Professor’s Comments – Sunday Morning Thoughts 1/23/2022

Posted by OMS  at January 23rd, 2022

After spending some time with the charts yesterday, it appears that Wave 3 down is underway in all markets. This means that except for the Russell 2K (RUT), all the major indexes topped in late December – early January, and the Bear Market that we were expecting is now underway. The RUT appears to have topped in early November.

The thing we need to figure out now is where can we expect support to come in now that the markets are plunging.  Hmmm? Good question.

On the Dow, the first level of potential support is the 1 December low of 34,006.  This level was Wave ‘C’ down within the Expanding Diagonal.  Like I said, it’s possible that this level could provide temporary support, but because the Dow was only there for 1-2 days, I’m not sure it can stop a wave 3 decline. Wave 3’s has power behind them, and this one is no exception. So, we need to look further. The 20 September low of 33,616 is in the same boat.  It too is also a single point low within the Expanding Diagonal and could provide support for a temporary bounce.

But we need to go all the way back to the 18 June low of 33,271 for real support. This is where Major Wave 4 down ended.  Wave 4s are always a natural target for any diagonal pattern as this is where the ED rally began.  The only real question is how will the Dow get there?  In other words, we know that even Wave 3 don’t drop straight down.  They also have retracement waves. So, it’s likely that somewhere along the way, probably near one of the two minor support levels, 34,000 and 33,516, the Dow will experience some type of short-term rally.  The Arrows on the short-term (15 min bars) to intermediate-term (1-4 hour bars) should pick these turns up.

BTW, the worst possible scenario for Monday is to see the Dow rally early and then give back all its gain by the close.  That’s because whenever two intraday reversal sessions take place within a 3-4 day period, it’s usually a sign of EXTREME weakness which leads to even more selling.  Some of these declines have been really large, so watch out for this on Monday.

On the other hand, I did find some evidence that what we saw on Friday could be the start of some bottoming action.  It’s not much, but IF…and it’s a big IF, the Dow can move back above its 200-day moving average and hold, (not give up its intraday gains), there’s a chance it could spark a short-term rally driven by short-covering. The rally could last a week or more. At this point, I must give this scenario low odds, but if the Dow rallies on Monday and holds, the odds on this scenario will go up.

Gold: After looking at a few gold charts, it still appears that a Wave 3 down could be getting ready to start. I’m currently watching both the 15 min and 4-hour charts on GLD. If I see a Red Arrow, I’ll look to buy a trial position (based on the 15s) on GLL, an aggressive inverse Gold ETF, and ZSL, a similar inverse ETF for silver.  Then if I get a signal on the 4-hour chart, I’ll establish another, separate, position for each as a longer therm hold.

Bottom Line:  Watch the Arrows.  If you’re watching on the 15 minute bars, think of each successive bar as a bet at the crap table. All I’ll be doing early Monday is watching my bets. If the color of the bar turns against me, I’ll take my bets off and look to trade the opposite side.  Same thing for my Doctor’s Trade on TZA.  If I see a red bar, it could be warning me that I might have to make a decision.  If that happens, I’ll be watching the Safety Valve.  Otherwise, if the bar stays Green, I’ll stay in.  Remember, we have momentum working for us on this bet.  A red bar will tell me when the momentum is slowing and provide an alert that defensive action might be needed.

Have a great rest of the weekend.

That’s what I’m doing,

h

P.S. I have had four students sign up for my Valentines’ Day Special Consulting Class since announcing it last week. Don’t be penny wise and pound foolish with this opportunity.  The next 2-3 years will likely present major opportunities to make money both on the downside and during the subsequent short-covering rallies. If there is anything you don’t understand about my new Enhanced Arrows Trading System, do yourself a favor and take advantage of this $125 one-on-one private session offer. 

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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