Professor’s Comments – Fed Day 7/27/2022

Posted by OMS  at July 27th, 2022

Stocks fell hard yesterday on increasing volume.  The Dow finished with a loss of 229 points, closing at 31,761.  The NASDAQ and S&P were down 220 and 46 points, respectively.

Today is another Fed Announcement Day. Look for the usual steady to higher prices going into 10-11 am time period before traders move to the side lines to wait for the 2pm announcement.  I’m expecting the Fed to raise short-term interest rates another 0.75 percent.

Friday’s high of 32,219 on the Dow and 4,012 on the S&P remain as possible tops. As long as these highs are not exceeded, there’s a good chance that Wave ‘C’ up of Wave 2 up has topped. A rise above Friday’s high would mean that Wave ‘C’ up is still not complete. It would mean that yesterday’s decline was likely sub-wave 4 down of Wave ‘C’ up leaving one more rally wave to go before the final top is in. If this happens, the S&P could carry to the 4100 to 4300 level into mid-August.

The S&P has been forming a small Head & Shoulders Pattern during the past 5 trading days.  The downside target of this pattern is the 3,800 level.  So far, the S&P has still not broken below its 18 July high of 3,902.44 (SPY 389.09). Yesterday’s low of 3,910.74, came close, but because the 18 July high was not violated, there is still a possibility that the recent decline is still part of sub-wave 4 down of Wave ‘C’ up.  A move below 3,909.44 will eliminate the sub-wave 4/5 scenario.

So for today, the key numbers to watch after the Fed announcement are 4,012 on the upside and 3,902 on the downside. An upside break of 4,012 will tell me that Wave 2 up is still not complete, and we’re likely headed to 4,200-4,300.  A break below 3,902 will mean that Wave 3 down is starting, and the overall market is headed a lot lower.

BTW, I had another nice day yesterday (a one cigar day) trading TZA, SQQO, and SPXU.  I used the 9 min bars to eliminate some of the noise I was seeing on the shorter-term bars. Also, because the Bias was positive on TZA all day on the 9’s, all I had to do was buy on every Green Arrow and get out on the Reds.  Pretty easy!

Because of the positive Fed Day bias, I got out of all my inverse trades at the close.

All I’m doing today is waiting for the Fed announcement. I’ll be watching the levels I mentioned above after that.

h

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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