Professor’s Comments July 12, 2022

Posted by OMS  at July 12th, 2022

Stocks fell yesterday on another day of light trading volume.  The Dow finished with a loss of 165 points, closing at 31,173. The NASDAQ and S&P were down 263 and 45 points, respectively. Volume on the NYSE was only 81 percent of its 10-day moving average. There were 5 new highs and 132 new lows.

As I discussed in the WSR, it’s possible that the indexes topped on Friday and have started Wave 3 down. The opening decline in the NASDAQ was impulsive and after being checked after a half hour of trading, the index started an a-b-c retracement move into the 2pm hour. The a-b-c rally was accompanied by a negative advance-decline ratio that led to a steady decline into the close.  The pattern was suggestive of sub-waves 1 down and 2 up, and the start of sub-wave 3 down of wave 1 down.  If this is the case, the decline should continue into today to form the five sub-waves needed for wave 1 of Wave 3 down.

Students should remember that the market is approaching a major Fibonacci turn window scheduled between 15-20 July.  The individual indexes could start to turn as early as 1-2 days before the window. The recent low volume we have been seeing is a sign of a tired market. This typically happens as the market approaches its top. Once the top is in, volume should start to increase as Wave 3 down matures. Students should be extremely mindful of any impulsive decline in the days ahead.  An impulsive decline now would likely signal the start of Wave 3 down.  This wave should remove several thousand points from the Dow. It should be the heart of the Bear Market decline. 

I’m still using a downside target range between 26,500 to 28,000, with 25,000 possible.  The 30,000 level is still the key support level for the Dow.  A move below the 17 June low of 29,653 would confirm that Wave 3 down is underway. 

The alternative to the likelihood that Wave 3 down is starting is that that the decline since last Friday’s high is part of a sub-wave 4 within wave ‘c’ up of Wave 2 up.  However, after seeing yesterday’s weak breadth numbers, I don’t believe that the Bulls have a lot hang on to. I wouldn’t if I were in their camp.

The Dean’s List is still negative. The Tide has turned neural.  At this point, only one of the four breadth indicators that make up The Tide, the hi-low indicator, is negative. This should change once the downside momentum in the market begins to increase.

The Market Timing Indicators on the Dow, S&P (SPY), and Russell 2K are negative.  The NASDAQ is neutral. 

The Scalp Trading Indicators on the Dow have turned neutral.  The same indicators on the S&P (SPY), QQQ, and RUT are still positive.

The Sector Ratio weakened to 6-18 negative. The top five strong sector are Telecoms (3), PharmaBio (3), Household Products (1), Utilities (0) and Cap Goods (0). The top five weak sectors are Retail (-6), Media (-5), Material (-4), Semiconductors (-4) and Autos (-3). Continue to avoid these weak sectors as they will likely lead the market lower as Wave 3 down unfolds.

I re-entered the Doctor’s Trade in TZA yesterday when a Green Arrow appeared on the last bar of the day.  With a positive Bias indicator, I’m taking any and all Green Arrows with this trade. My average entry point was about 42.85.  At this point I don’t have any upside target, other than the 16 June high of 53.15.  However, the Green Arrow that formed on 9 July at 35.83 could mark the start of a 17 point ‘stick’ into the 16 June high.  If this is the case, the 17 points added to last Friday’s low of 40.8 suggests a target near the 57-58 level.  I’ll use these targets as a minimum for now.  They could be a lot higher if Wave 3 down extends.

I had another nice day yesterday (two cigars), trading SPXU, SQQQ, and TZA.  The easiest trade of the day occurred at the 2pm mark with SQQQ.  My Scalp Trading indicators lit up like a Christmas tree to get me into the trade, and then one bar later my new Trend Indicator was telling me the ETF was going to trend. So, I kept adding to the position until 20 minutes before the close.  I took profit on the final bar of the day, even though a Red Arrow was not generated.

I’ve had received several requests for more information on the new Trend Indicator, but for now, I’m not giving anything out until I fully evaluate it and know that it works.  This is for your protection!  As many of you know, I’m always testing and evaluating new indicators.  This is what I do.  I test them so you don’t have to. But over the years, I have learned that many indicators look great at the beginning, but either don’t work under certain conditions or don’t fit in with my overall method of trading. So be patient. I’ll let you know when I believe the new indicator is ready to be released. Right now, be thankful that I’m using my money to test it…not yours. 

Still no change in my comments on Bonds, crypto, or gold.  I’m still watching for a bottom in gold, mostly because of the pattern.  Also, for the past 10-years, there has been a positive season bias in gold between late July and late August.  So IF gold is completing Wave 4 down, the positive seasonal bias could trigger Wave 5 up.  This wave could take the metal to the 3,000 level or higher.

For today, I’ll be looking to trade SQQQ, SPXU, and TZA on any Green Arrow. If a decline in the indexes begins starts to look impulsive, I’ll start holding some of these positions overnight.  The Doctor’s Trade in TZA is being held overnight.  That’s what it was designed for.

That’s what I’m doing.

h

Market Signals for

07-12-2022

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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