Folks,
Market Observations for the Week: The December month-to-month PPI reading came in at 0.2%, lighter than the consensus, but the SPX continued its correction from early yesterday at 4748.83. Retail sales and bank earnings pre-market Friday will set the market tone. The SPX short-covering rally that we anticipated today from our “island-reversal” Option Premium Ratio signal on Wednesday failed to materialize today – hopefully by tomorrow. The SPY and QQQ gave us both Negative Volume Reversal days and is stressing our bullish bias from the Monday low. However, we view the SPX price action from early Wednesday as potentially a wave 2 correction and look for more rally from the SPX into the weekend. The TNX declined in 5-waves on the hourly chart and that could allow another rally back to test the highs for the SPY and QQQ. Bitcoin pulled back to 42590 Thursday evening and that move looks corrective. Crude oil is pulling back into the 1/17 Full Moon but the oil stocks continue to hold up well. 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. On its solar/lunar Big Range Day, gold dropped early to test $1811 but fought back to test $1826 Thursday evening – gold needs to close above $1835 to resume its uptrend. The 10-yr US rate rallied to test a 52-wk high of 1.808% early Monday, but then pulled back in 5-waves to 1.708% on Thursday – this is bullish for the QQQ. The USD continues to sub-divide down and tested 94.66 today and this is giving the PM sector a boost.
1/13/22 (Commentary for Thursday) The PPI report come in cooler than expected month/month but the SPX continued its correction from early Wednesday. The pullbacks in Bitcoin and the E-mini looked corrective today as the 10-yr US rate declined in 5-waves on the hourly chart. Our bias is that the NDX did finish an EW a-b-c correction from 11/22 into Monday. The “bull-hammer candlesticks” on the SPY that we got 1/10 and on 12/20 argue for a retest of the highs into the important January 26-28 turn window. Also, to add to the bullish case, the VIX declined in an EW 5-wave decline on the hourly chart into Wednesday that is bullish for the SPX. Another bullish factor, the rally in Bitcoin from Monday looked EW impulsive to us into Wednesday which is positive for the stock market. Crude oil pulled back to its Person’s Pivot Thursday evening but the oil stocks are holding up well. 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. 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. On its solar/lunar Big Range Day today, gold pulled back to $1811 early before fighting back to $1826 Thursday 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 pulled back in 5-waves to 1.708 % on Thursday which is bullish for the QQQ. The USD continued to sub-divide down to 94.66 on Thursday which is giving a boost to the PM sector.
Big Picture on Stocks (UPDATED) – Our short-term bias changed 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 1/10 look bullish for a rally back to test the highs. The Russell 2000 may be forming an inverse head and shoulder pattern on the daily chart.
Big Picture on PMs (UPDATED) – Gold extended its rally to $1828 into Wednesday’s close and the PM stocks followed along. Gold needs a close above $1835 to continue its uptrend.
- Stocks – Despite a cooler month/month PPI reading from December, the SPX continued its EW a-b-c correction from Wednesday. Retail sales and bank earnings will drive the market tone early Friday.
- Gold – On its solar/lunar Big Range Day, gold pulled back to $1811 before bouncing back to $1826 Thursday evening. Gold needs to close above $1835 to resume its uptrend.
- Silver – Silver tested $23.31 on Tuesday and needs to take out $23.48 to confirm an uptrend.
- Bonds – Bonds rallied in 5-waves from Monday and continues to look strong after the PPI report as the 10-yr US rate pulled back to 1.708%.
- Crude Oil – Crude oil pulled back to test its S1 pivot at $81.60 Thursday, but the oil stocks held up well.
- Dollar Index – As the 10-yr US rate declined to 1.708% on Thursday, the USD dropped hard to 94.66 and that supported the PM sector.
TURNING POINT DAY
The turn window for this week is 1/10-1/12.
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