Folks,
Market Observations for the Week: The SPX continued to correct into Friday and fell below 4400 as we got a .618 retracement of the rally from 1/28. It is do or die here for both the bulls and the bears on Monday/Tuesday. The only allowed bullish EW count here on the hourly is for a very bullish 1-2, i-ii pattern – if this count is valid, we should see SPX at least at the SPX 4500 level on Tuesday’s close. If the bearish count is working, we should see the SPX close below 4400 on Tuesday. Rumors of an imminent Russian invasion of the Ukraine permeated the markets Friday afternoon and the SPX may have already priced in that risk. The bulls have two things going early Monday – 1) Fed President Bullard will be interviewed pre-market Monday and will definitely attempt to “walk back” his comment of a 0.50% rate cut in March and, 2) if the Russians haven’t invaded the Ukraine, the markets should bounce on that news. Still, even though we believe that 2022 will be a bear-market year, we believe that we saw a “final blow off” rally in stocks begin at SPX 4222 on 1/24 and that a fierce short-covering rally will take both the SPX and NDX to new all-time highs in the next few weeks. Be agile, cash is still our largest position (~50%) and our best asset in this volatile market, but we have some SPY, FCX, LABU, and F shares to play the short-covering rally in the SPX. Bitcoin is testing S1 pivot support at 41807 Sunday night – hopefully the end of an EW a-b-c correction. Crude oil defied our short-term call for a top and exploded higher Sunday night to test $95. Even so, the BPENER (bullish percent for energy stocks) is at 100% - pretty toppy here in the short term for oil stocks. 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 have been holding SPX, FCX, LABU, and F shares with our bullish conviction into March 20. Gold exploded higher to test $1864 Friday evening on a risk-off move – a weekly close above $1860 is significant, however. The USD tested 96.10 Sunday evening and remains close to the 96 level that has provided support for months now.
2/13/22 (Commentary for Sunday) Friday, the SPX got sold hard again as Ukraine invasion rumors permeated the markets going into the weekend. It is now a do-or-die moment for both stock market bulls and bears. The bulls are hoping for no invasion into Monday morning and a more dovish tone from Fed President Bullard pre-market Monday in his pre-market comments to CNBC. The bears hope for a close below SPX 4400 by Monday or Tuesday. The intra-day SPX move Friday below 4401 turned us cautious. Our short-term market bias is CAUTIOUS until the SPX closes above 4500 by the end of Tuesday – a close below 4400 by Tuesday, however, would turn us bearish. Our “Big Picture Take” is that the SPX made a major low on 1/24 at 4222 and we are looking for a “violent short-covering rally” to take us into new highs for the SPX and NDX into March. The SPY bears did well on Thursday/Friday by shorting the SPY, but we warn against continuing to hold shorts here against the SPY or QQQ and prefer to hold cash. We got a 3-start critical reversal day in the SPX on 2/3 and that gave us a .618 retracement of the SPX rally from 1/28 going into Friday. Since SPX 4441 was taken out intra-day Friday we did not buy the dips in the SPY, LABU or the FCX on Friday and prefer to see the SPX close above 4500 by Tuesday. Our market bias is that the SPX started a “Final Blow Off” on 1/28 and that we could start a “Bear Market” sometime in the March-May window. Bitcoin appears close to finishing an EW a-b-c correction at its S1 support pivot at 41798 Sunday evening. Crude oil cancelled out our SELL SIGNAL on Friday as it rocketed up to test $95 on Ukrainian war fears. Last week, the BPENER hit 100% bullish – this looks a little toppy to us for oil stocks in the short-term. Gold rallied to $1864 on a risk-off trade Friday and could move higher early Monday. Overall, we still hold ~50% 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). The 10-yr US rate made new highs for the year at 2.063% Friday as bonds took a hit. The USD is testing 96.10 Sunday night.
Big Picture on Stocks (UPDATED) – The SPX took out 4441 intra-day Friday and we refrained from buying the SPY on Friday’s dip – we need to see the SPX prove itself by closing over 4500 by Tuesday. We are holding about 50% cash in our trading accounts but are holding a short-term trading position in the SPY, FCX, LABU, and F this week into at least 3/20.
Big Picture on PMs (UPDATED) – Gold blasted to $1864 late Friday on a risk-off trade focused on the fears of an imminent Ukrainian invasion.
- Stocks – The SPX may have finished an EW a-b-c correction from 2/2 that retraced .618 of the rally from 1/28 – we need to close above SPX 4500 by Tuesday to reconfirm the bullish trend.
- Gold – Gold spiked to $1864 late Friday on a rumor of an imminent Ukrainian invasion – we got our close above $1860. We need to see a move above $1864 on Monday to keep us bullish.
- Silver – Silver is testing $23.8 Sunday evening - we need to see a move above $23.90 early Monday to keep us long.
- Bonds – Bonds got shredded after a hot CPI report and the 10-yr US rate rallied to 2.063% on Friday - the highest since 2019.
- Crude Oil – Crude oil blasted to test $95 on Friday - the BPENER (bullish percent energy stocks) is still at 100% - a little toppy for oil stocks in the short term.
- Dollar Index – The USD is testing 96.10 late Sunday.
TURNING POINT DAY
The turn window for this week is 2/14-2/15
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