Professor’s Comments September 15, 2022
Posted by OMS at September 15th, 2022
In last weekend’s WSR, I said, ‘It’s time to get short’. Two days after these I wrote these words, the Dow fell 1,277 points, making it the 7th largest point decline in the history of the U.S. stock market. The decline wiped away $1.75 Trillion of wealth from the U.S. economy.
The decline started immediately after the BLS announced that the Consumer Price Index (CPI) rose 8.3 percent in August, even after accounting for a significant reduction in gasoline prices. Truth be told, inflation is not 8.3 percent. It’s more like 12 percent, so the market is now on standby alert for the next Fed announcement (23 September), which could trigger another large decline.
Anyhow, from a pattern perspective, nothing has changed. It still appears that wave 3 of wave 3 down is starting. Getting even more into the weeds, yesterday’s 31 point decline to 31,135 appeared to complete sub-wave 1 of wave 3 down, with the late rally being part of sub-wave 2 up. Once this sub-wave competes, the Dow should start a sub-wave 3 decline within the declining three wave pattern which should last for several weeks. Once complete, the Dow should be trading between the 26 500 to 28,000 level, with 24, 000 to 25,000 possible. Like I said, ‘It’s time to get short.”
My downside targets for the S&P is currently near the 3,700 level with 3,500 possible. Yesterday, the S&P closed at 3,908. Today is 15 September. I’m still thinking that all this can happen on or close to 28 September, the Fibonacci turn date I mentioned in previous Comments.
The Market Timing Indicators for the Dow, S&P, NASDAQ, and Russell are negative.
The Scalp Trading Indicators on the same indexes are negative.
The Dean’s List is negative. The Tide is neutral, with the Up-Down oscillator being the lone positive (barely) hold out.
I haven’t been able to run the Sector Reports yet because of issues with the data. I’ll update the Sector Ratio along with the Lists later today, once I get the data issues resolved.
I’m back in my Doctor’s Trade with TZA after a Red Arrow took me out on 7 September. The previous trade from 7 September was good for 8 points. Nice! The last Green Arrow occurred on 13 September with TZA trading at 32.50. Yesterday, TZA closed at 35.14. My Doc friends have to be loving this trade.
Bottom Line: My short-term strategy is pretty simple. I’m short using inverse index ETFs like SDOW, TZA, SPXU and SARK. Yesterday, I added a few shares of SQQQ to the mix at 45.48.
I’m also looking to buy a few 18 November 350 SPY puts if I can get them for 3.50 or less. BTW, I received an email yesterday from a student asking how I trade short-term vehicles like options. Here’s the thing. I don’t trade a lot of options. You shouldn’t either. They are a losing proposition. However, having said that, I do use options when the odds favor a short, fast move, like in a wave 3 of 3 of 3. But even then, I’m not a hog. I get out when I have a profit of 30 to 50 percent. Other traders use options in hopes of obtaining longer-term profits or to insure a portfolio. That’s not me. It’s hard enough to be right on predicting the movement of a market to as particular level. Having to be right on time makes it almost impossible. Just remember that over 80-90 percent of people who buy options lose money. That’s a fact I cannot ignore. So, if you want to trade options, put yourself on the opposite side of the trade. Sell them, either as covered Calls or in Spreads. Or better yet, if you don’t understand them, fuggedaboutit.
That’s why you see me trading things like SDOW, TZA and SQQQ. They are so easy to trade with strategies like the Doctor’s Trade. Just follow the arrows.
That’s what I’m doing.
h
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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Category: Professor's Comments