Professor’s Comments March 17, 2022
Posted by OMS at March 17th, 2022
Stocks fell early, then rose sharply after the Fed announced a less than expected quarter percent rise in interest rates. The Dow finished with a gain of 599 points, closing at 34,063. The NASDAQ and S&P were up 488 and 95 points, respectively. Volume on the NYSE was moderate, coming in right at its 10-day average. There were 44 new highs and 174 new lows. I thought it was interesting that the rally started after Fed Chairman’s optimistic statement on how he thought the quarter percent rise in interest rates would control inflation. Really? He should have raised rates a half to one percent if he was worried about inflation. All a quarter percent rise will do is produce stagflation, a combination of inflation and a stagnant economy.
In Tuesday’s Comments I discussed an alternate scenario on how the Dow could rally to the 34,200 level if Wave 2 up was not complete. And while I gave this scenario low odds, it happened. The pattern is known as a Double zig-zag, or 3-3- 5 flat pattern, where the final wave of the pattern requires five waves to complete, not three. It means that there could be a bit more upside in the pattern before it is complete, maybe another few days. The thing we know about zig-zags is that they are corrective patterns, and that once complete, like triangles, prices continue in the direction they entered the pattern. In this case, the next major move should be down. The other thing that tends to happen with double zig-zags is that because they take longer to develop, they usually lead to large moves once they complete.
In Tuesday’s Comments I also warned that there will likely be a lot of volatility AFTER the announcement. This high volatility will likely continue into Friday when first quarter options expire. BTW, the day after the Fed announcement is usually negative for the market as the odds are only 33 percent for a positive day. Also, historical data shows that several of the post Fed announcement sessions in the past 20 years have seen out sized losses of 3.3 to 4.7 percent, so we need to stay on our toes. There’s no guarantee that yesterday’s rally will continue. The key level to watch on the Dow is now 32,820. A decline below that level would confirm that Wave 3 down is underway.
My short-term targets once Wave 3 down is underway are:
Dow: 29,700- 30,200, S&P: 3,800, then 3,600. NASDAQ: 11,500 -11,750.
Please take all necessary precautions to protect yourself.
After Wednesday’s action, the Dean’s List is positive. The Tide is neutral.
The Market Timing Indicators for the Dow have turned neutral. The S&P, and NASDAQ remain negative
The Scalp Trading Indicators for the Dow, S&P, and NASDAQ have turned positive.
The Sector Ratio strengthened to 11-13 negative after Wednesday’s session. The top five strong sectors were Energy (5, Food Drugs (3), Material (3), Banks (2), and Insurance 52). The top five weak sectors were Household Products (-7), Autos (-4), Consumer Products (-3), Semiconductors (-3) and Telecoms (-2).
My Doctor’s Trade in TZA generated a Red Exit Bar as the last bar on Tuesday. This led to a decline of 3.47 points on Wednesday. All I’m doing now is waiting for the next Green Arrow to appear. The Russell 2K appears to be completing a complex triangle for its Wave 4 retracement. Last night it finished at 2030.72. If yesterday’s rally did not complete the retracement, a move to the 2030-2040 level should do it. The next wave down, Wave 5 down, should drop the small cap index below the Wave 3 low at 1,901. IWM, the index I use to track the RUT should see the 183 level or lower during the process. That’s why I’m waiting for the next Green Arrow to appear on TZA.
Cryptos: Nothing new to report. I’m still not sure what will happen to the cryptos once Wave 3 down starts in equities. I’m on the sidelines for now.
Bonds: TMF hit a new low yesterday, as the yield on the long bond hit a new high. The new high in bond yields appears to be the completion of a five-wave sequence. If this is the case, interest rates should begin to DECLINE in the weeks ahead. Last night interest on the long bond was 2.46 percent. The chart suggests a decline back down to 2.0 to 2.2 percent is possible. TMF closed at 20.04 yesterday. It generated a Green Bar as its final bar yesterday on the 4-hour chart. I’m a buyer on a confirmed Green Arrow.
Gold: I’m still watching GLD on the 4-hour chart as it continues to pull back. The pattern suggests the pullback is part of a corrective wave 4. If so, it should be followed by a strong wave 5 up. As I’ve mentioned before, gold could move significantly higher in the months ahead, with prices approaching the 3,000-level possible. The reason I say this is because gold recently broke out of a multi-year cup and handle pattern that started in 2011. Students might want to pull up a monthly chart of GLD to check out the pattern. It’s extremely bullish! The pattern should also give prices of silver and mining stocks a boost. I’m just watching for my favorite mining stocks to appear on the Member’s Watch List so I can trade them on Green Arrows.
That’s what I’m doing,
h
Market Signals for
03-17-2022
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | NEU |
Index | Signal | Signal Date |
---|---|---|
DOW | NEU | 16 Mar 2022 |
NASDAQ | NEG | 03 Mar 2022 |
GOLD | POS | 25 Feb 2022 |
U.S. DOLLAR | POS | 18 Feb 2022 |
BONDS | NEU | 15 Mar 2022 |
CRUDE OIL | NEU | 15 Mar 2022 |
CRYPTO | NEG | 10 Mar 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