Professor’s Comments – Yesterday’s Rally 10/5/2022

Posted by OMS  at October 5th, 2022

Yesterday’s rally was powerful, with increasing volume driven by lots of short covering.  It was a classic bear market rally that relieved the EXTREMELY oversold conditions that were present late last week. From a technical perspective, the past two days of rally appear to be most, if not all of a corrective wave ‘C’ of 2 up. I mentioned that the rally could fill the gap at the 30,076 level.  It actually reached a high of 30,325 which was a little more than a Fibonacci 1.62 times Wave ‘A’ up…. a perfectly normal bear market retracement.

I started buying a few inverse index ETFs near yesterday’s top.  I also bought a few of the 18 November DIA Puts I discussed in yesterday’s Comments, staying with the 260 strike price.

Bottom Line:  If the market starts to head down today, I’ll look to add to my existing inverse positions, especially if the decline begins to look impulsive. The key level to watch now is Friday’s low of 28,715 on the Dow and 3,584 on the S&P.  A break of these lows would indicate that the next set of waves down are underway.

TWID,

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