Folks,
Market Observations for the Week: The emotional defiance of Putin in annexing the Donbas provinces in the eastern Ukraine and the insertion of “Russian peacekeepers” put tremendous pressure on the SPX early Tuesday. The SPX took out its 1/28 low at 4292 and that eliminated the bullish EW 1-2, i-ii pattern that we considered as a possibility. The SPX may have made the low for the week today, but rally potential is now limited back to 4600 or so going into the weekend. However, the Option Premium Ratio rallied from 2.17 to 2.49 on Tuesday and that suggests that the 1/24 low at SPX 4222 could still be tested before a sustainable rebound tomorrow. With Secretary Blinken heading to Russia for talks with Russian Foreign Minister Lavrov next this week, the chances of a last-minute diplomatic reprieve are still viable but lessoned with the intensity of Putin’s TV performance on Monday in our eyes. Bitcoin tested its S1 pivot support at 36100 overnight Sunday and is struggling to hold above Person’s Pivot on Tuesday night at 37931. Crude oil spiked to $95 overnight before rolling over – a target of $100 is still possible if we see a full invasion of greater Ukraine later this week. Gold tested key horizontal resistance at $1918 on Monday and pulled back in 3-waves to $1892 before a bounce back to $1907 on Tuesday – a symmetry correction could take us back to $1882. 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.) and also like a 10% allocation to gold/silver/platinum. The USD continues to oscillate around 96 and continues to defy bearish prognosticators.
2/22/22 (Commentary for Tuesday) The SPX tested 4267 and bounced after Biden’s speech but we are not sure that it made a trading low. Wednesday is the 21-day Fibonacci step out from the 2/2 high and could give us a turn. The rally in the Option Premium Ratio from 2.17 to 2.49 shows that the bears remained convicted going into today’s close and could still test SPX 4222 tomorrow. Since we took out SPX 4292 to the downside today that invalidates the bullish EW 1-2, i-ii count and the SPX volume today did not look capitulative. We prefer to hold >50% cash here and we like the idea of owning 10% physical gold/silver/platinum. However, the break below E-mini 4358 did have us stopping out of our SPY shares on Friday. Taking out SPX 4292 today does negate our view that a “final blow off” started on 1/24 and the most that we expect is a retracement rally back to 4600 even if we manage to undercut the 1/24 low at 4222 tomorrow. Bitcoin tested 36340 Monday night and bounced into Tuesday evening where it is fighting to hold above its Person’s Pivot at 37920 which is bullish for tomorrow. Crude oil spiked back to test $95 on Monday before rolling over – a rally to test $100 is still possible later this week on a full invasion of the Ukraine. Gold tested key resistance at $1918 and is pulling back correctively – a symmetry correction could take us back to $1882. 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 tested 154’14 on Monday before a pullback into Tuesday that took the 10-yr US rate sank to 1.95%. The USD continues to oscillate around 96 but interest-rate differentials are building with Europe and Japan.
Big Picture on Stocks (UPDATED) – We stopped out of our SPY shares as the E-mini slipped below 4358 on Friday but did add to GLD. We are holding about 60% cash in our stock accounts and a few shares of AEM, and GOLD for a possible run into March.
Big Picture on PMs (UPDATED) – Gold got a risk-off bid last week from war rumors and managed to test $1918 on Monday before correcting. Gold has broken a pattern of declining highs that haunted this market in 2021 and suggests that an important rally has started.
- Stocks – The E-mini fell below 4358 and that stopped us out of our SPY shares on Friday. Today, the SPX took out 4292 which NEGATED our view that 1/24 was the start of a “Final Melt Up”. The SPX could still test the 1/24 low at 4222 tomorrow before a retracement to 4600 or so. We prefer to hold >60% cash, a 10% stake in physical gold/silver/platinum and a few gold shares.
- Gold – Gold tested $1918 on Monday before a correction into Tuesday – a symmetry correction could take us to $1882. A close above key horizontal resistance at $1920 is the next hurdle. However, a diplomatic solution to the Ukraine crisis could take some “risk off” premium out of gold. We are holding some GLD, AEM and GOLD shares.
- Silver – Silver closed last week just below $24 but the silver stocks are perking up. A close above its 200-dma could start a major break out in silver.
- Bonds – Bonds rallied to 154’14 on Monday before correcting into Tuesday with gold.
- Crude Oil – Crude oil tested $95 early Tuesday on Ukrainian tensions – a test of $100 is still possible later this week on a full Russian invasion.
- Dollar Index – The USD continues to oscillate around 96.
TURNING POINT DAY
The turn window for this week is 2/21-2/23.
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