Professor’s Comments December 16, 2021

Posted by OMS  at December 16th, 2021

Yesterday, the Fed announced a revised ‘tapering ‘program that would last for the next three months.  It said it will buy $90 billion of stocks and mortgage backed securities this month, $60 billion more in January and then another $30 billion in February before stopping.  It also said it would keep interest rates near zero until March 2022, then raise them 8 times over the next three years, a quarter percent at a time, with three increases next year. Basically, the Fed said, ‘the heck with inflation, we’ll just give Wall Street a smaller punch bowl to keep the party going a little longer.”

The news sparked a strong turn around rally that was fueled by short covering. The Dow finished with a gain of 385 points, closing at 35,927.  The NASDAQ and S&P finished with gains of 328 and 75 points, respectively.  Volume on the NYSE was moderate, coming in at 108 percent of its 10-day moving average.  There were 69 new highs and 230 new lows.

Yesterday’s late rally caused a change to the wave count.  Before the rally, it appeared that last Friday’s high of 35,927 in the Dow could have been the completion of Wave 2 up.  However, because the subsequent decline off that high into yesterday’s low was not impulsive, it left open the possibility that Wave 2 up was not complete.  After yesterday’s late rally, it now appears that last Friday’s high was wave ‘a’ of Wave 2 with yesterday’s early decline to 35,389 being wave ‘b’ down.  This means the late rally after the Fed announcement was the start of wave ‘c’ up.  If this analysis is correct, it means that Wave 2 up could re-test the 8 November high of 36,567 before it completes, probably within the next few days.

Wave 2s, it it’s a wave 2, can not exceed the precious high, so I’m going to use 36,200-36,300 as my target.

If it turns out that Wave 5 up us not finished, the Dow could make a series of a-b-c d-e moves within a rising wedge pattern and complete above the 36,800 level.  In this alternate scenario, yesterday’s late rally was part of wave ‘c’ up. This rally could also carry to the 36,600 level on this leg up, then drop to about 35,000 in wave ‘d’ before rising to 36,800+ to complete the wedge pattern.

In either scenario, the Dow should rise another 300 points during the next few days.

It would take a decline below 35,390 to void these scenarios.

TZA Trade using the new Arrows System: The Safety Valve took us out of the trade in TZA yesterday at 30.76 with a 1.30 point gain for the day.  During yesterday’s late rally, TZA generated a Red Arrow, so now I’m sitting on the sidelines with a 60 percent return.  Because I don’t plan to trade the Russell to the upside, I’ll have to wait for the next Green Arrow to appear on TZA before re-entering the trade. 

My data provider did not update all the stocks in the data base last night, so my algorithms were unable to update the sector lists.

I have an early dentist appointment this morning and hopefully will be back at the trading desk by 8:30.  If I see anything that changes the above analysis, I’ll post more Comments later.

That’s what I’m doing,

h

Market Signals for

12-16-2021

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.