Market Observations for the Coming Week: The OPEC oil deal dominated global markets today and the soaring energy sector briefly pushed the SPX to all-time highs. However, the Russell 2000 is trying to lead the market down for a correction into next week - we added to our IWM puts. DANGER ALERT: We believe that the bond market is tracing out a very bearish EW 1-2, i-ii pattern on the daily chart - the Italian vote on 12/4 or the anticipated Fed rate hike on 12/14 could catalyze a FAST MOVE higher in US 10-year rates to 3.0% - we are hedging this possibility by holding TLT put options with 12/16 expiration.
11/30/16 (Commentary for Wednesday) The OPEC oil deal surprised global markets and we saw a huge rally in crude oil and oil stocks. However, market breath is rolling over, new 52-week lows are expanding above 100, and the Russell 2000 is trying to lead the market down here for a correction - it appears that money rotated out of technology into the energy sector today. The Russell 2000 made an EW 5-wave decline from the close of 11/23 into Monday and only gave us a 3-wave bounce into Tuesday - we're looking for more decline into Friday's NFP jobs report - we're holding IWM puts. The bond market made a trading low on 11/23 but only gave us a weak EW a-b-c rally that ended on Tuesday's close. We view the bonds in a very precarious position - in a potentially very bearish EW 1-2, i-ii pattern down on the daily and we may have started the next impulse leg down on Wednesday. The Italian vote on 12/4 or the anticipated Fed rate hike on 12/14 could be a catalyst for a FAST MOVE to 3.0% on the US ten-year bond - we are hedging this risk with TLT put options and TBT call options that expire on 12/16. Very negative gold sentiment couldn't get gold to take out last week's $1170 low and the GDX held well above its lows - this is bullish divergence - we added GLD, NEM, SLW, ABX and AEM calls near the close. However, we have to view gold's weekly close below $1200 as a signal that a deeper correction is needed going into 2017. The OPEC production cut agreement surprised the market and sent crude oil higher to test $50 - we took profits in our APA, EOG, COP and SLB calls and will look for a pullback into next week to repurchase. The IBB (biotech) continued to pull back and tested the 273 low from last week - the IBB was the first sector to top out after the election - we are standing aside this sector for the moment. The USD may be giving us just a B-Wave test of the 102.12 high - even though rates went higher today, the USD couldn't make new highs for the rally.
- Big Picture on Stocks (UPDATED) - The SPX rallied in 5-waves from the election into a high-degree 11/25-11/28 turn window. Since the VIX did not make lower lows late last week, the SPX is vulnerable to a pullback into Friday's NFP jobs report.
- Big Picture on PMs (UPDATED) - Despite very negative sentiment and rising rates, gold held above last week's $1170 low - we're still looking for a Wave-C higher of an EW a-b-c correction this week - a spike to $1218-$1230 will get us short.
- Stocks - The OPEC production cut deal ignited the energy sector and briefly elevated the SPX and DJIA to all-time highs .... but market breath is rolling over, new lows are expanding and the Russell 2000 is trying to lead us down in a correction - we added to our IWM puts.
- Gold - Gold tested $1270 and rebounded despite huge negative sentiment - we appear to be coiling for another test of $1200 soon - a spike above $1200 will get us short.
- Silver – Silver may have finished a 3-wave sideways correction - we're looking for another leg higher into the 12/4-12/5 turn window.
- Crude Oil - Crude oil soared after a surprise OPEC production cut deal - we tested $50 - we sold our APA, EOG, SLB and COP calls and look to repurchase into next week.
- Bonds - Bonds made an EW 5-waves down on the daily into October which confirms the start of a bear market and perhaps a generational low in rates. Bonds started the next impulse leg down today, but this fact was lost over all the attention given to the oil sector today. We plan to add more TLT put options and TBT call options on bounces to hedge a potentially FAST MOVE higher in US 10-yr rates after the 12/4 Italian vote.
- Dollar Index – The USD bounce Wednesday looked weak considering the rally in US 10-yr rates - we may just get a B-wave test of last week's 102.12 highs.
TURNING POINT DAY
The 11/25-11/28 turn window could bring us an important turn in the SPX and GDX and the 12/4-12/5 turn window could be huge for global markets.