Weekend Strategy Review January 30, 2022
Posted by OMS at January 30th, 2022
After opening lower, stocks turned around and moved steadily higher, completing a five-wave pattern into Friday’s close. The fact that the rise was five waves tells me that Wave ‘E’ of the Expanding Diagonal pattern I discussed on Friday is either starting or it might need one smaller pullback before taking off. The reason I say this is because yesterday’s rally could also be Wave ‘d’ within a smaller triangle pattern that has been forming since 26 January. If this is the case, prices should begin to fall when trading resumes on Monday, possibly to the 34,200 level to complete wave ‘e’ down of the triangle before rising to the 36,000+ to complete the Expanding Diagonal.
Yeah, I know, it sounds complicated, but that’s the way it usually is when you’re trading non-impulsive waves. The indecision in the market causes several declines, followed by sharp rallies, and then more declines. However, if you step back and look at the market (Dow) with a wider lens, you can see that the large cap index topped on 5 January and since that time it has made a series of lower lows and lower highs. Early this week, when the Dow fell to a low of 33,150, it exceeded its 1 December low of 34,006. This cannot be ignored as from a technical perspective; it defines the decline as part of Wave 1 down within a new Bear Market. So, no matter what happens next week, whether the rally continues, or we have another small pullback, every rally during the next month or so must be considered as part of some type of retracement rally.
This has major implications for how any rally should be traded. I can no longer hold large positions overnight as I was during the impulse waves of Wave 1 down. Now the market is likely in some type of corrective phase, so smaller positions and scalp trades are the order of the day.
When the new year started, I said that January would likely be a down month. It was as the Dow lost 1,613 points. The decline appears to be Major Wave 1 down of the new Bear. So, this weekend as I look out into February, the charts are telling me to be prepared for higher prices accompanied by very choppy trading. How high prices go will depend on what happens during the next few days. If Friday’s rally continues, it’s possible that the Dow could rise to the 36,500 level. In this scenario, the rally should be a five-wave affair to complete Wave “E” up of the Expanding Wedge. On the other hand, if the rally is retracement Wave 2, I would expect it to complete closer to the 36,000 level. But before it can do this, there should be a pullback to the 34,200 level. In either case, prices should be higher towards the end of February, but they should not exceed the 1 January high.
Why am I telling you all this? Hmmm? Well, from a strategy perspective, I want you to spend February getting prepared for what’s coming in either late February or March. In both scenarios I outlined above, whether the Dow rises to 36,000 or higher really doesn’t matter. If you’re using the Arrows to scalp the shorter term bars the odds are that you will have a nice month.
But here’s the deal. With every trade you make to the long side, I want you to remember that the next day could be the start of a disaster for the market. Once we get into mid-month, every trade you make MUST be made with the view that a major crash could be right around the corner. The market could open 1,000 points lower and drop another 1,000 points during the day. We saw several intraday moves of 500 points or more during Wave 1 down, with one intraday move being almost 2,000 points last Monday. The intraday declines I see coming during the crash wave will make these Wave 1 numbers appear tame. So, use February to prepare yourself for what’s coming. If a rally starts next week, you’ll start hearing the TV commentators saying things like ‘the Bull is back’. Don’t be fooled. They couldn’t tell a retracement rally from the real thing if their lives depended on it. Like I used to tell you in class, these people are entertainers. They just read what’s put in from of them. Their opinions should not be used to make decisions on your money. They don’t have Arrows. You do! Follow the Arrows.
BTW, for my longer-term traders, because I believe prices will be higher in mid-to late February, if the Dow does move lower early next week and approaches the 34,200 level, which might be a good point to establish a few intermediate-term positions that can be held into mid-to-late February. However, students should understand that these positions could be subject to extreme whipsaws and will always be subject to the possibility of a market collapse. This is a time when you will need to weigh risk-reward not only in terms of money, but how it will affect your ability to sleep and overall health. If you have money in the market overnight, the next month will be like sleeping with a ticking time bomb under your bed.
The Dean’s List and The Tide remain negative.
The Market Timing Indicators for the Dow, S&P, and NASDAQ are negative. The Scalp Trading Indicators for the Dow, NASDAQ, and S&P remain negative.
The Sector Ratio weakened to 4-20 negative after Friday’s session. The top four strong sectors were Energy (4), Foods (2, Banks (0), and Utilities (0). The top five weak sectors were Semiconductors (-5), Retail (-5), Cap Goods (-4), Autos (-3) and Consumer Products (-3). Most of the remaining sectors are also very weak with RS rankings of -3s and -4s. The sector ratings are telling us that it’s time to be very defensive.
The final thing I want to talk about this weekend is gold and commodities. Last week I mentioned that gold appeared to be completing a retracement wave and would likely be headed lower. That happened during the week and GLL, the inverse gold ETF I said I would be trading has done nicely. I took money off the table yesterday when it appeared that sub-wave 1 of the decline may have completed near the 1.780 level. If this is the case and gold rallies next week to the 1,800 -1,820 level, I’ll short it again with GLL for a move down to the 1,725-1,730 level. GLL has been a reliable Arrow trade using the 15 min bars. Unlike the indexes, I have been holding these positions overnight.
Have a great weekend.
That’s what I’m doing.
h
P.S. If you’re happy with what we’re doing on these pages, please tell your friends, co-workers, and family members about our website (s). I believe the market is headed for some tough sledding in the months ahead that could impact the retirement accounts and savings of many Americans. The key to protecting these accounts and your money is knowledge. That’s why I developed the new Arrows Trading System. The new Arrows and colored candlesticks are the backbone of a simple, easy to understand and follow trading system that can be used to generate income and protect wealth. I urge you to have your friends and family members send Dave an email requesting a trial subscription. Once subscribed, I’ll have them trained up in no time.
Market Signals for
01-31-2022
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEG |
THE TIDE | NEG |
Index | Signal | Signal Date |
---|---|---|
DOW | NEG | 18 Jan 2022 |
NASDAQ | NEG | 13 Jan 2022 |
GOLD | NEU | 26 Jan 2022 |
U.S. DOLLAR | POS | 26 Jan 2022 |
BONDS | NEG | 18 Jan 2022 |
CRUDE OIL | POS | 23 Dec 2021 |
CRYPTO | NEG | 06 Jan 2022 |
DISCLAIMER
As always, the Professor never makes recommendations. The information is provided on an educational basis so you can have informed discussions with your financial advisors and/or accountants about your individual investment decisions.
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, Weekend Strategy Review