Professor’s Comments May 26, 2022

Not much changed after yesterday’s session.  The Dow fell at the open but stayed above the key 31,365 level which set up the afternoon rally. The large cap index finished the day with a gain of 192 points, closing at 32,120. The NASDAQ and S&P were up 170 and 37 points, respectively.

It still appears that stocks are inside corrective wave 2 up of Wave 3 down which should carry to the levels mentioned in yesterday’s early Comments. For those who didn’t read those Comments, the target levels I’m using for Wave 2 up are 32,600 on the Dow, 4,100 on the S&P and 1,840 on the Russell 2K.

The positive bias I mentioned yesterday will remain in effect until Friday’s close.  The market will be closed on Monday for the Memorial Day Holiday, so with a long holiday weekend in front of us, and the possibility of wave 3 of Wave 3 down starting when trading resumes next week, I do not plan to hold any long positions after 2pm Friday.

Remember, IF the Dow approaches the 32,500+ level, I feel the upside reward for long positions is probably only 100-200 points.  This must be weighed against the potential downside risk of 3,000 to 5,000 points. I don’t like those odds.

At this point, it’s probably too early to begin establishing short positions. Because of this, I will be watching the strength of the current retracement rally before pulling the trigger on any inverse index ETFs. If the momentum starts to weaken in the days ahead that would warrant holding short positions over the weekend, I’ll let you know.

There were no changes to the Market Timing Indicators or the Dean’s List and MWL after yesterday’s action.  They are still negative.

The Sector Ratio stayed at 6-18 negative after Wednesday’s session. The top five strong sectors are Telecoms (11), Energy (6), Utilities (4), Foods (2) and PharmaBio (1).  The top five weak sectors are Retail (-6), Autos (-4), Media (-4), Food Drug (-3), and Service (-3).  Avoid these week sectors as they will likely lead the market lower during wave 3 of Wave 3 down.

I still don’t see any reason to be buying Bonds or crypto.  I’m still watching gold.

Best Bets: Yesterday I was mostly trading the upside with TNA, UDOW and TQQQ.  I will likely continue to do this today, exiting the positions as the market moves higher.  After that, I’ll start looking to short the market using inverse leveraged index ETFs like SQQQ, TZA, and SDOW.

The above strategy has been a consistent winner for me during the past several weeks. I start every day fresh, using the new Bias Indicator to tell me the direction I should trade that day, either up or down. Then once I know the direction, I trade leveraged ETFs in the direction of the Bias. I exit all trades on Red Arrows. It’s been a simple, reliable, winning strategy. I don’t see any reason to change it as I wait for the current retracement leg to complete.

That’s what I’m doing,

h

Market Signals for

05-26-2022