Folks,
Market Observations for the Week: The SPX completed an EW 5-waves down on the hourly chart early today and then gave us a corrective bounce into the close. We expect another leg down to start early Tuesday which is consistent with our 10-day trading cycle. We got a new all-time high in the SPX and DJIA on 12/30 which is close to the Jan 2 New Moon – a significant correction may have started. Overall, we are expecting an important high in the first half of January and a down Q1 of 2022 for the stock market – however, it is possible that an important high was made last week. Last week the Option Premium Ratio printed .89, .89, .90 going into the holiday weekend. The back-to-back readings of .89 was a sell signal for the SPX. Our bias is that this “bifurcated market” will end badly sometime in the first half of January and give us a strong stock market correction. Holding defensive stock sectors like utilities and PM royalty companies (FNV and WPM make sense here). On Monday, Bitcoin tried to rally early but ended the day testing multi-week lows at 45600 before bouncing overnight Monday to test its Person’s Pivot. What is the recent weakness in Bitcoin telling the market? Crude oil tested $74.27 in the 1/2-1/3 New Moon Timing Window and bounced hard to $76.50 Monday evening. 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 aggressive Fed that wants to rein in inflation. Gold tested $1835 Sunday evening and then got sold hard on Monday’s Big Range Day down to $1798 – clearly the bullion banks were selling gold and silver hard today but the 21-day Fibonacci step out from 12/15 falls on Wednesday’s Fed minutes and may give us a low. Rising rates gave the USD a launch to 96.32 which pressured the gold sector.
1/03/22 (Commentary for Monday) Despite the heroics of AAPL, MSFT and TSLA, the SPX finished an EW 5-waves down from 12/30 early Monday before bouncing correctively into the close. Recovery stocks like the energies and banks fared well today in another “bifurcated tape” day. However, we are looking for another leg down in the E-mini early Tuesday. The back-to-back prints of .89 on Wed/Thurs was a SELL SIGNAL and we are looking for a SPX pullback into Wednesday or so. Our bias is that this “bifurcated market” will end badly at some point in early January and the market will undergo a serous correction. We recommend some defensive holdings like utilities and PM royalty companies like FNV and WPM. In December, the SPX rallied past the Dec 4 eclipse, the Dec 11 planetary alignment, the 12/19 Venus retrograde, and continued to make higher highs into 12/30 near the Jan 2 New Moon. Historically, when the Fed has drained liquidity from the financial markets via cuts in bond purchases, big moves down have started in the stock market since 2008. Bitcoin tested critical support at 45517 before bouncing Monday evening to test its Person’s Pivot at 46507 – what is Bitcoin telling us about the health of Mr. Market here? Crude oil tested $74.27 early Monday in the New Moon Timing Window and then bounced to $76.53 into the evening – our favorite oil stocks, XOM, CVX and COP, have all given us a pretty good run since the 12/20 low. 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 aggressive Fed targeting inflation. Another scary signal came from the early December news that the down payments of 20% of first home buyers came from Bitcoin profits – the US economy is highly-levered to widespread speculation in stocks, stock options and digital currencies. Gold tested $1835 Sunday night before correcting hard on Monday and tagging $1798 – gold could still correct into the 21-day Fibonacci step out on Wednesday. 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 USD got a boost from rising rates today and tested 96.3.
Big Picture on Stocks (UPDATED) – We feel strongly that the SPX is in the process of making a broadening top and that the market is living on borrowed time – our bias is for a major SPX high in the first half of January. The Russell 2000 has already given us a bear market signal – an EW 5-waves down on the daily chart into 12/20. The SPX made a new all-time high at 4808 on 12/30 and then pulled back into the weekend New Moon – we could see a pullback into Wednesday or so before we get a bounce.
Big Picture on PMs (UPDATED) – Gold tested $1835 Sunday evening before a hard correction on Monday that tagged $1798 on today’s solar-lunar Big Range Day. Gold needs a close above $1835 to be taken seriously here.
- Stocks – The SPX made a new all-time high on 12/30 and then declined in an EW 5-waves on the hourly chart into early Monday before a corrective bounce into the close. We are looking for another leg down in the SPX early Tuesday on the 10-day trading day cycle low. The “bifurcated market” that we have seen for months will give way to a stiff market correction sometime in the first half of January. Defensive sectors like utilities and PM-based royalty companies like FNV and WPM make sense to us going into 2022.
- Gold – Gold tested overhead resistance at $1835 overnight Sunday before correcting hard on Monday’s solar-lunar Big Range Day and tagging $1798. Gold needs to close above $1835 to look bu1llish.
- Silver – Silver made a B-Wave test of last week’s high at $23.48 Sunday night and is correcting in a C-wave down that could test $22.60.
- Bonds – Bonds broke down hard on Monday after the latest Evergrande issue in Hong Kong and the 10-yr US rate spiked to 1.635%.
- Crude Oil – Crude oil pulled back into the New Moon Timing Window this morning and tested $74.47 before rebounding into the evening and testing $76.50.
- Dollar Index –Boosted by the rising US 10-yr rate, the USD tested 96.30 and is hard to hold below 96 with the global credit contraction led by China continuing.
TURNING POINT DAY
The turn window for this week is 1/3-1/5.
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