Professor’s Comments March 23, 2023
Posted by OMS at March 23rd, 2023
The Fed announced its latest policy on interest rates yesterday, raising rates by 25 basis points. The rate increase, which was widely expected, caused stocks to get hammered. The Dow fell 731 points from its intraday high of 32,761. It closed at 32,032, down 530 points. The NASDAQ and S&P were down 190 and 66 points, respectively. Volume on the NYSE was relatively light, coming in at 80 percent of its 10-day average. There were 28 new highs and 102 new lows.
In last weekend’s WSR, I mentioned that we could see a lot of volatility during the week because of Monday’s Phi Mate turn date and yesterday’s Fed announcement. So, after yesterday’s morning session, which saw the Dow retrace an almost perfect 61.8 percent of sub-wave 1 down and then fall impulsively two days after the Phi Mate turn date, there is a strong possibility that sub-wave 2 up is complete and sub-wave 3 down is starting.
Yesterday’s rate increase added to Wall Street’s concern about bank failures. By raising rates so quickly to fight inflation, the Fed has caused the value of securities in the portfolios of many banks to decline to the point where they are facing insolvency. Some estimates I’ve seen show that 150 to 200 U.S. banks could be in trouble. That’s more than enough to cause a banking crisis IF worried depositors start taking their money out of their bank. It could put the entire US banking system in jeopardy.
The thing that concerns me the most is that many of the banks that are in trouble have many depositors with assets well above the FDIC insured limit of $250K. In other words, if something bad were to happen to these banks, their large depositors might not get their money back. Also, several of these banks have been loaning money to risky start-up companies involved in the crypto currency business. So, the combination of risky loans and underwater portfolios that are generating insufficient income to pay depositors were not helped by yesterday’s Fed action. What I’m telling you is that I do not believe the banking crisis is over. Not by a long shot. In fact, it may only be starting.
From a technical perspective, like I said above, yesterday’s rally to 32,761 followed by an impulsive decline of 731 points was likely the end of sub-wave 2 up and the beginning of sub-wave 3 of Wave 3 down. If this is the case, the indexes should continue to work their way significantly lower as sub-wave 3 of Wave 3 down unfolds. My current target for sub-wave 3 down on the Dow is below the 30,000 level. The October 2022 low of 28,660 has strong possibility of being re-tested.
The alternate is that the indexes could still form a double zig-zag. But for that to happen now, the Dow would have to close above yesterday’s high of 32,761. For the S&P, a close above 4,039 is required. If this happens, the odds would be high that the S&P will make a run at the 2 February high of 4,195. I don’t see this happening,…but it could.
Students should understand that the Dow, at 32,032 is now trading below its 50 and 200 day exponential moving averages. The 50 is at 32,957 and the 200 is at 32,907. So, the 50 is still slightly above the 200. If the 50 drops below the 200, the financial news media will start to run headlines of the ‘Death Cross’. This will cause a lot of investors to panic and start selling in mass. From my data, I can already see that several major institutions are already starting to lighten their equity holdings …as they NEVER want to hold stocks once the price drops below the 200. This trend should start to accelerate in the weeks ahead and should be in full swing after the Death Cross occurs.
In other words, protect yourself!
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 Wednesday’s session. The top two strong sectors were Semiconductors (3) and Cap Goods (0). The top five weak sectors were Banks (-10), Insurance (-5), Financials (-5), Energy (-5) and Retail (-4). Students should note that the Banking Sector continues to remain under extreme pressure. This is NOT something to take lightly! I NEVER want to see extreme weakness in the banks. Never!
My Trades: I had a big day yesterday trading SDOW, TZA and SQQQ. Just pull up a 5-min chart of these inverse index ETFs and you will see the Green Arrows that were generated just after the Fed announcement. Easy.
IF we get a bounce this morning, I’ll be looking to re-establish the inverse index ETFs that I sold in my trading account at yesterday’s close. I’m currently holding these same inverse index ETFs (SDOW, TZA, and SQQQ) in both my and Marcia’s IRAs. I also bought and sold several 21 July 2023 July 350 SPY Puts for a nice one day profit. If the SPY pops this morning, I’ll look to re-establish these Puts. I’m hoping to pay about 5 bucks per contract. I’ll pay up to 5.10.
That’s what I’m doing,
h
Market Signals for
03-23-2023
DMI (DIA) | NEG |
DMI (QQQ) | POS |
A/D OSC | |
DEANs LIST | NEU |
THE TIDE | NEG |
Index | Signal | Signal Date |
---|---|---|
DOW | NEG | 09 Mar 2023 |
NASDAQ | POS | 16 Mar 2023 |
GOLD | POS | 10 Mar 2023 |
U.S. DOLLAR | NEU | 09 Mar 2023 |
BONDS | POS | 10 Mar 2023 |
CRUDE OIL | NEG | 10 Mar 2023 |
CRYPTO | POS | 13 Mar 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.
Category: Professor's Comments