Professor’s Comments 12/17/2021

Posted by OMS  at December 17th, 2021

On the day after the Fed announced that they will be reducing their QE stimulus program and start raising interest rates, traders sobered up and had a chance to re-think the post announcement rally. Maybe things are not that great after all?  After a morning rally to 36,189, the Dow pulled back to close up 30 points at 35,897.  In my early Comments, I mentioned the Dow could trade up to the 36,200-36,300 level before pulling back, so 36,189 was close.  But even though the market rallied and pulled back, we really didn’t learn anything from yesterday’s action.

It’s still possible that yesterday’s early rally and late pullback were sub-waves ‘a’ and ‘b’ of an a-b-c move for wave C up within Wave 2 up.  If this is the case, wave C up can still carry to the 36,500+ level before it completes.  Or not.  That’s because it’s also possible that Wave 2 up completed yesterday.  The only way we’ll know for sure that Wave 2 up is complete is by seeing impulsive action to the downside.  I’m not talking 50 or 100 points…I need to see declines of 300-500 points or more to be convinced. I will also need to see the indicators on the 4-hour bars of the inverse ETFs I’m watching (TZA, SDOW, and SPXU), turn positive with Green Arrows.

Yesterday, technology stocks on the NASDAQ got hit especially hard.  The index dropped 425 points, but so far its decline is also not impulsive. All that happened yesterday was that the index (Q’s) gave back the gain it made on Thursday.  I need to see the Q’s break below last Friday’s low of 378.9 and then move below the 200 near 377 before I’m a believer.  I also want to see IWM re-test and break below support at the 212 level. BTW, the inverse trade of the Russell (IWM) is still very much alive.  All I’m waiting for now is a confirmed Green Arrow on TZA and I’m in.

There’s a chance we could see the decline start today. Last night, there was a small change in the A-D Oscillator.  This means we could have a Big Move in the markets within the next 1-2 days.  If the move is down, and the indexes start to drop below the support levels I mentioned above, it’s likely that Wave 3 down is starting.  On the other hand, if the markets begin to rally, there’s a good chance that Wave 2 up on the Dow is not finished and could still rally to or above 36,500.

Stay on your toes. Watch for impulsive action.

That’s what I’m doing,

h

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.