The Daily JDV Market Timer - January 24, 2022

Folks,

Market Observations for the Week: Hold on to your stomachs, we are entering a “bloodbath week” for the stock market and Monday is only the opening act – we are expecting a lower divergent low for the SPX by 1/27-1/28. The 3-star Critical Reversal Day for the SPX came in on 1/12, which looks like a Wave 2 high of a large C-Wave down which has more to go. As the fear gauge VIX ripped higher to test 39, we sold all of our UVXY but only opened a small, long position. By the end of this week or early next, we are expecting at least an ICL (intermediate cycle low) for the SPX and perhaps a YCL (yearly cycle low) by 2/1. We have recommended 50% cash since Labor Day because of “black swan risks” to the stock market and we expect to put some of that cash to work on a “stink bid” basis during this week. Bitcoin’s reversal higher from its S2 support pivot cheered the market and telegraphed a reversal higher by the QQQ into the close.  Crude oil gave us a 3-wave correction down to $81.9 on Monday but the rally back looked corrective, so we are expecting an undercut low. 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.) but we plan to put some cash to work on a “stink bid” basis if the SPX enters a “panic phase” down around the 1/26 FOMC minutes release. For gold, several cycles point to weakness into 1/26 – a break below $1820 would be concerning to the short-term uptrend. Bonds rallied in 5-waves higher on the hourly chart and started a pullback late today. The USD rallied to a multi-week high today to its R1 resistance pivot at 96.11 – geo-political concerns in the Ukraine gave it a boost.

1/24/22 (Commentary for Monday) We are looking for a “bloodbath phase” this week in the stock market that could culminate in a mini-crash in the 1/26-1/31 time period after the Wednesday Fed Day and today was just the first phase. We are expecting more volatility into the 1/26 FOMC minutes and the Powell press conference before another a final low on 1/27-1/31. Even though the market appears oversold by some measures, oscillators like the NYSE Summation Index could see much lower lows this week. Today’s late short-covering rally is keeping the stock market from getting too oversold in the short-term. The combination of Mercury retrograde, and Uranus retrograde has been a volatile brew for the market since 1/14. We are still in the orb of the 34-yr step out from the 1987 crash and that event argues for some possible extreme downside volatility late this week. Our short-term market bias is BEARISH here and we now want to see one more spike higher in the VIX before allocating some cash to well-researched stink bids in our favored sectors – gold stocks, oil stocks, natural gas stocks and uranium stocks. After this bloodbath phase, we are expecting a huge recovery in stocks very quickly. Gold gave us a B-Wave test of last week’s high at $1848.5 – we could see a C-Wave down into the 1/26 Fed Day. We have some negative cycles for gold and gold stocks early this week and could see an opportunity for “stink bids” on NEM and SBSW on Tues/Wed. We made a Russell 2000 high on 11/8, in the orb of the 34-yr step out, and this could be a possible bull market high – more downside is expected this week after today’s short-covering rally into the close. Bitcoin reversed higher after testing its S2 support pivot at 32808 and telegraphed that the NDX was about to reverse higher. Crude oil spiked higher to $87.10 on Thursday before plunging to $$81.9 Monday – a symmetry EW a-b-c correction could take us back to the $81 area. 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 – however, on a panic spike down after the Fed Day, we will be pursuing stink bids on stocks in our favored sectors and perhaps in the QQQ. The US economy is highly levered to widespread speculation in stocks, stock options and digital currencies – a panic selloff in stocks could give the US economy a real shock – below SPX 4131 could be serious . On Monday, gold gave us a B-Wave test of $1848.5 – several cycles point down for gold and gold stocks into 1/25-1/26. In the US, the background monetary conditions have been deteriorating for months and (see the Closed End Fund (CEF) bond sector A/D line). The Fed quickened the reduction of financial liquidity from the US stock market at the December Fed meeting despite slowing global growth concerns - continued hawkish comments in this week’s Fed minutes would ruffle some market feathers. Geo-political tensions boosted the USD to 96.13 before a correction.

Big Picture on Stocks (UPDATED) – Our short-term market bias changed to VERY BEARISH on Friday and we are looking for a “bloodbath week” in the SPX - EXTREME VOLATILITY between 1/24-1/31 is a possibility. We are holding about 70% cash in our trading accounts and plan to allocate money to “stink bids” in stocks to favored sectors. We are looking for a “panic move” in our fear gauges like the VIX and TRIN.

Big Picture on PMs (UPDATED) – Gold gave us a B-Wave test of last week’s high at $1848.5 – we see more down pressure from various cycles from Tuesday into the Fed Day on 1/26. The GDX needs to give us another follow through day higher to confirm the rally from 1/18.

• Stocks – We got a volatility spike today that tested 39 but the SPX lows for the week may come after the 1/26 Fed Day. We are using our 70% cash for “stink bids” in our favored sectors this week.
• Gold – Gold gave us a B-Wave test of the $1848.5 high on Monday, but several cycles look to pressure gold down into 1/25-1/26.  We need a “follow through day” on the GDX higher to convince us that the PM rally from 1/18 is real. 
• Silver – Silver tagged $23.61 on Monday’s low – an undercut low is possible going into the Fed Day on 1/26.
• Bonds – Bonds rallied in 5-waves on the hourly chart into Monday before correcting. 
• Crude Oil – Crude oil spiked to $87.10 on Thursday and is pulling back to a symmetry target of $81.
• Dollar Index – Geo-political tensions in the Ukraine rallied the USD to 96.13 on Monday.

TURNING POINT DAY

The turn window for this week is 1/26-1/28, which includes a Panic Cycle Low pattern.