Market Observations for the Coming Week: The SPX soared to an all-time high in the 2/14-2/15 turn window but only gave us a 3-wave pullback today on low volume - we could see a test of the highs on Friday. We are looking to buy dips in gold stocks, oil stocks and biotech shares this week. We are looking for a yearly high in July/August at SPX 2500-2600.
2/16/17 (Commentary for Thursday) Amidst continued partisan anguish in Washington DC, the ES gave us just a 3-wave pullback into Thursday - we're looking for a test of the highs on Friday. The SPX is entering a seasonally negative time of the year and is holding up reasonably well. The blow off in "call option buying" after the Full Moon/lunar eclipse, after weeks of high all-exchange put/call ratios, argues that a short-term top is near - but all we have gotten so far is just a 3-wave pullback in the ES after the 2/14-2/15 turn window. Our Option Premium Ratio indicator spiked to a new 52-week low (.52) on Tuesday - a SELL SIGNAL - and this gives us caution going into Friday's option expiration. We must also note that strong corporate insider sales are also giving us a BEAR signal here and the VIX is now trying to break higher as investors seek protection. We still plan to buy dips in gold stocks, oil stocks and biotech shares on any downside volatility going into 2/24. We remain bullish on the SPX in the intermediate term and expect the high for the year to be made in the July/August time window at much higher levels (SPX 2500-2600). Gold continued to rally today but we still feel that a test of $1200 is possible going into 2/24. The 2/10 Full Moon/lunar eclipse may have been an inflection point for stock market psychology - the blow off in "call option buying" that started on Friday and continued into Tuesday is predicting that a short-term top in the SPX is close. For the first time in recent memory, a US Treasury secretary is trying to talk up the Euro - the times are certainly changing. The Dollar Index continued to pull back on Thursday and this is short term bullish for the PM sector.
- Big Picture on Stocks (UPDATED) - A blow off in "call option buying" into Tuesday argues that a SPX correction is near, so we are cautious going into Friday's option expiration. Low volume on the SPY, QQQ and the IWM on the recent rally also argues for caution. We're looking for a yearly SPX high in the 2500-2600 range by July/August. In the short-term, we're looking to buy dips in gold stocks, oil stocks, and biotech shares.
- Big Picture on PMs (UPDATED) - Gold and silver spiked into the 2/6-2/8 turn window which included the 55-day Fibonacci step out from 12/20 and started a correction that continued to run into this week. We're still looking for a big run up to start soon but a test of $1200 is possible going into 2/24.
- Stocks - The ES just pulled back in 3-waves into Thursday but the "blow off in call option buying" into 2/14 argues that a short-term top may be close. We plan to be a buyer of gold stocks, oil stocks and biotech shares on any dips into 2/24.
- Gold - Gold peaked in the 2/6-2/8 turn window and started a corrective pullback that continued into this week - we may break out here but a test of $1200 into 2/24 is possible before the next leg up.
- Silver – Silver continues to hold up extremely well but silver stocks continue to lag suggesting that more correction in time is needed for the PM sector.
- Crude Oil - Crude oil may have completed an inverse head and shoulders pattern on the hourly chart - we may be close to a break out higher.
- Bonds - US bonds may be coiling for a large bounce higher here - we sold 2/3 of our TLT puts.
- Dollar Index – The Dollar Index continued to fall on Thursday and that is bullish for the PM sector.
TURNING POINT DAY
The turn window for this week is 2/14-2/15 - it should be important for gold and the SPX.