Folks,
Market Observations for the Week: On the latest update on GILD's therapeutic treatment for COVID-19 the SPX gave us another big gap-up open and the Russell 2000 gained 5% for the day. The SPX and NDX are rallying in 5-waves up on the daily chart from the 3/23 low on the daily chart and the market breadth continues to expand - this is BULLISH. In fact, the increase in breadth and volume argues that the SPX could be in a wave 3 higher - this count argues that marginal new highs may be possible into the fall. However, this is a Presidential election year and the cycle argues for weakness in early May, so some correction may be expected over the next week. The Fed's bazooka and Powell's promise of "continual reload" is giving traders a growing confidence in a V-shaped recovery in the stock market that could test highs in the summer. Gold based going into Tuesday's Comex option expiration and Wednesday's Fed press conference but traders stepped up to buy late Wednesday which is encouraging for the bulls. The fact that GDX made a weekly close above the multi-year 32 resistance is huge for gold investors and pullbacks in gold stocks should be bought.
4/29/20 (Commentary for Wednesday) The SPX closed above the .618 retracement on increasing market breadth - it was especially impressive that the Russell 2000 gained 5% today. The Fed is determined to re-inflate the stock market and is willing to risk a bout of hyperinflation to accomplish this. Michigan Sentiment Index dropped to only 70% which is far higher that at the 2002-2003 and 2008-2009 lows and is consistent with the longer-term sentiment numbers from the Whisper Number Confidence Report - this reflects a massive confidence by traders that the Fed can re-inflate the stock market to test the highs. For Thursday, daily cycles have us looking for a SPX pullback in anticipation of after-market earnings from AMZN and AAPL. Crude oil tested $10 Tuesday and soared on Wednesday to $17 on confidence of a treatment for the COVID-19 - the oil stocks(XLE) continue to lead oil higher. Powell's testimony further steeled the bulls as he showed his determination to maintain ample liquidity to the stock and credit markets. The financials continued their rally from Friday as hopes continue to stir for a quick economic recovery. We have argued that the COVID-19 health crisis would be followed by a series of rolling financial challenges that could include the breakdown of the global derivative pyramid - even if the Fed can gun the SPX to a new all-time this summer in a V recovery, we feel that the economy will badly lag. Gold held the $1700 level through Comex option expiration Tuesday and the Fed press conference, and it was bullish that the PM sector closed strong today. The USD sold off some as the Fed promised more debasement.
- Big Picture on Stocks (UPDATED) – The SPX made a Major High on 2/19 and perhaps the high for the year - years ending in "0" made a January/February high about 83% of the time. The SPX continues to grind higher as it closed above the 50-dma and is tracing out 5-waves higher on the daily chart from the 3/23 low.
- Big Picture on PMs (UPDATED) – Cycles for gold peak into May, but gold is tracing out an EW a-b-c correction from the $1789 high that is testing $1700 Monday night. We have an inverse head and shoulders target at $1950 into May. The weekly GDX close above 32 has now finally confirmed the multi-year bull market in gold and pullbacks in gold stocks should be bought.
- Stocks – The SPX closed above the .618 retracement from the 3/23 low and appears to be sub-dividing up in a 3rd wave that could test 3400 by summer. We are looking for a pullback into Thursday as the market waits on earnings from AAPL and AMZN.
- Gold - Gold held above $1700 Tuesday and Wednesday and finished strong into Wednesday's close - big Dark Pool GLD prints were seen late in the Wednesday session and this is bullish for the action on Thursday.
- Silver – Charts say that it is time for silver to break higher or lower - silver is trying to lead the PM sector higher Wednesday night - BULLISH!
- Crude Oil - Crude oil tested $10 and bounced today, but the oil stocks (XLE) remain one of the strongest sectors.
- Bonds - Bonds sold off today as stocks soared - a test of 183 is still possible.
- Dollar Index – The USD found support at 99.6 after the Fed press conference.
TURNING POINT DAY
The turn windows for this week are 4/26-4/27 and 4/29.