Professor’s Comments July 14, 2022

Posted by OMS  at July 14th, 2022

Stocks fell again yesterday but this time on rising volume.  The Dow finished with a loss of 209 points, closing at 30,772. The NASDAQ and S&P were both down 17 points.  Volume on the NYSE was 101 percent of its 10-day moving average. There were 3 new highs and 211 new lows.

The BLS announced that Consumer Price Index rose 9.1 percent in June.  This was a 0.5 percent increase from May and was the highest rate of inflation in over 40 years!  Anyone who does any shopping for food, buys gas for the car or or pays the electric bill knows that this number is a lie. The inflation rate is significantly higher.  The shadow government statistics, which use the same indicators to measure inflation that were used back in 1990 show that real inflation is currently well over 12 percent.  If the 1980 measures were used, inflation be over 17.5 percent. These numbers will likely cause the Fed to increase interest rates by 1 percent vs.0.75 basis points at their next meeting.  If this happens, it will almost surely put the economy into full recession, if not a major 3-5 year depression.

As I write this, the market is now only a day away from entering the 15 -20 July turn date window I discussed last week and in the WSR. If the indexes have not already topped, there is a high probability that they will do so sometime within this window.  From a technical perspective, several of the indexes have already completed the five waves needed for wave ‘c’ of Wave 2 up, so indexes like the NASDAQ, S&P and Russell 2K could have topped.  I’m not so sure about the Dow.  Yesterday’s early downside action was followed by an a-b-c afternoon rally, so its still possible that the indexes could make one more run-up before Wave 2 up is complete. This alternate pattern, IF it occurs, would be a double zig-zag. I continue to give this alternate pattern low odds, but I mention it here because it is still possible. On the other hand, if Wave 2 up is complete, the indexes, especially the NASDAQ and Russell, should continue to move lower in the days ahead.

An impulsive break below the 30,000 level on heavy volume would eliminate the alternate wave count and confirm that Wave 3 down is underway. The actual low that must be broken for confirmation is the 17 June low of 29,653.    I’m still using a downside target range between 26,500 to 28,000, with 25,000 possible.  BTW, my target for the Russell 2K using IWM as the surrogate index is now near 143-145.  Students should remember that not to long ago, when IWM was trading near 205, I started talking about downside targets in the low 190s, then 183, then 170.  Yesterday, IWM hit 168.78 intraday, so talking about a target in the low 140’s is not so far fetched as it once seemed. The downside targets I discussed for IWM months ago were not pulled out of thin air as most analysts on CNBC tend to do, but on technical analysis of well-established patterns. This is the reason why I keep mentioning the 30,000 level for the Dow now, because the downward sloping H&S Pattern on that index is screaming at me, just like the pattern on IWM.  Its there, its real, and its dangerous!

The Dean’s List is still negative. The Tide is still neural.  At this point, even with yesterday’s decline, only one of the four breadth indicators that make up The Tide, are negative. This should change once the downside momentum begins to increase.

The Market Timing Indicators on the Dow, NASDAQ, S&P (SPY), and Russell 2K are negative.  

The Scalp Trading Indicators on the Dow, S&P (SPY), QQQ, and RUT have turned negative.

The Sector Ratio weakened to 4-20 negative. The top four strong sector are Telecoms (1), PharmaBio (0), Household Products (0), and Real Estate (0).  Students should note that three of the four strong sectors only have RS numbers of zero. So even the top strong sectors are pretty weak!  The top five weak sectors are Retail (-5), Media (-4), Material (-4), Energy (-4) and Semiconductors (-4). Continue to avoid these weak sectors as they will likely lead the market lower as Wave 3 down unfolds.

My Doctor’s Trade in TZA was up 0.18 cents yesterday as TZA finished at 44.87.  The trade is now up 5 percent since it was entered on Monday’s Green Arrow. My target for the trade, based on the stick and blade I discussed in Tuesday’s Comments, is near the 57-58 level.  This target could be several points higher IF Wave 3 down in the RUT extends.

Tuesday was a multiple cigar days for me, while yesterday was relatively tame.  I had a multiple cigar day in Marcia’s IRA account yesterday, mostly because the inverse positions in her account were held overnight.  They benefited from yesterday’s early decline. All I’m doing now is trading inverse index leveraged ETFs like SPXU, SQQQ, SDOQ and of course TZA.  With a negative bias on the 60s, 4-hour, and daily bars of IWM, I continue to look for opportunities to trade TZA on any Green Arrow.  At this point, I’m still scalping a few shares of TZA, while holding shares of the same ETF overnight based on the 4-hour bars. I will likely continue to use this same strategy as the Dow moves closer to the 30,000 level, mostly because I cannot eliminate the alternate Wave 2 scenario until 30,000 is broken. That’s OK. Two cigar days are more than enough for this old geezer. I’m not a hog.

BTW, in case any of you are wondering, I don’t ever smoke more than once cigar per day. Most days I don’t smoke any.  I only use ‘cigar days’ to measure of how much I made during the day.

My new Trend Indicator continues to impress.  Yesterday it was relatively quiet keeping me out of all the intraday noise that was going on.  It did nail the two upside trades in TNA that occurred at the 10:24 and 11:48 marks.

Still no change in my comments on Bonds, crypto, or gold.  Gold (GLD) was up 0.77 yesterday to 161.60.  I’m still watching for a bottom in gold, mostly because of the pattern and the positive seasonality that occurs between late July and late August.  IF gold is completing Wave 4 down, the positive seasonal bias could trigger Wave 5 up.  This wave could take the metal to the 3,000 level or higher.

My Best Bets for today continue to be SDOW, SQQQ, SPXU, and TZA on any Green Arrow. If any decline starts to look impulsive, I’ll hold some of these positions overnight.  Below 30,000 on the Dow, I’ll hold all my inverse positions.

That’s what I’m doing.

h

Market Signals for

07-14-2022

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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