a low of about 35. Its now trading at 42.41….but the Bias is still negative on the Daily Chart. During this time, with a negative Bias, every Red Arrow trade made money. Every one! No exceptions.
The Bias on TSLA, turned negative at the end of April. The first Red Arrow appeared on 9 May at the 870 level. On Friday, TSLA was trading at 664, still on a Red Arrow.
So instead of asking me about what I think, which is just an opinion, do what I’ve taught you to do all these years and follow the indicators. And now that you have the new Arrows and Bias Indicator, you can do it yourself. No need to ask anyone for their opinion. Ever! With the new Arrows and Bias Indicator, you now know more than 99.9 percent of the traders on Wall Street.
A Few More Weekend Thoughts
After taking a closer look at Friday’s action, it’s possible that the Dow is inside a corrective wave 2 up of a 3-3-5 flat pattern for Wave 3 down. Sounds complicated…. What does this mean?
Well, the corrective Wave 2 that ended on 17 May at the 32,689 consisted of a double zig-zag or rising wedge pattern. This pattern is basically a combination of two corrective a-b-c patterns tied together. The reason this is important is because double zig-zags are usually followed by a more complex 5 wave pattern where the ‘b’ wave of wave 2 in the pattern moves lower than first wave down. This might be what we saw on Friday when the Dow dropped to the 30,635 level. If this is the case, the Dow could stage a strong rally early next week, possibly back to the 31,600+ level.
Remember, there is a small change signal from the A-D Oscillator on the board, so we should expect a Big Move within the next 1-2 days. If I’m right about the double zig-zag, and Friday’s decline being wave ‘b’ of the pattern, the Dow could easily rally back to the 31,600+ level, maybe even to 31,750, before Wave 3 resumes its downward path.
If the Dow starts out to the upside on Monday, I will be looking to buy/ trade UDOW and TNA for a move toward the 31,600 level. I’ll start by checking the Bias. If the Bias is positive, I’ll buy on a confirmed Green Arrow. Once in the trade, I’ll exit on a Red Arrow. Then IF the Dow is above 31,550 and I see a confirmed Red Arrow, I’ll start looking to buy inverse ETFs like SDOW, TZA, and SQQQ. The next decline should be wave 3 of Wave 3 down.
Also, because the Dow fell to 31,689 on Friday, and the possibility of another H&S pattern forming, I must now lower my original target for Wave 3 down to somewhere between 29,500 and 26,500. Remember, it was originally 30,500 to 28,500. Now the target range is about 2,000 points lower. Friday’s action was extremely weak from a breadth perspective, which is another sign that the market could be heading a lot lower once corrective sub-wave 2 up completes.
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Market Signals for
05-23-2022
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
A/D OSC | SM CHG |
DEANs LIST | NEG |
THE TIDE | NEU |
Index | Signal | Signal Date |
---|---|---|
DOW | NEG | 09 May 2022 |
NASDAQ | NEG | 03 May 2022 |
GOLD | NEU | 19 May 2022 |
U.S. DOLLAR | NEU | 19 May 2022 |
BONDS | NEU | 19 May 2022 |
CRUDE OIL | POS | 12 May 2022 |
CRYPTO | NEG | 21 Apr 2022 |
DISCLAIMER
As always, the Professor never makes recommendations. The information is provided on an educational basis so you can have informed discussions with your financial advisors and/or accountants about your individual investment decisions.
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