The Daily JDV Market Timer - May 27, 2020

Folks,

Market Observations for the Week:  We considered today's SPX price action crucial for the short-term trend and the SPX came back from an early selloff to close strong into the close. Is the SPX going to blow off and test SPX 3400 in a V-shaped market recovery? Perhaps. The massive Dark Pool prints in bank stocks that came through in the past two weeks may have been the Smart Money buying in advance of a blow off. What do we do now? Our put/call ratios argue for a short-term high here but market breadth is expanding and that is bullish. Declining cases of COVID-19, a resurgence in the real estate market, and hopes for a near-term vaccine are powering the stock indexes higher. We have felt that the Fed bazooka could give us a retest of the SPX 3400 area by summer and that may be coming to past, but the state of the financial markets and economy in September would be more indicative of the recovery potential of our national economy. If the XLF, the bank stocks, continue to rally impulsively here and correct in 3-waves, we will continue to hold BAC and WFC until we see 5-waves down on the hourly SPX chart.  

5/27/20 (Commentary for Wednesday) The SPX tried to sell off early in the day but come roaring back into the close to close above 3000 and the 200-dma which is a bullish sign. We have argued, from an Elliott Wave point of view, that the entire price action from the high in January 2018 to the high in February 2020 and the low in March 2020 could be viewed as a Large Running B-Wave Correction that could be followed by a final thrust above SPX 3400 to new all-time highs. We may be seeing that develop.  The entire SPX price action from the 3/23 low can be viewed as an impulse wave that continues to sub-divide higher like in a bull market phase.  The lagging bank stocks(XLF) are now leading the SPX higher which is another bullish sign. Our bias is NOT to fight the Fed Bazooka here but to participate in the rally by buying bank stocks on dips - BAC, WFC, JPM and C with a portion of our speculative funds. This is a liquidity led blow off - we choose NOT TO FIGHT THE FED and try to short the SPX here. The Fed's determination to reflate the stock market is trumping May's seasonal weakness in the Presidential cycle here and that is impressing us.  After its big run, crude oil is declining impulsively and could test $30 on Thursday. The PM sector is at the crossroads here and the key gold stocks, Newmont and Barrick Gold, have sold off 20% as money has rotated into economic recovery stocks - how we trade on Thursday will be key for gold, silver and the GDX.   

• Big Picture on Stocks (UPDATED) – The SPX price action from the high of January 2018 to the low of March 2020 may have been a large Running B-Wave correction in Elliott Wave parlance. The rally off the 3/23 low looks like an impulse leg higher in a bull market that could make new highs above 3400. We may have started a liquidity-driven blow off in the SPX. Do not fight the Fed's Bazooka here and our bias is to buy BAC and WFC here on dips until the SPX gives us a 5-wave down on the hourly chart reversal signal.

• Big Picture on PMs (UPDATED) –  Gold gave us a B-Wave test of the 4/14 highs on 5/18 at $1775 - we are now working on a 5-wave down C-Wave that could undercut $1700. How we trade on Thursday will determine if gold has another leg down below $1700 to trace out.

• Stocks – After initial weakness, the SPX roared back and closed above the 200-dma which is bullish. The financials continue to lead which is bullish - especially after the massive Dark Pool prints that have rolled through the past two weeks. The bank stocks, BAC and WFC, are ABOVE their massive print levels - also bullish. A stock blow off is developing - we choose not to fight the Fed's Bazooka here and plan to buy BAC and WFC on dips.
• Gold - Barrick Gold and Newmont are being sold hard to chase economic recovery stocks - the GDX could see lower lows on Thursday. How we trade in gold on Thursday will be key.
• Silver – Silver continues to outperform gold here - we sold some SLV calls near the end of the day - and are looking to the tape on Thursday for guidance.
• Bonds - Bonds are falling impulsively and we had a bad 5-yr note auction today - money may be flowing out of bonds to chase stocks.
• Crude Oil - Crude oil needs a rest and is falling toward $31.4 Wednesday night.
• Dollar Index – The USD may be starting an impulse leg down below 99.

TURNING POINT DAY

The turn window for this week is 5/26-5/27.