Professor’s Comments & Update 10/18/19

Posted by OMS  at October 18th, 2019

Bonds (TMF) appear to be approaching the end of their wave 1 down. IF you look at a 60 minute chart of TMF, you can count five waves down from the 4 October high of 32.4. So wave 1 down is either complete or nearing completion. A small wave 2 up should be next that retraces a portion of the decline since 4 October. The problem is how much.

Given that the Model is currently holding TBT for a much larger decline in Bonds, the question for today is do we hold TBT as wave 2 up moves against us, or take a small profit by exiting the trade and wait for wave 2 up to end and re-enter the trade at a better price.

In the past, this type of decision would have been more complex, but now that commissions have been eliminated from the equation, the choice is clear.

If the short-term indicators (15 min bars) on TBT turn negative today, the Model will sell its shares of TBT and look to re-enter the trade at a lower price. The longer term chart for Bonds suggests that once wave 2 up is complete, Wave 3 down should take Bonds (TMF) significantly lower. TBT, the inverse ETF for Bonds, should be a nice place to be to ride the decline

Crude Oil: The Model’s trade in Crude Oil (UCO) is off to a good start. Today, I’d like to see it move above the 16.61 level and break the 11 October high. If this happens, the next major test will be the upper trend line resistance of the triangle near 18. If this this resistance is broken, UCO should move quickly toward the 28 level I discussed yesterday.

BTW, both of these trades have better, more reliable patterns than the equity indexes at this point and is the reason the Model is focusing on them instead of the indexes.

Update:

The Model just sold its shares of TBT at 25.49.

h