Professor’s Comments November 18, 2021

Posted by OMS  at November 18th, 2021

Stocks fell hard yesterday after generating a Shooting Star Candlestick Pattern on Tuesday. Shooting Stars are often seen at minor tops, like wave 2s. so yesterday’s impulsive decline could be the start of Wave 3 down. We’ll see.

The Dow finished with a loss of 211 points, closing at 35,931.  The NASDAQ and S&P were down 52 and 12 points, respectively. Volume on the NYSE was moderate, coming in at 96 percent of its 10-day moving average.  There were 165 new highs and 82 new lows.

Yesterday’s decline tested the neckline of the Head & Shoulders Pattern at 35,915 I discussed in Tuesday’s Comments.  The Dow got as low as 35,909 before bouncing into the close. It is not unusual for a stock or index to test neckline support of a H&S Pattern once or even twice before it finally breaks. So once again, if the Dow rallies early today, students should watch the 35,915 level as the key level to the Dow’s next major move.

From a technical perspective, yesterday’s decline was likely part or all sub-wave 1 of Wave 3 down. Wave 3 down should develop as a five-wave impulsive decline. So, IF the Dow rallies today. It will likely be sub-wave 2 up of that decline.  This should set the stage for the next decline, sub wave 3 of Wave 3 down, which should occur on a break of the 35,915 level. Third waves are usually the strongest of the five-wave sequence, so I’m outing my target near the 34,900 level.  That’s why what I said in Tuesday’s Comments, “Any break of 35, 915 MUST be respected.”

Yesterday’s decline turned the Market Timing Indicator on the Dow Neutral.  The Market Timing Indicators for the S&P (SPY), and NASDAQ (QQQ) remain Positive.

The Scalp Trading Indicators for the Dow (DIA) turned Negative.   The same indicators on the S&P (SPY), and NASDAQ (QQQ) remain Positive.

The Dean’s List is still Positive. The Tide has turned Negative. 

Position Traders:  Yesterday’s session produced confirmed Red Arrows on the 120-minute charts of DIA and IWM.  The Red Arrow on the 120s of SPX is still NOT confirmed.  The 120s on the Q’s are still showing Green Arrows. 

The Sector Ratio remained at 19-5 Positive after yesterday’s session. The top five strong sectors were Service (6), Autos (6), Semiconductors (6), Retail (5), and Banks (3).

The top five weak sectors were Media (-2), Telecoms (-2), PharmaBio (-1), Utilities (0), and Insurance (0).

Top Stocks:  With yesterday’s down open, I shied away from any long trades in the Top Stocks.  All three top stocks, DDS, BBBY and MP started the day off with a nice 1-2 pop, but confirmed Red Arrows soon appeared on the shorter-term bars telling me that even the strongest stocks were not going to be able to buck the declining tide. I’m still concerned that the two top stocks on the MWL now are DDS and BBBY, as I consider them meme stocks. If the market starts to break down in the next day or two, many of the meme stocks could be EXTREMELY vulnerable.  Please be careful with these stocks now.

As for me, I’m mostly focusing on the indexes now, especially the Russell 2k.  I gave my reasons for wanting to short the small cap index in earlier Comments, so I won’t do it here.  But students should note that while the NASDAQ was fairly strong yesterday, the small caps tested and closed below the 236 H&S support level on IWM.  If you look at a 120 min chart of IWM, you can see how the ETF appears to have topped on 8 November at the 244.46 level.  From the high, it staged a Wave 1 decline and then rallied in Wave 2 up. The decline that started from the 15 November wave 2 high appears to be the initial sub-waves of Wave 3 down.  If the ETF continues to trade near or below the H&S neckline and then begins to break down, the odds are high that Wave 3 down is underway.  I’m using TZA, a very aggressive 3X inverse leveraged ETF, to short the Russell.  Newbies should note that because of its 3X inverse leverage, the TZA can be EXTREMELY volatile, so use good judgment when you’re sizing your position.  

BTW, now that we’re on confirmed RED Arrows on the 120 min bars of DIA, IWM, and SPY, if we get a bounce today, you might want to check out the shorter-term bars for entry opportunities or to add to existing positions. Remember, when I’m Position Trading on the 120s, I use them as high cover for the Scalp Trades I make with the 12s or 15s.  These scalp trades can also be used as entry points if you don’t already have an existing position.  Or like I said, I also use them to add to existing positions in what I used call my “By the Cake, Eat the Cake” Trading Strategy.  With yesterday’s low breaking below the 15 November Wave 1 low of 236.31, there’s a good possibility that Wave 3 down has started on IWM.

I currently have positions in SDOW and TZA based on the 120s.   I’m looking to buy SPXU (inverse ETF for the S&P 500) and SQQQ (inverse ETF for the NASDAQ-100) IF the 120s show confirmed Green Arrows.

That’s what I’m doing.

h

Market Signals for

11-18-2021

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.