Professor’s Comments March 14, 2023

Posted by OMS  at March 14th, 2023

Stocks closed mixed in choppy, volatile trading yesterday.  The Dow opened by gaping 100 points lower, dropping over 200 points before rallying for 616 points, then pulled back to close 90 points higher at 31,818. It was the kind of day that was a lot of fun…. if you followed the Arrows.  The NASDAQ finished 92 points higher; the S&P was 5 points lower. Small caps on the Russell 2K finished with a loss of 28 points.  Volume on the NYSE was heavy, coming in at 148 percent of its 10-day moving average. There were 14 new highs and 345 new lows.

It was hard to tell anything about the micro-degree wave count after yesterday’s session.  The only thing that’s clear to me is that sub-wave 2 up has topped and sub-wave 3 down of Wave 3 down has started.  Last week, I mentioned that my first downside target for the SPX was the 3,850 level.  Yesterday, the SPX broke through that level at the open hitting a low of 3,808 before rallying. My next target is the 3,500 level.  

The downside gap at the open was spurred by news of another bank failure.  This time it was Signature Bank of New York, a $110 Billion asset bank with $88 Billion of deposits. Regulators seized the bank on Sunday.  Signature was the third largest bank ever seized in the history of the U.S.  It came two days after the Silicon Valley Bank was shuttered by California regulators, which was the second largest seizure in history.  President Biden took the opportunity to blame the fiasco on his predecessor and assured depositors that they would not loses money.  He said the only people who would lose money were the ‘investors’ who took risks knowing they could lose money. Hmmm? I’m not sure how comforting that was to everyone who heard the speech. But hey, not to worry…. Biden, Yellen, and Powell are now at the helm.  If that’s not enough to cause you to lose sleep, I don’t know what is.

BTW, Biden never did talk about the real reason the banks failed in the first place. Ironically, it was because of the Fed’s rapid and historic rise in interest rates to control inflation…inflation which is being fueled by his massive spending and give away programs, including the weapons given to Ukraine and the replacement of weapons left during the hasty pull out in Afghanistan.  When interest rates rise too fast, the value of  a bank’s securities portfolio falls.  So, when depositors lose faith in the bank and demand their money, the bank doesn’t have the assets to cover the withdrawals and must borrow money from the Fed. But if the value of the bank’s assets is lower than the Fed’s loan, it could start to impact the Fed’s balance sheet.  It a lot of banks begin to fail; the situation could get complicated real fast!

Students should understand that the FDIC insurance that Biden talked about is really only a sticker on the door of the Bank. The sticker is only good if people trust the government’s ability to pay and don’t panic.  If a lot of banks start to fail, like what happened in the 1980’s when 1,600 banks were seized, the FDIC fund that covers these emergency situations could run out of money.  This happened in the 80s. Taxpayers and other banks had to foot the bill.  It could easily happen again.  Confidence is the key word here. If people lose confidence in the banks and their government, the entire banking system could come under pressure. After what saw this weekend, I don’t believe we’re out of the woods yet.

Protect yourself!

The Dean’s List is negative. The Tide is also negative.

The Market Timing Indicators for the Dow and NASDAQ remain negative. The same market timing Indicators for the S&P and the Russell 2k are also negative.

The Sector Ratio weakened to 4-20 negative after Monday’s session. The top four strong sectors were Semiconductors (3), Media (2), Leisure (0), Technology (0) and Cap Goods (0). The top five weak sectors were Banks (-9), Insurance (-4), Energy (-4), PharmaBio (-3), and Utilities (-3). Students should note the EXTREME weakness in the banking sector. Not good!

My Trades:  I traded both sides of the fence yesterday, with both long and short index ETFs.  It wasn’t the easiest trading day I ever had, because you had to be nimble.  But at the end of the day, the large swings in the indexes produced nice profits.  Yesterday was a day where you really had to pay attention to what the volume was doing. For example, even though SDOW started out positive, it became apparent after four bars on the 4s that the volume was not going to support further downside in the market.  To add to the confusion, the Bias was all over the place throughout the day. When this happens, it’s best to take a quick look at the slightly longer term bars, like a 3-day 12 or a 5-day 15 min chart to get a better picture.  The 5-day 15 clearly showed that SDOW, after rising in five waves, was just talking a pause.  The Bias on the 15s remains positive, so the volatile sideways trading we saw yesterday will likely result in additional upside action as Wave 3 continues to unfold. If the market rallies today, I will continue to look for opportunities to get short.  Remember, we’re still over 250 S&P points from my next downside target.

I believe the market is starting a series of multiple degree declines that should drop the indexes to new lows.  There WILL be rallies along the way, possibly sharp rallies….but overall, the trend should be down. Remember, this is a MAJOR WAVE 3 down.  Do NOT take it lightly!

Gold and bonds had a nice day yesterday. See the WSR for my Comments on both.

That’s what I’m doing,

h

03-14-2023

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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