Weekend Strategy Review November 21, 2021

Posted by OMS  at November 21st, 2021

The markets were mixed again yesterday. The Dow dropped 269 points, closing at 35,601.  It was down 499 points for the week.  The tech heavy NASDAQ rose 64 points yesterday, making a new high. It was up 196 points for the week. The crazy thing about yesterday was that while the NASDAQ was making its all-time high, the number of new lows surged to 425.  This was the highest number of new lows since March 2020 when the market was first being hit by Covid.  A good portion of yesterday’s gain on the NASDAQ was a result of a few stocks, like Tesla (TSLA), which rose 41 points.  The stock generated a Green Arrow on 16 November when it was trading at 1003.31.  Yesterday it closed 1137.12, with its Arrow still Green.

In yesterday’s opening Comments, I discussed how the Dow and Russell 2K appeared to be re-testing critical support from a Head & Shoulders Pattern and that Wave 3 down could start at any time.  From the looks of things, it appears that Wave 3 down started yesterday…at least on the DOW and RUT.  The NASDAQ and S&P are in slightly different patterns, resulting from their Ending Diagonals, so they will need to break below the lower trendline of the ED before their slide can begin.  That could happen early next week as the decline on the Dow and RUT begins to apply pressure to the techies.

Market breadth has turned negative as evidenced by a negative Tide.  The past three days the A-D oscillator on the NYSE has seen negative readings of -104. -145 and -180.  These are not crash like readings, but they do suggest that the breadth has taken a turn for the worse.  Also, the Summation Index is now solidly negative, and well below its mid-July high.  The divergence between the Dow’s recent highs and the number of stocks participating in the recent rally is noteworthy. It’s a sign that the market is running out of gas.  This is not to say that the Dow can’t stage a snap back rally early next week.  It can, especially with an oversold A-D oscillator reading of -180. If the Dow does rally, I don’t expect it will move higher than old H&S neckline support level at 35,915, which will now act as strong overhead resistance.  But here’s the thing:  If the market does not rally early next week, that -180 A-D number can start to increase and get ugly.  If it moves to -250 or below, the Wave 3 decline could become crash like.   What I’m telling you is that there is a lot of Bearish potential in the market this weekend.  The Dow has broken below a critical support level, so please be careful with your trading next week. 

One level to watch is the 10 November low of 4,630 on the S&P.  I have labeled this low as Wave 1 down with the subsequent rally being a Wave 2 up.  So, if the 4,630 is broken next week, it’s a good bet that Wave 3 down is starting on that index. This would also signal that the Bull Market is over, having topped on 5 November. 

The Market Timing Indicator on the Dow is still Neutral.  The same Timing Indicators for the S&P (SPY) and NASDAQ (QQQ) remain Positive.

The Scalp Trading Indicators for the Dow (DIA) turned Negative.   The same indicators on the S&P (SPY), and NASDAQ (QQQ) remain Positive.

The Dean’s List is still Positive. The Tide has turned Negative. 

The Sector Ratio weakened to 16-8 Positive after yesterday’s session. The top five strong sectors were Autos (5), Semiconductors (5), Service (3), and Banks (2) and Real Estate (1).

The top five weak sectors were Media (-3), Telecoms (-1), Insurance (-1), PharmaBio (-1), and CapGoods (-1).

Top Stocks:  Instead of talking about the top stocks this weekend, I want to spend some time on the new longer-term trading strategy I have been advocating for friends and students who can’t be watching their computers all day.  Specifically, I want to talk about trading the 120 minute bars. 

In Friday’s early Comments, I mentioned that I had positions in SDOW and TZA based on the 120s.  I also mentioned that I was looking to buy SPXU (inverse ETF for the S&P 500) and SQQQ (inverse ETF for the NASDAQ-100) IF the 120s show confirmed Green Arrows.  The later didn’t happen on Friday, as the NASDAQ rallied, and the S&P held stable for most of the day.  But let’s review the bidding….

Both the Dow and RUT started the day off with Red Arrows.  Both indexes were breaking below neckline support of a small Head & Shoulders pattern.  So, it was not surprising to see both indexes finish significantly lower.  After all, that’s what was supposed to happen.  I had previously bought SDOW and TZA based on the Green Arrows that were generated on 9 November, and then added to the positions when another Green Arrow was generated on 17 November.  All I was doing was following the Arrows, as the volume indicator told me not to worry.  During this time, 7 trading days, TZA went from 22.47 to 24.96, a gain of 2.49 points or 11 percent.  On 500 shares, that’s a gain of $1,245.  But the nice thing about it was that I didn’t have to watch my computer all the time. I only checked it a few times during the day, and when I saw the Arrow was still Green, I didn’t worry. I never even thought about selling.  I was in the trade and the Green Arrow told me all systems were go.  How easy is that?

Same for SDOW.  I bought the ETF just after a Green Arrow appeared on 9 November at 26.70.  Four days later, a Red Arrow appeared at the open and I was out at 27.40, for a gain of 0.75 cents.  I got back in the stock when another Green Arrow appeared at the open on 17 November at 27.30.  As the stock mover higher, I added a few more shares when the yellow bar told me the stock was trending.  Yesterday, SDOW closed at 28.40, still on a Green Arrow.  Total gain was 1.85 points or 7 percent.  On 500 shares, that’s another $925.  Once again…an easy trade. (BTW, I had a lot more than 500 shares, but I’m only using 500 as an example). No more having to spend hours watching the computer.  A quick glance every few hours told me everything was fine with the trade. 

But here’s the thing….in Friday’s Comments I told you that I wanted to buy SPXU and SQQQ. That didn’t happen.  Why?  Well, I didn’t see any Green Arrows.  Take a look.  The Arrows on SQQQ have been Red since 11 November. And seeing nothing but Red at the bottom of the screen, I couldn’t even think about buying the ETF.  I could easily see all the Red from across the room.  The Arrows were telling me to fuhgeddaboudit, which I did.

This is why I love trading the 120 min bars. They give me my life back. I can set up my laptop in the garage where I do my woodworking projects and still make money.  If you are a doctor taking care of patients, you can now appreciate how nice it is to have the Arrows.  Just a passing glance at your computer one or two times during the day tells you everything you need to know about your stocks.

If you were curious about what was causing the NASDAQ to rally on Friday, all you had to do was pull up TSLA. You saw a green screen with Green Arrows.  That’s all you needed to know. 

Also, think about this.  A student recently sent me a promo sheet from a local ‘financial advisor’ that advertised his returns.  The sheet showed returns of 7.3, 1.2, 11.9 and 13.2 percent during the years from 2018 through 2021.  In other words, the advisor with the big office and staff produced a total return of 37.5 percent over 4 years or an average of 9.4 percent per year.  Think about this for a minute.  I just showed you how the Arrows produced returns of 11 percent and 7 percent on two ETFs in a week!  Maybe the advisor should be using the Arrows?

Anyhow, I hope the above discussion has made you think.  If you aren’t using the Arrows on the 120 min chart, you might want to give it a try.  This is especially true for my newbies.  By trading the 120s, you can take a more relaxed approach to trading. You won’t have to make all the decisions that confront you when you trade the shorter-term bars like the 5s,10s, or 12s.  Now you can step back and be more relaxed, knowing that the Arrows and indicators will tell you when you need to take action.  After all, the object of the trading game is to make money…not to become frustrated with all the ins and outs.

So, give it a try.  What?  You say you don’t have the Arrows?  Hmmm…. what can I say?  You missed out.  The price is now $399.   I’m going to raise it to $599 once the promos we have going are complete.  No more ‘the dog ate the email’.  Call or email Dave if you want it for $399.  My next Update Classes will only be offered to students who buy the Arrows Class. I’m telling ya…don’t continue to miss out. If you give your money to a financial advisor, he will probably charge you about 3 percent. That’s $3,000 on a $100K portfolio…and he doesn’t have the Arrows. Actually, most local financial advisors don’t manage your money at all. Most are just money gathers who send it to someone on Wall Street who most certainly don’t have my Arrows. You can do it yourself for $399, and save $2,600. Think about it….

Have a great weekend.

That’s what I’m doing.

h

Market Signals for

11-22-2021

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.