Weekend Strategy Review February 19, 2023

Posted by OMS  at February 19th, 2023

The market is closed on Monday, 20 February in celebration of Washington’s Birthday.  My next update will be posted on Wednesday, 22 February..

Early Thursday, the government announced that the Producer Price Index rose to an annualized rate of 8.4 percent. The announcement caused the Dow to decline 432 points, closing at 33.696.  It was the largest decline since 16 January, when the Dow fell 614 points, which now appears to be sub-wave 4 in the Ending Diagonal for Wave 2 up.  Yesterday’s rally of 130 points, retraced about a third of Thursday’s decline on the Dow.  There was no retracement on the NASDAQ and S&P as each index fell 69 and 11 points, respectively.  The decline was important because the market is coming out of last week’s Fibonacci Cluster Turn  Window, so if the ‘window’ was going to work, stocks had to start falling within 1-2 days from the last date.  They did.   

So, what happens now?  Well, for starters, I’m starting to see some signs that all is not well with the markets.  The markets continue to make a series of lower highs and lower lows.  This is the classic definition of a declining trend.  While the Market Timing Indicators have turned mixed with the Dow being positive and the NASDAQ now neutral.  The Tide has turned negative.  The two most important breadth indicators that make up The Tide, the Hi-Lo Indicator, and the A-D Oscillator, have turned negative. The A-D Oscillator has now been negative for the past eight days.  Also, Friday’s reading was -108, which was only 19 points from Thursday’s reading, so there is a possibility of a Big Move when trading resumes on Tuesday.  I normally use 10 points to generate a small change signal but given the possibility that the first sub-wave 3 down of many waves down could start next week, I thought I’d mention it.  Remember, Thursday’s 400+ point decline and yesterday’s 13- point retracement could be sub-waves 1 up and 2 down setting the stage for a sub-wave 3 decline next week.

Students should remember that the last three times the market entered a major Fibonacci Cluster Window, the market experienced declines of 3,552, 3,550 and 5,425 points. Last week’s ‘cluster window’ was the first since August, and the current wave structure suggests that the Ending Diagonal for Wave 2 up completed is now complete.  While it us still early in the turning process, (the market timing indicators are still either neutral of positive) students should understand that the possibility of a several thousand point decline in the Dow exists, and should prepare for it.

While I’m thinking about it, I want to say a few things about the Dean’s List. Back in early January, when the market started to rally, the Dean’s List was three full pages long. It contained the ETFs of all the major U.S. indexes and many international country ETFs.  Most of the ETFs had RS ratings of 3s and 2s. The top ten ETFs on 11 January had RS ratings of 4 or better.  That’s a sign of a very strong market.  However, if you look closely at Friday’s Dean’s List, you will see a very different picture. Only the top four ETFs have RS ratings of 4 or better. The rest are mostly 2s, 1s, and 0s.  Also, the List is only a little over 1 page.  DXD, the inverse ETF for the Dow, is now on the List and most of the international country ETFs are missing.  In other words, the List is telling you that the markets of the world are getting weaker.  If Wave 2 up is complete and the sub-waves of Wave 3 down are starting, the Dean’s List should continue to weaken with more and more inverse ETFs appearing.  The number of ETFs on the List should also decrease to less than a half page.  Pay attention to what the List is telling you.  

The Sector Ratio weakened to 14-7 positive after Friday’s session. The top five strong sectors were Media (4), Retail (3, Banks (2), Technology (2), and Semiconductors (2). The top five weak sectors were PharmaBio (-2), Food Drugs (-1), Foods (-1), Energy (-1), and Household Products (0).

Bottom Line:  The markets are now at critical levels in terms of patterns and the Fibonacci Cluster Turn Window. All I’m doing now is watching and waiting for more indicators to turn negative.  I have started to buy a few inverse index ETFs, like SDOW, TZA and SQQQ.  I plan to add to these positions when I get confirmation from the Arrows. It’s still early.

Also, while signs are starting to appear that suggest lower prices ahead, there is still a possibility that the decline since 2 February is a part of more complex second wave rally.  If the market does not decline hard next week, the odds will increase for a rally back above the 2 February highs. 

Have a great weekend. 

That’s what I’m doing,

h

Market Signals for

02-21-2023

DISCLAIMER

As always, the Professor never makes recommendations. The information is provided on an educational basis so you can have informed discussions with your financial advisors and/or accountants about your individual investment decisions.

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.