Professor’s Comments December 2, 2021
Posted by OMS at December 2nd, 2021
The market rose sharply early yesterday to the target level I discussed in my pre-market Comments and then fell hard into the close. In doing so, the Dow dropped well below its 200-day moving average closing down 461 points at 34,022. The NASDAQ and S&P were down 284 and 54 points, respectively. Volume on the NYSE was heavy, coming in at 126 percent of its 10-day moving average. There were 35 new highs and 237 new lows.
Yesterday’s early rally and late decline were likely sub-waves 4 up and 5 down of Wave 1 down. In yesterday’s Comments, I mentioned that Wave 1 down would likely complete near or below the 34,000 level. During yesterday’s late decline, the Dow hit a low of 34,006. In other words, it’s likely that Wave 1 down completed yesterday at the 34 006 level. Wave 2 up should be next.
What do we know about wave 2s? Well, the first thing we know is that they should retrace anywhere between 38 to 100 percent of Wave 1 down. I doubt we’ll see a 100 percent retracement, but anywhere between 38 to 50 percent is likely. Because Wave 1 down was 2,559 points, 38 percent of that puts a minimum retracement just under the 35,000 level. So, for now, I’m going to use the 35,000 level as my target.
The second thing we know is that the retracement will NOT be straight up. The most likely scenario is that it will be an a-b-c affair with one or the retracement waves taking about twice as long as the other. This is because of the Principle on Alternation which applies to corrective waves. If wave ‘a’ is straight up and short, then wave ‘c will be complex and long or vice versa. The important thing to know is that trading these waves will not be a simple matter. Remember, wave 2s have a mind of their own. They DO NOT have to retrace 38 percent…it can easily be 50 or 62 percent. We’ll just have to see. Predicting wave 2 retracements is NEVER easy. But this time, we have the ‘Arrows’ and hopefully they will make trading these retracement waves a lot easier. (If this happens, I’m going to raise the price again, as there is NO system in the world that is really good at trading retracement waves.)
When I trade retracement waves. I switch to a shorter time period. So, for now, I’m moving back to a 3-day, 12 min chart. Yesterday’s two big moves, the early rally and late decline, were easily identified on the 12s. Take a look. It was a thing of beauty. Those two moves alone easily paid for the cost of the Arrows Class. Probably 10 times over! Anyhow, the wave 2 retracement is a simple a-b-c should have about 4-6 arrow changes on the 12s. Look for them for them. If the retracement pattern becomes more complex, like in a 3-3-5 flat, it could have even more. I’m telling you this ahead of time, so you don’t get in a tizzy when you start to see it happen. Anyhow, we’ll just have to see how this retracement wave 2 develops.
BTW, IF you decide that getting whipped sawed by trading wave 2s is not for you…that’s OK. Just step aside and wait on the side-lines. Trust me, there is nothing wrong with that strategy. Or, you can go back to scalp trading stocks from the Member’s Watch List. Just make sure that you are out of the market at the end of the day. This is the strategy I will be using during this retracement period. All of the up-down-up moves that will likely occur during the next few weeks will test your skill as a trader during the day. But understand that those profits you make during the day can be easily wiped out in the overnight market. So, make sure that you adjust your strategy.
Also, a decline below the 6 October low of 33,854 will eliminate the wave 2 retracement scenario. It means that wave 3 down is extending. If that happens, I’ll have to recalculate the targets, both up and down. But right now, I’m sticking with the wave 2 scenario.
Yesterday’s late decline turned all the Market Timing Indicators Negative.
The Scalp Trading Indicators on all the major indexes are also Negative.
The Dean’s List is Negative. Students should note how short the List is now. If you get a chance, you might want to look at how long the Dean’s List was a few months ago. Now it’s EXTREMELY short with almost all ETFs on the List being inverse ETFs. The Tide is Negative.
The Sector Ratio weakened to 4-20 Negative after yesterday’s session. The four strong sectors were Semiconductors (4), Service (3), Autos (2), and Technology (0). 6
The top five weak sectors were Media (-4), Leisure (-4), Telecoms (-4), Cap Goods (-3) and Retail (-3). All of these sectors have been leading the market lower for the past few weeks.
Top Stocks: If the market is going to rally, these are the stocks that would normally lead the market higher. However, after looking at the top six, I’m going to pass on the bunch. The reason is that most of them have ‘shooting star’ patterns, which tells me that their run up is nearing completion. Also, I don’t like the look of their indicators. The one stock I find interesting now is #7 Ford (F). During the past few weeks, as the market has been declining, F has been trading sideways, forming a nice base. That base could be used as a springboard if the overall market starts to move higher. The other stock I find interesting is #9 Micron Technology (MU). The technology sector is one of the four strongest sectors, and MU is an interesting play because of the chip shortage. The stock has traded sideways for the past seven trading days and was up 1.15 points yesterday in a market that was getting pounded. That’s quite an accomplishment! Anyhow, these are the two stocks I’ll be watching today on the shorter term bars.
I’ll also be watching the cryptos. During the past eleven days, GBTC has pulled back and formed the ‘Blade’ pattern. I’m still very bullish on the cryptos, and with the Dollar looking like it’s topping and ready to pull back, the cryptos could be a nice place to be. Riot (RIOT) is the #10 stock on the MWL, right behind MU. The stock has been basing for the past two weeks. Could be ready to move higher.
I’m also interested in inverse Bonds. If the market starts to trade higher, Bonds will likely fall. As I mentioned in earlier Comments, the wave count in Bonds is currently unclear. If Bonds continue to rally, the pattern could develop into a triangle. All this means is that Bonds will continue higher for the next few weeks. Beyond that, things start to get negative for Bonds, which means interest rates are going higher, something the equity market will not like. When I see a confirmed Green Arrow on TBT, I’ll buy a few shares for my IRA.
That’s what I’m doing.
h
Market Signals for
12-02-2021
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEG |
THE TIDE | NEG |
Index | Signal | Signal Date |
---|---|---|
DOW | NEG | 26 Nov 2021 |
NASDAQ | NEG | 01 Dec 2021 |
GOLD | NEG | 26 Nov 2021 |
U.S. DOLLAR | POS | 19 Nov 2021 |
BONDS | POS | 30 Nov 2021 |
CRUDE OIL | NEG | 29 Nov 2021 |
CRYPTO | NEG | 25 Nov 2021 |
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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Category: Professor's Comments