Professor’s Comments February 22, 2023

Posted by OMS  at February 22nd, 2023

Stocks fell hard on Tuesday as investors re-assessed the impact of rising interest rates.  The Dow shed 697 points, closing at 33,129.  The Dow has now lost all its gains for 2023. The NASDAQ and S&P were down 298 and 81 points, respectively.  Volume on the NYSE was moderate, coming in at 102 percent of its 10-day average. There were 38 new highs and 24 new lows.

Yesterday’s decline was the Big Move predicted by the ‘relatively’ small change in Friday’s A-D Oscillator.  It was nice to know that a Big Move was coming, as all you had to do was follow the Arrows as the market was falling.  It made for a nice trading day.

There were several changes to the cockpit indicators as a result of yesterday’s action. The DMI on the Dow turned negative. This is the first time the indicator has been negative since 26 January. The Market Timing Indicator for the Dow also turned negative.  The same timing indicator for the NASDAQ remains neutral.

From a technical perspective, it appears that a top is in for corrective Wave 2 up.  If so, the indexes should stay below their recent tops and continue to trade lower.  I’m using the 2 February highs on the S&P and NASDAQ as the Wave 2 top.  I’m using the 1 February high of 33,334 as the Wave 2 top on the Dow. If the indexes stay below these highs, I MUST assume that Wave 3 down is underway. In other words, I’ll be holding some of my inverse index ETFs instead of trading them like I usually do during corrective waves.

Several of the large retailers, like Home Depot (HD), got hit especially hard yesterday as the impact of rising rates continues to impact consumers.  The data released late last week by the NY Fed showed that credit card debt rose to $61 Billion, a 6.5 percent rises for the quarter, which is an annualized rate of 26 percent for the year. This is staggering!  It means that people are borrowing more and more on their credit cards so they can buy groceries, gas, and pay household expenses. To give you an example of how bad credit card debt is getting …because of inflation, two years ago, credit card debt was $770 billion.  Now its over $1 Trillion.  BTW, Home Depot (HD) lost 22.45 yesterday. Rising inflation and the high cost of credit card borrowing is starting to taking its toll on the retailers.  

BTW, here’s a few targets (preliminary) I’m using for Wave 3 down.  As the indexes start to move lower and develop their individual waves to form patterns, I’ll adjust as appropriate.  But for now, here’s what I’m using…..for Wave 3 down.  Remember, before the Bear Market is over, five Major Waves will need to complete.  So these targets are just for Wave 3 down:

Dow 28,000 to 29,000 level.  S&P somewhere close to 2,800.  Yesterday the S&P closed at 3,997.  NASDAQ (NDX) below 10,800.  Yesterday the NDX closed at 12,060.  Russell 2K below the early January 2023 near 10,670, then lower.  Yesterday the RUT closed at 12,060. My initial target of IWM, the ETF I use to monitor the Russell 2K is near the 160 level. Eventually, IWM should fall to somewhere between 130-140 during Wave 3 down. The small caps should get hit especially hard by increases in interest rates. Students should understand that the declines will NOT be straight down. There will be rallies along the way and these rallies will help identify the eventual targets.

The Sector Ratio weakened to 7-14 negative after Tuesday’s session. The top five strong sectors were Media (2), Real Estate (1), Banks (0), CapGoods (0), and Leisure (0).  The top five weak sectors were PharmaBio (-2), Computers (-2), Food Drugs (-2), Household Products (1) and Material (-1).  Students should note that the Sector Ratio is now negative…the first time it’s been that way in a while.

Bottom Line:  The markets appear to have turned, with Wave 3 down now starting. There could be some minor backing and filling today after yesterdays large decline.  I will be using any rally now as an opportunity to add to my short (inverse positions) in SDOW, TZA, SQQQ and SPXU. Follow the Arrows.

That’s what I’m doing,

h

Market Signals for

02-22-2023

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

The Hockey Stick Pattern
The Creation of Waves and Trends
FAQ

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.