Weekend Strategy Review October 30, 2022
Posted by OMS at October 30th, 2022
In Friday’s early Comments, I warned that the market could experience a Big Move because of the small change signal from the A-D Oscillator. I also talked about how the 10-day TRIN was extremely overbought and the pattern suggested wave 2 up was nearing completion. I also saw that both Amazon and Apple, had announced less than stellar earnings the previous night, so, when I wrote the Comments, I was expecting the big move to be down. But everything changed at 8:30 am when the government announced that the third quarter GDP rose 2.6 percent in contrast to a 0.6 decline in the previous quarter, meaning the country is no longer in recession. Hmmm? The government said that the increase in GDP reflected an increase in exports and consumer spending that were partly offset by a decrease in housing investment. The news caused the Dow futures, which were down by about 100+ points pre-announcement, to turn around and rally the cash index by 828 points into the close.
The Dow finished the day at 32,861. The NASDAQ and S&P also had a good day, closing 310 ad 94 points higher, respectively. Volume on the NYSE was the lowest since the ‘c’ wave of the rally started on 13 October.
So, what’s the real story? Is the BEA telling us the truth about the economic data? Is the country no longer headed for recession? Or was the economic data interpreted favorably so as not to have an economic crisis just before the election? I don’t know if we’ll ever know the answer to that question, given the current political environment and the importance of the mid-term elections. We know that the President’s PPT has been actively supporting the market since early October. The computer-generated buy programs that came in every time the market appeared vulnerable were way too large to be anything else. But with the stakes so high, did the BEA put its hand on the economic scale? We’ll see. If they did, it wouldn’t be the first time the government lied to us.
Anyhow, rally or not, it still appears that the overall pattern is intact. I still believe that Friday’s rally was part of wave 2 up. BTW, the current patterns are looking a lot like the patterns that occurred in 2008. Back then, with an election approaching, the Dow rallied almost 14 percent into the election and then fell (crashed) over 22 percent in the 17 days after the election.
Now, since the Dow completed its minor wave 1 low on 30 September, the larger cap index has retraced about 16 percent. But while there are similarities in the charts of 2008 and now, there is a BIG difference in monetary policy. Back in 2008, in the 12 months prior to the election, the Fed was dropping interest rates from 5.25 percent to 1 percent into the election. Now its just the opposite. Now the Fed is raising interest rates every time it meets by about 0.75 basis points to fight runaway inflation. So, the monetary policy is completely different. The lowering of rates in 2008 was good for the market back in 2008, but now, the raising of rates in 2020 is probably less so. I still believe that 8 November is a key date for stocks. But this time, because interest rates are rising, not falling, the market could start its next decline before the election, not after, as was the case in 2008.
Still, you MUST remember what old Yogi said…” It ain’t over till is over.”
The Dean’s List and The Tide are positive.
The Market Timing Indicators for the Dow and NASDAQ are positive.
The Sector Ratio strengthened to 14-10 positive after Friday’s session. The top five strong sectors were Energy (7), Autos (3), Cap Goods (3), PharmaBio (3), and Foods (2). The top five weak sectors were Household Products (-3), Consumer Products (-3), Retail (-2), Healthcare (-1), and Service (-1).
On Thursday, I receiver a nice email from Claus F. that I wanted to share with you. Claus wrote, ‘Dear Hank, I just want to state how helpful it is in using your system more effectively when you outline how you traded the previous day for us to review…what vehicle you traded, entry exit points and why…etc. While it may seem repetitive to you and some others, for me it is very helpful to making these decisions more reflex…taking the emotion out of the process. Thank you.
Here’s what I said in my reply: Claus, I really appreciate your feedback on this. I always wonder if my students want me to include what I did on my trades. It’s just like today, I said I would be using SQQQ as my primary ETF. Then once the market opened, seeing that the Bias was positive on the 4 min bars, I simply bought the first Green Arrow, exiting on the Red. I did that several times during the day and now have a multiple cigar day for my efforts. If you don’t mind, I’m going to use your email this weekend in my WSR. I would really like to hear what other students think about your suggestion.
Anyhow, after Friday’s bullish comments by the BEA, the opening Bias was positive on every index I was monitoring. So, I stayed on the sidelines for most of the morning, before I took a small long trade in the early afternoon. My trading was interrupted by the arrival of Marcia’s friends, so I called it quits early. However, if you look at 4-min charts of the Dow and QQQ, you will easily see what I mean. There were no shorts to be had all day. The Bias simply did not allow them. What I did note was that even though the market was rising steadily during the day, the Bias on the 4s was steadily falling….in other words, there was negative divergence. This caused me to buy a few SPY Puts near the close as a speculation. I used the 20 January contract with strikes of 340 and 350 to give the trade a bit more time to develop.
If you would like me to keep reviewing m trades, as suggested by Claus, please let me know. Maybe I’ll do this in exchange for only updating the Lists only three times a week, which I’m planning to do anyway next year.
Bottom Line: Despite what happened on Friday, I still believe that Wave 2 up is getting close to completion. If the Bias turns negative on QQQ or IWM, I’ll try a few scalp trades with SQQQ and TZA, buying on a confirmed Green Arrow and exiting on the Reds. I’m still not holding anything overnight.
Have a great weekend.
That’s what I’m doing,
h
Market Signals for
10-31-2022
DMI (DIA) | POS |
DMI (QQQ) | NEG |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | POS |
Index | Signal | Signal Date |
---|---|---|
DOW | POS | 25 Oct 2022 |
NASDAQ | POS | 28 Oct 2022 |
GOLD | NEG | 26 Oct 2022 |
U.S. DOLLAR | POS | 27 Oct 2022 |
BONDS | NEU | 27 Oct 2022 |
CRUDE OIL | POS | 20 Oct 2022 |
CRYPTO | POS | 26 Oct 2022 |
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.
Category: Professor's Comments, Weekend Strategy Review