Weekend Strategy Review April 3, 2022
Posted by OMS at April 3rd, 2022
Stocks fell hard on Thursday and then bounced on Friday. The down-up sequence that began with Thursday’s impulsive decline could be waves 1 down and retracement wave 2 up of Wave 3 down. We won’t know for sure until we see if the decline continues into next week.
The pattern on the Dow going into Thursday’s high appears to be a classic zig-zag with the final sub-wave of Wave 2 up truncating below Tuesday’s high of 35,372. The S&P did not truncate as Wednesday’s high reached a new rally high of 4437. So, from a technical perspective, the Dow did not confirm the high on the S&P, which is bearish. This tends to support the premise that Thursday’s impulsive decline was the start of Wave 3 down. Still, it’s much too early to tell.
As I mentioned in Thursday’s early Comments, we won’t know for sure that Wave 3 down is underway until the Dow falls below its earlier wave ‘a’ high which is at the 34,096 level. This level is still a long way away from Friday’s close of 34,818.
The alternate is that If Wave 2 up is not complete and Wave 3 down is NOT starting, then Thursday’s decline could be part of wave 4 down of a more complex zig-zag pattern. If this is the case, the Dow should fall to the 34,200-34,500 level before a wave 5 up rally develops, that could push the Dow towards the 35,360 level. This is why the 34,096 level is sooooo important, as a break below this level will eliminate any remaining bullish scenarios.
Another key level to watch early next week is Friday’s low of 34,538. This level could be interpreted as the right shoulder of a small H&S Pattern that has developed on the Dow since 21 March. The ‘neckline of this pattern is about 911 points from the ‘head’. So, IF Friday’s low is broken, the pattern suggests that a decline below key support at 34,096 can easily occur.
Bottom Line: The key levels to watch next week are 34,538 and 34,096.
If these key levels are broken, please take all necessary precautions to protect yourself.
After Friday’s action, the Dean’s List and The Tide remain positive.
The Market Timing Indicators for the Dow and S&P remain positive. The NASDAQ has turned neutral.
The Scalp Trading Indicators for the Dow, S&P, and NASDAQ have turned neutral.
The Sector Ratio stayed at 19-5 positive after Friday’s session. The top five strong sectors were Energy (9), Material (6), Insurance (4), Retail (3), and Food Drugs (3). The top five weak sectors were Household Products (-1), Consumer Products (-1), Autos (-1), Banks (-1) and Utilities (0).
I re-entered the Doctor’s Trade on Thursday when the last bar of TZA turned Green and generated a confirmed Green Arrow. The ‘trial’ trade was started at the 29.54 level. I’m only doing a ‘trial’ trade now, mostly because the bias indicator is still negative. On the other hand, even though the bias is negative, there is significant positive divergence on both the 1- and 2-hour bars to support the trade. I’m in no hurry to get aggressive with this trade right now, mostly because IF the bias does turn positive, I believe there will be plenty of downside juice to squeeze from the Russell. I’m just being conservatively patient.
Cryptos: GBTC’s Red Arrow was confirmed by Thursday’s early bar. Friday’s late green bar took me out of the short trade with a one-point profit. I’m on the side-lines now, waiting to go long on the next confirmed Green Arrow.
Gold: Nothing new to report on gold. GLD still appears to be forming the ‘blade” part of a Hockey Stick pattern. It’s likely this ‘blade’ development will continue until Wave 3 down in equities begins.
Bonds: Bonds will be worth watching next week. The recent rally in both TMF and TLT suggest Bonds have bottomed and could be getting ready to push higher. Bonds have been in a two-year bear market as equity prices have pushed higher. The five-wave decline that started in July 2020 appears complete and suggests the table could be turning. I noticed that TMF has just poked its nose onto the Dean’s List. If it starts to move higher and the bias indicator on the 4s turns positive, I’ll buy some. Remember, the yield curve on both the long term treasuries inverted during the week. This is usually a very reliable sign that the country is heading for a recession.
Have a great weekend.
That’s what I’m doing,
h
Market Signals for
04-04-2022
DMI (DIA) | NEG |
DMI (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | POS |
Index | Signal | Signal Date |
---|---|---|
DOW | POS | 17 Mar 2022 |
NASDAQ | NEU | 31 Mar 2022 |
GOLD | NEU | 01 Apr 2022 |
U.S. DOLLAR | POS | 18 Feb 2022 |
BONDS | NEU | 31 Mar 2022 |
CRUDE OIL | NEU | 22 Mar 2022 |
CRYPTO | POS | 22 Mar 2022 |
DISCLAIMER
As always, the Professor never makes recommendations. The information is provided on an educational basis so you can have informed discussions with your financial advisors and/or accountants about your individual investment decisions.
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, Weekend Strategy Review