Folks,
Market Observations for the Week: Hold on to your stomachs, we are entering a “bloodbath week” for the stock market. 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. We ended last week with mostly cash in our trading account and some UVXY to hedge our stocks. By the end of next week, we are expecting at least an ICL (intermediate cycle low) for the SPX and perhaps a YCL (yearly cycle low) no later than 1/31. 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 at some point this week. Bitcoin tends to lead the NDX, so its breakdown to 36150 is predicting a rough ride down for tech stocks on Monday. Crude oil made a new yearly high at $87.1 and then impulsively declined to $82.69 Thursday evening before bouncing to $85.51 on Friday – we could see another leg down start on Monday. 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 made an important low on 1/18 and then rallied up in 5-waves to test $1848.5 on Thursday before correcting – several cycles point to weakness into 1/26 – a break below $1820 would be concerning to the short-term uptrend. Bonds rallied Friday as the 10-yr US rate continued its correction to 1.752%. The USD gave us 5-waves down into early Friday before a bounce to 95.63 – a C-Wave down early Monday looks possible. Be aware that a Russian invasion of the Ukraine is possible this week.
1/23/22 (Commentary for Sunday) 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. Even though the market appears oversold by some measures, oscillators like the NYSE Summation Index could see much lower lows this week. 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 this week. Our short-term market bias has turned to BEARISH here and we now want to see spikes in our fear indicators (VIX, TRIN, etc.) before allocating our 50% cash to some 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. The PM sector bottomed on 1/18 and the GDX gave us a monster 7% rally on Wednesday before consolidating into the weekend – we need to see a follow through day higher in the GDX to convince us that the PM rally has legs. 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. Bitcoin took out its 1/10 low on Thursday and is testing 36150 over the weekend – it is now forecasting more bloodshed for the SPX and NDX this week. Crude oil spiked higher to $87.10 on Thursday before plunging to $82.69 Thursday evening – 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 this week, 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. On Thursday, gold finished an EW 5-wave rally to $1848.5 and started a correction – 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 and more hawkish comments from the incoming FOMC board would ruffle some market feathers. The USD bounced to 95.86 on Thursday and started an EW a-b-c correction with a symmetry target near its S2 pivot support at 95.31.
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 and a mini-crash 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 in favored sectors. We are looking for a “panic move” in our fear gauges like the VIX and TRIN.
Big Picture on PMs (UPDATED) – Gold rallied in an EW 5-waves from its low on 1/18 and tested $1848.5 on Thursday before correcting into the weekend – we see more down pressure from various cycles from Sunday to 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 – Our short-term bias turned to VERY BEARISH on Friday and we need to see a volatility spike higher in the VIX this week before we look for a long trade. We are using our 70% cash for “stink bids” in our favored sectors this week.
- Gold – Gold tested $1848.5 on Thursday before a correction into the weekend. 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 tested $24.75 on Thursday before pulling back in an EW a-b-c correction into its S1 support pivot late Friday.
- Bonds – Bonds continued higher on Friday as the SPX continues to get sold. The 10-yr US rate closed at 1.751% on Friday.
- Crude Oil – Crude oil spiked to $87.10 Thursday and we are now looking for a symmetry EW a-b-c correction back to $81.
- Dollar Index – Looking for a symmetry EW a-b-c correction back to 95.31 on Monday.
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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