Professor’s Comments February 10, 2022

Posted by OMS  at February 10th, 2022

The major indexes rose yesterday, continuing the wave ‘c’ rally of Wave ‘E’ up within the large Rising Wedge Pattern we have been tracking. The Dow finished with a gain of 306 points, closing at 35,768.  The NASDAQ and S&P were up 295 and 66 points, respectively.  Volume on the NYSE was moderate, coming in at 95 percent of its 10-day average.  There were 91 new highs and 148 new lows.

When February started, I said that the month would likely see higher prices. The Dow is now almost 400 points higher than where it was in early February.  It’s now clear that the 24 January low of 33,150 was the completion of Wave “D’ down within the Wedge Pattern and the current rally is part of sub-wave ‘c’ up of Wave ‘E’ up.  Once this wave competes, the next sequence of waves should be crash like.

However, before the crash begins, we need to think about where wave ‘c’ up will likely end.  The real answer is nobody knows.  Remember, at its heart, the current rally is still a retracement wave, and nobody…and I mean nobody can tell for sure where a retracement wave will end.  However, because Wave ‘D’ down was deep, dropping the Dow from a high of 36.962 to 33,150, the odds are high that retracement Wave ‘E’ up will likely truncate.  My best guess is that it will fill the gap near the 36,110 level or possibly the higher gap from the 13 January close near 36,140.  Both of these gaps are potential stopping areas for ‘closing the window’.  Yesterday’s close was between 342 and about 372 points from the two gaps.  Given that we have seen 300+ point moves on a regular basis recently, those gaps could be filled in a day or take several days to fill.  My point is that we need to be on our toes.

As you know, I have been using a level just shy of 204 as my target for IWM, the tracking ETF for the Russell 2K.  Yesterday, IWM got as high as 206.65. The ETF is in a different pattern than major indexes, as it appears to be completing sub-wave 4 of Wave 1 down. Once this sub-wave completes, IWM should begin sub-wave 5 down which should drop it close to the 183 level.

One of the reasons I continue to favor trading the Russell to the short side over its sister indexes is because it is already in a downtrend.  The 50 is currently well below the 200 day moving average which is the definition of a stock being in a downtrend.  Right now, the 50 is currently located at the 211 level, which should provide strong resistance to any move higher.

My plan for the next day or so is to simply watch the Dow, NASDAQ and S&P from the sidelines and see how they react as they try to push higher.  But as I watch the other indexes, I’ll be paying close attention to the Russell, looking for signs that the rally has exhausted itself.  The thing I’ll be watching for is a momentum shift.  For the past week or so, the 4-hour momentum on all the major indexes has been positive.  It’s tough to get anything going to the short side when the momentum indicators are positive.  But with the longer-term momentum indicators still being negative, I still must believe that once the current rally completes, the next major move will be down. All I’m doing now is waiting for a change in the Arrows on the 4-hour bars to start buying TZA.  I’m patient.

After the RUT, my next favorite index to short is the NASDAQ-100 or QQQ.  Here, I’ll be using SQQQ (buying long) as the trading vehicle. Like the RUT, the NASDAQ-100 appears to be completing sub-wave 4 up of a five-wave down sequence.  Wave ‘a’ down of sub-wave 4 on SQQQ ended at the 35.22 level, so wave ‘c’ down should end near or below that level.  If a Green Arrow appears on the 4-hour bars after a small pullback, I’ll look to buy a few shares.

After Wednesday’s action, the Dean’s List is negative.  The Tide is still neutral.

The Market Timing Indicators for the Dow, S&P are NASDAQ have turned positive.

The Scalp Trading Indicators for the Dow, S&P, and NASDAQ are positive.

The Sector Ratio strengthened to 23-1 positive after Wednesday’s session. The top five strong sectors were Energy (9), Leisure (7), Banks (6), Media (6), and Material (5). The only weak sector was Household Products (-1). 

Cryptos: Bitcoin continued to hold above the psychology important 40,000 level yesterday. Its next major challenge will be a move above 44,000 and hold that level.   Since GBTC generated a Green Arrow on its 4-hour bar, the ETF is now up over 6.66 points.  Like I always say, watch the Arrows, especially after a change in the cockpit indicators.

Caution:  The markets are still in a retracement mode as they push higher. The current rally could end at any time now. Smaller positions and quick exits, based on the arrows and colors continue to be the order of the day.

That’s what I’m doing,

h

Market Signals for

02-10-2022

Not sure of the terminology we use? Check out these articles

The Hockey Stick Pattern
The Creation of Waves and Trends
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