Folks,
Market Observations for the Week: We had another incredible volatility day on Tuesday in the market. Our bias is that the Monday low at SPX 4222.62 will be retested after the Fed FOMC/press conference on Wednesday – the 1/26-1/28 is a key turn window for a short-term low. 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. Today we sold off our FCX calls that we added on a “stink bid” on Monday. 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 if the bull market is still in force. 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 on more downside volatility after the Fed Day Wednesday. Bitcoin’s bounce looks corrective and its weekly lows could be retested into the weekend. Crude oil gave us a 3-wave correction down to $81.9 on Monday but the rally back looks corrective, so we are expecting an undercut low to $81. 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. Gold surprised us and broke higher to test overhead resistance at $1855 – a break below $1820 after the FOMC minutes would be concerning to the short-term uptrend. Bonds rallied in 5-waves higher on the hourly chart and is working through a 3-wave correction. The USD pulled back to 96 today.
1/25/22 (Commentary for Tuesday) Our bias is 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. The Tuesday after a monthly option expiration is a turning point day in our work and the 3-wave bounce in the SPY and QQQ from Monday’s lows into Wednesday looks corrective. We are expecting more downside volatility after the 1/26 FOMC minutes/Powell press conference and a final low in the 1/27-1/31 window. Even though the market appears oversold by some measures, oscillators like the NYSE Summation Index could see much lower lows this week. Tuesday’s corrective bounce from Monday 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 into the 2/2 New Moon. Gold busted higher to test overhead resistance at $1855 – we could still see a leg down after the FOMC minutes on tomorrow’s Fed Day. Any reversal down in the GDX could give an opportunity for “stink bids” on NEM and SBSW. 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 for the bull market from 2009 – more downside is expected this week after the FOMC minutes are scrutinized tomorrow. Bitcoin tested its R1 resistance at 37370 Tuesday evening and its own rally from Monday looks corrective. Crude oil spiked higher to $87.10 last Thursday before plunging to $$81.9 on 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. Gold powered up to test overhead resistance at $1855 – several cycles point downed for gold and gold stocks into 1/25-1/26 – how gold trades after the FOMC minutes will be key. 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. The USD pulled back to 96 late Tuesday.
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 at least one higher high in the VIX fear gauge.
Big Picture on PMs (UPDATED) – Gold powered higher to test its overhead resistance at $1855 but how we trade after the FOMC minutes is key. The GDX needs to give us another follow through day higher to confirm the rally from 1/18.
- Stocks – Our bias is that the SPY is only giving us a 3-wave corrective bounce into Wednesday and we are looking for more downside volatility after the FOMC minutes. We are using our 70% cash for “stink bids” in our favored sectors this week.
- Gold – Gold rallied and tested its overhead resistance at $1855, but how we trade after the FOMC minutes is key. 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 – The USD corrected today and tested 96.
TURNING POINT DAY
The turn window for this week is 1/26-1/28, which includes a Panic Cycle Low pattern.
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