Professor’s Comments December 9, 2022
Posted by OMS at December 9th, 2022
It’s been over a year now since the Bear Market started on the Russell 2k and NASDAQ. And I know many of you have been waiting patiently for the recent retracement wave 2 up to end so we can start shorting the market aggressively again with inverse ETF like TZA and SQQQ.
But before I go further, I want to make sure that all my students are on the same page with respect the wave count. For today, I’m going to focus on the Russell 2K. The reason I’m doing this is because it is clearly the weakest index of the bunch. Small businesses and small cap issues are getting hit harder by the rising interest rates. They don’t have the same access to financing that their larger brothers have and because of this tend to suffer disproportionately more when interest rates state to rise. That’s the reason the Russell topped on 11 November, and it took almost 2 more months for the Dow and S&P to top. Anyhow, lets look at the wave counts.
BTW, this is important to understand, so if you have time this weekend, you might want to draw these numbers on your chart.
Again, the RUT topped on 11 November 2021 at the 2,458 level. From that high, it fell in five waves to complete Major Wave 1 down with the 16 June low of 1641. Again, if you have the time, see if you can find the five waves. They’re pretty clear.
Then, from the 16 June low, Major Wave 2 up started. It was a typical 3-3 5 affair that completed with the 15 August top at 2030. This pattern is also interesting because it is a nearly perfect example of the Principle of Alternation that I used to talk about in my classes at UNF. The first wave of the pattern, Wave ‘A’ was relatively short and simple, so Wave ‘C’ had to be longer and complex.
Major Wave 3 down started from the 16 August top. The first wave down, Minor Wave 1 of Major Wave 3 down completed on 13 October at the 1642 level. It also developed as a five wave structure, but the final wave of the structure, wave 5 down, was not proportional to the first wave, which caught a lot of investors off guard when Minor Wave 2 of Major Wave 3 down started from the 13 October low.
So now after an almost two month rally, it appears that Minor Wave 2 up completed on 15 November at the 1906 level. The first two sub-waves of Minor Wave 3 down within Major Wave 3 down also appear complete. During the process, the RUT fell below the 1821 level, the level I identified as a previous sub-wave 4. By doing this, it increased the odds that Minor Wave 2 up was complete. (Elliot Wave Principle says that Wave 2 cannot fall below their previous wave 4s. It’s a no-no.) So, with the odds increasing that Minor Wave 2 up is over, the next step in the process is a break of the 1757 level, which is the ‘X’ wave of the major Double Zig- Zag pattern. Once this break occurs, Katy bar the door!
I hope you take the time this weekend to put some of these important levels on your charts. That way, when you start to see the levels being broken, you’ll know what it is happening from a wave count perspective. When you trade, it’s always easy to lose the Big Picture. And when you lose the Big Picture, you get frustrated and start to lose confidence in yourself. Do NOT let this happen. Always understand where you are with respect to the Big Picture.
Here’s the BIG Picture: We’re about to start Minor Wave 3 down of Major Wave 3 down. The Hockey Stick/Blade Pattern of the past five days suggests a test of 1757 is in the cards. I’m about 50 percent short now and will increase my positions aggressively below that.
That’s what I’m doing,
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I’m still not feeling 100 percent, and Marcia is getting tired of me being such a pain in the butt. I’m no fun to be around when I’m sick.
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