Professor’s Comments November 11, 2021
Posted by OMS at November 11th, 2021
Stocks fell hard yesterday on modest volume and breadth. The Dow finished the day with a loss of 240 points, closing at 36,079. The S&P and NASDAQ dropped 39 and 264 points, respectively. Volume on the NYSE was moderate, coming in at 101 percent of its 10-day average. There were 143 new highs and 38 new lows.
Yesterday’s decline saw two issues fall for every one that advanced. That’s pretty normal for the initial waves of a market that has topped. However, before the top can be confirmed, I need to see the momentum start to pick up speed. If the markets just lollygags around and doesn’t start to fall fast, it’s still possible that yesterday’s decline was only a retracement wave, which means that we could see one more rally, possibly to 36,600 – 36,750 before final Wave 5 up is complete.
Yesterday’s decline generated unconfirmed RED Arrows on the Daily Charts of all the major indexes. If you were trading the 120 min charts, you knew the indexes were already on Confirmed Red Arrows from Tuesday, so yesterday’s decline was an easy trade. All I did was add to the inverse positions I established when the Arrows turned Red and hung on. Turned out to be a really nice day. Now I’m just waiting for one of two things to happen. The first is IF the Daily bars turn negative. If this happens, I’ll add even more shares to my existing positions. The second is IF a Green Arrow appears on the 120s. If this happens, I’ll exit my positions and move to the side lines until the next Red Arrow appears. That’s it.
At this point, I’m not trading the top stocks on the MWL. The reason is because my favorite stock, MARA, started the day off on with a Red Arrow on the 120s. The Red Arrow was promptly confirmed a few bars after the open and went on to fall over 11 points. Last week, I mentioned how no stock, no matter how good, goes to heaven. And that my target for MARA on this run was about 26 points from the bottom of its ‘Blade’. That put the target between 61 and 64. The stock actually got as high as 83.45, which was nosebleed territory, before falling to yesterday’s low near 64. If you were a doctor with a patient or an engineer in a meeting yesterday, you weren’t worried at all about MARA. That’s because the Safety Valve took you out on Tuesday, near the 74 level.
If you were still in MARA yesterday morning, and were worried because you saw the market starting to tank, all you had to do was switch to the shorter-term bars and wait for a confirmed Red Arrow. That happened at 12.06 pm with the stock trading at 74.5. So, in both instances the new Arrows Trading System got you out near 74. Two clear exits after a run up over 40 points. Pretty cool! BTW, remember what I said in the Update Class, ‘When you have a large profit, you might want to pay attention to the Safety Valve exit”. Now you can appreciate the new Safety Valve. Its designed to protect large profits.
The Market Timing Indicators for the Dow (DIA), S&P (SPY), and NASDAQ (QQQ) remain Positive.
The Scalp Trading Indicators for the Dow (DIA), S&P (SPY), and NASDAQ (QQQ) are also Positive.
The Dean’s List remains Positive. However, The Tide has turned Neutral. Two of the four breadth indicators that make up The Tide are now negative.
The Sector Ratio remained at 19-5 Positive after yesterday’s session. The top five strong sectors were Autos (6), Service (6), Semiconductors (6), Service (7), Autos (6), Energy (4), and Retail (4).
The top five weak sectors were Telecoms (-1), Media (-1), Utilities (-1), PharmaBio (-1) and Insurance (0).
Top Stocks: BTW, yesterday was a tough day for most stocks. But BBBY, the #2 stock on the MWL, behind MARA, produced a nice trade to the upside. The Arrows on the 12s put you in at 21.21 and took you out at 21.79. So even though the overall market was falling, you still could have had a nice upside trade, even though the signals kept you out of MARA.
Today, I’m not going to do much trading. I’m mostly going to watch the Russell. The small cap index is something I trade a lot, but don’t often talk about. The reason I like the RUT is because there are so many stocks in the index that it tends to generate more reliable patterns. Remember, I’m a pattern guy first, and then if the indicators confirm what I’m seeing on the pattern, I go with it. This is exactly what I did recently when Marathon Digital (MARA) completer its sideways triangle pattern for corrective wave 4. Triangles are very reliable patterns. So, once the triangle was complete and a Green Arrow appeared, MARA went on a 46 point tear. The pattern predicted the move, the Green Arrow told us when to get in.
The reason I’m talking about this today is because the Russell is nearing completion of another nice pattern. There are several patterns on the RUT now, as one would expect on an index with over 2,000 stocks. The large overall pattern that started from the March high (Wave A) is a 3-3-5 flat. Wave B down, the middle wave of the pastern, completed in mid-July. If you look closely, you can see that since the July low, the index has formed a series of 5 distinct waves into last week’s top. Those five waves formed an Ending Diagonal, another pattern often seen at important tops. In other words, everything about the rally in the RUT since March has been picture perfect. That’s exactly what indexes with large numbers of stocks are supposed to do.
Anyhow, the pattern appears complete. So now, all I’m waiting for is a confirmed Red Arrow. Students who want to trade the Russell 2K can use IWM as a surrogate because the RUT does not provide volume data to generate the ST indicators. But I won’t short IWM on a Red Arrow as I prefer to buy TZA, a 3X leveraged ETF for the index. TZA is EXTREMELY volatile, so use good judgment and size your purchases accordingly.
Here’s the thing that caught my eye: Because the final wave of the pattern on IWM is an Ending Diagonal, I can use it to obtain a usually reliable target. In this case, it will be the Wave B low near the 210 level. IWM closed at 237.35 yesterday. So, IF IWM begins to slide, and 210 is broken, the next target is close to 180. That’s a whole lot of downside for the small cap stocks.
What I’m doing: I already have a small position in TZA based on Tuesday’s Red Arrow on the 120w. I’ll add to that position if the Daily’s turn Red. But late yesterday, an unconfirmed Green Arrow appeared on the 12s. If this Green Arrow gets confirmed, I’ll keep my basic position if the 120s stay Red but will add to this position if the 12s generate another Red Arrow. The reason I’m doing this is because I believe the Ending Diagonal Pattern could be complete, so I’m looking for an excuse to add to my inverse position. Again, remember what we did with MARA. The stock was completing a strong wave 4 pattern, so we were looking for an excuse to buy it as it entered Wave 5 up. That’s what I’m doing here with TZA…. just looking for an excuse to add to my position. All bets are off IF IWM generates a confirmed Green Arrow on the 120s. If this happens, I’m out.
BTW, I got another nice email from John B. yesterday. John wrote; “I read your comments for today in the “Professors Comments”, and I can relate to the enthusiasm of using the arrows, for me it’s like watching my favorite running back or wide receiver break free and run for a touchdown!
Hmm, I always thought of the arrows as a signal that starts a horse race :>)
Watching the Arrows.
That’s what I’m doing.
h
Still don’t have the arrows? What more can I say? Just get them.
Market Signals for
11-11-2021
DMI (DIA) | POS |
DMI (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | NEU |
Index | Signal | Signal Date |
---|---|---|
DOW | POS | 15 Oct 2021 |
NASDAQ | POS | 19 Oct 2021 |
GOLD | POS | 02 Nov 2021 |
U.S. DOLLAR | NEG | 08 Nov 2021 |
BONDS | NEU | 10 Nov 2021 |
CRUDE OIL | NEU | 10 Nov 2021 |
CRYPTO | NEU | 10 Nov 2021 |
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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Category: Professor's Comments