Professor’s Comments March 19, 2020

Posted by OMS  at March 19th, 2020

The markets had another big down day yesterday dropping over 2,320 points before recovering about a thousand of those points in a closing rally.  The Dow finished with a loss of 1,338 points at 19,899.   The NASDAQ and SPX were down 345 and 131 points, respectively. Volume on the NYSE was moderate, coming in at 113 percent of its 10-day average.  There were 14 new highs and another massive 2233 new lows.

Yesterday’s plunge after Tuesday’s 1,038 point rally was difficult to analyze from a technical perspective.  It’s still possible that the Dow could be developing a triangle with extremely large legs.  But it’s also possible that Tuesday’s rally was wave 4 up within Wave 3 down.  If so, Wave 3 down could be nearing completion and the next rally wave, Wave 4 up could be getting ready to start. 

In yesterday’s comments, I mentioned that the Dow should re-test Monday’s lows, probably completing somewhere between the 19,000-20,000 level. That re-test occurred yesterday with the Dow falling to 18,918 before bouncing into the close. The bounce caused a Hammer Candlestick to form, something often seen at short-term bottoms. So, it’s possible that Wave 3 down ended yesterday.  We’ll see.  If the Dow does begin a Wave 4 rally, I would expect it to complete somewhere between the 23,000-24,000 level before the next Wave down re-tests yesterday’s lows.

Yesterday, there was a lot of selling of non-stock assets such as gold, silver, and oil, as traders tried to raise cash to cover their losses in equities. If this selling continues, the next major asset class to be sold will be speculative real estate. This was one of the things that happened during the crash of 2007-2008, when investors bought homes thinking they too were going to the moon.  This selling of non-liquid assets is something to watch for as it would foretell the beginning of an economic depression and not just a temporary recession which I believe is still the most likely scenario from the effects of the corona virus.  The President is right when he says the underlying economy is still strong. Once the medical community figures out a cure for the virus, people will go back to work.  None the less, over $11 Trillion has been removed from the U.S. economy, so even if a cure for the virus is found today, it will take several months, perhaps years, for the stock market to return to its former highs.  One scenario I have has the Dow bouncing between 17,00 and 24,000 for the next 3-4 years.  And even this scenario has a lower outcome 4-5 years from now before any type of meaningful recovery begins.  BTW, this scenario has a minimum of 6 or more 3-4 thousand point rises and declines before it completes, so there should be many opportunities for traders in the years ahead.

The market timing signals for the Dow, NASDSAQ, SPX (SPY) and the Russell 2K remain on Sell Signals.  BTW, small cap stocks on the Russell 2K have been getting hammered during this crash, as the RUT has now lost about 47 percent of its value since the pounding started a little over a month ago.  This is one of the reasons why I believe any type of sustained recovery will be slow in coming.  Too much money has been lost by the companies that create most of the jobs in America.  They will be gun shy going forward.

The Sector Ratio remains at 1-23 Negative after yesterday’s decline. The only positive sector was Computers with an RS rating of zero.    Energy, Leisure, Autos, Materials and Retail continue to lead the List of Weak Sectors with EXTREMELY weak RS ratings.  Almost 90 percent of Weak Sectors had RS ratings of -10 or more.   digits.   

The Model Portfolio remains heavily invested in cash.  It remains in the protection mode.

BTW, last night, I saw a report on FOX that talked about how some malaria drug cured 100 people in a French test.  Immediately after hearing about the study, Fox announced that the President will be holding a news conference with the FDA later today.  If the old malaria drug works on the corona virus, we could see a rally later today.  Like I said, from a technical perspective, this rally would likely only be Wave 4 up of a five wave pattern.  So, I wouldn’t get too excited yet.  I’m hoping last night’s report was true, because this senior is getting tired being holed up in his house.

That’s what I’m doing,

h

The Model Portfolio is being shown for educational purposed only.  The Buy/Sell actions in the Model Portfolio are made based on technical indicators that can and do change frequently and should NOT be considered as recommendations for trading an actual portfolio.  Any gain or loss in the Model Portfolio should not be used to predict future performance of the Model.

Market Signals for

03-19-2020

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