Professor’s Comments – A Few More Weekend Thoughts 9/5/2022

Posted by OMS  at September 5th, 2022

The decline on the Dow and the other major indexes since the 16 August Wave 2 high into Thursday’s low was a classic nine wave impulsive decline. The nine waves vs. the normal 5 results from an extended fifth wave.  You can clearly see the nine waves down on a 60 min chart. Because of the nine waves, there is a high probability that sub-wave 1 down of Wave 1 down completed with Thursday’s decline. Nine waves down also means that the primary intermediate trend has changed from up to down.

If this the case, then retracement sub-wave 2 up started with Friday’s early rally.  The first pop was likely wave ‘a’ of the retracement with the afternoon decline being wave ‘b’ down. 

Because sub-wave 1 down took 12 trading days to complete, it’s highly unlikely that retracement wave 2 up completed in one day (Friday).  The principle of alternation for corrective waves says that when wave ‘a’ is simple, which is what happened on Friday, wave ‘c’ should be complex.  So, because of this, I would expect to see the market rally once trading resumes on Tuesday.

Friday’s wave ‘a’ high reached the 31,027 level.  When I measure the length of the rally and add it to the recent lows, I get upside targets that range between 32,164 and 32,389. These are the levels I will be watching to establish positions in inverse index ETFs in anticipation of a Wave 3 impulsive decline.

Then once I have my positions, the first thing I ‘ll be looking for is a break of Friday’s low of 31,182.  This will tell me that retracement sub-wave 2 is complete and sub-wave 3 down is underway.  There’s still minor support near the 31,015 to 31,072 levels that needs to be broken, but once this happens, the Dow should start to decline hard for several days, stopping near the 30,500 level before testing key support at the 17 June low of 29,653. The decline to 29,653 could be quick.

My target for Wave 3 down is still between 26,500 to 28,000, with 24 000 to 25,000 a possibility.

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Not sure of the terminology we use? Check out these articles

The Hockey Stick Pattern
The Creation of Waves and Trends
FAQ

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