Professor’s Comments January 25, 2022
Posted by OMS at January 25th, 2022
Wow, yesterday was a pretty scary day for most investors, but if you have been following these pages, I believe most of you were prepared. I talked about how the Dow was likely starting a wave 3 decline and would likely drop to the 20 September Wave 4 low of 33,271 which was where the Ending Diagonal began. Yesterday, the Dow hit a low of 33,150. That low was likely sub-wave 3 down of Wave 1 down. I want you to note that it was likely only wave sub-3 within Wave 1 down, so you can start getting an appreciation of how low the Dow will drop once all five waves of the Major Five Wave sequence for the Bear Market are complete. But I’m going to save that discussion for later. Right now, I want to continue focusing on what happened yesterday and what is likely going to happen during the next few days.
Anyhow, IF yesterday’s early decline to 33,150 was sub-wave 3 down within Wave 1 down, it means that the afternoon rally was likely sub-wave 4 up of Wave 1 down. If this analysis is correct, the Dow should decline and re-test yesterday’s low to complete sub-wave 5 of Wave 1 down. This should happen within the next few days. Again, remember, this is likely only part of Wave 1 down.
The reason I say this is because the market is coming up on an important Phi Mate cycle date on 30 January. This is a date where several Fibonacci turn dates come together. The dates give us a high probability ‘window’ of where the market will likely bottom. The actual turn can be as much as 2-3 days on either side of the actual turn date of 30 January.
Yesterday’s 1,115-point decline on the Dow was historic. The intraday decline and snap rally that saw the Dow finish with a gain of 99 points was a record. At its low, the Dow was down over 10,3 percent since it made its all-time high on 5 January. The S&P was down over 12 percent since its January high. The NAS was down over 18 percent since its high. After all five waves of Major Wave 1 down are complete, the Dow will likely be trading near the 29,791 level. This level is a likely target because it is a 0.38 percent retracement of the earlier Wave 5 up.
OK, so what am I planning to do IF the Dow declines to or slightly below the 33,150 level in the next few days? Hmmm? I will be looking to take profits and looking for a bounce!
Why? Well, the next wave up, Wave 4 up could be problematic. It could be a typical wave 4, where it develops a normal triangle. Or it could become more complex, meaning that it could evolve into a tricky 3-3-5 zig-zag. I HATE these patterns! This is where most traders, even experienced traders lose money. They are EXTREMELY tough to trade! If you do trade them, do it on the short-term bars only. But the good news is that I don’t believe that wave 4 up will last long. Maybe into mid-February. After that, it should be all downhill as Wave 5 of Major Wave 5 down unfolds, dropping the Dow down starts to test yesterday’s low, I’ll exit the trade and start looking for Green Arrows to appear on the 15- and 30-min bars. That’s when I will exit all short positions and start looking to go long.
Yesterday my ‘Doctor’s Trade’ with TZA generated a Red Arrow on the 4-hour bars. It was NOIT a confirmed Red Arrow but like I told you in my Classes, when you have a large profit in a trade, you need to start thinking about exit criteria. So yesterday, as soon as I saw the first sign of red, I sold half my position. I’ll exit the rest on a Safety Valve signal or if the Red Arrow is confirmed.
If you have time, students should look at the wonderful job that the new ‘tweaks’ did on the Doctor’s Trade. They identified the trade with a confirmed Green Arrow on 1/13. The Green Arrow was supported by a beautiful Strength Bar. Then for five straight days, all TZA did was go up. At its high, the profit was over 44 percent for the 5-day trade.
BTW, What if I’m wrong about the wave count? What if the next wave up is not Wave 4 up of Wave 1 down? What then? Well, if the next bounce is not Wave 4 up, it MUST be Wave ‘E’ up within the Ending Diagonal. At this point, having broken below the 20 September low, this scenario has a low probability. However, I must still consider it. In this case, IF the Dow is still in the ED, it could trade back up to the 36,400 level. This would likely start to happen near the 30 January turn date and continue into late February. After that, it should all be downhill.
Also supporting the case for some type of rally (either Wave 4 or Wave ‘E”) is if what happened during the last hour of yesterday’s trading. The institutions came in with major buy programs. These ‘buying cluster’ events are something you shouldn’t ignore. IF the big boys have decided that the 33,150 level is a major buying opportunity, they can easily keep the market propped up until late February, maybe even into April.
The Dean’s List and The Tide remain negative.
The Market Timing Indicators for the Dow, S&P and NASDAQ are negative. The Scalp Trading Indicators for the Dow, NASDAQ, and S&P remain negative.
The Sector Ratio weakened to 3-21 negative after Monday’s session. The top three strong sectors were Foods (1), Energy (1), and Utilities (0). The top five weak sectors were Retail (-6), Semiconductors (-5), Consumer Goods (-4), Leisure (-4) and Cap Goods (-4). Most of the remaining sectors are also very weak with RS rankings of -3s and -4s. The sector ratings are telling us that it’s time to be very defensive.
Follow the Arrows and prepared to take profits if the Dow trades down to near or below the 33,150 level. No stock, ETF, or index, no matter how bad, goes down forever. They go to targets and the targets are getting close. Again, follow the Arrows.
That’s what I’m doing.
h
Market Signals for
01-25-2022
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEG |
THE TIDE | NEG |
Index | Signal | Signal Date |
---|---|---|
DOW | NEG | 18 Jan 2022 |
NASDAQ | NEG | 13 Jan 2022 |
GOLD | NEU | 20 Jan 2022 |
U.S. DOLLAR | NEU | 18 Jan 2022 |
BONDS | NEG | 18 Jan 2022 |
CRUDE OIL | POS | 23 Dec 2021 |
CRYPTO | NEG | 06 Jan 2022 |
Not sure of the terminology we use? Check out these articles
The Hockey Stick Pattern
The Creation of Waves and Trends
FAQ
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