Professor’s Comments September 1, 2022
Posted by OMS at September 1st, 2022
Stocks fell again yesterday on rising volume and downside breadth. The Dow was down 280 points, closing at 31,510. The NASDAQ and S&P were down 67 and 31 points, respectively. Volume on the NYSE was heavy, coming in at 115 percent of its 10-day moving average. There were only 11 new highs and 160 new lows.
Yesterday’s decline to 31,510 caused the Dow to close below its 50-day moving average. So now the Dow is back below both its 50 and 200-day moving averages, with the 50 below the 200. This is the classic definition of a downtrend. Also, the Dow closed below its 28 June high, which was wave 1 in the previous uptrend. This is one of the things that Ralph Nelson Elliott said back in the 1930s cannot happen if the earlier uptrend (Wave 2 up) is to continue. By doing so, it increased the odds that Wave 3 down is underway.
Third waves are usually the strongest waves of an impulse pattern. For now, I’m currently using the 31,050 level as my intermediate target. After that, the next downside target is the 17 June low of 29,653. This is where Wave 1 down ended. Wave 3 down should be significantly lower than that. The target I have been using for Wave 3 down is between 26,500 and 28,000. However, as mentioned earlier, the 24,000 to 25,000 level is also possible. The reason I MUST consider this lower level as a target is because there are multiple trendlines that converge at this level. The date these trendlines come together, 28 September +/- a day, is also important because it is another Fibonacci date. A break of the 17 June low would confirm that Wave 3 down is underway and would increase the odds of achieving the projected targets.
The way the decline should take place is also important to discuss now. Since the beginning of the year, the Dow has been forming a major Rounding Top Pattern. Wave 1 down of this pattern ended on 17 June. Wave 2 up started from this point and ended on 16 August; a date predicted by the convergence of two Fibonacci numbers. So now that Wave 3 down is starting, we need to think about how earlier Wave 3s declined AFTER developing a Rounding Top Pattern. They all have one thing in common: a waterfall or stair step decline that appears to go into free fall in the later stages. This is the reason why I am discussing this with you now. Will it happen? I don’t know. Nobody does. But what I can tell you is that if the Wave 1 low of 29,653 is broken, the odds of a stair step decline going into free fall to the 26,500 level or lower will increase dramatically. Protect yourself!
My next downside target for the S&P stays near the 3,900 level. The S&P closed at 3,955 yesterday. The 17 June, Wave 1 low, on the S&P is 3,637. If this level is broken, confirming that Wave 3 down is underway, my downside target will be near the 2,600 to 2,800 level. Students should also remember that these levels are ONLY for Wave 3 down. After that, there should be a Wave 4 rally and then another Wave 5 decline. This is why the 17 June level is sooooo important. It means that IF Wave 3 down is confirmed, it also means that there is a good possibility that the S&P could trade down to the 2,200 level or below before the first leg (Wave A down) of the current Bear Market is complete.
BTW, the above scenario is also interesting from a political perspective. If the market declines into the end of September, a Wave 4 rally could develop into the fall elections. After that, Wave 5 could take the market to new lows. So, what does this mean for the incumbent party? Who knows. But If things play out like the chart pattern suggests they will, there will be a major disappointment after the elections. We’ll see.
The Market Timing Indicators for the Dow, S&P, NASDAQ, and Russell are negative.
The Scalp Trading Indicators on the same indexes are negative.
The Dean’s List and The Tide are negative.
The Sector Ratio weakened to 13-11 positive after Wednesday’s session. The top five strong sectors were Autos (4), Energy (4), Utilities (4), Cap Goods (2), and Leisure (2). The top five weak sectors were Semiconductors (-2), PharmaBio (-1), Computers (-1), Telecoms (-1) and Consumer Products (-1).
My Doctor’s Trade on TZA was up 0.63 cents yesterday, closing at 35.12. The trade is now up 2.6 points or 8 percent since the last Green Arrow appeared on 30 August. My short-term target stays near the 39.40 level. This is the level near the earlier wave 4 which should now at as upside resistance. This level is equivalent to 179-180 on IWM, the ETF I use to track the Russell 2K. By the time Wave 3 down completes, IWM could be trading below 150, with 140 possible.
I’m still on the side-lines with gold and silver waiting for Wave ‘B’ down of the pattern to complete
Bottom Line: It appears that Wave 3 down on the equity indexes is now underway. All I’m doing now is using a 3-day, 12-minute chart to add to my existing positions in SDOW, TZA, SQQQ, SPXU, and SARK.
BTW, in my last Update Class I introduced students to my new Trend Indicator. The indicator turned positive on TZA on Friday’s 4-hour chart and then went into the Trend Zone first thing Monday morning. As of last night, the indicator is still in the Trend Zone. Pretty cool! If you missed the last Update session, you might want to send Dave an email to get a copy of the video. The cost is 50 bucks. Every day has been a multiple cigar day for me since the indicator turned positive. Do yourself a favor. Don’t be cheap…get the video.
That’s what I’m doing
h
Market Signals for
09-01-2022
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEG |
THE TIDE | NEG |
Index | Signal | Signal Date |
---|---|---|
DOW | NEG | 29 Aug 2022 |
NASDAQ | NEG | 26 Aug 2022 |
GOLD | NEG | 26 Aug 2022 |
U.S. DOLLAR | POS | 23 Aug 2022 |
BONDS | NEG | 11 Aug 2022 |
CRUDE OIL | NEU | 30 Aug 2022 |
CRYPTO | NEG | 19 Aug 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