Folks,
Market Observations for the Week: The SPX didn’t like Target’s earnings which confirmed what the earnings from Walmart told us – supply chain inflation is hitting earnings hard. The SPX corrected hard and left behind just a 3-wave corrective rally from the low on 5/12. Did we make an important low on today’s Moon in Capricorn? If so, we could see a bounce into the weekend on this week’s option expiration before the next leg down in the SPX. We should have shorted the TRIN-5 SELL SIGNAL on Tuesday’s low – especially since today was the day after a monthly VIX expiration that has given us a “heavy selling” day in four out of five months. Crude oil continued to sell off to $105.61 and the XLE pulled back with the market. For the USD, a decline below 103.194 would give us an EW 5-waves down and a SELL SIGNAL.
5/18/22 (Commentary for Wednesday) After only a 3-wave rally from Thursday, the SPX got hit hard by the disappointing earnings from Target and plunged below 4000. Will we continue down on Thursday or bounce into the option expiration weekend before the next leg early next week? Our bias is for a SPX bounce into option expiration before the next leg down. The IWM pullback was much more modest than for the SPX and could be signaling a leg up into the weekend. A lot of market puts were bought today going into option expiration Friday and the market makers could push the market up into the weekend before the trend resumes down next week. We’ll see. After a decline on Wednesday, Bitcoin is going sideways overnight and is not giving us a strong tell on the early SPX direction on Thursday. Our current holdings are ~80% cash and ~ 20% in physical gold/silver/platinum and PM equities – we also hold some FXY (Yen) shares. Crude oil gave us a 3-wave correction to $105 and is trying to bounce Wednesday night. Undercutting 103.164 would give the USD a SELL SIGNAL that could help gold bounce.
Big Picture on Stocks (UPDATED) – We believe that the SPX could give us a 20%-50% correction by spring 2023 as the 20-yr cycle low hits and the US economy slows to a recession. We favor a high percentage of cash for capital preservation.
Big Picture on PMs (UPDATED) – Gold is close to an intermediate cycle low that should bottom by early next week if it didn’t already at $1785 early Monday.
- Stocks – The TRIN-5 SELL SIGNAL at Tuesday’s close should have gotten us short the SPX near Tuesday’s close but we held off. We did get another Big-Range day down in the SPX on the day after a monthly VIX expiration.
- Gold – Gold pulled back to $1806 before bouncing. We may have seen the ICL at $1785 early Monday.
- Silver – Silver may be tracing out a 4th wave correction of an impulsive leg higher after giving us a false breakdown last week.
- Bonds – Bonds appear to be bouncing correctively from 134’30 and that implies a test of 3.17% on the 10-yr US rate.
- Crude Oil – Crude oil fell hard to $105 on Wednesday and the XLE pulled back.
- Dollar Index – The USD rolled over to test 103 on a stronger Euro – an EW 5-wave decline on its hourly chart would be a sell signal.
TURNING POINT DAY
The turn window for the next week is 5/16.
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