Professor’s Comments Before the Open 1/21/2022

Posted by OMS  at January 21st, 2022

The indexes tried to rally early yesterday, but failed, dropping sharply to end the day with strong losses.  The Dow was up about 450 points at one point but closed down 313 points at 34,715.  The low of the day was 34, 670, which was just above the 200-day moving average.   The S&P still has a way to go before it drops to its 200-day moving average, so it wouldn’t surprise me to see another small wave down in that index, which can still be interpreted as a Wave ‘D’ within its Ending Diagonal. 

Today is an options expiration Friday.  If the market declines today, it usually leads to further selling on Monday. Most times in the past, this selling is about one percent.  However, there are at least two cases since 1990 where the decline was a little over 3 percent.  So, the odds still favor the short-side.

From the feedback I’ve been getting, many of you are really enjoying the ‘Doctor’s Trade’. However, I want to remind you that no stock or ETF, or index goes straight down.  Like all stocks, IWM could find a short term bottom soon.  Unlike its sister indexes, the Russell (IWM) is well below its 200-day moving average now, and has NO long term support until the 150 level. That’s a long way away from yesterday’s close of 200.75.  So, we need to look for support elsewhere.

One way to do this is count the waves.  Since we know that stocks go down in 5 waves before retracing in 3, if we count the sub-waves, it’s possible that sub-wave 3 down within Wave 3 down is nearing completion.  Once sub-wave 3 down complete, there should be a small retracement rally followed by another decline (sub-wave 5 down) to complete Wave 3 down.  That’s what should happen.

Anyhow, I wouldn’t let all this wave counting bother you too much.  It doesn’t bother me at all.  All I’m doing now with my basic position (my ‘cake’ shares) of TZA is holding them until I see something that would cause me to make a change.…like a Safety Valve trigger, a Red Arrow or a red candle.  If this happens, I’ll simply step aside. 

Hey, that’s what I’ve been doing for the past 2 ½ months with TZA on the 4-hour bars and it’s resulted in a 100+ percent gain.  With that kind of gain, I don’t feel I need to do anything other than follow the Arrows :>

One other thing…. students should note is that during the past 2 ½ months, the ‘Doctor’s Trade’ has been through several wave cycles as Waves 1, 2, and now 3 unfold. So, the gain has not been solely the result of one nice impulsive wave.  My point is that because the ‘Trade’ has been successful at identifying three significant downside moves in IWM, there is no reason to believe that the indicators won’t take us out when the time comes to bail. 

Meanwhile, all my doc friends in the ‘Trade’ can continue to keep us safe and healthy and not worry about what’s happening with their stocks.  The stocks will be fine as long as they pay attention to the Arrows.

One more BTW…. (I keep thinking of things I want to say).  Students should note that the cockpit indicator for gold turned Neutral yesterday after being Green. This change could signal that the Wave 2 retracement rally in gold could be nearing completion.  If this is the case, Wave 3 down should be next.  I’ll be watching the 4-hour chart on GLD, and if it generates a Red Arrow, I’ll look to buy GLL, an aggressive inverse Gold ETF and ZSL, a similar inverse ETF for silver.  There’s nothing that says a person can’t diversify and add a few non-index trades to their mix.  Also, if you do buy a few shares based on the 4-hour bars, you might try to scalp a few shares based on the 4 or 5 min bars.  Put some fun in your life.  BTW, the scalps are for non-docs only!  No scalping allowed for docs :>)

That’s what I’m doing,

h

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

The Hockey Stick Pattern
The Creation of Waves and Trends
FAQ

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