Folks,
Market Observations for the Week: Today was a quiet, low-volume day, but the SPX made another new high for the rally. Our leadership group, the financials(XLF), started correcting from the open and that correction may continue until mid-day Friday. There is a lot of "tension on the tape" as Ed Hart of the old FNN network used to say
5/28/20 (Commentary for Thursday) The SPX made another high for the rally but appeared to be in a correction late in the as the bank stocks reversed down in the morning, and we may get more follow through early Friday. There are vocal, widely read voices on Twitter calling for a crash, but our short-term bias is for more upside until we get a 5-wave decline on the hourly SPX. 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 here, and we will refrain from shorting the SPX until we get a reversal signal. 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 - we may see an entry point in the bank stocks early Friday. This is a liquidity led blow off - we choose NOT TO FIGHT THE FED. The Fed's determination to reflate the stock market is trumping the May seasonal weakness in the Presidential cycle here and that is impressing us. To our surprise, crude oil continues to hold up and looks like it could test $35 again. Gold and silver continue to hold up here as the PM stocks correct their overbought condition. The USD continues to decline impulsively and that could help support the PM sector.
- 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 Friday will determine if gold has another leg down below $1700 to trace out.
- Stocks – The financials(XLF) turned down early in the session and the SPX followed late in the day. We could see more correction into early Friday and the SPX could reverse higher into the close.
- Gold - Gold continues to hold up but a move below $1700 is still possible. The GDX may need one more undercut low here into Friday where we would be a buyer.
- Silver – Silver continues to outperform gold here and is coiling below $18 which has been a major resistance area for years - we are holding SLV.
- Bonds - After 5-waves down on the hourly chart, bonds are only giving us a corrective looking bounce - money is flowing from bonds to stocks.
- Crude Oil - Crude oil surprised us by holding up Thursday and it is looking like another test of $35 is possible.
- Dollar Index – The USD continues to sub-divide down impulsively and smashed below 99 on Thursday.
TURNING POINT DAY
The turn window for this week is 5/29.
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