Folks,
Market Observations for the Week: The SPX made highs for the week at 4808.93 and the DJIA made a new all-time high at 36572. However, this “split market” will end badly sometime in early January and give us a strong stock market correction. Holding defensive stock sectors like utilities and PM royalty companies like FNV and WPM make sense here. Bitcoin is the speculative leader of the great stock market rally of 2020-2021 and its recent failed breakout attempt should be concerning to its most ardent bulls. What is the recent weakness in Bitcoin telling the market? Is it possible that the gold/bitcoin arbitrage has turned in favor of gold? Is money flowing from Bitcoin into gold and silver? The SPX and the DJIA both made a new all-time high today and then sold off into the close. Bitcoin is holding above its Person’s Pivot tonight around 47412 but still looks weak. Crude oil tested $77.50 early Thursday and is holding up into the New Moon weekend. 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. Gold rebounded on Thursday and tested the $1821 high of the week - the big cap gold stocks (NEM, GOLD and AEM) are trying to lead the PM sector higher. The USD continued to oscillate around 96 as the 10-yr US rate rallied to 1.515%.
12/30/21 (Commentary for Wednesday) The SPX and DJIA both made new all-time highs today but sold off into the close. However, the “split market” will end badly at some point in January and the market will undergo a serous correction. We recommend some defensive holdings like utilities and PM royalty companies like FNV and WPM. So far in December, the SPX has rallied past the Dec 4 eclipse, the Dec 11 planetary alignment and the 12/19 Venus retrograde and has continued to make higher highs, in a large broadening top pattern, but the “split market paradigm” should end in early January. 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 but so far the SPX is holding up. Bitcoin looks weak overnight and remains below 48000 – what is Bitcoin telling us about the health of Mr. Market here? Crude oil tested $77.44 early Thursday and is holding up overnight – our favorite oil stocks, XOM, CVX and COP, have all given us a pretty good run since the 12/20 low. 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 the early December 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. After testing $1821 early Tuesday, gold started a quick 3-wave correction that tested $1790 early Wednesday before a snapback rally Thursday that tested $1819 – we need to see gold get above $1835 to take it seriously here. In the US, the background monetary conditions have been deteriorating for months and the Fed quickened the reduction of financial liquidity from the US stock market at the December Fed meeting despite slowing global growth concerns. The USD has been oscillating around 96 for three days in a row.
Big Picture on Stocks (UPDATED) – We are adamant that the SPX is in the process of making a historic top and that the market is living on borrowed time. The Russell 2000 has already given us a bear market signal – an EW 5-waves down on the daily chart into 12/20. The SPX blew off into the 12/27-12/28 turn window which included the 34-day Fibonacci step out from the 11/22 high.
Big Picture on PMs (UPDATED) – On the 55-day Fibonacci step out from its 11/3 low early Tuesday, gold made a multi-week high at $1821 before a fast 3-wave correction to $1790 early Wednesday. Gold needs to quickly recover and get above $1835 to be taken seriously here.
- Stocks – The SPX and DJIA both made a higher high on Thursday before selling off into the close. The “split market” that we are currently seeing will give way to a stiff market correction in January. Defensive sectors like utilities and PM-based royalty companies like FNV and WPM make sense to us going into 2022.
- Gold – On the 55-day Fibonacci step out from its 11/3 low, gold made a multi-week high at $1821 on Tuesday before a quick 3-wave pullback to $1790 early Wednesday. Gold is fighting back and is testing $1821 Thursday night.
- Silver – Silver also made an early Tuesday high before pulling back in a quick 3-wave correction into early Wednesday. Silver fought back higher on Thursday and is testing $23.17.
- Bonds – Bonds appears to be setting up for a rally on the daily chart.
- Crude Oil – Crude oil continues to hold up above $77 overnight as we approach the weekend New Moon.
- Dollar Index –The USD continues to oscillate around 96 in a tight range.
TURNING POINT DAY
The turn window for this week is 12/27-12/28.
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