Folks,
Market Observations for the Week: For the third month in a row, the NFP jobs report came in cooler than the consensus expectation at 199,000, but the unemployment rate dropped to 3.9% and the average hourly earnings rose to 0.6%, both hotter than expected and this pressured the SPX to an undercut low. The 10-yr US rate digested the conflicting components of the NFP report and proceeded to rally and test 1.8%, a 52-week high. Our bias is that the SPX and DJIA made an important high on 1/04 in the New Moon Timing Window and we have started a move down to test SPX 4533 by next week. The 1/12 CPI inflation report will be key next week as the 10-yr US rate appears to be playing catch up with reported inflation. Our bias is that the corrective bounce that started today for the SPX will extend into Friday and give the bulls a strong relief rally in the SPX. On Friday, Bitcoin tested 40470 and appears to be extending its downtrend – a daily close below 41000 will be a sign of a possible big flush. Crude oil tested $80.47 early Friday and that kept the oil stocks (XLE) rolling higher – our favorite oil stocks include CVX, XOM and COP. 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 hawkish FOMC that wants to rein in inflation and unwind the Fed balance sheet more aggressively than the market suspected. Gold continued down in its C-Wave that tested $1781 after the NFP report and bounced back to test $1797 on Friday’s close. The 10-yr US rate rallied to test a 52-wk high of 1.80%, but the USD still declined to test 95.70.
1/09/22 (Commentary for Sunday) Despite the weaker headline jobs number early Friday, the US bond market voted that the aggregate NFP reports was hotter than expected and that drove the US 10-yr rate to test 1.8%. Overall, the SPX continues continued to sub-divide down on Friday but the “island-reversal pattern” on the Option Premium Ratio cautions us that we may see more corrective rally higher early Monday. Our bias that this “bifurcated stock market” would end badly at some point before mid-January may have come home to roost Wednesday after the “more hawkish” than expected minutes from the newly assembled FOMC, but the market is still due more rally from a corrective bounce that started Friday. 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 broke below its critical support at 45500 last week and tested lows for the week below its next support line at 41000 on Friday – weakness in Bitcoin foreshadowed the weakness in stocks. Crude oil tested $80.47 early Friday and oil stocks (XLE) continue to get bought – this is potentially bullish for the stock market. 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. 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 and Bitcoin trading profits may be hard to come by in 2022. Gold continued its C-Wave down to $1781 after the NFP jobs report and then bounced to $1797 by Friday’s close. 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. Interestingly enough, despite the post-NFP rise in the 10-yr US rate to test 1.8%, the USD declined to test 95.70 which should be supportive of the PM sector.
Big Picture on Stocks (UPDATED) – Our bias is that the SPX made an important top in the 1/02-1/04 New Moon Timing Window and that the market may have started an important decline that could extend into 1/26. The Russell 2000 has already given us a bear market signal – an EW 5-waves down on the daily chart into 12/20. The DJIA made a divergent all-time high at 36952.65 into mid-day Wednesday and then corrected after the FOMC minutes.
Big Picture on PMs (UPDATED) – Gold made a B-Wave test of last week’s high at $1833 before the FOMC minutes and then declined in a C-Wave down into $1781 after the NFP report on Friday. Gold needs a close above $1835 to be taken seriously here.
- Stocks – The SPX traced out an EW 5-waves down into Friday on the hourly chart and then started a retracement bounce that could extend higher – the .63, .97, .81 “island-reversal pattern” in the Option Premium Ratio argues for more corrective rally into Monday.
- Gold – Gold continued to decline in a C-Wave down that tagged $1781 after the NFP report and then retraced to $1797 on Friday’s close. Gold needs to close above $1835 to resume its uptrend.
- Silver – Silver is also in a C-Wave down that undercut $22.00 after the NFP report and then retraced to test $22.44 on Friday’s close.
- Bonds – Bonds looked extended to the downside as the 10-yr US rate spiked to 1.80% on Friday but US bond rates may be making a catch up move to reported inflation.
- Crude Oil – Crude oil tested $80.41 early Friday and the money flow continued to favor the XLE oil stocks like CVX, XOM and COP.
- Dollar Index –Despite the rally to a 52-wk high in the 10-yr US rate to 1.8%, the USD faltered to 95.70 on Friday. Taking out 95.57 would look bearish for the USD.
TURNING POINT DAY
The turn window for this week is 1/12.
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