Professor’s Comments November 1, 2022
Posted by OMS at November 2nd, 2022
The market closed lower yesterday. The Dow fell 129 points, closing at 32,732. The NASDAQ and S&P were down 114 and 29 points, respectively. Volume on the NYSE came in at 11.5 billion shares which was slightly less than its 10-day average. There were 94 new highs and 109 new lows.
There is a lot going on during the next week or so that could move the markets. The Fed will begin its discussions on interest rate policy today with an announcement scheduled for 2pm tomorrow. Then on Friday, the BLS will release the October Job report. And finally, we’ll get the results of the mii-term elections next Tuesday night (hopefully). Any of these events could produce large, out sized moves in the market.
Fed Chairman Powell and his board of governors just don’t seem to get it. The current hyperinflation our country is experiencing is a supply problem, not a demand issue. Raising rates in this environment will not do anything to increase the supply of goods. It will only hurt demand. It will make things like housing, cars, appliances, and major consumer goods unaffordable to many Americans. This will cause the economy to continue to slow, resulting in job loses to many and drive the country into a needless recession or worse…depression. I’m not a fan of how Chairman Powell has managed the reduction in the Fed’s balance sheet and his knee jerk changes to interest rate policy. Hopefully, a change in the Congress will result a new Fed Chairman, but I’m not counting on. I don’t see the President removing Powell anytime soon, and if he doesn’t do it, only a damaging impeachment process by a new Congress will get him out. This will likely cause even more turmoil in the markets.
From a technical perspective, it still appears that the markets are in the process of completing wave ‘c’ up of minor wave 2 up of Wave 3 down. The pattern is a classic 3-3-5 flat pattern. The final ‘c’ wave of a flat pattern consists of five waves. It is a termination pattern. Looking at the charts, wave ‘c’ up appears to need one more small pop to complete the pattern. So, if the pop occurs today, tomorrow’s Fed announcement could mark an important turning point in the market.
BTW, yesterday, the Dow reached an intraday high of 32,899. This is a 75 percent retracement of minor wave 1 up. An exact 0.785 Fibonacci retracement of wave 1 would put the Dow at 33,078. I find it interesting to note that Thursday +/- one day will also be a Fibonacci 0.382 percent of wave 1 in terms of time. The take away from all the above discussion is that retracement wave 2 appears to be in the final stages of its development. Once complete, the pattern suggests the next set of down waves should be wave 3 of Wave 3 down in the ongoing Bear Market.
The Dean’s List and The Tide are positive.
The Market Timing Indicators for the Dow are positive. The same timing indicators on the NASDAQ are neutral.
The Sector Ratio strengthened to 21-3 positive after Monday’s session. The top five strong sectors were Energy (7), Autos (5), Cap Goods (5), PharmaBio (4), and Leisure (3). The top three weak sectors were Household Products (-2), Consumer Products (-2), and Healthcare (-0).
During the weekend, after posting the email I received from Claus F., I received 11 emails agreeing with his suggestion on the usefulness on me talking about my trades. There were no emails against it. I did receive one email that expressed concern about how frustrating it has been to trade the current wave 2. But hey, we all understand that trading retracement waves is never easy. It’s part of the game. And trading a wave 2 in a Bear Market, especially in the month ahead of an important election, when the market is being driven several competing factors (politics, the PPT, and the elections, stock patterns, interest rate policy, etc) is EXTREMELY challenging to say the least. I warned students about the increase in volatility all these competing factors would likely cause at the beginning of last month. It’s also why I’m still NOT holding major positions overnight.
My Trades: On Friday, I was mostly on the side-lines. All the indexes opened higher, causing the Bias on the short-term bars to stay positive for most of the day. Yesterday was different. Because the NASDAQ has been a lot weaker than the Dow …its retracement wave 2 high is not even close to the highs being made on the Dow, I decided to focus on the tech heavy NASDAQ-100 or QQQ. So, seeing that the Bias turned negative on the Q’s right after the open, I pulled up a chart of SQQQ and started buying. I added to the position when I saw it starting to trend. About an hour later, a Red Arrow appeared taking me out of the trade for a gain of about one point. The rising Bias with the Green Arrow was the key. Anytime I see a fast rising Bias, the know the odds for a nice trade are increasing with the rising Bias. Students should also note how the new Trend Indicator was telling me that it was OK to add to my position. It all made for an easy trade. By noon, most traders had moved to the side-lines, deciding to wait for the Fed announcement. I did the same. There was one trade late in the day when the Bias on SQQQ turned positive again, but by then I was in the hot tub.
I’m probably not going to do much today. The day ahead of a Fed announcement is usually characterized by a morning pop followed by an afternoon pullback. If the Bias on the 4-min bars turns negative in the afternoon, I’ll take a Green Arrow trade in SQQQ. I will NOT hold this trade overnight as Fed Days are usually positive until about 2-3 hours before the announcement. After the announcement (2pm) anything can happen.
Bottom Line: This is a time when we need to remember what old Yogi said…” It ain’t over till is over.” Yeah, he was probably talking about a baseball game. But it also applies to wave 2s. Like my student said…’It’s frustrating.’
That’s what I’m doing,
h
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