Folks,
Market Observations for the Week: The Russell 2000 is leading the SPX and NDX down and took out its Monday low today. Already down >20% from the 11/8 all-time high, the IWM is already in bear market territory. We could see the SPX and NDX take out their 1/24 lows on Friday/Monday, but we appear close to making an important low in the 1/27-1/28 turn window. It has been too early to buy stocks but some “stink bids” may work Friday/Monday if the VIX spikes above 50 - but we prefer cash over longs or shorts here and our short-term market bias has turned to CAUTIOUS. Our bias was that the Monday low at SPX 4222.62 would be retested after the Fed FOMC/press conference on Wednesday and that could be a possibility for Friday/Monday. 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 could put some of that cash to work on a “stink bid” basis if we see the VIX spike above 50 on Friday/Monday. Bitcoin is holding above its Person’s Pivot at 36873 Thursday night, but its pattern looks shaky to us. Crude oil rallied to $88.54 on Thursday and could extend higher with the Ukraine crisis heating up. 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 could put a small fraction of that cash to work on a “stink bid” basis if the SPX enters a “panic phase” down into the 1/27-1/31 turn window with a VIX spike above 50. After popping to $1855 on Tuesday, gold was slammed down into the FOMC minutes and continued down to test the important low at $1791 Thursday morning – the break below $1820 turns us short-term bearish. Rates jumped early on the strong Q4 GDP estimate, but the 10-yr US rate settled back to 1.807 late in the session. The USD tested 52-week highs at 97.29 as geo-political tensions in the Ukraine continue to simmer.
1/27/22 (Commentary for Thursday) The Russell 2000 (IWM) took out its Monday low and continues to lead the SPY and QQQ down as we enter the 1/27-1/28 turn window. The SPY and QQQ rally patterns from Monday are also “corrective” looking and could undercut their respective lows on Friday, but AAPL is giving the QQQ a bounce overnight because of its post-earnings rally. 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 could get undercut soon. However, many market measures are getting historically oversold here and managing risk is getting more difficult. 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 possible downside volatility into Monday, but we prefer cash over longs or shorts here. Our short-term market bias is CAUTIOUS as we entered the 1/27-1/28 turn window today and the IWM took out Monday’s low. After Friday/Monday, we are expecting a sharp rally in stocks into the 2/2 New Moon. After gold tested its overhead resistance at $1855 on Tuesday, it got slammed down to test support at $1791 and looks bearish – gold needs a follow through move higher in the GDX to keep it from really rolling over. The IWM took out Monday’s low at 191 today in our 1/27-1/28 turn window and is 20% before its all-time high on 11/8. 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 trading profits may be difficult this year. 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 into late Wednesday but rates pulled back on Thursday. After increased tensions in Ukraine, the USD tested a 52-wk high at 97.29 today.
Big Picture on Stocks (UPDATED) – Our short-term market bias changed to CAUTIOUS today as the IWM undercut its Monday low at 191.3 into the 1/27-1/28 turn window – we prefer to hold cash over longs or shorts. 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 on Friday/Monday.
Big Picture on PMs (UPDATED) – Gold tested its overhead resistance at $1855 on Tuesday but then got slammed down to test $1791 on Thursday after the Fed Day - the gold bullion banks jumped all over gold Wednesday/Thursday. Gold looks bearish here and needs a reversal higher in the GDX to keep it from rolling over. There is a 3-star critical reversal day on 2/1.
- Stocks – The IWM undercut its Monday low at 191.3 as we entered the 1/27-1/28 turn window. We are turning cautious here and prefer to hold cash over longs and shorts. There is still a chance of a spike in the VIX above 50 on Friday/Monday and we will use this for a few “stink bids”.
- Gold – After testing $1855 on Tuesday, gold got slammed down to $1791 support on Thursday and looks bearish.
- Silver – Silver got slammed down to $22.58 into Thursday and looks bearish.
- Bonds – After the 10-yr US rate tested 1.857% late Wednesday, we got a pullback on Thursday despite the larger than expected Q4 GDP report.
- Crude Oil – Crude oil rallied to $88.54 on geo-political tensions from the Ukraine and looks to go higher.
- Dollar Index – The USD tested 97.29 today, a 52-wk high.
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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