Professor’s Comments December 28, 2021
Posted by OMS at December 28th, 2021
Stocks rallied hard yesterday, with the Dow gaining 352 points to close above the 16 December high of 36,189. This means the rally from the 20 December low of 34,666 can no longer be considered as a sub-wave of Wave 3 down. It must either be part of retracement Wave 2 up or something else. At yesterday’s high, Wave 2 up…if its Wave 2 up, retraced about 90 percent of the decline from 8 November to 1 December, which I’m still labeling as Wave 1 down. For this wave count to be correct, the Dow must now start an impulsive decline during the next day or so and break below the 20 December low of 34,666. If that happens, I believe we can safely label the decline as Wave 3 down.
If the Dow does not decline and breaks above the 8 November high of 36,566, it means that Wave 5 of the old Ending Diagonal pattern is not finished, and my alternate scenario is taking place. In this scenario, the current rally is sub-wave ‘a’ of an a-b-c move for Wave ‘C’ up in the pattern. This wave could carry to the 36,800 level. It would then be followed by a Wave ‘D’ decline to about 35.500 before a final Wave ‘E’ rally to a top near the 37,000 level. In this scenario, the Dow will likely top sometime in mid to late February 2022.
There is also a developing possibility that Wave 4 ended on 20 December at the 34,666 level in a complex zig-zag pattern. If this is the case, the Dow is just starting a Wave 5 as part of a rare expanding diagonal pattern. In this scenario, Wave 5 up could see the Dow rally impulsively to the 38,300+ level before the top is finally in.
Yesterday, the Dow closed at 36,302. The NASDAQ and S&P were up 218 and 29 points, respectively. Volume on the NYSE was relatively low, coming in at 72 percent of its 10-day moving average which makes it one of the lowest volume days of the year. There were 134 new highs and 43 new lows.
The index I’m watching the closest now is the Russell 2K. It still appears to be the weakest index with the recent rally to yesterday’s high of 2,261 being part of wave ‘c’ of Wave 2 up. In this scenario, the 8 December high of 2,227 was wave ’a’ of a-b-c pattern for wave 2 up. So, if this wave count is correct, wave ‘c’ up should slightly exceed the 8 December high and finish near the 2,282 level. This would put it at odds with its other sister indexes, as it would not come anywhere close to putting in a new high. If you are trading IWM, the ETF I use to track and trade the RUT, the wave ‘c’ target for IWM should be close to the 227.5 level. Yesterday, IWM closed at 224.12.
The Dean’s List is neutral. The Tide has turned positive. The Market Timing Indicators for the Dow are neutral. The same indicators for the NASDAQ, and S&P are positive.
The Scalp Trading Indicators for the Dow have turned positive. The same indicators for the NASDAQ and S&P are positive.
The Sector Ratio stayed at 15-9 positive after Monday’s session. The top five strong sectors were Semiconductors (4), Technology (4), Household Products (4), Healthcare (3), and PharmaBio (3). The top five weak sectors were Energy (-3), Retail; (-2), Cap Goods (-2), Consumer Products (-1), and Media (-1).
I still don’t see much happening with gold, Bonds, or the cryptos. Bonds still appear to need one small rally before the triangle for Wave 4 competes. After that, TBT, the inverse bond ETF, could be a nice place to be when interest rates start to rise as bond prices decline. Be patient and wait for the Wave 4 triangle to complete. Then look for a Green Arrow on TBT.
Gold (GLD) rose 0.40 cents yesterday to 169.37. The small rally appeared to be part of wave 2 up in a complex declining pattern. Once the current corrective wave completes, gold should begin to move significantly lower. A re-test of the 9 August low of 1,693 could be in the cards, especially if the metal breaks below 1,756. Yesterday, gold closed at 1,812. Gold is currently a low probability trade as its overall pattern is not clear.
My strategy for the next few days: With the Dow still below the 8 November high of 36,566, and the possibility that Wave 2 up could end at any time, I’m still mostly watching from the side-lines. If the large-cap index stays below 36,566 and the Arrows turn Red, I’ll look to establish short positions using inverse index ETFs. On the other hand, if the Dow begins to exceed 36,566, I’ll look to go long.
I’m currently evaluating a new way of showing the price bars on my charts. The new bars should help students identify when a stock is trending and give them an early heads up when the trend is over. If the new price bars continue to show improvement over the old bars, I’ll demonstrate them to students who bought the Arrows Class in a free webinar.
That’s what I’m doing,
h
Market Signals for
12-28-2021
DMI (DIA) | POS |
DMI (QQQ) | POS |
A/D OSC | |
DEANs LIST | NEU |
THE TIDE | POS |
Index | Signal | Signal Date |
---|---|---|
DOW | NEU | 22 Dec 2021 |
NASDAQ | POS | 23 Dec 2021 |
GOLD | NEU | 23 Dec 2021 |
U.S. DOLLAR | NEG | 23 Dec 2021 |
BONDS | NEG | 23 Dec 2021 |
CRUDE OIL | POS | 23 Dec 2021 |
CRYPTO | NEU | 23 Dec 2021 |
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