Folks,
Market Observations for the Week: Volatility is getting very predictable. We were surprised that traders bid up the QQQ and SPY before the FOMC minutes – it gave us an opportunity to add to our “put hedges”. After Powell started his press conference and focused on the inflation word in different contexts than “transitory”, the 10-yr US rate took off and the SPY and QQQ wilted. A test of SPX 4222, the Monday low, is in range for early Thursday which is in our 1/26-1/28 Panic Cycle Low Window. It is too early to buy stocks but some “stink bids” may work tomorrow if the VIX goes over 40. Our bias was that the Monday low at SPX 4222.62 would be retested after the Fed FOMC/press conference on Wednesday and that looks like a possibility – if 4222.62 gets taken out early, 4131 is another possible target. By the end of this week or early next, we are expecting at least an ICL (intermediate cycle low) for the SPX or perhaps a YCL (yearly cycle low) by 2/1 if the old 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 on Thursday/Friday. Bitcoin is testing its S1 pivot support at 35581 and its Monday low at 32855 could be retested into the weekend. Crude oil finished its 3-wave correction near $81 on Monday but rallied today to $87.95. 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 into the 1/27-1/28 Panic low window. After popping to $1855 on Tuesday, gold was slammed down into the FOMC minutes and continued its decline into the close – the break below $1820 jeopardizes the short-term uptrend. Bonds got hit as the 10-yr US rate responded to Chairman Powell’s hawkishness and climbed to 1.857% The USD is testing its R1 pivot resistance overnight at 96.68.
1/26/22 (Commentary for Wednesday) Well, the SPY and QQQ fell hard during Chairman Powell’s press conference as the 10-yr US rate sounded hawkish on inflation and predicted a March rate hike. 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 looked corrective and destined to get undercut. The E-mini futures are forecasting a gap-open down on Thursday’s open – we could see a low in the 1/27-1/28 turn window. Even though the market appears oversold by some measures, oscillators like the NYSE Summation Index could see much lower lows going into the weekend. Tuesday’s corrective bounce from Monday kept 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 – oil stocks, natural gas stocks and uranium stocks. After this bloodbath phase is over, we are expecting a huge recovery in stocks very quickly into the 2/2 New Moon. After gold tested its overhead resistance at $1855 on Tuesday, gold got slammed to undercut its $1820 support line on Wednesday’s close – this is bearish. 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 2009-2021 – the IWM is testing Monday’s low at 191 and is officially 20% before it’s all-time high on 11/8. Bitcoin is rolling over bearishly and is testing its S! pivot support at 35581. Crude oil ended its EW a-b-c correction and rallied to $87.95 on Thursday as geo-political tensions from the Ukraine increase. 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 into the 1/27-1/28 turn window, 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. After gold powered up to test overhead resistance at $1855 on Tuesday, several cycles slammed gold down below $1820 into the close which was short-term bearish. In the US, the background monetary conditions have been deteriorating for months and (see the Closed End Fund (CEF) bond sector A/D line). Chairman Powell’s hawkish use of the “inflation word” in his press conference today did send rates higher and the QQQ down. After the spike in rates, the USD is testing 96.70 overnight Wednesday.
Big Picture on Stocks (UPDATED) – Our short-term market bias changed to VERY BEARISH on Wednesday and we could see EXTREME VOLATILITY in the SPX into 1/27-1/28. We are holding about 70% cash in our trading accounts and plan to allocate money to “stink bids” in stocks to favored sectors if the VIX spikes to over 50. We are looking for at least one more higher high in the VIX fear gauge.
Big Picture on PMs (UPDATED) – Gold powered higher to test its overhead resistance at $1855 on Tuesday but then got slammed down to undercut $1820 after the FOMC minutes on Wednesday which is bearish. The GDX needs to give us another follow through day higher to confirm the rally from 1/18.
- Stocks – The E-mini is testing Monday’s lows overnight Wednesday and we could see a gap-down open early Thursday. A test of 4222 is possible early – the next target is 4131.
- Gold – After testing $1855 on Tuesday, gold was slammed down below $1820 after the FOMC minutes which is short-term bearish. 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 corrected hard during Chairman Powell’s press conference and the 10-yr US rate spiked to 1.858%.
- Crude Oil – Crude oil rallied to $87.95 on Wednesday on geo-political tensions from the Ukraine.
- Dollar Index – The USD is spiking overnight to test its R1 resistance pivot at 96.69.
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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