Professor’s Comments February 14, 2023

Posted by OMS  at February 14th, 2023

Stocks rallied sharply yesterday in anticipation of a favorable report on inflation due out at 8:30am today.  The hope is that the inflation we saw during the last few months was only a short-term spike, enabling the Fed to relax its policy on raising interest rates. We’ll see.  The last time I bought eggs, they were still over six dollars a dozen. BTW, the New York Fed just reported that median inflation expectations for January remained at 5.0 percent at the one year horizon, but decreased by 0.3 percent to 2,7 percent at the three-year horizon and rose 0.1 percent to 2.5 percent at the five year horizon.  So on average, at least according to the NY Fed, the current inflation rate of 5 percent appears to be a short-term spike. If it’s not a spike, Chairman Powell has already said that he will take measures (raise rates) to bring down inflation to 2 percent, which is the level he wants to maintain.  So, what happens today will be all about the data in the inflation report.  Stay tuned….

A lot of yesterday’s volatility was due to options traders using short-term contracts to trade the Bond market. Many of these traders have placed large bets using short-term contracts (1-2 days) that will expire today.  So, we could see a lot of volatility early in today’s session.

Yesterday, the Dow finished at 34,247 which is still under the 34,712 high it made on 13 December which I’m still labeling as Wave 2 up.  The large cap index is also still below its 13 January high of 34,342, which I’m labeling as Minor Wave 2 up of Wave 3 down.  If the Dow moves above the 34,712 level, it will require a reassessment of the Wave count.

The S&P and NASDAQ are basically in the same boat.  Prices have risen to the point where they will either confirm the Bearish case by falling hard or will require a reassessment for some short-term Bullish case.  Right now I’m still labeling the decline on the S&P from the 2 February high as sub-wave 1 down and 2 up.  If this is the case, a strong sub-wave 3 decline should begin soon, possibly after today’s inflation report is released.  If not, and the market starts to rally, it’s likely the decline from the 2 February is only a pullback in an ongoing rally that will lead to higher prices, possibly as high as 4195.  There is also an outside chance that the index could rally to the 4325 level, which is where the previous wave 4 stopped.  A close below 4060 will increase the odds that sub-wave 3 down is underway.

Today, 14 February, is the last day of the Fibonacci Cluster Turn Window.  It is the first ‘Cluster Window’ since August, so it will be interesting to see what happens.  If the Window is going to mark a top, the markets will need to begin trading lower in the next few days.

After yesterday’s action, the important Hi-Lo indicator turned positive again.  However,  the Summation remained negative so The Tide remains neutral.  The Dean’s List remains positive.

The Market Timing Indicators for the Dow turned back to positive while the NASDAQ remains neutral.  

The Sector Ratio strengthened to 21-3 positive after Monday’s session. The top five strong sectors were Semiconductors (4), Media (4), Banks (3), Real Estate (3), and Leisure (3). The top three weak sectors were Food Drug (-1), PharmaBio (-1), and Foods (-1).

My Trades:  The Bias on the short-term bars of the indexes I wanted to trade turned positive right out of the starting gate, so I exited my inverse index ETFs and moved to the side-lines.  The opportunity I thought would come to re-establish my short positions never came.  By day’s end, the Red Arrow on DIA had turned Green on the Daily bars.  The SPY, RUT(IWM) and QQQ stayed on their Red Arrows. With mixed signals from the Arrows, and a positive short-term Bias, I stayed on the side lines.

All I’m doing now is waiting to see how the market reacts to the inflation report.

That’s what I’m doing,

h

Market Signals for

02-14-2023

Not sure of the terminology we use? Check out these articles

The Hockey Stick Pattern
The Creation of Waves and Trends
FAQ

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