Folks,
Market Observations for the Week: The SPX bottomed in the 12/18-12/20 turn window and reversed sharply higher – is this the start of a holiday rally? How we trade into 12/23 will tell us. The huge intra-day volatility that we have witnessed the past few weeks is consistent with a topping market - we still view this market as dangerous and urge that at least 50% cash be held. The stock market has been making a broadening top since the summer and the Russell 2000 has given us 5-waves down on the daily chart which is a BEAR MARKET SIGNAL. The impressive 12/11 alignment of Uranus, the Moon, Jupiter, Saturn, Neptune and Venus led to the all-time high reading of 4752.50 in the E-mini on 12/16 but ths was not confirmed by any other stock index. Chairman Powell has raised inflation to his number one priority and our gut is telling us that the Fed will be forced to raise rates sooner rather than later – especially after the Bank of England raised theirs last week. We remain in 50% cash because of the macro factors facing the global economy (Chinese credit contraction, rising global inflation, and rising global rates, new Covid variant, etc.) and now a more aggressive Fed that wants to rein in inflation. Crude oil pulled back into the 12/18-12/20 Full Moon Timing Window and then reversed higher to test $71.79 Tuesday evening – closing above $70 is bullish for the stock market. Bitcoin is testing 50000 from below Tuesday night but still remains below the key 50000 level. Gold declined in 5-waves on the hourly chart into Monday evening which was bearish and then the GDX greatly underperformed the SPX rally on Tuesday which was also bearish. Gold and gold stocks look bearish here to us and we are going into a Big Range Day from solar-lunar cycles on Wednesday. The USD continues to oscillate around 96.50 as the credit contraction led by China continues to give US long bonds a bid.
12/21/21 (Commentary for Tuesday) The SPX reversed sharply higher after Monday’s low. How we trade into 12/23 is key for the year-end trend for stocks. The big range days up and down over the last two weeks in the NDX and SPX are indicative of a topping bull market – the “planetary alignment that clustered on both sides of the Moon” into 12/11 argued that an important top was made around 12/10. Chairman Powell doubled the taper on 12/15 and put the market on notice for three rate hikes in 2022, but the US Fed is clearly behind the Bank of England which raised rates on 12/16. Historically, when the Fed has drained liquidity from the financial markets via cuts in bond purchases, big moves down have started in the stock market since 2008. Bitcoin is testing key resistance at 50000 overnight but still remains below this horizontal resistance – a daily close above 50000 would be bullish for stocks. The trendlines from the Covid low on 3/23 turned back the last speculative highs in TSLA, Bitcoin, and the IWM near the 11/4 New Moon and continue to remain as stiff resistance. We still hold 50% cash as we feel that the macro risks of being 100% long are just too great with the global credit contraction led by China still progressing and a now more aggressive Fed targeting inflation. Another scary signal came from recent news that the down payments of 20% of first home buyers came from Bitcoin profits – the US economy is highly-levered to widespread speculation in stocks, stock options and digital currencies. Gold tested $1815, the 50% retracement of the big leg down into $1853, and then we declined in 5-waves down into Monday evening – this is bearish for more decline. In the US, the background monetary conditions have been deteriorating for months and the Fed has quickened the reduction of financial liquidity from the US stock market at last week’s Fed meeting despite slowing global growth concerns. The USD continues to hold up around 96.50 as the global credit contraction deepens.
Big Picture on Stocks (UPDATED) – The SPX is in the process of making a historic top and we are living on borrowed time. The Russell 2000 has already given us a bear market signal – an EW 5-waves down on the daily chart. If we get just a 3-wave corrective rally from Tuesday, that will argue that the SPX trend is down into year end.
Big Picture on PMs (UPDATED) – Gold tested $1815 on Friday and reversed down in 5-waves into Monday evening which is short-term bearish. After a corrective bounce to test $1800 early Tuesday, gold declined impulsively below Monday’s low – gold and the gold stocks look shaky here.
- Stocks – The SPX bottomed on its 10-day trading cycle low on Monday and roared higher on Tuesday - has the holiday rally started? That depends. Just a 3-wave corrective reversal higher in the SPX will imply a bearish trend into yearend – how we trade into 12/23 will enlighten us.
- Gold – Gold tested $1815 resistance on Friday and then traced out an EW 5-wave decline into Monday evening that looked bearish. After testing $1800 early Tuesday, gold fell impulsively below Monday’s low and the GDX looked weak– we added some GLD puts for a hedge.
- Silver – Silver double-bottomed at $21.41 on 12/15 and then tested its R1 resistance pivot at $22.83 early Tuesday. Silver looked stronger than gold today.
- Bonds – The bonds pulled back again today after the 10-yr rate tested 1.48%.
- Crude Oil – After bottoming in the Full Moon Window on Monday, crude oil roared up to test $71.79 on Tuesday – a close above $70 was bullish for the stock market.
- Dollar Index –The USD continues to hold up around 96.50 as the global credit contraction gives the US buck a bid.
TURNING POINT DAY
The turn window for this week is 12/20-12/21.
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