Folks,
Market Observations for the Week: Welcome to the Bear Market of 2022 – it is and currently will be a volatile affair. Chairman Powell has “tightened with words” so far and the 2-year US note has already gained 80 basis points to 1.20%. The first actual rate hike will come in March. The Fed is “far behind the curve” on inflation and its shift to tighten monetary policy will play havoc with the markets in 2022 and will give us a 20-yr cycle low in US markets in Q4 2022 or Q1 2023. We talked a lot about the 34-yr step out from the 1987 crash last fall and its ability to turn the markets down into a “real bear market”. Our bias is that it brought us a Bull Market Peak in the Russell 2000 (IWM) on 11/8 and a peak in the NYSE Composite (NYA) on 1/13, but peaks in the NDX and SPX have not yet been confirmed by an EW 5-wave down pattern on the daily chart. We had a 3-star Critical Reversal Window on 1/14-1/17 and that came in as a high on 1/13. Last week, we had a turn window on 1/27-1/28 and it gave us an EW 5-waves down in the IWM from the Jan 4 high, but not for the SPX or NDX. The VIX had a cycle high due on Friday – we could still see a final spike high early Monday! Be agile, cash is our largest position and our best asset in this volatile market. Our bias is, if we do get a gap down open on Monday, that we will see a SPX rebound rally into the 2/2 New Moon that could be strong. 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 Monday. Bitcoin is holding up over the weekend and a symmetry move could take us to 41000 by the 2/2 New Moon. Crude oil continues to hold up and could give us a spike higher to test $90 by the 2/2 New Moon. 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 would put a small fraction of that cash to work on a “stink bid” basis with a VIX spike above 40. Once again, the gold bears took control last Wednesday and gold was slammed down into the FOMC minutes and continued down to undercut the important low at $1791 on Friday. The only ray of hope for the gold bulls was that the gold price managed a weekly close at $1792 – above the $1791 level. Rates could go either way early Monday – a move higher to test the 10-yr US rate at 1.87% could give us a VIX spike above 50 for the SPX but a move down in rates could spark a rally. The USD tagged 97.44 on Friday and gave us a divergent high to its SMI oscillator.
1/30/22 (Commentary for Sunday) We have a monster earnings week coming this week with AMZN, FB and GOOG reporting. Considering how the market rallied after the MSFT and AAPL earnings, we are not inclined to hold bearish positions going into this week. Also, the Option Premium Ratio is giving us a clear message this weekend – the reading from Friday was 2.94 and is testing the 5-yr high of 3.04 made on 3/24/20 – the bears have pushed this market down enough in the short term and we are inclined to buy the SPY on dips early Monday. Our short-term market bias has swung to BULLISH - if we get a down open early Monday, we are expecting a strong rally into the 2/2 New Moon. The mid-point of the current Mercury retrograde cycle fell on 1/24 and gave us the SPX low at 4222. The combination of Mercury retrograde, and Uranus retrograde has been a volatile brew for the market since 1/14, but markets can often reverse on the midpoint of Mercury retrograde and the SPX may have last week. We are still in the orb of the 34-yr step out from the 1987 crash and that time event has already put in confirmed bull market highs in the IWM and SMH but not yet in the SPX and NDX. The bears took control of gold last Wednesday and slammed it down below important support at $1791 on Friday. The only ray of hope for the gold bulls was that gold managed a weekly above $1791 support. 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. 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 into Friday. After increased tensions in Ukraine, the USD tagged 97.44 on Friday before correcting.
Big Picture on Stocks (UPDATED) – Our short-term market bias changed to BULLISH Friday as the IWM undercut its Monday low at 191.3 into the 1/27-1/28 turn window and our Option Premium Ratio indicator tested its 5-yr high– we prefer to hold cash over shorts and will buy the SPY on dips early Monday. We are holding about 70% cash in our trading accounts and would allocate money to “stink bids” in stocks in favored sectors if the VIX spikes to over 50 early Monday.
Big Picture on PMs (UPDATED) – Gold was slammed down last week after the spike to $1855 on Tuesday and undercut support at $1791 on Friday – the only ray of hope for gold bulls is that it managed a weekly close above $1791 support. There is a 3-star critical reversal day for gold on 2/1 and that is looking like a low.
- Stocks – The IWM traced out 5-waves down into the 1/27-1/28 turn window and the SPX reversed 140 points higher – one of the largest reversals in history. Our short-term market bias has swung to BULLISH and we are looking to buy dips early Monday on the SPY. Our Option Premium Ratio is testing 5-yr highs near 3.05 at the Covid low on 3/24/20 – our sentiment has swung back to bullish.
- Gold – After testing $1855 on Tuesday, gold got slammed down below $1791 on Friday - we have a 3-star critical-reversal-day coming in on 2/1 and that looks to be a low.
- Silver – Silver got slammed down to $22.15 on Friday and looks bearish going into the 2/1 turn window.
- Bonds – Bonds gave us 5-waves up on the hourly chart going into Friday – the PMI report early Monday could have an impact on the 10-yr US rate.
- Crude Oil – Crude oil rallied to $88.84 on Friday on geo-political tensions from the Ukraine – we could see a test of $90 going into the 2/2 New Moon.
- Dollar Index – The USD tested 97.44 on Friday, a 52-wk high, and then started a small correction.
TURNING POINT DAY
The turn window for this week is 2/1-2/3, which includes the New Moon Timing Window.
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