Weekend Strategy Review January 29, 2023

Posted by OMS  at January 29th, 2023

Stocks finished with modest gains yesterday after a choppy trading session that saw the indexes rise early, pull back, then rally again before pulling back into the close. The Dow closed 29 points higher at 33,978.  It reached an intraday high of 34,164.  The NASDAQ and S&P were up 109 and 10 points, respectively.  Volume on the NYSE was moderate, coming in at 91 percent of its 10-day moving average. There were 115 new highs and only 6 new lows.

Yesterday’s session produced a ‘Spinning Top’ candlestick on the Dow, a pattern that is often seen at important tops. So far, the Dow has remained below the 13 December high of 34,712, so the current rally must still be labeled as part of sub-wave 2 up within Wave 3 down.  Once this current rally completes, sub-wave 3 down of Wave 3 down should drop the Dow to significantly lower levels.

In Thursday’s Comments, I said that I was using a potential target for the SPY of 405. On Friday, the SPY reached an intraday high of 408.16.  It closed at 405.68. So, the SPY is also well below its 16 August Major Wave 2 high of 431.73, which means that the rally that started from the 13 October low is part of Minor Wave 2 up within Major Wave 3 down. There is significant resistance just above the 410 level from several tops, including a previous wave 4 top, so Friday’s rally may have completed the retest. We’ll see if the rally has enough gas left in the tank to re-test the 410 level early next week.  If not, the next set of down waves should begin to take over.

The Fed will be announcing the results of its latest interest rate policy on Wednesday, and all ears will be tuned to what Chairman Powell says in his post-announcement press conference.  The recent rally in equities will give him an opportunity to raise rates again, so investors will definitely be on edge going into the meeting.  Whether the markets wait until the announcement to begin their decline remains to be seen.  Friday’s ‘Spinning Top’ candle is telling me that investors are getting nervous.

Also, there was a small change of 10 points in the A-D Oscillator on Friday. Small change signals usually lead to a Big Move in the markets within 1-2 days.

I’m still using a close below the 25 January low of 33,273 on the DIA as my first sign that Minor wave 3 of Wave 3 down is underway.

BTW, the NASDAQ has been a lot stronger than the Dow and S&P during the recent rally. Today’s rally was mostly due to a pop in electric vehicle stocks, like Tesla, which has been doing well since the year started.  Just remember that this sector got creamed during last year’s decline, with TSLA dropping from 384 to 101.  So, seeing TSLA bounce back to 177 is not surprising.  Speculative shares almost always bounce back the most during wave 2 retracements. But the rally looks a lot like a dead cat bounce to me.   

The Market Timing Indicators remain positive on the Dow and NASDAQ.

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

The Sector Ratio weakened to 19-5 positive after Friday’s session.  The top five strong sectors were Cap Goods (6), Media (5), Real Estate (5), Retail (4), and Consumer Products (3). The top three weak sectors were Food Drug (-2), Utilities (-1), Foods (-1), Autos (0), and PharmaBio (0).

My Trades: With a positive Bias showing on the indexes, I stayed on the side lines for most of the day. Late in the day, with the Dow and SPY at or slightly above my targets and seeing significant divergence on the 8s, I bought a few shares of SDOW triggered by the Green Arrow that appeared at the 15:38 mark.  I held the trade into the close.

I’m still looking for an opportunity to add to my Puts and/or start buying SDOW, SQQQ and TZA., but I want to see evidence that the current rally is complete before I do.  Right now, except for the ‘Spinning Top’ candlestick, I still don’t see that evidence.  As a minimum, I want to see the Bias on the 30 min bars of the DIA and Q’s turn negative with confirmed Red Arrows.

Have a great weekend.

That’s what I’m doing,

h

Market Signals for

01-30-2023

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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.

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