Weekend Strategy Review March 19, 2023

Posted by OMS  at March 19th, 2023

Stocks fell sharply on Friday, on strong volume associated with the expiration of options.  The Dow finished with a loss of 385 points, closing at 31,861. The NASDAQ and S&P were down 87 and 44 points, respectively. There were 13 new highs and 199 new lows.

In Thursday’s Comments, I mentioned how the Dow was oversold after falling over 2,000 points and could use some type of corrective rally. I said the rally would likely take the form of either a single or a double zig-zag.  So, on Thursday, the Dow rallied for 372 points, then gave back 385 points yesterday.  In other words, this up-down action may have been waves ‘a’ up and ‘b’ down of a three wave zig-zag pattern.  If so, we should see a wave ‘c’ up rally early next week to complete the pattern….assuming it’s a single zig-zag.

If the Dow does rally early next week, it should test last Thursday’s high of 32,281, and could carry to 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.

Monday is also one of two important days scheduled for next week as it’s a potential Phi Mate turn date. A few weeks back, I wrote about the importance of Fibonacci Turn Windows and Phi Mate turn dates for identifying important tops and bottoms. Since the last Fibonacci Turn Window, the Dow has fallen over 2,000 points. In other words…pay attention!

The other important date is the Fed Meeting scheduled to start on Tuesday with an announcement on interest rates set for 2pm on Wednesday.  Both events could produce a lot of volatility in the markets.  BTW, the European Central Bank raised interest rated 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 on Wednesday.  I’m betting that they do something similar.

I found it interesting to learn that First Republic, another bank that has been in the news lately, is also having liquidity issues.  The bank is the 14the largest U.S. Bank with assets of about $21 billion. The reason I mention First Republic today is because 68 percent of its depositors have assets in the bank that are above the FDIC insurance threshold of $250K, so if the bank goes under, those depositors are at risk of losing a significant portion of their money.  If I had money in First Republic, knowing that so much of its depositor’s money was uninsured, I would be taking my money out of the bank and placing it in another, safer bank. The reason IO would do this is because once other depositors realized how insane this situation is, they could (should )start withdrawing their money too …and this could cause the bank to fail. BTW, late yesterday a consortium of eleven of the largest banks in the U.S. agreed to deposit $30 billion in First Republic for the next 120 days to give it time to work out its problems.  If you have money in that bank, you might want use the time to ‘work out’ your problems too.  I never want to read about liquidity issues with my bank. Never!

Protect yourself!

The Dean’s List is neutral as QLD has moved onto the List. The Tide remains negative.

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

The Sector Ratio weakened to 2-22 negative after Friday’s session. The top two strong sectors were Semiconductors (5), and Cap Goods (0). The top five weak sectors were Banks (-11), Insurance (-6), Energy (-5), Autos (-4) and Consumer Products (-4).  Students should note the EXTREME weakness in the banking sector. Not good!

My Trades:  I didn’t trade yesterday.  I took the day off and spent the time doing arts and craft projects with London. Depending on what happens on Monday….if the market opens higher, I’ll look to trade UDOW for a move to the 31,281+ level on the Dow.  Small positions only. Then IF the Dow starts to show Red Arrows above 31,281, I’ll start looking to establish short or inverse positions in SDOW and TZA. But here again, I really would like to get past Wednesday’s Fed announcement before I get seriously short.

That’s what I’m doing,

h

Market Signals for

03-20-2023

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.