Professor’s Comments August 23, 2022
Posted by OMS at August 23rd, 2022
Stocks fell hard yesterday in their worst day since June. The Dow finished with a loss of 642 points, closing at 33,063. The NASDAQ and S&P were down 324 and 90 points, respectively. Volume on the NYST was moderate, coming in at 95 percent of its 10-day average. There were 20 new highs and 88 new lows. Downside volume was over 83 percent of the total volume on the NYSE. The ratio of declining vs. advancing stocks was 5.07 :1, the second day of strong declining breadth (Friday was 6.32:1 ) suggesting that Wave 3 down could be starting.
Yesterday’s decline completed a five-wave sequence that started at Friday’s open. The sequence is clearly visible on a 3-day, 12-minute chart of DIA. The decline is likely sub-wave 1 of wave 1 of Wave 3 down. If this is the case, the Dow should make a small a-b-c retracement today, maybe 100-150 points, or enough to put a small ‘Blade’ on the ‘Stick’ that has developed since Friday morning. This ‘Stick’ is about 900 Dow points, so wherever sub-wave 2 ends, probably later today or tomorrow, my first downside target will be a minimum of 900 points from were sub-wave 2 up ends. If sub-wave 2 up retraces to the 33,250 level, where mini-wave 4 down ended, it would put the Hockey Stick Target near 32,350. To get there, the Dow must first close the gap from the 9 August close near 32,700 – 32,750, which is my next short-term target.
My next short-term downside target for the S&P is near the 4115 level. This level is where the gap from 9 August is located and is also an earlier wave 4. Once 4115 is broken, the next series of waves should lead to significantly lower prices. I don’t have targets for these now.
BTW, If you recall, I had been using a downside target for Wave 3 down on the Dow near the 26,500 to 28,000 level. But after looking at the past month of Wave 2 rally, I must consider a new possibility for Wave 3 down as it now now has the potential to decline to the 24,000 to 25,000 level. Yeah, I know this sounds crazy! But it was crazy to predict the Dow would turn on 16 August using two Fibonacci numbers. Here’s the thing: the next major Fibonacci turn date is scheduled for late September. So IF the Fibs hold, we could see a significant decline into late September. The decline could be 6,000 to 9,000 points from current levels. This too sounds crazy, as it would be the largest one month decline ever. At this point, I’m only giving the 24,000 level a 20 percent chance vs 75-80 percent for the 28,000 level. But still, a 20 percent chance is still something we need to pay attention to. I’ll discuss the reasons why I believe this potential lower target could be reached in tonight’s class.
The Market Timing Indicators on the Dow, S&P, and Russell have turned neutral joining NASDAQ. Last night, AIQ’s intelligence algorithm generated preliminary Sell Signals on all the major indexes. These signals must be confirmed by a shift in momentum, which has not happened yet. So, the signals from AIQ are still neutral.
As I mentioned in the WSR, all four of the major indexes have Red Arrows on their daily charts. These Red Arrow Sell Signals were confirmed by yesterday’s downside action in the Scalp Trading volume and momentum indicators. This would be a good time to look at how the major indexes are transitioning from Wave 2 up to Wave 3 down on the Daily Charts of ThinkorSwim.
The Dean’s List is still positive. However, the Tide has turned negative.
I went fishing at the jetties early yesterday morning but still managed to have a cigar day trading the afternoon session. I started with the Red Arrow at 12:06 on the 3-day, 12 min chart of IWM. If you pull up the chart, you can see exactly what I did. The trade was re-enforced by my new Trend Indicator, which went negative at the same time the Red Arrow appeared. Nice! So, with IWM turning negative and trending, I bought a full position in TZA and rode it. Easy! I did the same thing with SDOW and SPXU. I’ll be showing my new trend indicator after the market closes today in my Update Class. It makes trading and position sizing soooo easy. Do not miss this Class!
The Sector Ratio stayed at 17-7 positive after yesterday’s session. The top five strong sectors were Autos (5), Retail (3), Real Estate (3), Cap Goods (2) and Household Products (2). The top five weak sectors were Energy (-1), Semiconductors (-1), Material (-1), Media (0), and Consumer Products (0).
I’m still not doing anything with gold, silver, bonds or crypto now. If Wave 3 down on the indexes is starting, that’s where I wasn’t to be. When you have a choice between unclear patterns, like the patterns on gold and silver, and a potential Wave 3 down, choose the Wave 3 down. That’s the money wave!
The Doctor’s Trade in TZA is now up 16 percent since generating a Green Arrow on 17 August. Yesterday’s close was 31.57. My next target for TZA is the 37-38 level, where resistance from the 200-period moving average and from an earlier fourth wave comes in.
Bottom Line: With confirmed Green Arrows on the 4-hour bars of TZA, SDOW, SQQQ, SPXU and the inverse advanced technology ETF, SARK, I’m looking to add to the positions I established last week on any rally. With a possible sub-wave 3 down on the immediate horizon, I’m looking to move toward the 50 percent short level. I won’t go above 50 percent until the Bias turns positive. When it does, I’ll be adding to my inverse positions on any Green Arrow, just like I do when I’m trading the shorter-term bars.
BTW, don’t forget about SARK. It just behaves so nicely on the 12s. The bias has been positive for the past three days. So, it’s just a matter of getting in on the Greens, out on the Reds. Go fishing in the morning, trade a few shares in the afternoon, then smoke a nice cigar and drink some bourbon. Not a bad way for an old geezer to spend the day :>)
That’s what I’m doing
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Class tonight. Students who took the Arrows Class can register by going to the market 101 web site. (www.themarket101.com)
Market Signals for
08-23-2022
DMI (DIA) | POS |
DMI (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | NEG |
Index | Signal | Signal Date |
---|---|---|
DOW | NEU | 22 Aug 2022 |
NASDAQ | NEU | 17 Aug 2022 |
GOLD | NEG | 19 Aug 2022 |
U.S. DOLLAR | POS | 16 Aug 2022 |
BONDS | NEG | 11 Aug 2022 |
CRUDE OIL | NEU | 22 Aug 2022 |
CRYPTO | NEG | 19 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