Professor’s Comments December 14, 2021
Posted by OMS at December 14th, 2021
Stocks were lower yesterday with increased selling into the close. The Dow finished with a loss of 320 points, closing at 35,650. The NASDAQ and S&P were down 217 and 43 points, respectively. Volume on the NYSE was moderate, coming in at 94 percent of its 10-day moving average. There were 89 new highs and 120 new lows. Students should note how new lows are now outpacing new highs.
Yesterday’s decline in the Dow erased all the gains of the past four days. However, even though the decline was large from a point perspective, I’m having trouble calling it impulsive. The early decline was impulsive, but once it finished, it was followed by a retracement rally that could have been a sub-wave 4. The wave picture looks clearer when you look at a 5 min chart of the DIA that includes after-hour data. Anyhow, IF yesterday’s early decline and late rally were sub-waves 3 down and 4 up of wave 1 of Wave 3 down, the Dow should have another wave lower, possibly later today, to complete wave 1 down. The decline should exceed yesterday’s low of 35,609.
At this point, it’s EXTREMELY early in the turning process to tell if Wave 2 up has completed and Wave 3 down is underway. The only thing we know for sure is that Wave 2 up in the Dow retraced close to 0.786 of Wave 1 down, which is a ‘normal’ Fibonacci retracement level, so Wave 2 up could be complete. The other thing we know is that yesterday’s breadth on the NYSE was significant, as more than 2.3 stocks declined for every one that advanced. This is also something that is characteristic in the early waves of a Wave 3 down. BTW, this negative breadth could be setting the stage for Wednesday’s 2 pm Fed announcement. Given the rise in inflation data we’ve seen recently, if the Fed announces an acceleration in its ‘tapering’ policy, the markets could be in for some tough sledding. I’d be very cautious with my trading going into Wednesday’s announcement. Same for any foreign interest rate-related issues as the Bank of England and the ECB are scheduled to make major statements on interest rates on Thursday. These announcements could have a significant impact on the equity markets.
I’m still watching for signs that retracement Wave 2 up has topped. Specifically, I’m still looking for impulsive action to the downside. Any impulsive downside action should be accompanied by Red Arrows. So far, I only have confirmed Red Arrows on the 4-hour bars of the Russell 2k (IWM). The Red Arrows on the 4-hour bars of the Dow (DIA), SPY, and QQQ are not confirmed…yet. BTW, our trade on TZA, the inverse Russell ETF, was up another 1.22 points yesterday putting the total gain at 51 percent for the 19-day old trade. All I’m doing is following the Arrows! Still don’t have the arrows? What can I tell ya?
The Market Timing Indicators on the Dow (DIA) have turned Negative. The same indicators on the S&P (SPY), and NASDAQ (QQQ) have turned Neutral.
The Scalp Trading Indicators for the Dow (DIA) and S&P (SPY), and NASDAQ (QQQ) are Neutral.
The Dean’s List is still Neutral. The Tide stays Negative.
The Sector Ratio weakener to 14-10 Positive after Monday’s session. The top five strong sectors were Semiconductors (5), Service (4), Autos (3), Household Products (3), and Food Drug (2).
The top five weak sectors were Media (-3), Leisure -(2), Cap Goods (-2), Energy (-2), and Cap Goods (-2).
My strategy for the next few days: I’m watching to see if there is downside follow-through early today. If so, it could set-up a short-term rally into tomorrow’s Fed meeting. The rally could be a sub-wave 2, setting up a wave 3 decline after the announcement. If the trading action begins to look impulsive, watch for the Red Arrows on the 4-hour charts to get confirmed. Given the success of my Arrow trade on TZA, I will start to add to my current trial positions in SDOW, SPXU, and SQQQ. But I MUST see confirmed Red Arrows.
BTW, I don’t expect much to happen today as most traders will likely be on the side-lines waiting for tomorrow’s Fed announcement. Also, remember that there is usually a Bullish bias going into tomorrow’s announcement so use caution on holding any short-term scalp trades overnight. We could see a lot of volatility during the next 2-3 days.
Gold appears to have completed a five-wave decline last week and is making a sideways rally. If the rally starts to get legs to the upside, it could carry to the 1,815 level, possibly higher. If gold doesn’t rally from here, there is a danger that the recent sideways action is the ‘Blade’ of an inverse Hockey Stick Pattern. If this is the case, the metal is setting up for another leg down. Right now, my daily Market Timing Signals on gold are Neutral. However, the 4-hour bars on GLD are on a confirmed Green Arrow.
The key to a long trade in gold here may involve silver. Right now, SLV, the ETF I use to trade silver is on an unconfirmed Green Arrow on the 4-hour chart. If the arrow is confirmed, silver could begin to rally taking gold with it. A potential target for SLV is the 22 November ‘gap’ between 21.93 and 22.30. Yesterday. SLV closed at 20.61. My target for spot gold on any rally is near the 1,815 level. Yesterday gold closed at 1,787.
I’m also on the side-lines with cryptos. With all the news on inflation, one would think the cryptos, like Bitcoin, would be doing well. But the opposite has been true. This is somewhat surprising to me as, since its inception, Bitcoin has always been perceived as a hedge against inflation. But for the past few weeks, it has performed more like an equity. It should be interesting to see what happens after tomorrow’s Fed meeting, especially if the Fed decides to speed up their tapering plans.
Mostly watching.
That’s what I’m doing
h
BTW, I still have one open spot for a Consulting Session this weekend. Special rate is $125. With the Bear market approaching, if you have any questions about how to use the ‘Arrows’, or on anything else related to the methodology, just sign up for a session. So far, the feedback I have received from doing these one-on-one sessions has been fantastic! Give yourself a Christmas present and get prepared for the New Year.
Market Signals for
12-14-2021
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEU |
THE TIDE | NEG |
Index | Signal | Signal Date |
---|---|---|
DOW | NEG | 13 Dec 2021 |
NASDAQ | NEU | 13 Dec 2021 |
GOLD | NEU | 13 Dec 2021 |
U.S. DOLLAR | POS | 19 Nov 2021 |
BONDS | POS | 13 Dec 2021 |
CRUDE OIL | NEG | 29 Nov 2021 |
CRYPTO | NEG | 25 Nov 2021 |
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