Professor’s Comments August 11, 2022
Posted by OMS at August 11th, 2022
Yesterday, before the market opened, the BLS reported that the CPI rose 8.5 percent for July year over year. It was lower than the previous month’s 9.1 percent rise, so Wall Street took this to mean that even though the inflation rate was high, it was under control. So maybe, just maybe the Fed wouldn’t have to raise interest rated another 0.75 percent at their next meeting. Students should remember that the Fed’s target rate for inflation is 2 percent per year, so any way you look at it, a compounded rate of 2 percent per year is far less than a compounded rate of 8 to 9 percent. Because of this, I still expect that the Fed to raise rates at least 0.75 percent. My reason…. the shadow stat numbers still show that real inflation is closer to 12 percent, so even though the government might say the inflation rate is not rising, (remember it’s an election year), I believe they will raise interest rates at their 20-21 September meeting.
In Tuesday’s Comments, I discussed the possibility of an alternative scenario that would occur if Monday’s high of 33,109 was exceeded. I said “a new high would mean that Wave ‘C’ up is likely forming a small Bearish Rising Wedge or Ending Diagonal Pattern for its final leg. If this is the case, the pattern will likely need a few more days to complete waves 3, 4, and 5 of the ED pattern.” This ‘extension’ is what happened yesterday.
From a pattern perspective, Tuesday’s decline completed wave ‘b’ down of the Ending Diagonal. Yesterday’s rally was likely part or all of wave ‘c’ up. The afternoon decline was likely part of a sub wave within wave ‘c’ up or the start of wave ‘d’ down. Once wave ‘d’ down completes, final wave ‘e’ up will complete the Ending Diagonal Pattern. Depending on how things unfold, I would expect the ED pattern to complete within the next few days. The final top could occur anywhere between 33,400 to the 34,000 level. These levels are higher than the 33,270 level I was using for my target. But now that it is clear that Wave 2 up has morphed into an extended Ending Diagonal, I must raise my original target.
The Dow finished with a gain of 535 points, closing at 33,303. It reached an intraday high of 33,364. The NASDAQ and S&P were up 361 and 88 points, respectively. Volume on the NYSE was moderate, coming in at 105 percent of its 10-day average. There were 61 new highs and 12 new lows.
There were no changes to the indicators after yesterday’s session.
The Dean’s List and The Tide remain positive.
The Market Timing Indicators on the Dow, S&P (SPY), NASDAQ and Russell 2K (IWM) remain positive.
The Scalp Trading Indicators on the Dow, S&P (SPY), NASDAQ, and RUT (IWM) are also positive.
The 4-hour bars on the major indexes are either still Green or turned Green yesterday. I need to see them turn Red and be confirmed by negative indicators before I begin shorting. BTW, the Red Arrow that was generated on IWM, the ETF for the Russel 2K, at the start of Tuesday’s session was never confirmed, keeping me out of the trade.
The Sector Ratio strengthened to 20-4 positive after Wednesday’s session. The top five strong sectors were Autos (5), Retail (4), Leisure (4), Real Estate (3), and Cap Goods (3). The top five weak sectors were Energy (-5), Media (-2), Material (-1) and Consumer Products (-1).
Like I said above, I’m still on the side lines with the Doctor’s Trade in TZA. A Red Arrow took me out of the trade on 15 July at the 46.25 level. Yesterday, TZA closed at 29.40. Follow the Arrows! Again, given what we’ve seen with the Doctor’s Trade, I’m taking a hard look at the possibility of buying TNA when IWM generates a Green Arrow. When I originally set up the Doctor’s Trade with TZA, I was looking for a vehicle to trade the Bear Market. I wanted something that would take advantage of the decline I saw coming and keep me from getting chopped around. The strategy has been very successful as its currently up over 200 percent. But in retrospect, the recent Wave 2 retracement rally has shown it could be improved even more if I traded both the Green and Red Arrows. It’s something I’m looking at, but I’m not a hog. For now, I’m just going to wait for the next confirmed Red Arrow on IWM.
I bought some silver yesterday (SLV) based on the Green Arrow that was generated on Tuesday’s 4-hour bars. I plan to add to this position as long as the Arrow remains Green. My sell signal will be a Red Arrow. If gold pulls back during the next day or so, I will be looking to buy UGL on the next Green Arrow. (See my earlier comments on gold and silver). The precious metals could be getting ready to start a major rally. The patterns are still not confirmed, but I want to have a few shares of each just in case.
BTW, have you taken a look at the MWL lately? The cryptos and meme stocks are all back on the List telling me the kids on Reddit are active again. Will they never learn? One thing you should note is how the Basic Methodology performed during the recent rally. In case you forgot, the Methodology says that when the market timing signals on the cockpit turn Green, you start trading the top stocks on the MWL. The market timing signals turned Green on 20 July. The top stocks were MARA, RIOT, and COIN. If you followed the rules, you bought MARA at the open on 21 July at 11.76. Yesterday MARA closed at 16.30. COIN could have been purchased for 71. Yesterday COIN closed at 94.14. So, make sure you remember this the next time you see the market timing indicators on the cockpit turn positive.
Bottom Line: All I’m doing now is waiting for Red Arrows to appear on the major indexes. Red Arrows followed by a five-wave decline will be my signal to start getting short. Keep your eyes on the 4-hour charts.
That’s what I’m doing
h
Market Signals for
08-11-2022
DMI (DIA) | POS |
DMI (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | POS |
Index | Signal | Signal Date |
---|---|---|
DOW | POS | 27 Jul 2022 |
NASDAQ | POS | 10 Aug 2022 |
GOLD | POS | 01 Aug 2022 |
U.S. DOLLAR | NEG | 08 Aug 2022 |
BONDS | NEU | 08 Aug 2022 |
CRUDE OIL | NEU | 10 Aug 2022 |
CRYPTO | POS | 03 Aug 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