Professor’s Comments July 26 2022

Posted by OMS  at July 26th, 2022

Stocks were mixed yesterday on light volume sideways trading.  Not much changed.  The Dow finished with a gain of 91 points, closing at 31,990.  The NASDAQ was down 51 points; the S&P was up 5 points.  Volume on the NYSE was only 88 percent of its 10-day average. There were 25 new highs and 33 new lows.

Yesterday’s trading action traced out a small a-b-c or zig-zag pattern on most indexes.  Because this pattern did not exceed Friday’s high, it’s possible that it was sub-wave 2 up in the decline I see coming.  In Sunday’s Comments, I posted a few numbers for the major indexes that if broken to the down would suggest that Wave 3 down is underway.  Those numbers were not broken yesterday.  They should be watched as the week progresses.

Probably the most significant thing I saw yesterday did not come from the stock market. It was the comments made by Nouriel Roubini, a professor at New Your University’s Stern School of Business.  The reason I mention Professor Roubini today is because back in 2007, he was the one of the few economists who were predicting a stock market crash. Now he’s talking about another one.  Wall Street calls him ‘Doctor Doom’.  I his latest comments, he said that the global economy will be worse than the than recessions of the 1970s and the Great Depression. His detailed analysis of low growth, large deficits and enormous public debt have him calling for a 50 percent decline in stocks prices.  In yesterday’s comments, he called Wall Street’s and the Fed’s projections for a short and shallow recession ‘delusional’.  If you have some time during the next few days, you might want to listen to one or two of Professor Roubini’s recent interviews…just google his name.  He will definitely give you a different perspective from the dribble you get on CNBC.

All I’m doing now is waiting for the next decline to start.

As of yesterday’, the Dean’s List and The Tide remain positive. If these two indicators turn negative, it will be another sign that Wave 3 down is starting.

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

The Scalp Trading Indicators on the Dow, S&P (SPY), NASDAQ, and RUT (IWM) are also positive.  

The Sector Ratio was unchanged at 10-14 negative after yesterday’s session. The top five strong sector were Real Estate (4), Banks (1), Financials (1), Semiconductors (1), and Cap Goods (1).  Students should note how 4 of the 5 top sectors only have RS ratings of one. That’s pretty weak! The top five weak sectors were Material (-3), Retail (-3), Energy (-2), Insurance (-1), and Food Drug (-1).  Continue to avoid these weak sectors as they will likely lead the market lower as Wave 3 down unfolds.

I’m still on the side-lines with the Doctor’s Trade in TZA waiting for the next Green Arrow to appear.  I’m a buyer on any Green Arrow.

No changes to my comments on gold, crypto or Bonds. I’m still on the side lines.

Bottom Line:  Continue to watch for an impulsive move lower. That’s the key.  If Wave 3 down is starting, the next move down should be impulsive. If not, something else is going on.  Right now, I’m just looking for opportunities to get short using inverse index ETFs, like TZA, SDOW, SPXU, and SQQQ.

That’s what I’m doing.

h

Here are the wave 1 highs of Wave ‘C’ up on all the major indexes.  If these highs are broken to the downside, the odds are high that Wave 3 down is starting.  Suggest you market these levels on your charts.

Dow: 31,644.68, S&P: 389.09, IWM: 176.29, QQQ: 296.18.

Market Signals for

07-26-2022

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

The Hockey Stick Pattern
The Creation of Waves and Trends
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