Folks,
Market Observations for the Week: The early SPX rally on Tuesday faded after just an EW a-b-c bounce and the SPX undercut the 6/12 3636 low. After spiking to 20400 early Tuesday, Bitcoin fell hard to test 18400, its S! support pivot, overnight Tuesday. Two back-to-back days of huge total option volume on Monday and Tuesday suggest a SPX rally to start on Wednesday. Crude oil trended sideways on Tuesday and its trend remains down. Gold could also get an undercut low below $1627.7 before a rally.
9/27/22 (Commentary for Tuesday) The SPX gave us another head fake rally early Tuesday which failed leading to the undercut of the 6/16 low at 3636 – is this the start of more downside to 3500 or a more substantial oversold rally? The 52-wk New Low list is testing levels not seen since mid-June. At this point we continue to stay in cash and watch the action as the SPX tests 3636 – a failure to hold SPX 3636 on a closing basis would argue for more weakness. The bond market looks overextended to the downside here but continues to post lower lows – the poor 5-yr US bond auction pressured bonds late today. Bitcoin’s inability to hold above 20000 today was a sign of weakness. Crude oil went sideways on Tuesday – a move under $76.25 looks likely. Gold could also undercut $1627.7 before reversing higher early Wednesday. We are ~80% cash and ~20% in physical gold/silver/platinum.
Big Picture on Stocks (UPDATED) – The SPX undercut its uptrend line from the Covid low below 3800 on Fed Day and continued to decline into Tuesday – however, a rebound rally is due on Wednesday. Longer term, the SPX could give us a 20%-50% correction by spring 2023 as the 20-yr cycle low bottoms and the US economy slows to a recession. We favor a high percentage of cash for capital preservation.
Big Picture on PMs (UPDATED) – The 10-yr US rate spiked to 3.99% on Tuesday and that kept the downward pressure on gold to $1627.7. We expect gold stocks to test their Covid lows by March 2023. Central bankers are loading up on gold this year as global physical inventories continue to decline but higher nominal US rates can still pressure the PM sector down.
- Stocks – With two huge option volume days on Monday and Tuesday, we are looking for a tradable low on Wednesday.
- Gold – Gold got hammered by rising rates and the rising USD – we are looking for a rebound rally to start early Wednesday.
- Silver – Silver is breaking down to $1801.1 overnight Tuesday.
- Crude Oil – Looking for crude oil to undercut $76.25 early Wednesday and then get an oversold bounce.
- Dollar Index – The USD broke out to new highs at 114.7 overnight Tuesday.
TURNING POINT DAY
The turn window for this week is 9/26-9/27.
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