Professor’s Comments October 12, 2022

Posted by OMS  at October 12th, 2022

The indexes were mixed yesterday on relatively high volume.  The early decline was followed by a strong late morning rally and a just as strong afternoon decline.  The strange down-up-down movement created a Bearish shooting star pattern on both the Dow and S&P which is often seen at important tops.

From a pattern perspective, it looked like yesterday’s rally was part of all of sub-wave 2 up with wave 3 of Wave 3 down. We should see if I’m right about this later today, as yesterday action also produced a small change signal in the A-D Oscillator, so we could see a large move within the next day or so.

I really don’t have much more to add to my recent Comments. The Bearish patterns I discussed in the WSR are still there.  Now they just have to start playing out.  I’m still expecting a series of three wave 3 declines that will take the indexes well below their late September lows.  The only hic-up I see is that they need to complete the current sub-wave 2 rally first.

I received an email from John B. yesterday asking if I could teach an options course as one of my Update Sessions.  Hmmm?  All I can say is I’ll think about it.  This is something that I’m not anxious to do, mostly because options are not the easiest thing to trade.  Like I said, I’d prefer if you DON’T do them.  For example, yesterday, when the rally in the Dow was near its peak, I bought a few 28 October Puts for 1.82 to 1.84 cents. I sold them about an hour later for 2.20 cents, making a few hundred dollars profit.  But that’s not the story…The real story is that while I was trying to sell them, I lost about .20 cents or half my profit during the time it took to place the trade. That’s how volatile trading options can be.  And If I held them overnight, I would be losing my shirt this morning. So please, before you get too excited about options, ask yourself why you want to trade these extremely volatile vehicles.  When I step back and think about why I trade them, I can tell you that I do it mostly for fun.  It’s just like placing a bet on at the racetrack. I do it for the challenge.  I NEVER do it as a means of making money or as an investment.  I know the odds are stacked against me, just like in all sports betting, including football, baseball, and everything you can bet on at Vegas.

And even though options are a trading vehicle, like shares of TZA or SDOW, they are in no way, shape or form the same type of animal.  With something like TZA, you only need to be right on picking the direction.  The Bias indicator and the Arrows do a fantastic job with this.  They actually make it easy. So why complicate this extremely simple system by trading options?   Remember, with an option, you not only have to be correct about the direction, you need to be correct about the time when the move will occur.  And as we have seen in recent weeks, sometimes the market has a mind of its own when it comes to time.  And if you’re wrong about the time, it costs you money.  A lot of money. So again, please think really hard about what I said in the above paragraphs before you start getting interested in buying options.  BTW, I don’t have a problem with anyone SELLING options…that’s an entirely different animal.  I sell covered calls in a Bull Market all the time.  It’s a great way to generate additional income on stocks you already own.  I also sell call spreads occasionally, like last January, when I thought the market was setting up for a major decline.  But right now, I’m not doing any of these things. I’m just trading TZA, SDIOW and SQQQ on the short-term bars and holding shares of TZA as a longer-term trade in my IRA based on the 4-hour bars. That’s all I’m doing now. And I’m being handsomely rewarded for it.

The Dean’s List and the Tide are negative.

The Market Timing Indicators on all the major indexes are still negative.

The Sector Ratio strengthened to 4-20 negative after Tuesday’s session. The four strong sectors were Energy (5), Cap Goods (1), Insurance (0), and Retail (0).  The top five weak sectors were Semiconductors (-7), Telecoms (-6), Media (-6), Household Products (-5) and Consumer Products (-4).  Students should note the RS of the weak sectors and how it compares to the RS of the strong sectors.  It should tell you something about the strength of this market.

Bottom Line:  Continue to focus on inverse index ETFs from the Dean’s List now that Wave 3 down could be ready to start. I still believe that inverse index ETFs are the Best Bet.  

That’s what I’m doing,

h

BTW, with this being a shortened trading week, I’m probably only going to do a quick update tomorrow morning.  If the market does what I expect and starts the next series of down waves, I’ll talk about some of the things I’ll be doing.  For now, I’m just holding a few inverse index ETFs and waiting for the next decline to begin.  BTW, last night’s action in the after hours market is tracing out a nice ‘Blade’ on yesterday’ afternoon’s ‘stick’.  If I see a few Green Arrows on TZA, SDOW, and SQQQ this morning, I’ll look to add to my positions…as long as the Bias is positive.

Market Signals for

10-12-2022

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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