Folks,
Market Observations for the Week: With rumors of de-escalation in the Ukraine proven to be false, the SPX took a hit today – our prediction for a SPX rally day turned out to be wrong. The E-mini did hold above 4358 which is important – a break below would turn our EW wave count to “crash-wave bearish”. With Secretary Blinken heading to Russia for talks with Russian Foreign Minister Lavrov next week, the SPX should get some kind of relief rally and the E-mini futures are bouncing overnight. After missing on today’s market call, our short-term bias, whether you are an Elliott Wave bull or bear here, is for the SPX to rally into Feb 23 – the pattern of this rally will clue us in for the bigger picture into March. Bitcoin’s overnight decline last night was a bad omen for the SPX decline today where we got a 5-day CBOE put/call ratio close to that seen on the 1/24 low. Crude oil continued weaker today but gold continued to rally on the risk-off trade and managed to close above $1900 – evidence is building that the PM sector has started a major rally. Having 10%-20% invested in physical gold/silver/platinum will be wise in 2022. 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 and continues to defy bearish prognosticators.
2/17/22 (Commentary for Thursday) The SPX has gotten several end-of-day rallies in the last two weeks but not today. Whether you read the daily SPX Elliott Wave structure as bullish or bearish, we are expecting a rally into next week especially with the news that Secretary of State Blinken is traveling to Russia to meet with Russian Foreign Minister Lavrov – this should put off the “so-called invasion” into late next week. Our short-term market bias is BULLISH here and the E-mini is rallying overnight. However, a break below E-mini 4358 would turn us short-term bearish and have us selling our SPY shares. Our intermediate-term stock 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 sold off pre-market today and that was a bad open for the SPX – hopefully we get a rally early Friday. Crude oil may be rolling over here after the 2/16 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. Large cap gold stocks (GOLD, NEM, AEM, GFI, etc.) are leading gold higher this week and that could be signaling a major move in the PM sector – we held GOLD and NEM shares today. 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 US bonds got a risk-off bid today and the 10-yr US rate sank to 1.974%. The USD continues to oscillate around 96 but interest-rate differentials are building with Europe and Japan.
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 early next week. 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 got a risk-off bid today from war rumors and managed to close above $1900. Gold has broken a pattern of declining highs that haunted this market in 2021 and suggests that an important rally has started.
- Stocks – Friday is monthly option expiration before a Monday market holiday and could be volatile – we are expecting a SPX bounce after today’s drubbing. If the E-mini breaks below 4358, we will turn short-term bearish and sell our SPY shares.
- Gold – Led by the big-cap gold stocks, gold closed above $1900 and appears to be starting a big run – a close above $1920 is the next hurdle. We are holding NEM and GOLD shares.
- Silver – Silver needs to break above $24 catch up with gold.
- Bonds – Bonds gave us a risk-off rally today that could extend higher as we go into Friday’s monthly expiration.
- Crude Oil – Crude oil continued its correction and tested $89 - 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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