Professor’s Comments September 22, 2022
Posted by OMS at September 22nd, 2022
The Fed announced that they would raise interest rates another 75 basis points yesterday to fight inflation, which deepens the risk of a sharp economic slowdown with significant job losses. The increase puts the Fed rate close to 3.5 percent, the highest level since the 2008 financial crisis. The increase in interest rates has cause the US economy, as measured by GDP, to contract for six straight months meeting the formal definition of a recession. However, the current administration continues to deny that a recession has begun.
Yesterday’s rally into the Fed announcement was wave ‘c’ up of sub-wave 2 up within Wave 3 down. I talked about how this wave would likely complete as a 3-3-5 flat pattern in Tuesday’s comments. There were at least 6 buy programs that occurred in the 50 minutes after the announcement where buyers, most likely members of the Plunge Protection Team, came into the market in an attempt to keep prices from falling. However, by 3pm, all these buying efforts failed and the market started an impulsive decline in the final hour. The Dow closed down 523 points, at 30,187. Sub-wave 3 down of wave 3 down of Wave 3 down was finally underway.
The NASDAQ and S&P were down 205 and 66 points, respectively. Volume on the NYSE was moderate, coming in at 95 percent of its 10-day average. The reason yesterday’s volume was fairly low was because there was very little volume until 2pm, as most traders were on the sidelines waiting for the Fed announcement. I expect that volume will start to pick up in the days ahead, once traders begin to realize just how destructive the rise in interest rates will be to the U.S. economy.
There were 22 new highs and 372 new lows.
BTW, in the days before the Fed announcement, the closing TICK was negative for six consecutive sessions, even though the market was trying to stage a sub-wave 2 rally. This was really weird! It’s also extremely rare. Most times when you get two or three negative TICK readings before a Fed Meeting, it usually spells trouble for the market during the next 1-2 days.
Yesterday’s events didn’t do anything to change my opinion of the market. I’m still short and looking for a test of the 17 June Wave 1 low of 29, 653. Once this low is broken, the Dow should test the 26,500 to 28,000 level, with 24,000 possible if Wave 3 down extends.
The Dean’s List and the Tide are negative.
All the indicators for the major indexes are negative.
The Sector Ratio weakened to 8-16 negative after yesterday’s session. The top five strongest sectors are Energy (4), Leisure (3), Autos (2), Real Estate (2), and Banks (2). The top five weak sectors are Telecoms (-4), PharmaBio (-4), Computers (-3), Consumer Products (-3), and Healthcare (-2).
I’m still not doing anything with Bonds, Gold, Silver, and Cryptos for now. Focus on inverse index ETFs from the Dean’s List.
Bottom Line: It appears that three levels of Wave 3 down are underway. Stay out of the garden and remember what I said about Secretariat.
That’s what I’m doing,
h
BTW, I wanted to talk about the impact that the increase in interest rates is going to have on ’Zombie Companies’ but this will have to wait. I have a doctor’s appointment at 8am today, so I must get ready for it. Zombies are companies that earn just enough money to continue to operate and service their debt but are unable to do much else. The increase in interest rates will cause a lot of these companies to fail, as they will no longer be able to service their debt. Some of the most vulnerable zombie companies are in the PharmaBio sector, a sector high on the Weak List. These companies spend years living on stretched budgets waiting for their new drug to be approved. If you own a ‘zombie’ especially if it’s a small R&D drug firm, be careful. The coming recession-depression will not be kind to them.
Market Signals for
09-22-2022
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEG |
THE TIDE | NEG |
Index | Signal | Signal Date |
---|---|---|
DOW | NEG | 15 Sep 2022 |
NASDAQ | NEG | 15 Sep 2022 |
GOLD | NEG | 26 Aug 2022 |
U.S. DOLLAR | POS | 23 Aug 2022 |
BONDS | NEG | 11 Aug 2022 |
CRUDE OIL | NEG | 15 Sep 2022 |
CRYPTO | NEG | 15 Sep 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