Weekend Strategy Review October 9, 2022
Posted by OMS at October 11th, 2022
The market gaped lower at yesterday’s open and continued to fall in a stair-step decline with only minor rallies along the way. At the end of the day, the Dow was down 630 points, closing at 29,296. The NASDAQ and S&P were down 421 and 105 points, respectively. Volume on the decline was average, coming in a just over 10 billion shares, which indicates a lack of panic on the Street. This tells me that the market still has a lot more downside to go before wave 3 down is anywhere near complete. There were 19 new highs and 397 new lows.
From a wave count perspective, I’m labeling the 12 September top as Minor Wave 2 up of Major Wave 3 down. This makes the first leg of the decline since the 12 September top sub-wave 1 down. This sub-wave bottomed on 20 September. The rally that followed into Wednesday’s 6 October high of 30,454 was sub-wave 2. So, If I’m correct about the wave count, yesterday’s decline was the start of sub-wave 3 down within Minor Wave 3 down of Major Wave 3 down. It also means that we’re about to start three waves of impulsive declines. Hold onto your hats!
My target for Wave 3 down on the Dow is still between the 26,500 and 28,000 levels. As I mentioned previously, the target for Wave 3 down could go as low as 24,000 to 25,000 if Wave 3 down extends. Once all five waves of the sequence complete, the Dow could be trading near of below the 20,000 level.
The key levels to confirm that Wave 3 down is underway are still 28,715 on the Dow and 3,584 on the S&P.
The Dean’s List and the Tide are negative.
The Market Timing Indicators on all the major indexes are still negative.
The Sector Ratio weakened to 1-23 negative after Friday’s session. The only strong sector was Energy (2). The top five weak sectors were Telecoms (-6), Consumer Products (–6), Semiconductors (-5), Media (-5), and Household Products (-5). Students should note the RS of the weak sectors. Right now, 20 of the weak sectors are weaker than the Energy Sector is strong. That’s a weak market!
I receiver several emails from students yesterday telling me how much they enjoyed Thursday night’s combo Update Class – Class About Nothing. But the one I enjoyed the most came from Paul B. who wrote “I had a HUGE day today, $XX,XXX. I am now letting it ride on the 4 hour bars, TZA, SARK, SPXU and SQQQ: just waiting on a red arrow.
All I can say is WOW. Thanks for giving us tomorrows paper ahead of time.
Reminds of the scene from the movie “Back to the Future” where Marty gets an Almanac of things that happened in the future.”
(I purposely x-ed out the numbers in Paul’s email, because he really had a nice day.)
Hey, I told you I found the cigars with the market’s battle plan wrapped around them. So, this weekend, I too will be smoking a few of those cigars. Hope you are doing something similar, like going shopping for your grand kids or whatever you do to celebrate a big win.
So, from a strategy perspective, I received a question from a student who was left at the station after yesterday’s gap opening. He saw the market gap down and wondered how he could get into the Doctor’s Trade when something like this happens. Hmmm? It’s simple really. But let’s take first things first.
If you look at the 4-hour chart of TZA, the first thing you will see is that the Bias Indicator was positive. POSITIVE!!! This means that students should have been looking for the appearance of a Green Arrow. So going into yesterday’s open, especially when The Professor told you he found the cigars with the battle plan attached, you should have been on standby alert for ANY downside move in the market that could cause a Green Arrow to appear on TZA. The Arrow appeared immediately at the open with TZA at 38.69. TZA closed at 42.28 for a gain of 3.59 points!
OK, but suppose you didn’t get in at the open, what to do? Well, I already told you…it’s relatively simple. If I miss the open (which I didn’t yesterday…I told you I’m not McClellan), I simply wait for the next bus to come along. This is where I use the 4-minute bars. So, for TZA, the next bus was at 11:06 with TZA trading at 40.77. If you missed this buy, there were still three others later in the day that you could have hopped on. All were opportunities to enter the Doctor’s Trade. BTW, with my two tier trading strategy, I would have kept any shares I bought for the longer term Doctor’s Trade in my IRA. And like I always do, I would have exited any short-term trades I made, even with TZA, in my regular trading account. This way I never have to worry about something crazy happening over night or during the weekend, but still have my longer term trades working in my IRA based on a confirmed Green Arrow. I sleep much better using this two tier approach.
So, with the market being closed on Monday for the Columbus Day Holiday, the first thing I’ll be looking for on Tuesday is to re-enter my inverse trades. Doesn’t matter to me what the market does on Tuesdays open. All I’ll be doing is watching the Bias Indicator. If the Bias is positive on TZA, I’ll look to re-enter the trade on the first Green Arrow. That’s it. Simple. Once in, I’ll again have two trades working. One in my IRA and one in my regular trading account. If the Arrow on the 4-hour bar stays Green at the end of the day, I’ll continue to hold the ETF in my IRA and SELL IT in my regular trading account. I never hold a trade overnight based on the 4-minute bars. I’ll then take any profit I made in my regular account and send it to my NFCU money market account, where it goes into the deep hole of Calcutta. (Harvey tells me that the deep hole was a very bad place.) I don’t know, but the expression was something my father used to use when he wanted to stash money away for a rainy day.
Anyhow, I see the market timing signal for gold had turned neutral again, so I’m avoiding it for the next few days. I still believe gold needs to form a ‘Blade’ before moving higher. I’m still avoiding Bonds and Crypto. The indicators for Crude Oil are now on a Buy Signal.
Bottom Line: Continue to focus on inverse index ETFs from the Dean’s List now that Wave 3 down appears to be starting. I still believe that inverse index ETFs are the Best Bet.
Have a great weekend.
That’s what I’m doing,
h
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