Weekend Strategy Review September 25, 2022
Posted by OMS at September 25th, 2022
Wave 3s never cease to amaze me. Since this one started on 16 August, the Dow is now down over 5,000 points, reaching an intraday low of 29,250 yesterday. In doing so, the Dow broke below the 17 June low of 29,653, confirming the move as part of Wave 3 down. The decline also told me there probably a lot more downside to come. But the one thing we know is, the decline won’t be straight down. There will be rallies, probably sharp rallies, along the way. All week long we saw evidence of this as the President’s Plunge Protection Team stepped in with several buy programs. Each of these buy programs failed, but this is not to say that these buy programs won’t be successful in the future. Their timing was wrong. The wave structure simply wasn’t there to support a rally. If the President’s Team were to buy at the right time, they will likely be successful. But these high-power individuals probably didn’t know anything about the structure of Elliott waves. So, they just bought and wasted their money.
Yesterday’s decline was powerful. It was the second time this week that saw 90 percent of the stocks in the S&P index close down. This doesn’t happen often. Down volume on the NYSE came in at 91.6 percent, which was the highest down volume of the week. Same for the A/D ratio which came in at over 8:1 negative. That’s the strongest negative breadth in several months. It caused the A/D oscillator to close with a reading of -369.8. That’s really oversold! Actually, the market is EXTREMELY oversold right now, as evidenced by the past four day of A/D oscillator readings near or below -200. (-369.8, -297, -231 and -194). So, looking at those numbers, there’s a chance the market could stage one of those PPT sparked rallies early next week. If it occurs, it will not change my Bearish outlook. This market is going a lot lower.
The question on the table for today is how low. Hmmm? If you recall, I have been saying that Wave 3 down should end somewhere between 26,500 and 28,000. Possibly 24,000 to 25,000 if it extends. I also mentioned 28 September +/- as a possible turn date. Well, 28 September is fast approaching, but when I look at the bigger picture, I just don’t see it as a turn date for Wave 3 down. The reason is pretty simple. We’re no longer dealing with a simple Wave 3 down. This one consists of three wave 3s. It’s much larger than I previously expected. This one has the potential to be a tsunami! Several weeks ago, I gave the 26,500 to 28,000 level a 75-80 percent chance of being reached. I gave the 24,000 to 25,000 level a 20 percent chance. But now, because of the 3 of 3 wave structure, I MUST now consider an even lower target closer to the 20,000 level for Wave 3 down. This level seems a bit far fetched at the moment, but given the wave structure, I’m going to tell you it’s possible. If we only drop to the 24,000-25,000 level, the country won’t be talking about recession. We’ll be headed for depression. The reason is because the amount of money being lost is too much to prevent this from happening. For example, last Tuesday’s 523-point decline in the Dow removed over $1 Trillion from the economy. The 1,277 point drop that occurred on 9/13 removed about $1.5 Trillion. Yesterday’s decline took out another $1 Trillion. Just remember that the Fed created about $9.4 Trillion out of thin air to rescue the economy, most of which caused the inflation we’re dealing with now. So, with almost half of that money being lost in the past month, do you really believe the President when he say’s we’re not going into recession? Come on, man!
There’s a reason I wanted to talk about recession/depression today. It has to do with interest rates and what it means to bonds. Most people watched and wondered last week as the Fed raised interest rates to 3.25 percent to combat inflation. The market started to tank because of it. They believe that rates will continue to rise, making homes, cars and durable consumer products difficult to finance. They’re probably right in the short term. I saw one local family being interviewed on TV during the week talking about they could no longer afford to buy the house they wanted because of the increase in monthly payments. The rise in interest rates is putting a damper on the economy, slowing economic output, reducing jobs, and hammering the stock market. But the thing most people are missing is that once the economy starts to decline, there will be less and less need for money. If you don’t have a job, you’re not going to buy a house. Because of this, interest rates will begin to fall. That’s what happens during recession. Money gets even cheaper in a depression. And that’s why I want you to start looking at Bonds.
Here’s the thing: Back in December 21, TMF, the 20+ year Treasury 3X leveraged ETF was trading at 32.4. Now its at 9.5. In Friday’s early comments, I talked about how the Large Speculators have increased their short position to 8.4 percent, the shortest they have been since October 21. I can’t tell you how excited I was when I saw that number, mostly because these guys never get it right.
Now I’m not saying that you should go out and mortgage the house to buy Bonds now. No, I still believe that you should continue to focus on the inverse index ETFs on the Dean’s List. But over the next week or so, the wave structure is telling me bonds could be getting close to bottoming. You know I have been avoiding bonds for months. Now, I’m not as negative on them. I’m actually starting to buy a few shares of TMF for our IRAs. I’ll continue to buy more as he 60s and 4-hour bars turn positive. The charts suggest wave 5 of Wave 5 down is nearing completion. If I’m right, bonds could see a nice snap back rally that could develop legs. Watch the Arrows for entry signals.
Same for gold and crude oil. Gold has gotten hammered since its 10 August high. Right now, the metal is EXTREMELY oversold. The charts suggest the recent decline is part of a a-b-c Wave B decline. If I’m right, gold could see a nice rally into early November. I bought a few shares of UGL late Friday, just to get my toe wet. If the 60 and 4-hour bars turn positive, I’ll add to the position. BTW, silver (SLV) has a similar pattern.
I must confess that I have no idea about what is happening with crude oil. The war in Ukraine and these countries energy policies make trading crude oil an extremely hazardous proposition. But having said that, the chart is telling me that the decline in crude since the start of the year is a wave 4. The short-term chart says crude is forming a bottom. Right now, West Texas Intermediate Crude (WTIC) is trading between 84-85. If I’m right about the chart, WTIC could be in the 130-150 range, maybe higher, by December. In other words, the chart is saying (not me), that Europe is going to have a cold winter. This has nothing to do with electric cars or green energy policies. It has everything to do with Putin and his latest war mongering. If you want to speculate on this, be my guest. I’m gonna do it because I like the odds. I bought a few shares of UCO, the ETF for crude oil on Friday. I’ll buy more when I see Green Arrows on the 60s and 4-hour bars.
I’m still not interested in crypto. BTW, the Dollar is starting to look extremely toppy now. It’s one of the reasons I’m starting to look at UDN, the inverse ETF for the Dollar. A topping dollar is also why I’m looking at gold.
The Dean’s List and the Tide are negative.
All the indicators for the major indexes are negative.
The Sector Ratio weakened to 2-22 negative after Friday’s session. The top two strongest sectors are Energy (1) and Leisure (0). The top five weak sectors are Telecoms (-5), Transportation (-5), Material (-4), Semiconductors (-4), and Consumer Products (-4).
Bottom Line: It appears that three levels of Wave 3 down are underway. With the market EXTREMELY oversold, the picture for the next few days is not clear. Conditions are ripe for a PPT induced short-term rally. If the rally happens, I’ll look at it as another opportunity to add to my short (inverse) positions. Regardless of what happens early next week, this market is going a lot lower. At 29,590 (Friday’s close) we’re still several thousand points away from my original targets. And now with the possibility of three down waves occurring at the same time, the decline could be a lot lower. BTW, my next short-term target for the Dow is the large gap near 28,320 which is at the 6 November close.
Remember what I said a few weeks ago about waterfall declines after a Rounding Top Pattern. This is what is occurring now. A few bucks bet on Secretariat is how I take advantage of waterfall declines :>) I don’t have a problem with taking a few bucks off the table now given the oversold conditions. But just because you have nice profit, don’t go pulling up all your flowers.
Have a great weekend.
That’s what I’m doing,
h
Market Signals for
09-26-2022
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 |
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