Weekend Strategy Review November 14, 2021

Posted by OMS  at November 14th, 2021

All the major indexes finished the week with a nice rally. However, it remains to be seen if the rally can be sustained.  The reason I say this is because Friday’s rally could also be Wave 2 up in a five-wave declining pattern.  If you recall, in Thursday’s comments, I discussed how the market needed to start increasing its momentum to the downside before I could say that the final top is in.  We saw some of this happen on Thursday, when the Dow lost 158 points, but then went on to gain 179 points on Friday.  To get a better picture of what happened this past week, we need to step back and look at what happened since the Dow made its all-time high of 36,566 on Monday.  The following three days of trading were all down days of 100 points or more.  The total decline was 511 points.  So, after putting in an all-time high, right at its projected target, the Dow made a five wave decline into Thursday’s low of 35.915.  This five wave decline could have been the initial wave down of the new Bear Market.  If this is the case, Friday’s rally could have been part or all of retracement wave 2 up. Friday’s rally certainly did NOT look like an impulsive affair, as there was way too much sideways action during the middle of the day.  So, the odds tend to favor this retracement wave 2 labeling.

The other thing about this week’s trading was that while the Dow made a new all-time high, it was the only one of the three major indexes to do it.  The S&P and NASDAQ did not.  In other words, the Dow’s new high was not confirmed, which is bearish.

At this point, its still way too early to tell if the markets have indeed topped. There are many options that could occur in the days ahead that could give new meanings to the sub-waves.  One of these is the possibility that Friday’s rally could also be sub-wave 4 within a still developing five-wave decline for Wave 1 down.  Friday’s breadth didn’t provide any real clues, as the A/D ratio was a tame 1.07 :1, with up/down volume being almost even (50.0 % up volume vs.49.1% down volume).  It’s hard to read anything into numbers like that but given the fact that the Dow did rally with these numbers, I must consider it more ore of a negative than positive.  Also, Friday’s breadth caused the A/D oscillator to join the Hi-Lo indicator and the Summation Index in negative territory.  So now 3 of the 4 indicators that make up The Tide are now negative.  The only holdout is the Up/Down Oscillator which remains positive.

Monday should be an interesting day because IF the selling resumes, it could be either a continuation of Wave 1 down or the start of a more dramatic Wave 3 down.  In either case, IF the Dow has topped, and we still don’t know that it has, my initial target is the area near 35,500.  If it’s the start of Wave 3 down, the Dow could fall to the 34,900 level.  Remember, the last major low of the current rally on the Dow was on 13 October when the index was at 34,115.  So that low MUST be broken to the downside before I can call Wave 5 up complete.  Otherwise, it’s still possible that everything we saw last week is part of a complicated corrective sequence (I don’t know what this is at this point), and Wave 5 up could still re-test Monday’s high. BTW, I wouldn’t bet on this happening at this point, as the odds, based on the most likely pattern, tend to favor the downside.

Also, while I have focused on the Dow’s five wave-down, three wave up pattern this weekend, the same pattern is apparent on the S&P and the NASDAQ.  If students want to take the time to count waves, the clearest five down, 3 up pattern appears on a 30-minute chart of the NASDAQ.  Here a break of the wave ‘b’ low of 16,013 would signal that wave 3 down is underway.

The Market Timing Indicators for the Dow (DIA), S&P (SPY), and NASDAQ (QQQ) remain Positive.

The Scalp Trading Indicators for the Dow (DIA), S&P (SPY), and NASDAQ (QQQ) are also Positive.

The Dean’s List is still Positive. The Tide is Neutral. 

The Sector Ratio remained at 19-5 Positive after Friday’s session. The top five strong sectors were Autos (7), Semiconductors (7), Service (6), Retail (4), and Energy (3).

The top five weak sectors were Media (-2), Utilities (-1), Telecoms (-1), PharmaBio (-1) and Insurance (0).

Top Stocks:  OK, so once again we saw that Marathon Digital (MARA) was at the top of Thursday’s MWL.  Dillard’s (DDS) was #2, with Riot Blockchain (RIOT) in the #3 position.  How did they do?  Hmmm?

MARA was up 5.23 points; DDS was up 2.85 points and RIOT was up 4.66 points.  Hey, the markets rallied right from the open on Friday.  Do you really think that the strongest stocks on the planet weren’t going to take part in the rally? Heck no!

After three consecutive down days on the Dow (known as ‘three black crows’) it’s not unusual to see some type of retracement rally.  We didn’t know if the three black crow pattern is part of something larger, and fact is, we didn’t care. The only thing that mattered at Friday’s open was that MARA was at the top of the MWL and the Dow was going to open higher.  So, what to do?   Heck yes…we were going to trade MARA. 

The stock opened down and continued to trade lower for the next five bars on a 12 min chart.  Then at 10.42, a Green Arrow was generated.  The Arrow was confirmed two bars later at 70.  The stock continued higher until a Red Arrow appeared at the 13,54 mark with the stock trading at 73.54.  However, the Red Arrow was NEVER confirmed.  If you wanted, you could have exited the trade with a 3.20 point profit based on the Safety Valve.  Remember, any time you have a nice profit and want to protect it, you can use the Safety Valve exit.  The Safety Valve would have put you back in the stock at 73.43 at the 14.30 mark.  This re-entry was slightly less than the exit point, so you didn’t miss anything by staying safely on the sidelines.  After the re-entry, another Green Arrow appeared at 15.06 which pushed the stock to a high of 76.83.  Total profit for the day was over 6.5 points.  On 500 shares, that’s a gain of $3,250.  Do you still think I’m charging too much for the Arrows?  After this weekend, Dave will be raising the price.  So, send me an email today if you want the Arrows.  I’ll tell Dave about your dog messing up your computer:>)

What?  You missed MARA?  Then what about RIOT?  It also opened lower but then at the 11.06 mark, it too generated a Green Arrow.  So, by 11.06, two of the strongest stocks in the entire market gave signals (Arrows) that they were moving higher. The Arrow on RIOT was confirmed two bars later at 38.58.  It continued to rally into the close at 44.29.   Total gain for the day on one trade was 5.70 points. You do the math on this for 500 shares.  Still don’t have the Arrows?  Get them.

BTW, I would really appreciate it if you could tell your friends and co-workers about the Arrow and how they work with the MWL and Dean’s List.  What we have developed with the Arrows and the Lists is a complete trading system.  It not only tells you which stocks and ETFs to trade but tells you when to enter and exit the trades as well.  Where on earth can you find a compete trading system like this?  Answer: NO WHERE!  And even if you could find something comparable, …which you can’t, can you get it for less than $50 per month?  I don’t know what Dave charges for monthly subscription, but I think it’s still under 50 bucks. Anyhow, please tell your friends about us. 

For next week, I’m still watching the major indexes with a focus on the Russell 2K and IWM.  There’s an unconfirmed Red Arrow on the Daily Chart of IWM.  If the Arrow is confirmed, I want to be short TZA, the inverse 3X leveraged ETF for the Russell.  I’m also watching the 120 min chart of IWM which is still on a Red Arrow, but the indicators are positive.  If they turn negative, I’ll add to my position in TZA and add even more IF the Daily’s turn negative.  As I mentioned in Thursday’s Comments, I believe the RUT could get hit hard if the indicators turn negative. See Thursday’s Comments for potential targets.  Pay attention to the Arrows.  BTW, I’m sure you noticed the inverse Hockey Stick pattern on the 120 min chart :>) It’s one of the reasons I favor the Bearish case now.

Gold:  Yeah, I saw the cockpit indicator on gold turn positive on 2 November.  But I’m still only seeing the two gold stocks, SA and AU, in the #14 and 15 positions on the Dean’s List.  This tells me that gold, while strong, is still a lot weaker than the crypto miners.  Given a choice between a gold miner, with all their production problems, costs, labor, etc…and a Bitcoin miner, which has almost no labor costs and runs 24 hours-7 days a week, I’ll take the crypto miner every day of the week.  With a potential intermediate term target of over $100K for Bitcoin vs. an uncertain target of $1,900 for gold, I’m favoring the cryptos.  Bitcoin closed at 63,529 on Friday.  Gold closed at 1,866.  I need to see gold break above 1,915 before I get excited about gold.  I don’t have to see anything to get excited about a Bitcoin miner that uses thousands of computers to hash out 7-8 Bitcoins per day.  Run the numbers….

Watching the Arrows.

That’s what I’m doing.

h

BTW, several students have asked for the time periods I use on the various charts I trade.  Here’s the list:

On the 5’s. I use a 2 day chart.

12s, I use a 3 day chart.

15s I use 4 days.]

30 min, 10 days.

60 min, 20 days

120 min, 30 days

Daily’s, 1 year

Weekly’s, 3 years. 

For students who can’t be looking at charts all day, I suggest they trade off the 120 min charts.  I find that the 120s keep me in trade longer and captures most of the gain in a move.  Exit on a confirmed Red Arrow or IF you have a large gain, you might exit when the ‘Safety Valve turns negative.   

I mostly trade the 12’s, making sure the 2 hour chart is going in my direction.  When I establish an initial position on a Position Trade, I do it when I see a confirmed Green Arrow on the 120 min chart.  Then once I’m in, if the trade starts going my way, I use the 12s to add to the position.

Market Signals for

11-15-2021

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.