Weekend Strategy Review May 15, 2022
Posted by OMS at May 15th, 2022
The market rallied from EXTREME oversold conditions yesterday. The Dow gained 466 points to closes at 32,196. In my early update, I discussed how the rally would likely take the form of an a-b-c retracement rally that could approach the 32,500 level. Yesterday’s early rally to 32,276 appeared to be wave ‘a’ of that sequence. The afternoon decline back to the intraday low of 31,862 was probably wave ‘b’, which means we should get one more pop early next week to complete the pattern. Then once complete, the Dow should resume its decline to the targets I have previously discussed, which are near or below the 30,500 level.
The NASDAQ and S&P were up 434 and 94 points, respectively. My downside targets for those indexes once the retracement completes remain near the 10,600 and 3,820 levels, with potential for even lower prices after that. A 50 percent retracement of the S&Ps earlier wave 5 generates a downside target near 3,500.
Even with yesterday’s 466-point rally, the Dow was down 703 points for the week. It was the seventh consecutive weekly decline in over 21 years. The last time I saw a sustained decline like the one that is occurring was back in 2001. I thought it would never end! It didn’t! It was only the start of the things to come. During the 7-week decline, the Dow lost 1,184 points, a huge number back then. Now it can lose over 1,000 points in a day. But after seven weeks of decline, the Dow stabilized, and trades sideways for the next six weeks forming the ‘Blade’ of a Hockey Stick Pattern. Once the pattern was complete, it fell another 2,420 points, or over twice the points of the first decline. I don’t expect the current retracement rally to take six weeks. If it takes more than six days from Friday’s start, I’d be surprised. Seven weeks of decline in the market are nothing to sneeze about. It rarely happens, but when it does, it is usually a harbinger of even worse things to come. I’m expecting a waterfall type sell off from somewhere close to the 32,400 to 32,500 level starting sometime later next week.
On Friday. I traded the intraday rally and decline using a combination of inverse and long ETFs to produce another cigar day. It was my third straight week of all positive trading days. All I did was check the bias at the start of the day. If it was positive, I traded positive index ETFs, like UDOW and TNA, and went long on a confirmed Green Arrow. I exited the trade on the first red bar or red Arrow. That’s it! I did exactly what I showed students in my Class About Nothing. The strategy has been a winner for me every day since I held the Class on 2 May. Several of the days have been multiple cigar days. And by scalping, I’m out of the market every night. I sleep like a baby.
Yesterday I was reading about the kids on Reddit, who were committing suicide after LUNA, a crypto coin, plunged to zero. The fall in crypto currencies wiped over $200 Billion from the market ….in a day! Hmmm? My Market Timing Indicator for Cryptos has been negative since 21 April. Too bad that the kids on Reddit don’t subscribe to themarket101.com. I wouldn’t be reading about how one guy lost “450K and cannot pay the bank’. He said” I will lose my home soon. I’ll become homeless, suicide is the only way out for me.” Another post talks about how his friend tried to commit suicide yesterday morning. Apparently,” his friend moved all his savings to crypto in 2021, with LUNA being a major holding in his portfolio.” Really? LUNA? With a negative timing signal on my cockpit? Hmmm.
Stories like this are all over the internet this morning. If you have some time today, you might want to check them out. They tell a story of how speculative fever took over the markets since 2020, not only in the cryptos, but the meme stocks as well. Remember a year ago, when the MEME stocks were all over the MWL. Things like Game Stop (GME) were trading at 256. Now its 98. BBBY was at 44; now its at 9. Remember when MARA was lighting up the MWL? It reached a high of 83. Now nobody wants it at 11. Back then I told you the only reason they were going up was because hundreds of thousands of kids put them ‘in play’. I told you they were junk back then. They’re still junk! Only now the kids that bought them are committing suicide. Sad.
NEVER get caught up in the hype! NEVER!!! If something appears too good to be true, it probably isn’t. Make sure you check it out. Never rely on the opinions of anyone…. including me. This is the reason I never do opinions. I use technical indicators for my analysis. Things like the Dean’s List and the Members watch List are not based on opinions. They are driven by algorisms that calculate what they see in the market. They have no opinions. Either the stock is strong or its not. The only way a stock or ETF makes it to one of my Lists is if it’s indicators are the strongest on the planet! It gets there not because Buffet or Big Lou say it’s a strong stock. That’s their opinion. No, our stocks are strong because the indicators behind the algorithms say they are strong. Eleven indicators have to be positive or moving higher for a stock to get on the List. That’s not opinion. That’s fact! So, this weekend, here’s a fact:
The Dean’s List is the shortest it’s ever been. The Tide continues to go out.
Here’s another fact: QID, the inverse ETF for the NASDSQ, is the highest ranked ETF on the Dean’s List. If I put 3X ETFs in the data base for the List, SQQQ would be ranked #1…..the strongest ETF on the List. (I don’t put 3X ETFs in the data base because they would distort the ratings). The second highest index ETF on the DL is TWM, the inverse ETF for the Russell 2K. Again, if I put TZA in the data base, it too would be ranker either #1 or #2. This is why I continue to say the NASDAQ and the Russell are the two weakest indexes. That’s not opinion. That’s fact! Anyhow, …
The Market Timing Indicator for Dow, NASDAQ, SPY, and Russell 2K are all negative.
The Scalp Trading Indicators for the Dow, S&P, NASDAQ, and Russell 2K are negative.
The Sector Ratio strengthened to a 6-18 negative after Friday’s session. The top five strong sectors were Telecoms (8), Energy (1), Foods (1) and Utilities (1) and PharmaBio (0). Student should note that even sectors are NOT that strong…mostly 1s and zero. The top five weak sectors are Retail (-6), Media (-5), Banks (-4), Material (-3) and Service (-3).
Crude Oil (UCO) gained 7.27 points on Friday after the Market Timing Indicator for Crude turned positive. BTW, that’s also not an opinion. The Market Timing Indicators are also based on the factual turn of indicators. They don’t have opinions. Continue to watch for an upside breakout next week now that the timing signals are positive. Lie I said on Thursday, IF the market stages a short covering rally, these energy stocks should lead the way.
Continue to forget gold, bonds and crypto for now. They’re dead money. Be patient and wait for a change in indicators.
Best Bets: I’m expecting a pop in the market early next week. Doesn’t have to happen on Monday, but if it does, watch to see if the Dow starts to approach the 32,400-32,500 level. I still believe the best opportunities going forward are TZA, SQQQ, and SDOW after the indexes complete their retracement rallies.
Have a great weekend. It’s my B-day weekend and I’m celebrating!!!
That’s what I’m doing,
h
Market Signals for
05-16-2022
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEG |
THE TIDE | NEG |
Index | Signal | Signal Date |
---|---|---|
DOW | NEG | 09 May 2022 |
NASDAQ | NEG | 03 May 2022 |
GOLD | NEG | 29 Apr 2022 |
U.S. DOLLAR | POS | 18 Feb 2022 |
BONDS | NEG | 11 Apr 2022 |
CRUDE OIL | POS | 12 May 2022 |
CRYPTO | NEG | 21 Apr 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