Weekend Strategy Review December 31, 2022
Posted by OMS at January 3rd, 2023
The Dow has spent the last week or so chopping around between 32,581 and 33,387. There were four days where the Dow had large moves of 345 points or more. Yesterday, the Dow was down over 300 points again, but finished with a loss of only 73 points, closing at 33,147. If you look at a chart of the past week’s price action, you will see that the Dow has effectively been forming the ‘Blade’ of an inverse Hockey Stick for Wave 2. The pattern appears to be a double zig-zag that might need one more pop higher to complete the ‘Y’ Wave. That pattern should eventually resolve to the downside, but like I said, it may take one more upward pop to do it. If the Dow does rally early next week, my best guess is will trade to the 33,400+ area, possibly as high as 33,500. There was a small change of 10 points in the A-D oscillator on Friday, so depending on what happens on Tuesday (the market is closed on Monday for New Year’s) we could see a rally to the 33,400+ level OR a large impulsive decline that would suggest that Wave 3 down is starting. If the decline begins to look impulsive, it would be my signal to start getting aggressively short.
The RUT closed at the 1,761 level, above my ‘Line in the Sand’ of 1,752. The RUT has also been trading sideways for the past week or so, hovering above and below 1,752. This is typical behavior for a retracement Wave 2. I believe that the next time the RUT falls below 1,752, it will signal that Wave 3 down is starting, especially if the decline is impulsive. I still believe that small cap stocks will lead the market significantly lower, with the decline accelerating as the New Year progresses.
My upward target for the S&P remains near the 3,890 level. A break below the 22 December low of 3,764 should get things rolling to the downside.
The Market Timing Indicators for the Dow and NASDAQ are negative.
The Dean’s List is negative, while The Tide remains neutral.
The Sector Ratio weakened to 13-11 positive after Friday’s session. The top five strong sectors were Household Products (toothpaste and toiled paper) with an RS rating of (3), Cap Goods (1), Healthcare (1), Energy (1), and PharmaBio (1). Students should note that 4 out of the top 5 top sectors are defensive in nature. In other words, the large institutional investors are no longer being aggressive with their money. They are now trying to protect themselves. The top five weak sectors are Retail (-4), Food Drug (-2), Computers (-2), Technology (-2) and Leisure (-2).
I will be driving back to Jacksonville tomorrow. I wish all my students and their families, a Happy, Healthy, and Prosperous New Year.
My next Update will be on Wednesday, 4 January 2023.
That’s what I’m doing,
h
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