Folks,
Market Observations for the Week: The markets are very choppy here and full of traders of strong convictions. Trending inflation, a tightening Fed policy, and news from the Ukraine are driving stocks and some prominent analysts are claiming that we are in a “crash wave” from Jan 4 and some prominent analysts are claiming that we are about to have a huge rally back to test the highs. What’s a trader/investor to do here. Our short-term bias, whether you are an Elliott Wave bull or bear here, is for the SPX to rally into Feb 22 – the pattern of this rally will clue us in for the intermediate term into March. On Monday, we added some SPY shares near the SPX 4365 low with the idea of holding into next week. Bitcoin continues to hold up above 43000 and that is hopeful for the SPX bulls tomorrow. Both crude oil and gold ramped up into the 2/15-2/16 Full Moon Timing Window before seeing a correction – gold took out its 11/8 high this week and changed its pattern of lower highs – gold may have started a major mov higher and needs to be watched. 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 are now holding some SPY, F and LABU shares for a run into March. The USD continues to oscillate around 96 which appears to be its happy place.
2/16/22 (Commentary for Wednesday) The SPX declined into the FOMC minutes and then staged a rally into the close. Whether you read the daily SPX Elliott Wave structure as bullish or bearish, we are expecting a rally into 2/23. Our short-term market bias is BULLISH here and more good news from the Ukraine overnight could give us a “gap up” in the SPX early Thursday. The SPY bears did well on 2/10-2/11 by shorting the SPY, but we warn against continuing to hold shorts here against the SPY or QQQ and prefer to hold cash into next week. Our market bias is that the SPX started a “Final Blow Off” on 1/24 and that we could start a “Secular Bear Market” sometime in the March-May window but how we trade into next week could change that view. Bitcoin is holding above 43000 Wednesday night and that is encouraging to SPX bulls for early Thursday. Crude oil may be rolling over here after the Full Moon but geo-political tensions could keep it from declining very far. Last week, the BPENER (bullish percent energy stocks) hit 100% bullish – this looks a little toppy to us for oil stocks in the short-term. Gold stocks are leading gold higher and that could be starting a big move for the PM sector. Overall, we still hold ~60% cash as we feel that the macro risks of being 100% long are just too high with the global credit contraction led by China still progressing and a 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) and the Fed’s tightening will accelerate this. The 10-yr US rate made new highs today near 2.066% on the hot Import Price number. The USD continues to oscillate around 96.
Big Picture on Stocks (UPDATED) – We added a few SPY shares when the SPX tested the .618 retracement of the 1/24-2/2 rally at SPX 4365 Monday but need to see the SPX prove itself by closing over 4500 by Thursday. We are holding about 60% cash in our stock accounts but are holding a few shares in SPY, LABU, and F this week for a run into March.
Big Picture on PMs (UPDATED) – Gold took out the 11/8 high at $1879 Monday evening – THIS ENDS A PATTERN OF DECLINING HIGHS and suggests that an important rally has started. Gold needs to close above $1900/then $1920 to really get going.
- Stocks – A bullish or bearish EW count here allows for a SPX rally from Thursday into 2/23 – a gap-up open on Thursday would be a good start.
- Gold – Gold made a 3-month high at $1882 this week and ended a period of declining highs - we are holding NEM and GOLD shares.
- Silver – Silver needs to break above $24 to look bullish.
- Bonds – Bonds gave us 5-waves down to 150’12 and then started to rally – we may have seen a short-term low.
- Crude Oil – Crude oil ramped up to test $96 into the Full Moon but pulled back late in the day - a little toppy for oil stocks in the short term.
- Dollar Index – The USD continues to oscillate around 96.
TURNING POINT DAY
The turn window for this week is 2/15-2/16 which includes the Full Moon.
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