Professor’s Comments January 4, 2022
Posted by OMS at January 4th, 2022
All of the major indexes, except for the trannies, rallied on the first trading day of the year. The Dow finished with a gain of 247 points, closing at 36,585. The NASDAQ and S&P were up 188 and 30 points, respectively. The transportation average did not confirm the rally as it closed down 175 points. Volume on the NYSE picked up on Monday closing at 119 percent of its 10-day moving average. However, the breadth was a lot weaker than the price gain would suggest telling me that fewer stocks are lifting this market higher. There were 96 new highs and 29 new lows.
It still appears that the Dow, S&P, and NASDAQ are in the last stage of wave ‘C’ of a five-wave Ending Diagonal Pattern. Once this wave completes, the indexes should begin a three-wave decline into late January for Wave ‘D’ down. There is another Fibonacci turn date near the end of January, so stocks could use it to start final Wave ‘E’ up of the Bull Market. If this scenario plays out as described, a major decline could start sometime in February – March.
Anyhow, right now I’m starting to focus on the Wave ‘D’ decline. There was another small change of less than a point in the A-D oscillator yesterday. This means that we should look for a Big Move in the Dow within the next 1-2 days. Yesterday’s Big Move to the upside was the result of last Thursday’s small change signal. The coming Big Move could reverse yesterday’s large gain.
One reason I say this is because of yesterday’s low breadth. The NYSE A-D ratio was only 1.3:1. During the S&P’s 30-point rally, only 50.3 percent of the stocks in that index closed higher. That’s pretty amazing! Same for the volume which saw 10 billion shares change hands but only 67 percent of it was to the upside. Measures like these tell me that while the Dow could still push slightly higher and test last week’s intraday high of 36,679, the Wave ‘C’ rally should be nearing completion.
BTW, two of the three patterns I have for the Dow’s next major move suggest it should be down. My primary scenario is that the Dow is in Wave ‘C’ of an Ending Diagonal, so the next wave, Wave ‘D’, should be down. My scenario is that the Dow is forming an Expanding Diagonal. If this is the case, the Dow should rally to the test the 36,679 level and then fall. If the Dow continues to rise after testing 36,679, it means that the 20 December low of 34,666 was Wave 4 and that the Dow could be just starting another Ending Diagonal that could potentially take it another 1,500 points higher. I give this scenario a low probability of occurring at this time, mostly because of what I’m seeing with the breadth, small-cap issues, and the trannies. But as long as the indicators remain positive, this scenario MUST be considered.
A break below the 20 December low of 34,666 would nullify all the Bullish scenarios and suggest that Wave 3 down is underway.
The Dean’s List and The Tide remain positive.
The Market Timing Indicators for the Dow, NASDAQ, and S&P are positive.
The Scalp Trading Indicators for the Dow, NASDAQ, and S&P are positive.
The Sector Ratio strengthened to 18-6 positive after Monday’s session. The top five strong sectors were Semiconductors (5), Technology (4), Household Products (3), Autos (3), and Healthcare (3). The top five weak sectors were Energy (-2), Insurance (-1), Cap Goods (-1), Financial (0), and Banks (0).
Bonds appear to have completed their wave ‘D’ decline yesterday. If this is the case, bonds should make one smaller rally before the triangle for Wave 4 competes. After that, TBT, the inverse bond ETF, could be a nice place to be when interest rates start to rise as bond prices decline. Be patient and wait for the Wave 4 triangle to complete.
Gold (GLD) fell 2.63 points yesterday to 168.33. The decline formed an outside candlestick pattern which likely means that Wave 2 up is complete. If I’m right about this, gold should now begin to move significantly lower. A re-test of the 9 August low of 1,693 could be in the cards, especially if the metal breaks below 1,756. Yesterday, gold closed at 1,802.
My strategy for the next few days: I’m still waiting for the 4-hour bars on TZA to turn positive. Yesterday, IWM the ETF for the Russell 2K, made a big pop early, but pulled back during the rest of the day. The initial rise and subsequent pullback appeared to be part of the final waves of retracement Wave 2 up. I’m seeing significant negative divergence in momentum on both the 1 and 4-hour bars of IWM which tells me that a major turn could be next. Yesterday’s pop to 226.69 could have been the end of Wave 2 up. If so, it should lead to a new Green Arrow on the 4-hour chart of TZA where I’ll be looking to buy the inverse ETFs. TZA is my ‘Doctor Trade’, something I hope will enable them to spend more time with patients in this time of Covid, and still be able to generate significant gains. I want to do everything I can to help our Docs so they can help us stay healthy. That’s why I’m watching TZA for a Buy Signal.
I’m also watching the cryptos. GBTC, the ETF for Bitcoin, has been quietly forming a bottom. The two major cryptocurrencies, Bitcoin and Ethereum, have been range bound for almost an entire month. Bitcoin support is at 42,000 with 52,000 being upper resistance. Ethereum has support at 3,500 and resistance at 4,200. If these upper resistance levels are broken, both cryptocurrencies should begin to move significantly higher. When they do, look for MARA and RIOT to re-appear at the top of the MWL.
That’s what I’m doing,
h
Market Signals for
01-04-2022
DMI (DIA) | POS |
DMI (QQQ) | POS |
A/D OSC | SM CHG |
DEANs LIST | POS |
THE TIDE | POS |
Index | Signal | Signal Date |
---|---|---|
DOW | NEU | 30 Dec 2021 |
NASDAQ | NEU | 30 Dec 2021 |
GOLD | NEU | 03 Jan 2022 |
U.S. DOLLAR | NEG | 23 Dec 2021 |
BONDS | NEG | 03 Jan 2022 |
CRUDE OIL | POS | 23 Dec 2021 |
CRYPTO | NEU | 23 Dec 2021 |
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