Professor’s Comments January 27, 2022
Posted by OMS at January 27th, 2022
Yesterday was a Fed Day. Several years ago, I did a webinar with AIQ called “Fed Day – Pay Day.” Wow, what a great name for a great trade. Yesterday’s intraday move on the Dow was over 1,110 points. It didn’t hurt that we knew going in that we were dealing with a corrective sub-wave 4 that was in its final stages, so once the Fed made their announcement, it was time to follow the Arrows and get short.
The Fed announced they intend to start making changes to their easy money policies starting in March. No longer will they be buying billions of securities each month. They will cease their Quantitative Easing Program, and hold the bonds and mortgage backed securities they are holding to maturity without replacement. The market breathed a sigh of relief when they heard this because it is probably the least disruptive course of action the Fed could take. By doing this, the Fed’s potential stock dump, which would have removed tons of money from the economy will be a trickle, not a massive outflow. This probably won’t do much to slow inflation, but it is a step in the right direction.
The Fed also announced that it would be raising interest rates a quarter-point in March, with more increases likely throughout the year. When the market started to digest these words, it started to sell off. It appeared that sub-wave 5 of Wave 1 down was underway.
BTW, in case I forget, someone please remind me to talk about the Fed Day Trade in my next Update Class. Like I said, it’s been a loon time since I did the AIQ webinar, and we have had a lot of new students since then who probably don’t understand or take advantage of the trade. That way if I send a few minutes on it in the Update Class, you won’t have to spend the $99 bucks for the video.
Anyhow, it appears that the Dow’s retracement sub-wave 4 complete at yesterday’s high of 34, 816, and that sub-wave 5 down of Wave 1 down is underway. The sub-wave 4 retracement was almost an exact 50 percent retracement of the sub-wave 3 decline. It was also a 3-3 5 zig-zag pattern. This helps in identifying it as a wave 4 and in predicting the next likely downside short-term target for the Dow, which should be somewhere between the 32,550 to 32,680 level. A decline of this size would be 1.618 times sub-wave 1 down. I should mention that even lower prices are possible on the next leg down if the weak hands start to panic.
I want to say a few words about panic, mostly because I’m NOT seeing any yet. Despite the fact that most markets are down anywhere from 12 to 18 percent at Monday’s lows, investors still don’t appear to understand that a Major Bear Market is starting. I’m not saying that we can’t still have higher prices into February- March. We can! Wave 2 up or Wave ‘E’ up of the Expanding Diagonal (if either occurs) can still rally prices back to the 35,700 -36,200 level before the major decline starts in mid to late March. Remember, we have a major Phi Mate turn date scheduled for 30 January, so prices could start to take off after that turn date. But back to my concern with the ‘lack of panic’ I’m seeing. It has to do with the low Trin (trader’s index) on the NYSE. Yesterday it closed at 0.98, which is neutral. It tells me nobody on the street is worried. Hmmm? They should be. Whenever I can count five waves to the downside in a market that is making lower highs and lower lows, I worry. And I worry even more when I see a neutral Trin to go along with it. It’s almost like we’re seeing a crime being committed on the street, but nobody cares. I’ve learned a long time ago to pay attention to the panic index (Trin) when the market starts dropping. When nobody cares or when traders are simply not worried…for whatever reason, prices can fall a looooog way down.
My short–term target for the IWM, the ETF for the Russell 2K is still near the 183 -184 level. Yesterday’s action did nothing to change my negative view of the small caps. Just after the 2pm Fed announcement, I re-established long positions in TZA based on the confirmed Green Arrows on the 5s. I took almost 5 points of profit as ‘eating cake’ just before the close. I also re-established my full position in the Doctor’s Trade based on the 4-hour bars. Remember, I sold half of this position because I saw a cautionary Red Arrow and red bar appear. The Arrow was never confirmed, so I re-established the position after the announcement.
The Dean’s List and The Tide remain negative.
The Market Timing Indicators for the Dow, S&P, and NASDAQ are negative. The Scalp Trading Indicators for the Dow, NASDAQ, and S&P remain negative.
The Sector Ratio strengthened to 5-19 negative after Wednesday’s session. The top four strong sectors were Energy (3), Foods (1), Banks (0), Food Drug (0) and Utilities (0). The top five weak sectors were Retail (-6), Semiconductors (-5), Consumer Goods (-4), Cap Goods (-4) and Household Products (-4). Most of the remaining sectors are also very weak with RS rankings of -3s and -4s. The sector ratings are telling us that it’s time to be very defensive.
It was nice to hear from my friend and student George S. yesterday. George wrote that he had been following the energy sector (#1 strongest sector) since late December. Here’s what George wrote:
“Just wanted to give some feedback on the arrows update class. I really like, and feel even more confident, with the addition of the candles and trending indicators. I’ve been playing the oil trade since it went positive on 23 Dec with very good success. Yesterday, the stocks I follow all went positive on the 4 hour bar and I added. I’m being rewarded this morning! I’ve paid for the classes many times over in just the oil trades.
The arrows are making entries and exits so easy now. Thanks for all you do.”
Bottom Line: Follow the Arrows and be prepared to take profits if the Dow trades down to near or below the 33,150 level. Remember, the institutions came in with major buy programs at the 33,150 level on Monday. IF the big boys start buying again at or near 33,150, it could trigger Major Wave 2 up or Wave ‘E’ up. Either wave could easily keep the market propped up until late February – early March, maybe even into April.
That’s what I’m doing.
h
Market Signals for
01-27-2022
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEG |
THE TIDE | NEG |
Index | Signal | Signal Date |
---|---|---|
DOW | NEG | 18 Jan 2022 |
NASDAQ | NEG | 13 Jan 2022 |
GOLD | NEU | 26 Jan 2022 |
U.S. DOLLAR | POS | 26 Jan 2022 |
BONDS | NEG | 18 Jan 2022 |
CRUDE OIL | POS | 23 Dec 2021 |
CRYPTO | NEG | 06 Jan 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