Folks,
Market Observations for the Week: Thursday should be dubbed "The Nvidia rally" as the market got a huge gap up from the NVDA earnings report afterhours, gave about half 0f it back going into noon EDT, but then rallied impulsively into the close with a NYSE market breadth of -1000 at the end of trading. The 3-wave corrections in the NDX and SPX from 5/19 to 5/24 have yielded a new high in the NDX so far and maybe a new high in the SPX by Friday. However, this is a dangerous market with only about 10 Big Tech mega-cap stocks doing the rallying - this kind of concentration of capital will get unwound some before the end of this bear market. "Higher for longer talk" in the Fed minutes did not not sell off Big Tech that much. Talks of possible collapse of the "debt-limit" talks failed to bring the NDX or SPX down impulsively post-Fed - this is short-term bullish as traders are betting on a bullish outcome. Positive holiday seasonality helped rally stocks today but how we close on Friday will be key and will reflect the status of the debt-limit stocks. Crude oil fell hard today and took the XLE with it - it's been hard to figure crude oil's intentions the last several weeks. The bonds continue to sell off as the 10 year US rate continues to make higher highs. Gold and PM stocks continue to be pressured down but support at $1940 helped gold reverse higher Thursday night. The USD got to 104.31 and pressured the PM sector today.
5/25/23 (Commentary for Thursday) A three-wave correction in the NDX forecasted the new high for the year that we saw today . Big Tech continues to shrug off the rise in long rates and the USD and are being driven by the AI bubble - it feels like traders are selling other non-performing market sectors and jumping onto the Big Tech guys like NVDA. To us, this is a sign that we are approaching an important top. The XLE (oil stocks) gave us an EW a-b-c correction today following the correction in crude oil. Breakdowns in copper and silver in mid-May suggest that a major slowdown in the global economy is at hand - after opening up after its Covid lockdown, the Chinese economy has been surprisingly week - is this a hangover from their real estate bust. Fed assurances or not, the banking crisis is still getting worse and continues to squeeze the US economy with higher rates and an extra round of credit tightening. Regional banks have liquidity issues from jumpy investors afraid of contagion or money market funds that can offer higher returns - with Washington locked up over "debt limit" politics, the chance of a general bank bailout is very slim in the next few months. At this point we can take nothing for granted except market volatility and that "CASH IS NOT TRASH". With the "rate of change" of the M2 money supply falling the hardest since the money collapse of 1930, the US economy is now slowing fast because of the bank-led credit tightening and the SPX and NDX should feel the bite soon. While the SPX held up into the May 18-19 New Moon turn window, we are looking for a potential correction to start in May/June. Our hope is to be close to a 100% invested posture by July at much lower levels in the SPX and NDX. Our cycle work is calling the SPX below 3500 by late June but the bulls are still in control in the short term. We still contend that the SPX market rally from October 13 is a Bear Market Rally that could make new lows in late Q2 2023 - we are not in the "this is a new bull market camp" - the bank failures argue for a hard economic landing as banks panic and tighten lending standards. Money has flown out of banks and into money markets which is spiking the M1 money supply and could facilitate inflation into the summer. Our Bear Market Time Window target in Q2 for the 20-yr cycle which could take us for a test of SPX 3500 by late June. We did not see a SPX capitulation or a VIX blow off in 2022 but do believe that lower SPX lows are due by Q3 of 2023 for the stock market. Crude oil tested $71 Thursday and led to a 3 -wave correction in the XLE sector. The USD made multi-week highs Thursday at 104.31 and pressured gold below its $1960 support. Our current positions are 5% natural gas and wheat, 75% cash and 20% physical gold, silver and platinum.
Big Picture on Stocks (UPDATED) The latest black swan of bank failures could drive the 20-yr cycle to a test of SPX 3500 by late June. The SPX could still give us a 20%-50% correction in 2023 as the 20-yr stock cycle low bottoms and the US economy slows into a recession.
Big Picture on PMs (UPDATED) On a strengthening USD, gold sold off to under $1940 support before recovering late Thursday. Central bankers loaded up on gold last year and global physical inventories continue to decline but higher nominal US rates could still pressure the PM sector down one more time into late Q2 2023.
Stocks – The NDX made a new high courtesy of the blow off in NVDA .
Gold – Gold found support at $1940 and started a rally Thursday night.
Silver – After testing $22.78, silver started to bounce Thursday night.
Bonds – Bonds made a lower low at 125'12 as long rates continue to inch higher.
Crude Oil – Crude oil pulled back to test $71 and XLE did a correction.
Dollar Index – The USD tested 104.31 Thursday and pressured the PM sector down.
TURNING POINT DAY
The turn window for this week is 5/23, the Tuesday after a monthly expiration.
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stocks doing mar - NVDA's blowout earnings will be a tailwind. After about nine consecutive weekly inventory drawdowns, crude oil is testing $75 and the XLE is moving higher - the oil sector should rotate back into favor. "Higher for longer talk" in the Fed minutes did not not sell off Big Tech that much. Talks of possible collapse at the "debt-limit" talks failed to bring the NDX or SPX down impulsively post-Fed - this is short-term bullish as traders are betting on a bullish outcome. Gold bounced to $1987 early Wednesday after Comex option expiration but got sold off hard into the Fed minutes. Our bias in recent weeks is that the debt-ceiling talks could end with discord like in 2011 and kickstart a correction for the SPX and NDX but - that has yet to be seen. The bulls are still in control. With anticipation of accelerating economic weakness caused by the bank crisis and possible fallout from a nasty debt-default resolution, raising more cash still makes sense to us even though the NDX and SPX have short-term rally potential.
5/25/23 (Commentary for Thursday) Three-wave corrections in the NDX and SPX from early Friday into Wednesday morning has us looking for higher highs in the NDX onto the holiday weekend. Big Tech continues to shrug off the rise in long rates and the USD and are being driven by the AI bubble. The XLE (oil stocks) appear to be rotating into leadership again and the firming crude oil price is supportive. Breakdowns in copper and silver in mid-May suggest that a major slowdown in the global economy is at hand - after opening up after its Covid lockdown, the Chinese economy has been surprisingly week - is this a hangover from their real estate bust. Fed assurances or not, the banking crisis is still getting worse and continues to squeeze the US economy with an extra round of credit tightening. Regional banks have liquidity issues from jumpy investors afraid of contagion or money market funds that can offer higher returns - with Washington locked up over "debt limit" politics, the chance of a general bank bailout is very slim in the next few months. At this point we can take nothing for granted except market volatility and that "CASH IS NOT TRASH". With the "rate of change" of the M2 money supply falling the hardest since the money collapse of 1930, the US economy is now slowing fast because of the bank-led credit tightening and the SPX and NDX should feel the bite soon. While the SPX held up into the May 18-19 turn window, we are looking for a potential correction to start in June. Our hope is to be close to a 100% invested posture by July at much lower levels in the SPX and NDX. Our cycle work is calling the SPX below 3500 by late June but the bulls are still in control in the short term. We still contend that the SPX market rally from October 13 is a Bear Market Rally that could make new lows in late Q2 2023 - we are not in the "this is a new bull market camp" - the bank failures argue for a hard economic landing as banks panic and tighten lending standards. Money has flown out of banks and into money markets which is spiking the M1 money supply and could facilitate inflation into the summer. Our Bear Market Time Window target in Q2 for the 20-yr cycle which could take us for a test of SPX 3500 by late June. We did not see a SPX capitulation or a VIX blow off in 2022 but do believe that lower SPX lows are due by Q3 of 2023 for the stock market. Crude oil tested $75 Wednesday and should support the rotation of the XLE back into a leadership position. The USD is making multi-week highs Wednesday night at 104.06 and pressuring gold below its $1960 support. Our current positions are 5% natural gas and wheat, 75% cash and 20% physical gold, silver and platinum.
Big Picture on Stocks (UPDATED) The latest black swan of bank failures could drive the 20-yr cycle to a test of SPX 3500 by late June. The SPX could still give us a 20%-50% correction in 2023 as the 20-yr stock cycle low bottoms and the US economy slows into a recession.
Big Picture on PMs (UPDATED) – Gold bounced up into Comex option expiration and tested $1987 early Wednesday before getting pressured down by a rising USD. Central bankers loaded up on gold last year and global physical inventories continue to decline but higher nominal US rates could still pressure the PM sector down one more time into late Q2 2023.
Stocks – The SPX made a new high for the year at 4212.91 near the exact New Moon on Friday and has only given us a 3-wave correction into Wednesday which is short-term bullish.
Gold – Gold tested $1987 early Wednesday but got pressured down by a rising USD and a hawkish Fed minutes.
Silver – Silver tested $23.02 after the hawkish Fed minutes as its downtrend intensifies.
Bonds – Bonds made a lower low at 126'02 as long rates continue to inch higher.
Crude Oil – After a drawdown in inventory, crude oil tested $75 and the XLE continued to work higher.
Dollar Index – The USD is testing 104.06 Wednesday night.
TURNING POINT DAY
The turn window for this week is 5/23, the Tuesday after a monthly expiration.
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