Professor’s Comments November 10, 2022
Posted by OMS at November 10th, 2022
Stocks fell sharply yesterday, the day after the mid-term elections. The Dow fell 646 points, closing at 32,513. The NASDAQ and S&P were down 263 and 80 points, respectively. Volume on the NYSE was moderate, coming in at 99 percent of its 10-day average. There were 37 new highs and 167 new lows.
It’s possible that the Dow completed a 3-3-5 flat pattern for retracement wave 2 up yesterday. If this is the case, the next set of waves for intermediate wave 3 down should be starting soon. The decline should be a three-wave series of down waves, to complete minor and intermediate wave 3 down. Bu the time all three waves are complete, the Dow should be trading significantly below the 30 September low of 28,715.
The first major step in moving toward this low is a break of 29,500 level. This level is the ‘baseline’ of the large Rounding Top Pattern that has been forming on the Dow since December 2020. Rounding Tops are somewhat like a Head & Shoulders Patterns in that they also have predictive powers. If you measure the distance between the ‘baseline’ and the top, you get a little over 6,000 points. So then, if you subtract 6,000 from the baseline of 29,500, you get a target near 23,500. Right now, this is a gross estimate of my target. I’ll be better able to refine this target once I see how the series of down waves develop.
The H&S pattern on the S&P and NASDAQ is probably a better pattern to use for predicting the near term. Right now, the S&P has a down sloping ‘neckline’ near the 3,550 level. If this level is broken, the S&P should decline to the 2,900 to 3,100 level. Yesterday, the S&P closed at 3,749. The NASDAQ-100 or tech index probably has the clearest H&S downside pattern. A break of its neckline near 10,750 projects a 25 percent decline on technology stocks, possibly down to the 7,950 to 8,000 level.
Same for small cap stocks on the Russell. The neckline I’ll be watching, and trading is on IWM, the ETF for the RUT, which is currently located near the 163 level. The distance from the Head to the neckline on IWM is about 35 points. So, if I subtract 35 from the neckline, I get a target near the 130 level. This is the target I’ll be using for my Doctor’s Trade on TZA. In other words, if IWM starts to approach the 130 level, I’ll look to start managing my trade with TZA.
The Dean’s List is still neutral (QID is still on the List). The Tide is still positive.
The Market Timing Indicators for the Dow are positive. The same timing indicators on the NASDAQ are negative.
The Sector Ratio was 14-10 positive after Wednesday’s session. The top five strong sectors were CapGoods (9), Energy (5), PharmaBio (3, Leisure (2), and Financial (2). The top five weak sectors were Consumer Products (-4), Retail (-4), Telecoms (-3), Media (-3), and Healthcare (-2).
My Trades: Yesterday was perhaps the easiest trading day I’ve had all year. It was also a multiple cigar day, but because of the poor weather conditions we are experiencing from the approach of Nicole, I didn’t get a chance to enjoy one of my favorite stogie’s. Anyhow, I went into yesterday looking for the market to decline. So as soon as I saw that the Bias on the 4-min bars on all three of the indexes I was watching was negative, I started buying TZA, SQQQ, SDOW and a few shares of SARK. About 10 minutes into the trade and seeing that the Bias was likely going to stay positive for the day, I switched my time period to the 6-min bars, to avoid having too many changes in the arrows. I wanted to stay out of the garden and give my plants a chance to flower. And flower they did. It seemed that all day long, I was planting seeds on every Green Arrow and picking flowers on every Red. One after the other…. all day long.
You pick the index….go ahead and look. With a positive Bias, if you took all the Green Arrow trades on an inverse index ETF and exited on the Reds, you had a good day too. It was one of those days. The thing about yesterday was that for the first time in weeks, trading the downside felt impulsive. Not impulsive like we’re gonna feel during a wave 3 down, but wave 1 down impulsive. Minor impulsive. Just enough to tell me things could be changing.
For today: If the market bounces, I’ll look to establish a few positions in TZA and SQQQ. These are the weakest indexes. In the days ahead, I’ll be paying close attention to the necklines and baselines I mentioned above. You should draw these levels on your charts. They are extremely important now.
For the very short term, pay attention to 3,709 on the S&P and then the 13 October low of 3,492. If these lows are broken in the days ahead, the odds for a test of the necklines and baselines mentioned above will increase significantly.
Anyhow, if yesterday was a small wave 1 down, the market could retrace a bit today. I’m not expecting a large retracement, maybe a hundred points or so. If we get it, just watch the Bias, and trade the Arrows. That’s all I’ll be doing for the next day or so. BTW, the stock market will be open tomorrow, Friday, 11 November. The Bond market will be closed.
Also, I’m still exiting my trades in TZA, SQQQ, and SDOW by the end of the day. I’m holding the January Put options I established in SPY and DIA. I’m using strikes of 342 and 345 in the SPY and 285 in the DIA. The DIA Puts were my most recent acquisition, paying about 2.20 per contract. I was in and out of the DIA Puts yesterday and will look to re-establish a few contracts if the market bounces today.
I’m still not doing anything with gold, bonds or crypto. But I am starting to get interested in silver. Just watching for now.
I received the following email from Mani yesterday that I thought you might be interested in. Mani is a long-time subscriber to the web site, who hasn’t traded recently. He took a consulting refreshed last week and sent me the following feedback:
Thanks for the class, I made my first trade on SDOW today for $423 profit! entered green at 10 am left red at 1pm.
I felt so good about Mani’s email, (and my cigar day), that I’m gonna do something crazy for my Black Friday and Veteran’s Day shoppers. Here’s my deal: It’s a name your price special! You tell me that you’re interested in my Black Friday / Vets Day Special (now through this weekend only) and I’ll set up a time for us to talk. I’m not interested in receiving cash, so don’t bother looking for the special on the web site. Payment must be in cigars or booze. You pick. That’s it. Let me know if you’re interested by sending me an email at: hanks10@bellsouth.net and work with you to set up a time/date for the session. I’m finding that I really enjoy the time I spend talking with my students. Plus, I’m running out of good cigars!
If you have any questions about anything related to the Bias or my Arrows Trading System, now is the time to get them answered. The next set of down waves in this Bear Market is fast approaching. Get yourself prepared to take full advantage of the decline.
That’s what I’m doing,
h
Market Signals for
11-10-2022
DMI (DIA) | POS |
DMI (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEU |
THE TIDE | POS |
Index | Signal | Signal Date |
---|---|---|
DOW | POS | 04 Nov 2022 |
NASDAQ | NEG | 02 Nov 2022 |
GOLD | NEU | 04 Nov 2022 |
U.S. DOLLAR | POS | 27 Oct 2022 |
BONDS | NEU | 27 Oct 2022 |
CRUDE OIL | POS | 20 Oct 2022 |
CRYPTO | POS | 26 Oct 2022 |
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