Weekend Strategy Review August 14, 2022

Posted by OMS  at August 14th, 2022

Stocks opened higher yesterday and continued to move higher throughout the day.  The Dow finished with a gain of 425 points, closing at 33,761 only six points off its intraday high. The NASDAQ and S&P were up 267 and 73 points, respectively. Volume on the NYSE was moderate coming in at 93 percent of its 10-day average.  There were 56 new high and 24 new lows.

Yesterday’s rally was the Big Move predicted by Thursday’s small change signal on the A-D Oscillator.  It was likely part or all of final sub-wave 5 of Wave ‘C’ of Wave 2 up. If yesterday’s high did not complete the five-wave sequence of the Bearish Rising Wedge Pattern for final Wave ‘C’ up, it should be getting close.  The reason I say this is because I’m finally starting to notice divergences in the momentum indicators.  Students can see this for themselves by looking at the Bias on a 10-day,30-minute chart of IWM, the ETF I use to track the Russell 2K.

During the entire 10-day period, the Bias was positive except for a brief pullback on Tuesday.  So, from a wave count perspective, Monday’s rally was sub-wave 3, Tuesday’s pullback was sub-wave 4, and then …if you look closely, you can count the five waves of sub-wave 5 up to complete the pattern. Also, if you look at Thursday’s and Friday’s highs, you will also see the divergence in the momentum associated with these highs that I mentioned above. The divergence in momentum is telling me the rally is running out of steam.  That’s why I’ll be looking for Red Arrows on IWM and the other indexes next week, especially if the momentum Bias turns negative and falls below Tuesday’s low.

So once again, take a hard look at last week’s positive Bias on the 30-min chart.  Note how with a positive Bias, if you took all the Green Arrow trades and got out on the Red Arrows you were a winner.  Remember this as trading resumes next week and you start to see the Bias turn negative.  Only do the opposite and start taking all the Red Arrow trades.

One of the ETFs I’ll be trading next week is SARK, the inverse ETF of the Kathy Woods innovation technology ARK Fund (ARKK). I’ll be trading it on a 3-day 12 min chart.  To see why, I want you to pull up a 5-day 15-minute chart of SARK…you can see the pattern a little better.  The pattern is an inverse Head & Shoulders Pattern. The Head is Thursday’s low of 45.15.  The neckline is a line connecting Tuesday’s high of 45.15 and yesterday’s high. The distance from Thursday’s low to the neckline is about 5.5 points. So, if prices start to move above the neckline next week, they should reach a target near the 53 level.  This is part of the reason why I will be looking to trade SARK.

The other reason has to do with the Arrows.  Notice how clear the Arrows are on the chart.  Some stocks and ETFs just produce more consistent Arrow trades than others. SARK is one of them. Note how every Green and Red Arrow was a smooth, consistent winner.  So, if SARK generates a Green Arrow on the 15’s next week, I’m a buyer.  BTW, I’ll be trading it on a 3-day, 12-min chart.  I used the 15’s for demonstration purposes because you can’t see the left shoulder of the pattern on a 3-day, 12 min chart.

There were no changes to the indicators after yesterday’s session.

The Dean’s List and The Tide remain positive.

The Market Timing Indicators on the Dow, S&P (SPY), NASDAQ and Russell 2K (IWM) remain positive.

The Scalp Trading Indicators on the Dow, S&P (SPY), NASDAQ, and RUT (IWM) are also positive. 

The 4-hour bars on the major indexes are still Green.  I need to see them turn Red and be confirmed by negative indicators before I begin shorting.  

The Sector Ratio strengthened to 23-1 positive after Friday’s session. The top five strong sectors were Autos (8), Retail (7), Real Estate (5), Cap Goods (4) and Leisure (4). The only weak sector was Energy (-2).

I added to my SLV purchase yesterday when a confirmed Green Arrow was generated at the open on a 3-day 12 min chart.  I have been buying/ trading silver because the Bias on the 4-hour bars is now positive.  I plan to hold and continue adding to this positive as long as the Arrow is Green.  My sell signal will be a Red Arrow.

Bottom Line:  All I’m doing now is waiting for Red Arrows to appear on the major indexes. Red Arrows followed by a five-wave decline will be my signal to start getting short.  Keep an eye on the 12-min chart of SARK for an early sign that the market has turned.

Have a great weekend.

That’s what I’m doing

h

BTW, I have completed my evaluation of the new trend indicator and plan to release it in another Update Class. Look for Dave’s email announcing the Class which will be limited to students who purchased the Basic Arrows Class.

Market Signals for

08-15-2022

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.