Professor’s Comments July 28, 2022
Posted by OMS at July 28th, 2022
Stocks rose sharply yesterday after the Fed announced they were raising short-term interest rates another 0.75 percent after a similar 0.75 percent increase in June. The increase is an attempt to control the worst rate of inflation in 40 years. So far, the Fed has raised rated four times this year. They said there would be more.
The Dow finished with a gain of 426 points, closing at 32,197. The NASDAQ and S&P were up 470 and 103 points, respectively. Volume on the NYSE was 103 percent of its 10-day average. There were 33 new highs and 45 new lows.
Yesterday’s rally exceeded Friday’s high of 32,219 before pulling back. By doing this, it means that Wave ‘C’ up of Wave 2 up is not complete. In last week’s Comments, I mentioned that if the recent decline did not break below the 18 July high (wave 1 up high) the recent decline was likely sub-wave 4 of Wave ‘C’ up leaving one more rally wave to go before the final top is in.
At this point, it’s still somewhat problematic to project how high wave ‘C’ of Wave 2 up will go before it completes. However, there are a few things that we do know. The first is that the current rally can no longer be considered a minor retracement move. It is now part of a major a-b-c corrective rally with waves ‘A’ up and ‘B’ down complete. Wave ‘C’ up is now taking the form of a five wave zig-zag pattern, with four waves complete. In this pattern, it is possible for the fifth wave up, wave ‘C’ up, to extend. A potential stopping point is near the early June highs near 33,270, which is the wave ‘d’ high of the Bearish Declining Wedge pattern. This level has eight days of sideways trading near it, so it should supply formidable resistance. On the other hand, the final wave of a 3-3 5 zig-zag pattern can and often does truncate, so we will need to be mindful of a close below 30,600, which would confirm that Wave 3 down is underway. My guess, and that’s all it is at this point, is that wave ‘C’ up will end somewhere below 33,000, possibly closer to 32,300-32,400.
The reason I’m hedging on my projections now is because there is an alternative. As I mentioned in earlier Comments, the Dow and S&P are also forming a right leaning Head & Shoulders Pattern. If this pattern is what’s happening, then the Dow will probably terminate well below 33,000 as the downward leaning right shoulder develops. If you put a gun top my head, I’d say the right shoulder tops under 32,500 with this pattern.
So, there you have it. I know its not much at this point, but it looks like we’re in for choppy trading and higher prices for the next week to 10 days. We’ll have to keep an eye on the volume as the indexes push higher which will also be a clue as to which pattern will win. If the advance occurs on light volume, especially as the Dow moves above yesterday’s high, the odds will begin to favor the H&S scenario. Right now, they don’t.
The Dean’s List and The Tide remain positive.
The Market Timing Indicators on the Dow, S&P (SPY), NASDAQ and Russell 2K (IWM) are all positive.
The Scalp Trading Indicators on the Dow, S&P (SPY), NASDAQ, and RUT (IWM) are also positive.
The Sector Ratio is now 19-5 positive after 5yesterday’s session. The top five strong sector were Real Estate (5), Semiconductors (2), Cap Goods (2), Household Products (2), and Leisure (2). Students should note that even though the Ratio has turned positive, the RS numbers for the 19 strong sectors are still pretty weak, mostly zeros and 1s. Only the top five sectors have ratings above 2, so they’re not really that strong. The top five weak sectors were Retail (-3), Material (-1), Telecoms (-1), Insurance (-1), and Media (0).
I’m still on the side-lines with the Doctor’s Trade in TZA waiting for the next Green Arrow to appear. Students should note how the absence of a Green Arrow kept us out of yesterday’s late market rally.
BTW, even though the charts and indicators for the Dow, S&P, and NASDAQ suggest higher prices, the chart for the Russell 2K (IWM) is showing something else. Yesterday’s rally in IWM was checked by a major declining trend line that goes back to the beginning of the year. So far, all four of the rally attempts since January have been checked by this downward sloping tend line. In other words, if IWM doesn’t break above 191, it’s still possible that Wave 2 up on the Russell is nearing completion of its Wave 2 up. So even though I’m slightly Bullish on the other indexes, I’m not quite there on the RUT.
No changes to my comments on gold, crypto or Bonds. I’m still on the side lines, but I am still watching Bonds for a number of reasons. The first that the yield curve on U.S. Treasuries inverted back on 8 June. An inverted 2 and 10 year yield curve has correctly predicted the last eight recessions. The second reason is that my charts on Bonds are still clouded. The longer term chart is now suggesting that Wave 2 down in Bonds is nearing completion. If this is true, it means that interest rates are near their peak and that Bond prices could be headed significantly higher!!! Hmmm? Doesn’t make sense on first glance, especially in view of the recent Fed increases in interest rates, but if the country is headed into recession/depression, with a sinking stock market….it makes all the sense in the world!
I did notice that TBT did generate a Green Arrow on the 4-hour bars. Not sure if I’m ready to buy it here in view of my longer term outlook for Bond prices.
Bottom Line: I’m on the side lines for now. If the indexes pull back today, I’ll start looking for opportunities to scalp the long side. Watch the Bias.
That’s what I’m doing.
h
Market Signals for
07-28-2022
DMI (DIA) | POS |
DMI (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | POS |
Index | Signal | Signal Date |
---|---|---|
DOW | POS | 27 Jul 2022 |
NASDAQ | POS | 27 Jul 2022 |
GOLD | NEG | 30 Jun 2022 |
U.S. DOLLAR | NEU | 27 Jul 2022 |
BONDS | POS | 21 Jul 2022 |
CRUDE OIL | NEG | 21 Jul 2022 |
CRYPTO | POS | 27 Jul 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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Category: Professor's Comments