Professor’s Comments November 17, 2022

Posted by OMS  at November 17th, 2022

Stocks were modestly lower yesterday on light volume.  The Dow lost 39 points, closing at 33,553.  The NASDAQ and S&P were down 175 and 33 points, respectively.  Volume on the NYSE came in at 85 percent of its 10-day average.  There were 53 new highs and 55 new lows. Yesterday was the first time since 9 November that the number of new lows exceeded the new highs, something that needs to be watched.

The government reported that retail sales rose 1.3 percent during October, which was up 8.3 percent from a year earlier.  The rise was mostly due to inflation and the rising cost of finished goods.  The data suggests that to afford these purchases, homeowners continue to go into debt and have increased their home equity lines of credit by 40 percent in the past year.  Home equity loans usually come with variable interest rates, so if the Fed continues to raise rates, the increase will create a major problem for the economy as the loans have to be serviced.   

Not much changed after yesterday’s action. It still appears that the Dow is completing a large 3-3-5 flat pattern for corrective Wave 2 up. The final wave of this pattern is taking the shape of an Ending Diagonal which is often seen at tops. The final fifth wave of the pattern, which is wave ‘v’ of wave ‘c’ up started from the 3 November low. If I’m correct about the wave count, Wave 3 down should start soon. This wave should be a powerful, impulsive, decline that drops the Dow down to the 26,500- 28,000 level or lower.  

The S&P rose to 4028 yesterday, slightly more than a than 0,63 Fibonacci retracement of Wave 1 down.  It’s possible that yesterday’s high completed the second zig-zag of the pattern that has been under development since the 3 November low.  If this is the case, the S&P should start to decline in the next few days.  The other possibility is that the past few days of back-and-forth movement is a small degree wave 4. If this is the case, the S&P could push slightly higher. A break of the 3860 level, which is the 8 November high, would eliminate the fourth-wave possibility.

The Russell 2K still appears to be the weakest index. It appears to have completed its double zig-zag pattern and could be in the process of reversing. I have been watching the Bias on the RUT (IWM) closely for the past few days as the Bias on the 4 min bars, then 9, then 15, and yesterday, the 30 min bars have turned negative.  Yesterday, a confirmed Red Arrow appeared on the 60 min chart of IWM, with a falling but still positive Bias.  The 200-period moving average on the 60s is near the 180 level.  A break of this level would set-up an immediate challenge of the 10 November low of 175.41 which is where wave 5 of wave ‘c’ up started.  If this low is broken to the downside, it would mean that Wave 3 down is underway. This is where the front-line action in the market is taking place now.  Forget about the 30 stocks in the Dow for now.  That’s not where the battle is taking place.  Instead, watch what’s happening with the small caps in the Russell.  The small businesses will be the ones most impacted by the rise in interest rates. They will lead the market lower.

The Dean’s List and The Tide are still positive.

The Market Timing Indicators for the Dow are positive. The same timing indicators on the NASDAQ are also positive.  I need to see these indicators turn neutral to negative before I start moving off my mostly Bullish stance.

The Sector Ratio stayed at 5-19 positive after Wednesday’s session. The top five strong sectors were CapGoods (9), Energy (6), Semiconductors (5), PharmaBio (4) and Leisure (3).  The top five weak sectors were Retail (-2), Telecoms (-2), Healthcare (-2), Utilities (-1) and Consumer Products (0).

My Trades: With a positive and rising Bias on the 15 min bars, I started trading TZA, SQQQ and SARK on the 5s just after the open.  The initial Green Arrow trade on TZA was good for almost two points.  Once the Red Arrow exit appeared, the Bias started to fall, so I stayed on the side-lines until just after the 13:30 mark. I bought a few shares based on the Green Arrow and then added to the trade when the Bias started rising again.  The total trade was good for about ¾ of a point before the Red Arrow appeared at the 14:55 mark.  After that I closed shop and went outside to smoke a nice stogie.  It was another cigar day for me.

Today’s trades:  All I’ll be doing today is watching the RUT (IWM) and QQQ.  The NASDAQ-100 (QQQ) is in the same boat with the small caps now, appearing to complete its double zig-zag.  The 200 on the 30 min chart of the Q’s is near the 278 level.  The reason I’m watching the 30s is because the Bias just turned negative.  So, with a negative and falling Bias on the slightly longer chart. I’m really interested in trading SQQQ on the 4 or 5s. Students should note the negative divergence that the Bias generated on the 30 min chart of QQQ going into Tuesday’s high.  It was a clear warning of a turn. The Red Arrow that appeared at the 13:00 mark signaled the start of the decline and yesterday’s sideways action formed an interesting ‘Blade’.  So, IF yesterday’s Blade low is broken, the Qs should begin to test the 200 near the 278 level.  If this level doesn’t hold, my next target is near 264, which is where the final wave of the pattern began. 

So, my best bets for today are TZA and SQQQ.  Forget what the government is saying about inflation.  You will know how inflation is impacting small businesses and households if the RUT and the Q’s start trading below their 200-period moving averages.

That’s what I’m doing,

h 

Market Signals for

11-17-2022

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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