Professor’s Comments March 21, 2023

Posted by OMS  at March 21st, 2023

Stocks rose moderately yesterday in a choppy trading session. The Dow finished with a gain of 383 points, closing at 32,244.  The NASDAQ and S&P were up 45 and 35 points, respectively. Volume on the NYSE was moderate, coming in at 96 percent of its 10-average. There were 21 new highs and 134 new lows.

In the WSR, I discussed how the Dow, after falling over 2,000 points, could use a corrective rally. I said the rally would likely take the form of either a single or a double zig-zag. Thursday’s 372 point rally appeared to be sub-wave ‘a’ up of the retracement, with Friday’s 385 point decline being sub-wave ‘b’ down. This set up yesterday’s 383 point rally, which appeared to be part or all of sub-wave ‘c’ up.  The reason I’m hesitating about sub-wave ‘c’ up being complete is because the Principle of Alternation for corrective waves suggests that when wave ‘a’ up is simple, wave ‘c’ should be complex. Also, it should also take about twice as long to complete. Sub-wave ‘a’ up took one day to form, so sub-wave ‘c’ up should have at least another day or so before it finishes.  Further, because sub-wave ‘a’ up was simple or straight up,  I would expect sub-wave ‘c’ up to form some type of mini-a-b-c pattern before it completes, probably near the 32,400-32,500 level. Then once sub-wave ‘c’ up of sub-wave 2 up completes, the next set of declining waves of Wave 3 down should begin to unfold.

Yesterday, was a Phi Mate turn date.  History shows that Phi Mate dates often mark important tops and bottoms within 1-2 days of these dates.  So, we need to be on our toes.  Also, the Fed will begin its meeting on interest rate policy today with an announcement scheduled for 2pm tomorrow.  Trading after the announcement could be extremely volatile, with significant moves both up and down before the market sorts out what the announcement means in terms of its next major directional move.

Right now, the Dow appears to be developing a straightforward a-b-c or zig-zag pattern. Once this pattern completes, possibly tomorrow, the next major move should be down.  However, IF the Fed does something the market does not expect, like pause or lower interest rates, the simple zig-zag retracement pattern could turn into a double zig-zag, meaning that it might take several weeks before sub-wave 2 up completes and sub-wave 3 of Wave 3 down begins.  

In the WSR, I mentioned that the European Central Bank raised interest rates a half percent last Thursday, choosing to fight inflation instead of pausing to help European banks, like Credit Suisse, with their solvency problems. So, it should be interesting to see what the Fed does tomorrow.  Given their recent comments on inflation, and seeing how last week’s ‘banking crisis’ only impacted a few U.S. banks so far,  I would not be surprised if they do something similar to what the ECB did.

Also, during the recent retracement rally, the NASDAQ-100 and S&P, both weighted indexes, have outperformed their equal weighted sister indexes. A good portion of the strength in the weighted indexes has been due to the performance of a few FAANG stocks. So, IF the market does top and begins to head lower, I believe there is a good chance the FAANGs will lead the market lower. That’s one of the reasons I will be including SQQQ into my mix of inverse index ETFs.  I believe the FAANGs will lead the NASDAQ and the overall market lower.

The support levels I am watching are 31,430 on the Dow and 3,808 on the S&P.  If these levels are broken to the downside, it will confirm that deep slide that I envision for Wave 3 down is underway.  Yesterday, the S&P cash closed at 3,952.

The Dean’s List is neutral. The Tide remains negative.

The Market Timing Indicators for the Dow remain negative. The same market timing indicators for the NASDAQ are positive.

The Sector Ratio stayed at 2-22 negative after Monday’s session. The top two strong sectors were Semiconductors (5), and Cap Goods (0). The top five weak sectors were Banks (-11), Autos (-4), Energy (-4), Insurance (-4), and Financials (-4). Students should note that the Banking Sector continues to remain under extreme pressure.

My Trades:  I had several small trades that together produced a nice paycheck yesterday.  It was a day where you had to work for your money by trading both sides of the market.  With the Bias on the RUT being negative, I started off with a small trade in TNA using the 5-min bars.  Then once the Green Arrow appeared at 11;40, I switched horses and rode TZA to the upside until 12:30.  I didn’t see much after that and took the rest of the day off.  

If the Dow approaches the 32,400+ level today, I’ll start looking to establish short or inverse positions in SDOW, TZA, and SQQQ. But again, I really would like to get past tomorrow’s Fed announcement before I get seriously short.

That’s what I’m doing,

h 

Market Signals for

03-21-2023

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.