Professor’s Comments August 9, 2022
Posted by OMS at August 9th, 2022
Stocks rallied out of the gate yesterday, but after a half hour of trading, started to decline and gave up most or all of their gains by the close. The Dow finished with a gain of 77 points, closing at 32,932. It reached an intraday high of 33,109. The NASDAQ and S&P were down 13 and 5 points, respectively. Volume on the NYSE was moderate, coming in at 100 percent of its 10-day average. There were 38 new highs and 18 new lows.
Yesterday’s sharp rally from the last week’s sideways triangle pattern reached the earlier Wave 4 target level before pulling back. In earlier Comments, I discussed how earlier Wave 4 tops tend to function as stiff resistance to Wave 2 retracement moves and we saw that in spades yesterday. So now the earlier Wave 4 has been tested and rejected, the indexes should now start to move lower as Wave 3 down unfolds. BTW, yesterday’s failed rally was important from another perspective. Now, if the earlier Wave 4 high is breached, it means that something else is going on. 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.
On the other hand, from a wave count perspective, the retracement rally that started on 16 June can now be considered complete. Wave ‘C’ up of the rally consisted of five waves. It appeared to be the final leg up of a classic 5-3-5 pattern. The pattern was also classic from the perspective of the Principle of Alternation as Wave A was short in both length and time with Wave C being twice as long as Wave A in both length and time. So, the stage is set for Wave 3 down to begin. During the next few days, students should look for a five wave decline which will signal the trend has changed from up to down.
BTW, yesterday’s rally and pullback also formed a classic Shooting Star candlestick pattern often seen at or near significant tops.
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 still Green. IF they begin to turn Red and are confirmed with negative indicators, I’ll start getting short with a few inverse index ETFs.
The Sector Ratio strengthened to 18-6 positive after Monday’s session. The top five strong sectors were Autos (5), Retail (5), Cap Goods (3), Leisure (3) and Real Estate ((2). The top five weak sectors were Energy (-4), Media (-2), Material (-2), Semiconductors (0), and Banks (0).
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 30.9. Follow the Arrows!
In last week’s Comments, I mentioned that I was starting to follow gold and silver for potential trades off developing bottoms. Yesterday, gold (GLD) rallied to 166.81, closing at 166.69, up 1.4 points. The rally was close to where I projected wave ‘A’ up to end. If I’m correct about gold making a corrective A-B-C pattern for Wave 2 up, GLD should start a shallow decline during the next few days for Wave ‘B’ down, then rally in Wave ‘C’ up. The Wave ‘A’ rally off the 21 July low was a little over 9 points, so my target for the wave ‘C’ rally will be about 9 points higher than the Wave ‘B’ low. Because I believe gold is in a retracement pattern, I will be trading GLD and UGL on the shorter-term bars, like the 15s or 30s.
I will also be trading silver. Like gold, yesterday’s high appeared to complete 5-waves up of Wave ‘A’ up. If silver pulls back today or tomorrow, I’ll look for a shallow Wave ‘B’ retracement and then buy SLV on a Green Arrow on the shorter-term bars. The bottom for silver occurred on 14 July at 16.17, so yesterday’ s high makes for a 2.38-point stick. Not much, but I’ll take the trade if I get a good entry point near or below the 5 August low of 18.11. The reason is twofold: First, at 18.11 the odds are high for a retracement move to the earlier Wave 4 high near 20.59. Also, I could be wrong about the wave count and pattern for silver. It’s very possible that silver could be completing a yearlong flag pattern for Wave 4 and is getting ready to start a major Wave 5 up. If this is the case, silver could reach the 36-40 level in the next few months.
BTW, the same comments applies to gold. If gold is completing a year long Wave 2 retracement wave, the next rally in gold could be significant. It could take gold above the 2,500 + level for starters.
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
08-09-2022
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 | 27 Jul 2022 |
GOLD | POS | 01 Aug 2022 |
U.S. DOLLAR | NEG | 08 Aug 2022 |
BONDS | NEU | 08 Aug 2022 |
CRUDE OIL | NEG | 03 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