Weekend Strategy Review December 11, 2022

Posted by OMS  at December 11th, 2022

Stocks were mostly flat early Friday but started to fall off later in the afternoon.  By days end, all major indexes were trading below their previous wave 4 lows, which increases the odds that Wave 3 of Major Wave 3 down is starting.  For the Russell, the decline is likely the start of Minor Wave 3 down within Major Wave 3 down.  I outlined the wave structure for the Russell in Friday’s Comments, so if you have time this weekend, please review those Comments. Also draw some of the key support levels mentioned on your charts as they will likely be tested in the weeks ahead.

Friday’s decline on the Dow of 305 points to 33,476 was accompanied by a closing TRIN of .87. This suggests a lot of Friday’s buying power was used to keep the market from declining even further.  That’s not a good omen going forward as next Wednesday is another Fed Announcement.  Right now, the 3 month T-Bill is yielding 4.28 percent, with the 6-month bill at 4.71 percent. So, if the Fed raises rates from 4 to 4.5 percent, it will put Fed yields exactly between the two T-bill rates, which is what the market expects.  In other words, Wednesday’s Fed Announcement should not surprise, so the market should begin to trade on patterns and indicators again, which right now are getting close to turning negative. Students should keep an eye on the daily Bias Indicator. If it turns negative, pay attention.

On Friday, the RUT closed at 1797.  The next step in the decline should be a test of the wave ‘X” low at the 1757 level.   After that, the RUT trade down to the 13 October low of 1642, which is my next major target. By the time Wave 3 of Wave 3 down completes, it should be trading close to the 1324 level.  Here’s the math:

Major Wave 2 up topped on 16 August at the 2030 level.  From that top. Wave 1 of 3 down completed on 13 October at 1642.  So, the distance for Wave 1 of 3 down was 388 points.  Multiply 388 by 1.5 and you get 582 points.  Then subtract this from the 15 November high of 1906, the Wave 2 of 3 high, and you get a target of 1324.  This is if Wave 3 of Major Wave 3 down is a normal 1.5 wave.  If it extends and becomes a 2.5 X wave, the target becomes 936.  On Friday, the RUT closed at 1796, so the two targets mentioned are significantly below current levels.

Our Doctor’s Trade with TZA, the inverse EWTF for the RUT, remains on a Green Arrow. The ETF was up 1.17 points on Friday closing at 33.42. The ETF is now up over 8 percent since it generated a Green Arrow on 5 December.  TZA’s next target should be a test of the 37 level.  After that, the September highs near the 47 level should come into play.

Right now, the Bias indicator on the Daily chart is rising, but still negative.  Once the Bias turns positive, I will start becoming aggressive with my purchases. I have started to hold my shares of TZA in both our Regular Trading Accounts and IRAs now that the Trend Indicator is above 50.

Students should also note how the Bollinger Bands have narrowed on the Daily Chart of TZA creating the ‘tube of toothpaste’ I used to talk about in Class.  Once the Bias turns positive, look for the toothpaste to get squeezed.

BTW, TZA is just one of many ETFs that are getting ready to be squeezed.  See if you can find the ‘tube’ on SDOW, SQQQ and SPXU for starters.  While you’re doing this, note where the Bias is on each ETF.  Then compare the Bias on each inverse index ETF and you’ll know why I’m starting with TZA, then SQQQ, SPXU, and finally SDOW.  Each of these inverse index ETFs can be traded on the 4 hour bars and turned into additional Doctor’s Trades for diversification.

The Sector Ratio weakened to 21-3 positive after Friday’s session.  The positive ratio is telling us that it’s still very early in the turning process.  The top five strong sectors were Cap Goods (6), Semiconductors (4), Pharma Bio (4), Leisure (3), and Media (3).  The top three weak sectors were Banks (-1), Telecoms (0), and Energy (0). Given what I’m seeing in Europe, I find it extremely troubling to see the Banks at the top of the weak list.

Have a great weekend.

That’s what I’m doing,

h

Market Signals for

12-12-2022

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.