Professor’s Comments February 15, 2022
Posted by OMS at February 15th, 2022
Stocks fell hard again yesterday but had two intraday bounces that may have marked a short-term bottom. The Dow finished with a loss of 172 points, closing at 34,566. The NASDAQ and S&P were off 1 and 17 points, respectively. Volume on the NYSE was moderate, coming in at 114 percent of its 10-day average. There were 67 new highs and 375 new lows.
The five-wave decline that started on 9 February into yesterday’s low appears to be Wave 1 down. If this is the case, the indexes should start a Wave 2 retracement within the next day or so. My target for the retracement on the Dow is near the 34,900 level, possibly to 35,000. This would be a .382 retracement of Wave 1 down. I will start looking to short the market from that level as once Wave 2 up completes, as Wave 3 down should drop the indexes to new lows.
My wave 2 up targets for the S&P and NASDAQ are near 4,450 and 14,500. The retracements on these indexes should be an a-b-c affair, so don’t be faked out on the first rally. There’s likely a second one coming after a small ‘b’ wave decline.
The Russell is a bit more complicated. It too will likely rally, but it will probably the be completion of retracement wave 4. I don’t expect IWM will trade higher than the 204-205 level before selling resumes. The next leg down, wave 5 of Wave 1 down should drop IWM down to my current target near 183.
Here’s the deal with the Russell: After Wave 1 down completes on IWM, probably near 183, the ETF should rally back to current levels, possibly to 207-208. Then once Wave 2 completes, a massive Wave 3 down should follow. The first support for this wave comes in neat 160, with stronger support between 140 -150. This is the reason I believe students should start learning how to trade TZA. It could be an extremely profitable trading vehicle in the months ahead, during wave 5 down and again once Wave 2 up completes.
Yesterday was another big payday for me trading TZA and SQQQ on the 5 min bars. I took the early trade on TZA for a small gain when the momentum bias turned positive, but the Green Arrow at 12:55 was the big winner. The trade produced a profit of 1.20 points.
I had to wait all morning for the trade on SQQQ to get going, but it too lit up at 12:55. I entered the trade at 40.47 and exited on the first red bar at 42.47 for a gain of 2 points. The two trades produced a nice cigar day.
I plan to do the same thing today, only this time looking for possible trades to the upside with TNA and TQQQ. BTW, you will need to exercise caution on these counter trend trades, because depending on how IWM opens, there might not be a lot of juice to squeeze from the long lemons. I’d much rather trade the short side with IWM, so I’ll need to exercise patience and wait for Red Arrows to appear.
One of the ETFs I started to watch has to do with Kathy Wood’s ARC Fund. As many of you know, I have been a fan of Kathy, especially with her picks in new sectors of technology. She flat out shines at doing this. But while she’s on top of technology, I can’t say the same for her money management skills. In 2020, her ARK Innovation Fund (AARK) was the talk of Wall Street going from a low of 33 to a high of 159. She got everyone’s attention. But since then, all the fund has done is decline. AARK is now trading at less than half of its 2021 high at 71.91 and people are starting to wonder if Kathy can manage a large fund. I still like Kathy a lot for her skill at picking new technology companies, but to tell the truth, I’m not sure how these new companies will do in a Bear Market. Actually, I believe they’re going to get hammered. Because of this, I’m starting to look for an opportunity to buy shares of SARK, an ETF that short’s Kathy’s stocks. That opportunity could come today. I’ll look to buy SARK below 45 with a short-term target of 53. Beyond that, 60+ is possible as an intermediate-term target in May-June.
After Monday’s action, the Dean’s List and The Tide are negative
The Market Timing Indicators for the Dow, S&P are NASDAQ remain negative.
The Scalp Trading Indicators for the Dow, S&P, and NASDAQ are also negative.
The Sector Ratio weakened to 11-13 negative yesterday. The top five strong sectors were Energy (5), Media (4), Banks (4), Material (3) and Food (2). The top five weak sectors were Semiconductors (-3), Autos (-3), Retail (-3), Service (-2), and Cap Goods (-2).
Gold: Gold spiked higher to 1,874 yesterday. The move was not confirmed by new highs in the other precious metals, particularly silver. So, if gold begins to pull back today, it could mean that yesterday’s high was a retracement wave 2 up. Old us still below last year’s November high of 1,877, and until this high is taken out, I MUST still view the recent rally as a retracement wave. I’m on the side-lines for now.
Cryptos: With GBTC now on a Red Arrow on the 4-hour bars, I can’t get excited about the cryptos. I see much better opportunities in inverse index ETFs, especially if the indexes rally during the next few days.
What I’ll be doing today. I still believe it’s about inverse index ETFs now. There’s good chance that a crash wave (wave 3 or 5 of Wave 3 down, depending on the index) could begin later this week. The momentum bias is still negative, and I don’t see any reason, except for an occasional scalp, to trade the long side. I’ll be looking for opportunities to establish inverse positions in TZA, SQQQ, and now SARK. SDOW and SPXU are also candidates.
That’s what I’m doing.
h
Market Signals for
02-15-2022
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEG |
THE TIDE | NEG |
Index | Signal | Signal Date |
---|---|---|
DOW | NEG | 11 Feb 2022 |
NASDAQ | NEG | 11 Feb 2022 |
GOLD | POS | 07 Feb 2022 |
U.S. DOLLAR | NEG | 26 Jan 2022 |
BONDS | NEG | 11 Feb 2022 |
CRUDE OIL | POS | 23 Dec 2021 |
CRYPTO | NEU | 14 Feb 2022 |
Not sure of the terminology we use? Check out these articles
The Hockey Stick Pattern
The Creation of Waves and Trends
FAQ
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Category: Professor's Comments