Professor’s Comments January 4, 2023

Posted by OMS  at January 4th, 2023

Stocks closed slightly lower yesterday, the first trading day of the new year, continuing to oscillate within the sideways move they have been forming for the past two weeks.  The Dow rose over 240 points early, then fell 529 points to a low of 32,850, before rallying 286 into the close to finish with a loss of 11 points at 33,135.  It was a wild ride and a great day to be an Arrows trader.  The other major indexes also had similar wild rides.  The NASDAQ and S&P finished with losses of 80 and 15 points, respectively.  The Russell 2K (RUT) was down 10 points.  Volume on the NYSE was heavy, coming in at 118 percent of its 10-day average.  There were 71 new highs and 36 new lows.  The flip-flop in new highs and new lows caused the Hi-Lo indicator to continue its positive track which lessens the case that Wave 3 down has started.  The A-D oscillator also turned positive suggesting that sub-wave 2 up is still not over.

While it is possible that Wave 3 down started with yesterday morning’s decline, if it did it was only sub-wave 1 of Wave 1 down.  The decline did consist of five waves down which are clearly seen on a 5-min chart of the DIA.  If this is the case, the afternoon rally would then become part or all sub-wave 2 up of the retracement rally.  At yesterday’s close the rally did not look complete. It only looked like sub-wave ‘a’ of the rally. Sub-waves ‘b’ and ‘c up still needs to form.  Once these sub-waves are finished, maybe later today, sub-wave 3 down of Wave 3 of Major Wave 3 down should begin.  It should be a dozy!  

Anyhow, in the WSR, I discussed how the Dow would likely rally to the 33,400+ level, possibly as high as 33,500.  I still believe this is possible.  Friday’s small change in the A-D oscillator also predicted yesterday’s big intraday move of 526 points (down and up).

My Trades:  So, with the Dow at 33 388, only 12 points shy of my 33,400 target, I started re-buying my Put options on the 17 March contract of DIA and SPY.  I used the 300 and 305 strikes on DIA and the 350 on SPY.  When I saw a Green Arrow appear on TZA at the 9:50 mark, I started buying TZA, SQQQ, and SDOW for my regular trading account and our IRAs.  I was a very busy guy!  It took me over 3 minutes to get all my trades placed. Then I watched.  I took some profit on TZA when a Red Arrow appeared at the 11:10 mark but then re-entered the trade at 11:10 on the next Green Arrow.  Because the sub-waves were starting to look impulsive, I stayed with the trade until all five waves were complete at the 14:40 mark when I exited all my trades, including the options previously purchase, for a multiple cigar day.  I figured that IF Wave 3 down was starting, with a decline of 526 points for sub-wave 1 down, a retracement rally for sub-wave 2 up was likely next. I felt comfortable with a two-cigar day profit, so I moved to the side-lines and watched.

Actually, Marcia had previously made a doctor’s appointment for me to get my cough fixed, so I had to leave the trading desk. BTW, the Doc gave me a shot of Decadron, (Dexamenthasone), which is used to treat many breathing problems, including allergic reactions and coughs due to allergies.  I have received this steroid shot several times during the last 10 years, and it works every time, usually within hours.  This morning my cough is gone so I plan to resume my consulting session this weekend. If you suffer from coughs due to allergies or have a persistent cough after a cold, you might want to ask your about getting the shot.  Works for me.

For today: My upward target for the Dow remains near the 33,400+ level.   For the S&P, it’s still near 3,890, but I will take anything close to begin shorting…just like I did yesterday. This is not rocket science.  I’ll short anything now if the Dow or the S&P get anywhere near my targets.  All I’ll be looking for is Green Arrows on TZA.  Remember, the RUT finished at 1,750.73 last night, below my line in the sand of 1,752.  The S&P closed at 3,824, so it’s still above its 22 December low of 3,764.  Once this level is broken, things should get rolling to the downside….fast!

The Market Timing Indicators for the Dow and NASDAQ are negative. 

The Dean’s List is negative, while The Tide remains neutral.

The Sector Ratio weakened again to 9-15 negative after Tuesday’s session. The top five strong sectors were Cap Goods (3) good old Household Products (toothpaste and toiled paper) (3), Consumer Products (1) PharmaBio (1) and Real Estate (1). The top five weak sectors are Retail (-3), Food Drug (-3), Autos (-2), Energy (-2) and Technology (-2).

Bottom Line…I’m looking for a bounce to complete sub-wave 2 up and for sub-wave 3 of wave 3 down of Wave 3 down to start soon.  I plan to get short when I see Green Arrows on the inverse index ETFs, like TZA, SQQQ, SDQO and to a lesser extent SPXU, in that order.  Depending on how significant the bounce is, I’ll look to re-establish the 17 March Put Options on the DIA and SPY using the same strikes mentioned above.

That’s what I’m doing,

h

BTW, here’s a tip that I use on my IRAs.  I never trade more than 1/3 of my IRA every day.  That way If I decide to sell shares or options, like I did yesterday, I always have money available to trade the next day.  Remember, IRAs are not like regular trading accounts. If you sell, something in a regular account, the money is immediately available to you if the money from the sale goes into a A-Trade money market.  But not in an IRA.  With an IRA, you need to wait 3 days before the funds from the sale are available for trading.  Also, I treat the money I make in an IRA a lot differently than the money I make trading in my regular account. I NEVER, NEVER, NEVER EVER, want to lose money in my IRA.  I can’t write it off.  So, when I get a nice two-cigar profit in my IRA, I’m NOT afraid to take the full profit off the table.  I just get patient and wait for another opportunity to come along. I have found that that opportunity always comes, and many times it comes the very next day ….and I’ll have money to use to trade it :>)

Market Signals for

01-04-2023

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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