Folks,
Market Observations for the Week: The 10-yr US rate made a 52-wk high at 1.808% before the open Monday and that sent the QQQ down to test its 200-dma before a sharp reversal that took the NDX positive at the close. Did the NDX finish an EW a-b-c correction from 11/22? Maybe, how the CPI and PPI inflation reports come in on Wed/Thurs will set the tone. When the 10-yr US rate started to roll over today, that is when the NDX started its furious recovery. If rates have peaked in the short term, that could allow another rally back to test the highs for the SPY and QQQ. We mentioned yesterday that the “island-reversal pattern” in the Option Premium Ratio could allow for some rally on Monday and that is what we got into the close. The SPX and DJIA made a high on 1/04 in the New Moon Timing Window and the SPX did test SPX 4533 early today – it is possible that this was the extent of the correction before another run to test highs – Chairman Powell’s comments on Tuesday could be a market factor. The 1/12 CPI inflation report will be key this week and will set the market tone in the bond and US markets. Both the SPY and QQQ reversed in an EW 5-waves after the early low today, and that argues for more rally ahead. The QQQ and SPY may be sensing that the CPI report on Wednesday will come in more benign than expected. Bitcoin briefly undercut 40000 this morning and reversed sharply higher before stocks did - is the Bitcoin correction over? Crude oil rolled over today in a 3-wave correction so far –has crude oil peaked for the short term? 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 hawkish FOMC that wants to rein in inflation and unwind the Fed balance sheet more aggressively than the market anticipated. Gold opened Monday weak after Friday’s NFP jobs report, but it is bouncing back to test $1804 on Monday evening – gold needs to close above $1835 to be taken seriously. The 10-yr US rate rallied to test a 52-wk high of 1.808% early Monday, and the USD rallied up to test 96.20. The USD continues to oscillate around the 96.00 level.
1/10/22 (Commentary for Monday) The 10-yr US rate made a higher high at 1.808% early Monday and this sent the QQQ on an early plunge to test its 200-dma at 362.91 before rates rolled over and the QQQ came roaring back in an EW 5-wave rally to close positive. The “island-reversal pattern” on the Option Premium Ratio from Friday alerted us to the possibility of a big rally on Monday and that is what we got into the close. Did the NDX finish an EW a-b-c correction from 11/22 into this morning? Maybe. The “bull-hammer candlesticks” on the SPY that we got today and on 12/20 argue for more rally. The IWM may have finished the right shoulder of an inverse- head-and-shoulder pattern on the daily chart today. Also, to add to the bullish case, the VIX declined in an EW 5-wave decline that looks bullish for the SPX. Bitcoin briefly undercut the 40000 level early Monday but reversed sharply higher before stocks did - did Bitcoin end its correction? How we trade into Wednesday will enlighten us. Crude oil pulled back in 3-waves today – is this the start of a symmetry correction to $57-$60? 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 hawkish FOMC targeting inflation and Fed balance sheet runoff. 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 and Bitcoin trading profits may be hard to come by in 2022. Gold opened weak Monday after Friday’s NFP jobs report but is testing its R1 resistance pivot at $1805 Monday evening. 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 10-yr US rate made a 52-week high at 1.808% early Monday and the USD snapped higher to 96.20 – the USD continues to oscillate around 96.
Big Picture on Stocks (UPDATED) – Our bias is changing Monday night. The QQQ may have finished an EW a-b-c correction from the 11/22 high and the “bull-hammer candlesticks” on the SPY on 12/20 and today look bullish for more rally. The Russell 2000 may be forming an inverse head and shoulder pattern on the daily chart.
Big Picture on PMs (UPDATED) – Gold opened weak Monday after Friday’s NFP jobs report but rallied to $1805 Monday evening. Gold needs a close above $1835 to validate an uptrend here.
- Stocks – The SPY and QQQ both rebounded in an EW 5-wave rally from morning lows and are holding gains overnight – this is short-term bullish. Chairman Powell makes a public address Tuesday at his confirmation hearing. The CPI report early Wednesday will set the tone for the bond and stock market.
- Gold – Gold opened weak early Monday after the NFP report but rallied to $1805 Monday evening. Gold needs to close above $1835 to resume its uptrend.
- Silver – Silver is testing $22.60 Monday evening after the NFP report and needs to take out $23.48 to confirm an uptrend.
- Bonds – Bonds may have finished an EW a-b-c correction on the daily chart – how we react to the CPI report on 1/12 will tell us.
- Crude Oil – Crude oil has pulled back in a 3-wave correction on the hourly chart – is this the start of a big C-Wave down on the daily chart with a symmetry target of $57-$60?
- Dollar Index – The 10-yr US rate rallied to a higher high at 1.808% early Monday and the USD bounced to 96.20. The USD continues to oscillate around 96.
TURNING POINT DAY
The turn window for this week is 1/10-1/12.
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