Focus on Stocks: August 2023
Hi Gang.
Larry Williams here. Welcome to my new stock market service called "Focus On Stocks," which I'm creating in conjunction with my friends at StockCharts.com.
As a "Focus On Stocks" subscriber, you now have access to my latest market analysis. Be sure to check out my first article below. As you can see, I'm including my short and long-term market timing thoughts as well as specific stock selections that have come across my screen. You'll be automatically notified by email whenever I post a new article.
I'll also be hosting a live monthly "Family Gathering" for subscribers, where you can join me on a Zoom webinar to talk markets, share some of the things I'm working on and answer any questions that you have. I'm really looking forward to these! (and yes, they will be recorded for later viewing)
Full Disclosure: This "Focus on Stocks" area is free to access until October 1st. We are still working on the final pricing and will let you know in the next article.
Enjoy my latest article now, and stay tuned for more later this month!
Larry
Long-Term Market Timing
The most notable event of the past few days is Morgan Stanley's "Mr. Bear" himself, Mike Wilson, tossing in the towel, saying he got it all wrong. That is a major capitulation by the bear camp. Give him credit for confessing the error of his ways; something seldom seen on Wall Street.
Of course, his capitulation was just prior to the Fed raising rates, which puts a real damper on the bull market. Life is not easy for us so-called market savants. Nonetheless, I expect the current bull market will continue trudging upwards into 2025, with the typical erratic and jerky price patterns seen in prior bull markets.
Focusing on the Intermediate-Term
Here's what I think is the most probable pattern, or road map, the Dow Jones will be etching out on our charts, highlighted here in red.
This cycle study, using TimingSolution.com software, is based on a very long-term cycle wherein I have extrapolated the shorter-term elements to amplify what should be the future. Clearly, the future is never like the past. But considering this pattern has been seen 39 times since 1890 with 33 positive cycles (or 85% accuracy), it presents us with a strong bias for a rally. That, dear friends, is how I trade. I look for biases and respond accordingly.
Chart 2 shows the last time we saw the pattern, back in 2020. Not a perfect fit, but a very good guide to future price performance.
The time before that was 2013, again a decent forecast of what has transpired — as was the guideline provided by this wave action in 1929.
What Became of the Yield Curve Bear Market/Recession?
Over a year ago, the bear camp and all the recession forecasting services clamored that the Yield Curve (the difference between 10-Year and 2-Year Bonds) had turned negative, supposedly an absolute guarantee that stocks would slide and a recession would follow.
Neither of those things took place. But why? And what can we learn here?
Wall Street bears like the Curve as an indicator as much as bears here in Montana like huckleberries. At times, the Curve has foreshadowed recessions, yet that is not always the case, as I have shown on numerous StockCharts.com videos as well as in my annual reports.
In Chart 5, we can look at the last quarter-century of the Curve (in black, DJIA in red). Dipping below the black horizontal line has most often been early (by years) in calling Bear Markets. It does not appear to be a good predictor.
What Does Look Good Is...
In Chart 6, I have inverted the price scale of the DJIA. Now we see a much closer correlation of stocks to the Curve! What's more, I have pushed the DJIA price about 18 months into the future... so yes, the Dow leads the Curve!
Chart 7 is an expanded view that allows you to get a sense of what's to come for the Curve. Looks pretty choppy to me. Those who understand the Curve better than I may find this of value; the bottom line for me is that the Curve declines when stocks rally, and rallies when stocks decline.
Focus on Specific Stocks
Let's begin with IBM, the most stalwart stock on Wall Street. My wave projection tells us to expect a rally to begin — right here, right now — with a 75% history of rallying at this time. Here's how the pattern played out the last few years:
And here is the pattern for 2023...
As you may have noted from the prior examples, the first "pullback", marked off as 9/4 in Chart 12, has also been a good time period to take long positions.
StockCharts.com users will want to pay attention to my Money Flow Index... the best times to buy, usually, are when it enters the buy zone. Here it is on a daily chart.
About Time to Buy Microsoft
Cycles say Microsoft (MSFT), the "everything software" company, is getting set up for a powerhouse rally. In these charts, I have combined the short-term and long-term cycles that have been most influential in MSFT to get a sense of what is in store for this ubiquitous company.
The cycle wave tells us the stock has rallied over 90% of the time, starting around the first of September.
Let's look at prior examples of this pattern.
Next, let's examine MSFT on a weekly basis with my True Seasonal Index, which gives us another reason to expect a rally is not too far away.
Other Stocks
Here are stocks that should rally in phase with the mid-to-late August cycle low.
Last Stock Chart
One last stock to take a look at is Rockwell Automation (ROK). Founded in 1903, this has been a perpetual Wall Street winner. My major cycle projection is shown in Chart 27. I have highlighted in red a wave that has seen rallies 85% of the time in the past appearances of the wave.
In Chart 28, I tie together the major wave with short-term cycles to help us see when the projected-up move may begin.
As you can see traders will want to be looking for buy signals around the 7th of this month and the 4th of September.
For My Gold Bug Friends and Fellow Traders
Gold has shown a distinct pattern of rallying in most Augusts. Here is my True Seasonal, which, unlike all other seasonal studies, features no out-of-sample data in its forecast.
See the little red semi-circle? That marks what's been a pretty good time for short-term traders to look for taking long positions. How good, exactly?
To answer that, let's look at my TDOM, or Trading Day of the Month concept. The idea is to find which, if any, trading — not calendar — days of the month are best for buying and selling.
The results show that had you bought on the opening of the 11th trading day of August, over the last 21 years, the trade was correct 71.4% of the time, taking home $23,030 in total net profits. The trade calls for buying on the night session opening, holding for three days, then exiting on the first profitable opening while employing a $1,600 stop loss.
MORE IMPORTANTLY is the fact that we see lots of green for TDOMs 1-4, 11, and at the end of the month. Traders will want to consider short-term entries at these times to have a strong bias in their favor.
Stock traders will find this same bias in the ETF for Gold, GLD.
That's it Gang!
Stay tuned though for a special online and live mid-month report, where you can give feedback and ask questions. An email will announce the time and date.
Until then ... Good Luck and Good Trading,
Larry Williams
