Folks,
Market Observations for the Week: The media blitz of a Russian invasion of the Ukraine intensified over the weekend and with the close of the Bejing Winter Olympics Sunday night, global markets are concerned about an invasion early Monday. On Friday, the E-mini did break below 4358 which makes us very cautious, and the Option Premium Ratio did spike from 1.63 to 2.17 which showed an increase of bearish sentiment going into the weekend. With Secretary Blinken heading to Russia for talks with Russian Foreign Minister Lavrov next this week (only if the invasion has not started), the chances of a last-minute diplomatic reprieve are still viable. Friday’s weak close on the SPX, does give the hourly chart the appearance of an EW a-b-c-d-e triangle which could resolve upward – how the SPX trades this week will clue us in for the bigger picture into March. Bitcoin tested 39485 Friday and is due some kind of bounce into Sunday night. We got a 5-day CBOE put/call ratio close to that seen on the 1/24 low. Crude oil declined to test $87.46 before bouncing into the close – a target of $100 is possible if we see an invasion on Monday but we think that the major oil stocks are too extended for purchase here. Gold gave us a weekly close above $1900 as 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.) and also like a 10% allocation to gold/silver/platinum. The USD continues to oscillate around 96 and continues to defy bearish prognosticators.
2/20/22 (Commentary for Sunday) Last minute diplomacy from the Ukraine and the US may delay an invasion on Monday which is a market holiday in the US. There is firm conviction in market bulls and bears as we enter this week. The Option Premium Ratio spiked higher on Friday to 2.17 shows strong bullish conviction and calls for a market crash on Monday/Tuesday are common on Twitter. Stock market bulls see a huge, short interest in the SPX and believe that last-minute diplomacy could delay an actual invasion early this week. A break below E-mini 4358 did turn us cautious on Friday but the daily SPX chart still has a possible EW a-b-c-d-e triangle being finished on Friday that could be a Wave 2. A break below the 1/28 low at SPX 4292, however, would be decidedly bearish for us. 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. Our intermediate-term stock market bias is that the SPX started a “Final Blow Off” on 1/24, but how we trade into next week could change that view. Bitcoin sold off to 39478 on Friday and may be due a bounce into Sunday night. 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 too 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, AEM and NEM shares into the weekend and could see volatility in the PM sector on Sunday night and Monday. 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 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, NEM 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 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 – The E-mini fell below 4358 and that stopped us out of our SPY shares. Bears loaded up on puts and are looking for a possible market crash early this week on a Russian invasion. We prefer to hold >50% cash, a 10% stake in physical gold/silver/platinum and a few gold shares.
- Gold – Led by the big-cap gold stocks, gold made a weekly close $1900 and appears to be starting a big run – a close above $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, NEM, AEM and GOLD shares.
- Silver – Silver closed last week just below $24 but the silver stocks are perking up.
- Bonds – Bonds continued their risk-off rally on Friday as we worked through Friday’s monthly expiration and possible Russian invasion.
- Crude Oil – Crude oil tested its S2 pivot support at $87.62 on Friday and bounced - oil stocks are too toppy to buy in the short-term.
- Dollar Index – The USD continues to oscillate around 96.
TURNING POINT DAY
The turn window for this week is 2/21-2/22.
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