Professor’s Comments November 30, 2021

Posted by OMS  at November 30th, 2021

The markets rallied yesterday, retracing a part of Friday’s sharp decline.  The Dow gained 236 points, closing at 35,135.  The NASDAQ and S&P rose 291 and 60 points, respectively.  Volume on the NYSE was heavy, coming in at 112 percent of its 10-day moving average.  There were 35 new highs and 125 new lows.  The number of new lows was the thing to notice here…as was the weak advance -decline ratio.  It tells me that yesterday’s rally was almost entirely from short covering, something you would expect in a bounce back rally in a down trend.

From a wave count perspective, yesterday’s rally was likely wave 2 up within Wave 3 down.  If you look closely at the shorter-term bars, you can see that the structure of the wave was an a-b-c affair.  And given the pullback that occurred into the close that generated a confirmed Red Arrow on the 15s about 13:30, it’s likely that wave 2 up completed yesterday afternoon and wave 3 of 3 down is underway.  We’ll know more later this morning if the Dow and the other indexes start to break down. 

The key level to watch on the Dow now is Friday’s low of 34,747.  (That’s 347 on the DIA).  I have drawn a Red Support line at this level on my charts.  I have also drawn similar support lines on my charts for the S&P, QQQ, and IWM just under their respective wave 1 lows (last Friday’s lows).  I already have inverse positions in each of these indexes and will add to these positions as each index breaks below the support lines.

If you didn’t read the WSR, I suggest you read it again to make sure you understand what we’re dealing with now.  To summarize, the 34,747 +/- level is EXTREMELY important now.  This level is where the lower trend line of the September – mid October Wave 4 triangle comes in AND where the 200-day moving average is located.  So, IF this support level is broken, the next support level on the Dow is at 34,000, then 28,000 and finally the March 2020 low of 18,213.  As you know, I don’t have a lot of respect for most money managers on Wall Street.  That’s because most of them use a herd mentality when it comes to the market.  They bathe in each others bath water.  Most of them are still using some type of fundamental analysis to evaluate stocks, even though fundamental analysis went out the window in the late 90s when they changed the uniform rules of accounting to make it easy to fudge the earnings of a company. A lot of the money managers know this, but they do it anyway.  It’s the way things have always been done…even if the earnings are fabricated. I’m using the word ‘fabricated’ here because a lot of companies invent or concoct their earnings, typically with deceitful intent.  It’s part of the ‘fundamental analysis game’.  Anyhow, even though most traders know that the fundamentals can be manipulated, there’s one thing a company can’t hide.  And that’s when its stock price starts to move below its 200-day moving average.  Wall Street also knows this. That’s why the 34,747 +/- level is sooooo important.  No money manager in his right mind will own a stock (or an index) once it starts to drop below the 200.  So do yourself a favor and draw several lines on your charts near or at the 200. Do it immediately after reading these Comments. If wave 3 of Wave 3 down starts today, these support levels will likely be tested either later today or in the days ahead.

Yesterday’s rally did not change the Market Timing Indicator on the Dow.  It is still Negative. The Market Timing Indicators for the S&P (SPY), and NASDAQ (QQQ) remain Positive.

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

The Dean’s List is Neutral. The Tide is Negative. 

Position Traders:  Yesterday’s rally in the Dow caused a false Red Arrow to appear on the 120 min bars.  As I’ve mentioned previously, a lot of these false (unconfirmed) arrows can be eliminated by simply using a four-hour chart.  I use a 30-day time period on my 4 hour chart.  Also remember that a 4-hour chart is the ‘high cover’ for the 60s.  So, IF you’re looking to enter or add to a position trade on the 120s, make sure the 4 hour chart is giving the OK.  A four hour chart makes it a lot easier to trade, especially if you can’t be watching a computer during the day.  The only problem I see is that you have to accept larger price swings, like the one we had yesterday.  But if you can accept this, a 4-hour chart is a good compromise between the daily’s and the shorter-term bars.  You might want to give them a try, especially for IRAs.

The Sector Ratio weakened to 11-13 Negative after yesterday’s session. This is the first time the Sectors have been negative in months.  The top five strong sectors were Service (5), Semiconductors (4), Autos (3), Banks (2), and Household Products (1).

The top five weak sectors were Media (-4), Leisure (-2), Telecoms (-2), Cap Goods (-1) and PharmaBio (-1).

Top Stocks:  I’m not focusing on the top strong stocks right now, as there are too many stocks on my unpublished weak list. I’m just buying and shorting the indexes with inverse ETF.  It’s just a lot easier.  Also, right now I feel comfortable holding the inverse index ETFs overnight, where I’m not as comfortable doing this with individual stocks.  The reason is that thousand of traders on Robinhood could decide to squeeze a weak stock, similar to what happened yesterday.  It could ruin your day.

However, IF you want to try the short side, the top 5 stocks from weak list are HP, SABR, ADS, ZM, and PYPL.   Zoom (ZM) is an interesting short here, mostly because of its EXTREME overvaluation.   Zoom’s price to sales ratio is almost 10 times higher than Amazon, which I believe is also way overpriced in this environment.  If the country is about to go into recession next year, there’s no way that Amazon (AMZN) should have a P/S ratio of 4.  Seeing ZM at a P/S of 35 is crazy!  CRAZY!!!

I’m also not interested in gold, silver, or bonds at this point.  The charts are showing too many possible patterns to be reliable.  Bonds look like they are completing wave 2 up of a five-wave downside pattern.  If a confirmed Green Arrow is generated on the 4-hour chart of TBT, I could easily buy it.  Especially for my IRA.  Same for the Dollar.  It appears that the Dollar topped on 24 November at the 96.94 level. The decline since then has traced out 4 waves down.  Wave 5 down could start at any time.  But watching the dollar is like watching grass grow.  If you want to take the trade, just wait for the Green Arrow on UDN, the inverse ETF for the Dollar, to be confirmed on the 4-hour chart.  Hmmm?  I didn’t just spend six sentences talking about the Dollar, did I?  Who really cares?  I don’t!

For Today:  I currently have inverse positions in SDOW, TZA, SQQQ and SDXU. I’m now about 55 – 60 percent short in my regular trading account AND in our IRAs.  I’m watching the 34,747 level on the Dow for a potential breakdown.  If that happens, I’ll look to add to my inverse positions based on the Arrows on the shorter-term bars.  Probably won’t go much above the 65 percent short level for now. Remember, the October 4 low (Wave 4 low) of 33,855 MUST be taken out before the Bear Market can be confirmed.

That’s what I’m doing.

h

Market Signals for

11-30-2021

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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