Weekend Strategy Review June 12, 2022
Posted by OMS at June 12th, 2022
It looks like the next leg down of the Bear Market has started. Yesterday’s 880 point decline on the Dow came on the heels of Thursday’s 638 point decline, which was preceded by Thursday’s 270 point decline. All the declines were impulsive, something you would expect to see in a wave 3 of a Wave 3 down. The market has now had two to back days of strong negative breadth and volume, where both were more than 90 percent to the downside. Again, something you expect to see in a Wave 3 down.
The Dow wasn’t alone. All of its sister indexes also felt the pain. The NASDAQ and S&P were down 441 and 117 points, respectively. The S&Ps weekly close of 3000.86 was its lowest of the year. Bonds and crypto were down. Transportation and energy were down. There weren’t too many places to hide on Friday. Gold was one of the few sectors that was up. This was mainly due to Friday’s BLS report that the CPI rose to a whopping 8.6 percent in May, which is the highest rate of inflation since December 1981. This will put even more pressure on the Fed to increase interest rates quicker than previously announced. I wouldn’t be surprised to see a hike of 0.75 percent vs. the 0.5 percent increase previously announced. The Fed has a dual mandate to keep both inflation and unemployment in check. But now they’re between a rock and a hard place. If they raise interest rates, which MUST be done to prevent runaway inflation, the political issues it will create in unemployment and the economy will cause the stock market to suffer.
I had been using the 26,500 to 28,000 level as my target zone for Wave 3 down. I see no reason to change my targets this weekend. I also don’t see any reason to change my longer-term forecasts for the Bear Market lasting several years. All the Fed’s easy money policies and QE printing are now coming back to haunt us. There are no free lunches. I’m still hearing folks on CNBC and other places talking about the possibility of a ‘recession’. I think they’re being naïve! If the Fed continues to raise interest rates by 0.5 percent, the country will go into a deep recession. If they raise rates by more than 0.5 percent, we will likely move toward a depression styled economy and stock market.
BTW, a lot of this pain and suffering is self-inflicted. There are things that can be done to get the economy back on track. But with the policies of the current administration, especially with regard to energy, that probably won’t happen. The current Fed, supported by Treasury Secretary Yellen seem so out of touch with reality. Above all, I’m a realist. I call things like I see them. And right now, I believe things are going to get a lot worse before they get better. My comments have always been focused on protecting the wealth of my students. Right now, I see a clear and present danger ahead. No one, including myself, can tell you exactly how low the current market will go before things get better. For now, the charts are pointing toward a Wave 3 bottom somewhere between 26,500 and 28,000. But those lows are only for Wave 3 down. There will be two more Major waves after Wave 3 down completes. It’s possible that the Dow could be trading significantly below the 18,213 level, the March 20 Covid low before all five waves are complete. BTW, there’s also a fair chance that the Dow could drop to the August 2015 low of 15,370 during this decline. I don’t believe the March 2009 low of 6,440 will be tested, but I MUST mention that this is also possible. It can happen IF the country enters a severe depression that lasts for many years. The reason I say this is because the largest valid major pattern on the Dow is something called a megaphone pattern. It looks like the wide-open mouth a great white shark. If this pattern is what’s happening, the jaws and teeth of this pattern will continue to eat up equity values for many years to come.
My next downside target for the NASDAQ is near the 10,590 level. This is based on a 0.618 retracement of the prior wave 5 down. The Russell 2K has a target near the 12 May low of 1,540. This would put IWM, the tracking ETF for the RUT, near the 168 level. On Friday, IWM closed at 178.59. In other words, it appears that my Doctor’s Trade with TZA (see below) still has lots of room for profit.
Protect yourself!
The Dean’s List and the Tide are negative.
The Market Timing Indicators on the Dow, NASDAQ, S&P (SPY) and RUT are negative. The Scalp Trading Indicators on the Dow, S&P (SPY), NASDAQ (QQQ) and RUT are also negative. Pay attention to the Red Arrows.
The Sector Ratio weakened to 3-21 negative after Friday’s session. The top three strong sectors are Energy (4), Cap Goods (1), and Telecoms (0). The top five weak sectors are Media (-7), Retail (-5), Semiconductors (-5), Financial (-4), and Banks (-4). All the weak sectors were down significantly on Friday. Continue to avoid these weak sectors as they will likely lead the market lower as Wave 3 down unfolds.
My Doctors Trade with TZA moved back to a Green Arrow on Thursday’s first 4-hour bar (35.86). TZA closed at 41.43 on Friday. Student should note how the Red Arrows kept them out of the trade during waves ‘a’ and ‘c’ down of the Wave 2 retracement. Pretty cool! Now the trade is back on a confirmed Green Arrow. Students also need to note that the Bias on the trade, although rising, is still negative. Once it turns positive, I’ll start adding to my position…just like I do when I’m scalping.
BTW, the 4-hour Bias on SDOW and SQQQ is now positive, so I have sized my positions accordingly.
No change in my comments on Bonds, crypto, or gold. I still don’t see any reason to own them now. Despite golds pop on Friday. I still don’t like the pattern, which appears to be a complex wave 4 up. If this is the case, once the current rally completes, Wave 5 down should drop gold significantly lower. If gold rallies past the 1,920 level, it will change the wave count. The recent low of 1,768 would then have to be interpreted as Wave 2 down, meaning that Wave 3 up is underway. This wave IF it happens, could task gold towards the 2,500+ level. But I’ll worry about that later. Right now, there are much more important things to worry about.
Best Bets: Inverse index ETFs from the Dean’s List. I currently believe the Dow will decline about 3,392 to 4,692 points from current levels during Wave 3 down.
Have a great weekend.
That’s what I’m doing,
h
Also, please note. Marcia and I will be taking our granddaughter, London, on a cruise next week. As always, internet capability on a ship is always problematic at best. Because of this, I only plan to update the Lists on days that I publish my Comments. If I’m right about the decline being Wave 3 down, updates to the Lists probably won’t be a priority. I expect the inverse index ETFs to remain at the top of the Lists for some time.
Market Signals for
06-13-2022
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEG |
THE TIDE | NEG |
Index | Signal | Signal Date |
---|---|---|
DOW | NEG | 09 Jun 2022 |
NASDAQ | NEG | 09 Jun 2022 |
GOLD | POS | 10 Jun 2022 |
U.S. DOLLAR | NEU | 06 Jun 2022 |
BONDS | NEG | 02 Jun 2022 |
CRUDE OIL | POS | 12 May 2022 |
CRYPTO | NEG | 08 Jun 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