Professor’s Comments April 19, 2022

Posted by OMS  at April 19th, 2022

Stocks finished mostly lower yesterday, after spending the day in choppy, sideways trading. The Dow lost 40 points, closing at 34,111.  The NASDAQ and S&P dropped 19 and one point, respectively.  Post-holiday volume on the NYSE was light, with less than 12 billion shares traded, well below the 10-day average. Down volume outpaced up volume by 57.7 to 42.3 percent. There were 157 new highs and 321 new lows.

Yesterday’s initial decline was NOT impulsive.  The Dow did not confirm the early lows in the S&P and NASDAQ.  The Russell broke below the 1919 level I mentioned in yesterday’s early Comments, but only got as low as 1981.69 before bouncing. It never threatened the 1976 level I mentioned that would confirm the start of Wave 3 down. So, because of this, I must conclude that retracement wave 2 up is NOT complete, though the patterns on the NASADAQ and Russell 2K appear close to doing so.

The 11 April low of 1971 on the RUT is still the number to watch. I still feel the RUT is the weakest index and if 1971 is broken to the downside, it will begin taking the other indexes with it.  It will also confirm that wave 3 of Wave 3 down is underway.

Here’s the thing that’s important for traders:  By not following through in yesterday’s early decline when the markets had every opportunity to do so, the market is telling us that it hasn’t made up its mind to go lower…yet.  So, until it does, and we start to see impulsive action to the downside, we need to continue to trade this market like its still completing a corrective wave sequence.  By definition, this means trading smaller positions, and taking profits quickly are the order of the day.  My scalp trade on TZA yesterday is a good example of what I’m doing:

As soon as the market opened yesterday. I saw that the bias on the 5 min bars on TZA was positive, so I knew at once that I needed to be trading the long side. There was a confirmed Green Arrow from last Thursday’s trading, so I jumped on the trade at the open (33.60).  A red bar appeared a few bars later and I was out at 30.73. With a Red Arrow staring me in the face, I stayed on the side lines until the 11:20 mark when another Green Arrow appeared.  Bam!  Back in at 33.79 with a partial position (300 shares).  Students should note how the bias was positive at that point, but still not rising.  Thus, only a partial position was warranted.  The bias started rising two bars later, so I added another 300 shares at 33.86.  I sold half the position when two warning red bars appeared at the 11:55 mark with TZA trading at 34.28.  Back in at 12.05 for the same price after the warning cleared and I was back on another green bar. Exited the trade on the red bar/red arrow at the 12.40.  Profit for the morning was about 0.78 cents or about $450 on the shares I was trading.  I also had a similar trade on SQQQ during this period, the other ETF I mentioned in yesterday’s early Comments.  This trade was good for about 2.45 points, or about $1,225 during this same time.

The bias on TZA started to decline after 12.45 and final turned negative at 13:30, so I stayed on the side lines and watched.  The next Green Arrow appeared at the 14.05 mark, but the bias was still negative.  I’ve learned that it’s usually a waste of time (and money) to take these kinds of trades, so I stayed on the side lines until 14:405 when I saw the bias begin to rise and separate.  Bam!  In with a partial position at 33.67.  Held the position until the last bar before the close and exited at 34.33 for another 0.66 cent profit.  Total take for the day was about $1,675. Not bad for a day of scalp trading in a sideways market!

Until I start to see some impulsive action to the downside, I plan to do the same thing, trading TZA, SQQQ, and maybe a few shares of SDOW.  I still believe that trading TZA and SQQQ to the long side are the best bets for the near future.  Pay attention to the bias and make sure that you are trading with it, not against it.

The other suggestion I have is to make a copy of yesterday’s five-minute chart of TZA and keep it, along with the above discussion on your desktop for reference. Yesterday was a good example of a sideways market day with both positive and negative bias.  Note how easy it is to make money when the bias is positive AND rising.  That’s the key to using my new Arrows system. 

BTW, the Head & Shoulders pattern on the Dow is still very much in tack. Nothing changed after yesterday’s session.   Neckline support is still near 34,250.  A break of this level will suggest that significantly lower prices are directly ahead.  If 32,250 is broken, I’ll at once start looking to buy/trade SDOW.

The Market Timing Indicators for the Dow have moved to neutral.  The same timing indicators for the NASDAQ, SPY, and Russell 2K are negative. 

The Scalp Trading Indicators for the Dow, S&P, NASDAQ, and Russell 2K are negative.

The Sector Ratio stayed at 7-17 negative after Monday’s session. The top five strong sectors were Energy (7), Material (4), Food Drugs (3), Foods (3), and Healthcare (2).  The top five weak sectors were Banks (-4), Semiconductors (-4), Autos (-3), Financial (-3), and Technology (-3). 

Doctor’s Trade:  Back in the trade after yesterday’s confirmed Green Arrow.  The last trade in TZA was good for 4.93 points or about 17 percent.  The small sideways ‘Blade’ that has formed during the last 7 bars could be a harbinger of good things to come.  After getting almost 5 points from the “Stick’, I’m willing to give the pattern another chance to perform.  Bias is still positive and rising :>)

That’s what I’m doing,

h

Again:  Always check the bias before you start your trading day. ALWAYS!!! If you plan to scalp trade during the next few days, make sure you trade in the direction of the bias. If you’re trading the long side, even with an inverse ETF, make sure the bias is positive AND rising. A positive, rising bias is the key to successful Green Arrow trades.

Also, please tell your friends about the new Arrows and bias indicators.  I really need your help with this.  If they send an email to Dave, he will give them a free trial subscription.

Market Signals for

04-19-2022

Not sure of the terminology we use? Check out these articles

The Hockey Stick Pattern
The Creation of Waves and Trends
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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.