Professor’s Comments February 8, 2022
Posted by OMS at February 8th, 2022
After an early decline, the markets began a strong intraday rally only to see a late decline into the close. The intraday action was very similar to what we saw on Friday, where the institutions sold into the closing bell. This late institutional selling is typical of what happens during the early stages of a Bear Market. The uninformed buy early in the day; the big boys sell late.
The intraday rallies and declines were good for well over 1,000 Dow points. They were the BIG Move predicted by Friday’s small change signal in the A-D oscillator and made for some nice scalp trades.
The Dow finished with a loss of 2 points, closing at 35,091. The NASDAQ and S&P were down 82 and 17 points, respectively. Volume on the NYSE was light. Coming in at 87 percent of its 10-day average. There were 53 new highs and 199 new lows.
OK, so where are we? Yesterday’s decline was likely part of corrective sub-wave ‘b’ within an a-b-c move for final wave ‘E’ up within the large Rising Wedge or Ending Diagonal Pattern. If this is the case, final wave ‘E’ up should truncate and end below the early January high. Once Wave ‘E’ up completes, the market should begin to crash.
If the Dow starts top trade lower and falls below the 24 January low of 33, 150, it will confirm that the final top is in. Otherwise, indexes will likely continue to chop higher within the Ending Diagonal as the final waves of the pattern play out.
BTW, If the Dow is not tracing out the final waves of an Ending Diagonal, then it’s likely in a complex wave 2 retracement within Wave 3 down. If this is the case, the 2 February high of 36,679 should remain intact. So, the area around 36,675 should be watched closely for a possible reversal. If the Dow moves above this level, its likely that the ED scenario is underway. In this case, the Dow could rise several hundred points higher, possibly to the 35,800+ level.
The Russell 2K appears to be in a more advanced stage of decline than its sister indexes. It topped back in early November 2021 and now appears to be in wave 4 up of Major Wave 1 down. The past few days of decline in the RUT appear to be sub-wave ‘b’ down of an a-b-c pattern for wave 4. If this is the case, IWM, the ETF I use as a surrogate for the RUT, could trade to the 203-203.9 level before the next decline, wave 5 down, drops IWM down to the 183 level. Yesterday IWM closed at 199.36.
After Monday’s action, the Dean’s List is negative. The Tide remains neutral.
The Market Timing Indicators for the Dow and S&P are neutral. The same indicators for the NASDAQ remain negative.
The Scalp Trading Indicators for the Dow and S&P are neutral. The same indicators for the NASDAQ remain negative.
The Sector Ratio strengthened to 12-13 negative after Monday’s session. The top five strong sectors were Energy (6), Banks (3), Foods (2), Food Drugs (2), and Leisure (2). The top five weak sectors were Semiconductors (-4), Retail (-2), Service (-2), Cap Goods (-2), and Autos (-2). Most of the remaining sectors are also very weak with RS rankings of -2s and -1s.
Cryptos: Bitcoin broke back above the psychology important 40,000 level last week turning its cockpit indicator neutral. The ETF also generated a confirmed Green Arrow on the 4-hour chart of GBTC. So yesterday, GBTC was up 2.61 points to 30.51. Watch the Arrows, especially after a change in the cockpit indicators. They usually make for nice day trades just as the 4-hour bars make for nice position trades.
Gold & Bonds: I still don’t have much to say about bonds or gold. I’m still on the side-lines with these vehicles for now. Gold still appears to be completing a retracement wave 2 up. If I’m right about this, gold should start falling within the next day or so. If the market timing indicator for gold on the cockpit turns negative, I’ll start shorting the metal.
For today: Because I’m getting mixed signals from the patterns and the bias (the two tells I mentioned in the WSR), I will be mostly looking for a few intraday scalps on the shorter-term bars. Yesterday I had a lot of fun trading TZA and TNA on the 5 min bars. If you want to see a thing of beauty, just look at yesterday’s 5 min chart of IWM, especially the last three trades highlighted by the Arrows. The Green Arrow just after the open put me into TNA which I rode until the Red Arrow took me out at 10:10. I then avoided the next Green Arrow because the momentum was waning, then took the next Red Arrow (buying TZA) at the 11:30 mark. I exited the trade at 11:55 when the Green Bar appeared and went long TNA on the Green Arrow at 12:15. I continued to trade the colored bars and arrows into the close. It made for a great day! Again, given the uncertainty I continue to see in the patterns and tells, I believe the best strategy for the next few days is to follow the arrows and scalp trade.
Remember, the market is likely still in a retracement mode, so smaller positions and quick exits, based on the arrows and colors, are the order of the day.
That’s what I’m doing,
h
Market Signals for
02-08-2022
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEG |
THE TIDE | NEU |
Index | Signal | Signal Date |
---|---|---|
DOW | NEU | 07 Feb 2022 |
NASDAQ | NEU | 07 Feb 2022 |
GOLD | POS | 07 Feb 2022 |
U.S. DOLLAR | NEG | 26 Jan 2022 |
BONDS | NEG | 18 Jan 2022 |
CRUDE OIL | POS | 23 Dec 2021 |
CRYPTO | POS | 07 Feb 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