Professor’s Comments – Yesterday’s Action 10/14/2022
Posted by OMS at October 14th, 2022
Yesterday, before the market opened, the BLS announced that core inflation rose 6.6 percent from a year earlier, the worst inflation in 40 years. They also said the CPI rose 8.2 percent from a year earlier. The news caused the Dow futures to go from being 200 points higher before the announcement to 500 points lower after the announcement.
Then 15 minutes into the session after the Big opening move, the President’s Plunge Protection team stepped in and started buying. A Red Arrow was generated on the 4-min bars on the inverse index ETFs, telling me the decline was over. The rally that followed was fueled by the short sellers who were forced to cover their open positions. The rally saw the Dow move from being down 500 points to over 900 points higher.
In yesterday’s Comments I mentioned that there was a small change in the A-D Oscillator for three consecutive days, so we could see a Big Move. But I must admit that I never thought the move would be anything like what actually happened. It thought the Dow could rally to the 29,400+/- level. It turned out that it got as high as 30,168 before closing at 30,038.
So, the question for today is…did yesterday’s wild ride change anything? Well, it did if you were trading the 4 min bars. Your trading account is probably a lot larger today that it was before yesterday’s open. The intraday move of more than 1,600 points gave Arrows Traders plenty of opportunities to trade both the short and long side. It was a multiple cigar day for me.
But did yesterday’s large intraday move change anything with respect to the overall pattern? Probably not. We were in sub-wave 2 up of wave 3 down before yesterday’s wild ride. It still appears that we are in sub-wave 2, although now that the Dow moved above 29, 400, there’s a good chance that sub-wave 2 up is complete. Yesterday’s rally, even though it was huge, was likely only wave ‘C’ of sub-wave 2 up. We’ll see what happens today as several large banks will be announcing earnings that could move the markets.
If the Dow continues to rally today, it’s possible that yesterday’s bottom was wave 1 down of a larger degree move down from the 16 August Wave 2 top. If this is the case, then yesterday’s rally was the start of a larger corrective wave 2 up (instead of sub-wave 2 up) that could last for another 2-3 weeks. I see this as a low odds possibility, but I must mention it because it is possible. If this rally happens, it means that the major three wave decline I see coming will be delayed for a few weeks. It won’t eliminate the decline.
With the markets now in the middle of October, a historically volatile period, students should be prepared for even more volatility, especially as the November election nears. Large, out-sized moves, like the one we say yesterday, could occur at any time, especially if the market starts a wave 3 decline. With Europe in turmoil, the UK talking about tossing their new prime minister after only 38 days in office, war clouds increasing over Ukraine, Congress issuing a subpoena to an ex-president, and the mid-term elections fast approaching, expect to see several ‘surprise’ events between now and the beginning of November. Protect yourself.
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
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.
Category: Professor's Comments