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. However, the market could go either way tomorrow. The SPX rally pattern from 12/3 could be just a B-Wave that could be retraced in C-Wave down if the CPI report comes in hotter than expected. Our bias is that the CPI report will come in cooler than the consensus estimate (0.6%) and the SPX could make highs for the week but Biden’s comments about gasoline prices open up the possibly for a hot CPI report. 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 view 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 may have finished just an EW a-b-c bounce and looks weak. Bitcoin is looking weak here and continues to trade 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 – tomorrow’s CPI report should be a catalyst. The USD continues to consolidate sideways but could rally on a weaker than expected CPI report.
12/09/21 (Commentary for Thursday) The CPI report should determine the short-term trend of the SPX on Friday. The SPX is consolidating the large rally on Monday/Tuesday in a possible 4th wave into Friday’s CPI report. A cooler than the consensus expectation of .6% could rally the SPX and NDX to highs for the weak but a hot report could see the SPX testing 12/3 lows at 4495. 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 but the CPI report early Friday will set the short-term trend. Gold 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 as the bullion banks are heavily short. Crude oil rallied to test $73.36 Wednesday evening but appears to be rolling over. Bonds tested 164’12 on Friday before declining in an EW 5-waves down into Wednesday to test 160’13 – the CPI report early Friday could rally bonds on a weaker than expected report. 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 has been trending sideways this week but a hot CPI report could give us another leg 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 CPI report will determine the short-term trend of the SPX – a cooler than expected report could take the SPX to new highs for the week, but a hotter than expected report could take us down to test the 12/3 lows at 4495.
- 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. The CPI report early Friday will determine the short-term trend. An undercut low below $1758 would be bearish.
- Silver – Silver gave us an undercut low to $21.82 early Thursday but a wash out early Friday to $21.50 is possible.
- Bonds – Bonds declined in 5-waves from 164’12 on Monday to 160’13 on Wednesday – a cooler than expected CPI report should give us bounce.
- Crude Oil – Crude oil bounced to test $73.36 Wednesday, but the rally looked 3-wave corrective and this market is looking to roll over.
- Dollar Index –The USD is consolidating sideways this week but a hot CPI report could give us a C-Wave down to test 95.58.
TURNING POINT DAY
The turn window for this week is 12/10, which includes the early CPI report.
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