Professor’s Comments December 22, 2022
Posted by OMS at December 22nd, 2022
Stocks rose sharply yesterday on relatively low volume. The Dow finished with a gain of 526 points, closing at 33,376. The NASDAQ and S&P finished with gains of 162 and 57 points, respectively. Volume on the NYSE came in at 85 percent of its 10-day average. There were 52 new highs and 78 new lows. In Tuesday’s Comments, I discussed an alternate scenario for Wave 2 up if Wave 1 down completed with Monday’s decline. I said that Wave 2 up could retrace to the 33,000+ level. The Dow reached an intraday high of 33,437. From a technical perspective, nothing has changed. It still appears that yesterday’s rally was part or all of Wave 2 up within Major Wave 3 down. Once this wave completes, stocks should start a significant decline as Wave 3 of Major Wave 3 down begins to unfold. Students should remember that the Dow fell over 2,131 points in four trading days since it topped on 13 December. Same for the S&P which dropped 300 points in 4 days. So, yesterday’s 526-point retracement in the Dow was not unexpected. No market goes straight down, not even during a major Wave 3. So, it’s possible that the Dow can rise as high as the 33,750 level during this retracement, but given yesterday’s low volume, I don’t see that happening. On the other hand, I believe that a move just above yesterday’s high near 33,470 and the gap between the 33,575 and 33,650 range are possible stopping points if buying wasn’t exhausted after yesterday’s rally. If the Dow decides to do a 0.618 retracement, typically not seen in wave 2s within a Major Wave 3 down, it could reach the 33,900 level. If yesterday’s rally did not complete Wave 2 up, my best estimate for where it will top is near the 33,700 level +/- 50 points For the Russell 2K, my best guess upside stopping points are near the 1,790 and 1,820 levels. Yesterday the RUT closed at 1,777. The important level to watch now on the RUT is near 1,752. A break of this level will increase the odds that Wave 3 down is underway. The Market Timing Indicators are currently negative on the Dow and NASDAQ. The Dean’s List remains negative. The Tide has turned neutral as the Hi-Lo indicator has turned positive. The three other breadth indicators that make up The Tide are still negative. The Sector Ratio strengthened to 20-4 positive after Monday’s session. The top five strong sectors were Cap Goods (6), Semiconductors (6), Household Products (4), PharmaBio (3) and Material (2). The top four weak sectors were Retail (-2), Banks (-1), Food Drug (-1) and Telecoms (0). My Trades: I was on the side lines for most of yesterday’s trading. However, I did buy a few Puts in both the DIA and SPY. I used the 17 March contract for the DIA with a strike price of 300 paying 2.98 average. With the SPY, I also used the 17 March contract with a 350 strike, paying an average price near 5.80. If the Dow and S&P move higher, I will look to add to these positions. I also bought several shares of TZA on the Green Arrow that appeared at the 14.24 mark at an average price near 34.08. I believe that shares purchased near these levels will be handsomely rewarded in the weeks ahead. For today: I’m still being cautious in adding to my current inverse positions given the possibility that Wave 2 up is not complete. That’s one of the reasons I’m buying options now. The longer time (into mid-March) gives me more time for these trades to develop. Having said that, I’m very much on my toes watching for opportunities to add to my inverse positions, especially IF the RUT starts to break below 1,752. I still believe the RUT and NASDAQ are the weakest indexes and should lead the market lower once 1,752 is broken. That’s what I’m doing, h Market Signals for 12-22-2022
|
|||||||||||||||||||||||||||||||||||
|
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