Professor’s Comments October 27, 2022

Posted by OMS  at October 27th, 2022

The Dow and Russell 2K gapped higher early yesterday but gave up most of their gains by the close. On the other hand, the S&P and NASDAQ gapped lower at the start, conflicting with the large cap and small cap indexes.  By mid-day, the S&P turned around and rallied to new recovery high.  The weaker NASDAQ never rallied as Microsoft and Google weighed heavily on the technology index. The up-down trading action produced a Shooting Star candlestick reversal pattern on all the major indexes, something often seen at market tops. The Dow reached an intraday high of 32,172 before closing up 3 points at 31,839. The NASDAQ and S&P were down 228 and 29 points, respectively. Volume on the NYSE was moderate, coming in at 104 percent of its 10-day average. There were 82 new highs and 97 new lows.  

The short-term technical picture still suggests that the wave 2 rally is nearing completion.  But as Yogi said, “It ain’t over till it’s over.” Yesterday’s 10-day TRIN dropped to .77, significantly below the 1.00 level.  An usually low reading like this suggests that its taking more effort (volume) to push stocks higher than it does for them to fall.  In other words, the low TRIN reading is telling me that buying power is being exhausted.

The other thing I noted last night was the relatively small change signal (15 points) in the A/D oscillator. Normally I use a 10-point difference in the indicator to turn on the green light on the cockpit.  But last nights 15 point difference also came with two consecutive readings over 200, which is deep in overbought territory.  So even though the 15 points are outside my 10-point limit for a Big Move signal, I thought I should mention it because of the overbought conditions.   

All of the indexes have now reached my target levels for the wave 2 retracement. All I’m doing now is waiting for the indicators to turn.

The Dean’s List has turned neutral. The Tide is still positive.

The Market Timing Indicators for the Dow have turned positive. The same timing indicators for the NASDAQ also positive from Tuesday’s session.

The Sector Ratio strengthened to 6-18 negative after Wednesday’s session. The top five strong sectors were Energy (5), PharmaBio (1), Real Estate (1), Foods (0) and Food Drugs (0).  The top five weak sectors were Household Products (-4), Retail (-4), Consumer Products (-4), Semiconductors (-4) and Telecoms (-3).   

Yesterday’s session produced several nice trades on the 4-min bars. The Bias was positive and rising right out of the gate on IWM. Seeing this, I caught the 10:02 train on TNA paying 35.90 for my ticket.  A Red Arrow appeared at 11:50 mark with the ETF trading at 37.50.  It was time to exit the trade and start looking for the market to reverse.  A Green Arrow appeared on TZA at the 12:46 mark.  The Bias was negative but rising at that point, so I decided to only buy a few shares (limited by the negative Bias) and wait to see what happens. A half hour later, the Bias turned positive making for another nice trade before the Red Arrow at 13:42 took me out. The Bias on TZA stayed positive for the rest of the day enabling me to trade the Green Arrow at the 14:14 mark for another nice gain. I closed all my trades out by 15:14, hit the hot tub, and smoked another cigar. Nice!

Bottom Line:  Wave 2 up could be getting close to completion. All I’ll be doing today is watching the Bias on the short-term bars of SQQQ, TZA, and SDOW in that order.  If the Bias turns positive on any of the mentioned inverse index ETFs, I’ll try a few scalp trades using the Green Arrows and exiting on the Reds. I’m still not holding anything overnight.

BTW, students should note how the Green Arrows that appeared on 13 October on the 4-hour bars led to the rally in the Dow, SPY, IWM and QQQ.  And while you’re looking at the 4-hour chart of QQQ, you might note the Red Arrow that appeared yesterday.  That’s why I’m looking to trade SQQQ today on the 4-min bars. If the Bias turns positive, I’ll trade any confirmed Green Arrow. And as always, if the Bias is positive and RISING, I’ll add to my initial position.

That’s what I’m doing,

h

Market Signals for

10-27-2022

Not sure of the terminology we use? Check out these articles

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The Creation of Waves and Trends
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