Market Observations for the Coming Week: The NDX, SPX and Russell 2000 are in a Wave C down of an EW a-b-c correction of their Sept/Oct highs - important highs were made in the 10/24-10/25 turn window - a scary decline below SPX 2100 is possible going into Monday. The big earnings miss from Amazon will give us a weak open on Friday.
10/27/16 (Commentary for Thursday) Early strength in crude oil and the SPX was negated by rising interest rates which pressured stocks and commodities lower into the close. Amazon's earnings miss also adds to down pressure on Friday's open. The SPX, NDX and Russell 2000 are in C-Waves down of a correction from their Sept/Oct highs. Crude oil looks like it needs to extend its correction below $48 to finish its corrective pattern. The IBB looks like it needs one more low below 262.55, but we view the biotech sector as a coiled spring and we are scaling into December BIB call positions on dips. The NDX is correcting in a Wave C of a bullish "running B-Wave" pattern on the hourly chart which has bullish ramifications after the election. Overall, the threat of a Democratic sweep of the Presidency and Congress (and the control of Congressional committees) is perhaps the greatest risk to the stock market going into the November election, but a rising interest rate environment could upset the apple cart as well. With today's break to lower lows in bonds, our short-term market bias has changed to bearish but a deeper correction in crude oil could also pressure the SPX. We plan to buy dips in our favored biotech and PM stocks shares while keeping a large cash reserve. The GDX took out 23.79 and we stopped out of several PM calls - it is possible that we could take out the 5/27 low at GDX 21.93 to finish the corrective pattern from 8/12. Biotech (IBB) is close to a major low in our opinion, and we think that IBB will be a great long play after the election. With rising rates, the USD should take out Monday's high at 99.09 and continue to pressure gold and crude oil.
- Big Picture on Stocks (UPDATED) - The NDX is coming down in a Wave C of a "running B-Wave correction" that has more to go. We've added hedge puts.
- Big Picture on PMs (UPDATED) - The GDX took out 23.79 and should wash out by Monday as interest rates rise - we may undercut GDX 22. A major low in the PM sector is expected by next week.
- Stocks - The 10/24-10/25 turn window was the high for the week in the SPX. Rising interest rates reversed early strength in the SPX today and the earnings miss in Amazon should contribute to a weak open on Friday. We're looking for the SPX to undercut 2100 by Monday - we added puts on the IWM and UVXY calls.
- Gold - The GDX broke 23.79 today and a washout below GDX 22.00 is likely by next week. We added some GDX puts to hedge our account.
- Silver – Weakness in silver stocks argues for another leg down in silver - a washout below $17.17 is likely by next week.
- Crude Oil - Crude oil was pressured down today by a C-Wave that targets below $48 - we're looking for another leg down in the XLE.
- Bonds - Bonds made an EW 5-waves down on the daily which confirms the start of a bear market and perhaps a generational low in rates. Today's break down in bonds could be the start of a 3rd wave down on the daily - just a 3-wave bounce on the hourly chart will get us short.
- Dollar Index – The USD just pulled back correctively on Monday and is testing highs again - we should take out 99.09 by Monday.
TURNING POINT DAY
The turn window on the 10/24-10/25 Full Moon Timing Window should be important for crude oil, the PM sector and the SPX.