Folks,
Market Observations for the Week: The NDX and SPX appear to be consolidating in a small 4th wave as the market awaits the early Friday CPI report. Our bias is that the CPI report will come in cooler than the consensus estimate (0.6%) and the SPX could blow off higher into 12/19 or so. On a modest sideways day for the SPX, the VIX fell below 20 which is bullish. The Option Premium Ratio made an island-reversal high Monday (.97, 1.12, .81, .71) and that is also bullish for the SPX. The SPX and NDX made a low in the 12/3-12/6 New Moon Timing Window/Lunar Eclipse and that could propel the SPX and NDX to test all-time highs by Friday if the CPI number comes in cooler than expected. Chairman Powell has raised inflation to his number one priority and the new FOMC committee appear receptive to the idea of a near-term tightening of monetary policy. Our bias is that the broad market may have peaked on 11/8 but the SPX and NDX are giving us a “broadening top formation” which could yield another set of new all-time highs by mid-December. CEOs and other corporate insiders sold a record $69B of stock this year – an all-time record – another sign of a euphoric and topping market that is close to making a historic peak. 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 tested $73.36 Wednesday evening but is giving us bearish divergence on our momentum oscillator. Bitcoin is looking weak here and is trading below 50000 which looks bearish for the stock market. Gold tested $1794 early Wednesday but is still holding under $1800 which looks weak to us. The USD tested the 96.61 high made after the start of Powell’s testimony last week on early Tuesday and then started to decline impulsively.
12/08/21 (Commentary for Wednesday) The SPX is consolidating the large rally on Monday/Tuesday in a small 4th wave into Friday’s CPI report. A cooler than the consensus expectation of .6% could rally the SPX and NDX to new all-time highs. The big range days over the last two weeks in the NDX and SPX are indicative of a topping bull market – powerful geo-cosmic turning points from mid-December to 12/24 could top this stock market after a final blow off in the SPX and NDX. Chairman Powell said that he will present a “more aggressive tapering plan” to the new FOMC at the December meeting despite back-to-back months of weaker than expected NFP job creation. 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 continues to trade weak and is holding below the key 50000 level – this is a bearish sign for the stock market. 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 but taking out those barriers would be bullish. 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 may have made a DCL (Daily Cycle Low) at $1762.2 Thursday afternoon and we did get to $1794 early Wednesday – but we need to see a move above $1800 to be convinced that an important low was made on 12/2. Crude oil rallied to test $73.36 Wednesday evening but with bearish divergence from our momentum oscillator. Bonds tested 164’12 on Friday before declining in an EW 5-waves down into Wednesday to test 160’13. In the US, the background monetary conditions have been deteriorating for months but the Fed looks determined to quicken the withdrawal of financial liquidity from the US stock market at the December meeting despite slowing global growth concerns. The USD retested 96.61 early Tuesday and started an impulsive move down.
Big Picture on Stocks (UPDATED) –The E-mini may have just finished an EW a-b-c correction near Friday’s close in the New Moon Window – the SPX could be rallying to retest the all-time high. The Russell 2000 and the NYSE Composite have already given us an EW 5-wave decline on the daily charts into 12/1 which is a bear market signal – the Russell 2000 may only have the potential to form a right-hand shoulder.
Big Picture on PMs (UPDATED) – Gold may have finished a DCL (Daily Cycle Low) on Thursday and gave us a rally to $1794 on early Wednesday. We need to see a bounce over $1800 to verify the DCL. A cooler than expected CPI report early Friday could give gold the next leg down.
- Stocks – The SPX may have just finished an EW a-b-c correction into Friday, and we may started a new up leg to make new highs. The SPX could correct into Thursday in a shallow 4th wave and a cooler than expected CPI report early Friday could see the SPX make new all-time highs.
- Gold – Gold may have made a DCL (Daily Cycle low) on 12/2 but needs to rally above $1800 to convince us of an important low. An undercut low below $1758 would be bearish.
- Silver – Silver gave us an undercut low to $22.03 early Friday and has only given us a bounce to $22.60 on Tuesday so far.
- Bonds – Bonds declined in 5-waves from 164’12 on Monday to 160’13 on Wednesday – we may have seen a short-term top.
- Crude Oil – Crude oil bounced to test $73.36 Wednesday but the rally has bearish divergence on our momentum oscillator.
- Dollar Index –The USD retested 96.61 Tuesday before rolling over in a possible C-Wave down to test 95.58.
TURNING POINT DAY
The turn window for this week is 12/3-12/6, the New Moon Timing Window.
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