We are still on travel with limited access to the internet, so our reports will be brief.
Folks,
Market Observations for the Week: The E-mini sold off initially on the AAPL and AMZN earnings but the market reversed early Friday and the SPX made highs for the week above 3900. The SPX continued to advance despite less-than-hoped earnings from the big tech stocks and rallied passed an important turn window on 10/25-10/26 which also included a TRIN-5 SELL SIGNAL - this is a "sign of strength" so far and could hold the SPX up going into the Fed meeting this week. Bitcoin holding above 20000 also is supportive of the stock market bulls. Coming into last week, the NYSE breadth was deeply oversold, and we did not see any intra-day negative breadth action which was bullish. Crude oil and other commodities were sold off on Friday. The main thing to us is that the USD and 10-yr US rate have only corrected in 3-waves which from 10/13 and that puts us on the defensive.
10/30/22 (Commentary for Sunday) We are impressed with the resiliency of the SPX three days after our 10/25-10/26 turning point window and after a TRIN-5 SELL SIGNAL - this is a "sign of strength" and could argue for more gains in the near term after the Fed action this week. We got a TRIN-5 SELL SIGNAL on Wednesday's close and this signal has ended multiple "bear market rallies" in 2022. With that said, and even with the negative reaction to the earnings reports from AAPL and AMZN Thursday night, we could still see another test of SPX 3900 into early next week. We believe in what Marty Zweig once said - "Do Not Fight The Fed" - and we believe that the Fed is going to have to work longer and harder than most traders and investors believe to reverse inflation down - despite what the Bank of Canada did Tuesday (a 50 basis-pt instead of a 75 basis-pt rate hike). With that said, the weak link in the global banking system is Europe which could be a flashpoint for global contagion and since Europe is the strongest American ally at this time, we believe that the Fed will have to act to contain a European banking crisis, and this could be the "pivot moment" that many traders are desperately looking for. These are treacherous markets, and we prefer to stay in 100% cash beyond our physical metals position. Bitcoin has closed above key resistance at 20000 on Wednesday and Thursday and that is encouraging to the bulls. The 10-yr US rate has only corrected in 3-waves on the hourly here and its trend is still higher which is a risk to the SPX and PM sector.
Big Picture on Stocks (UPDATED) – Longer term, the SPX could give us a 20%-50% correction by spring 2023 - down to SPX 2400 - as the 20-yr cycle low bottoms and the US economy slows to a recession. The 13-month Fibonacci step out from the 1/4/22 high and the 55-wk Fibonacci step out have us looking to early February for an important low. We favor a high percentage of cash for capital preservation.
Big Picture on PMs (UPDATED) – Gold continued to rally into Wednesday as the USD continued its correction. However, we still expect gold stocks to test their COVID lows by Fed/March 2023 as the 8-yr gold cycle and the 20-yr stock market cycle converge on the downside. 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 – The SPX did continue its rally past our 10/25-10/26 turn window and our TRIN-5 SELL SIGNAL - this is a "sign of strength". We expect a typical pullback into the Fed-day on Wednesday. If all we get is a 3-wave pullback by the close Wednesday, this is bullish for a run to SPX 4000+ by next week.
- Gold – Gold bottomed at $1621 on 10/21, the 3-star critical reversal day, but the rally since looked corrective and leaves this market open to a retest of $1621.
- Silver – Silver bullishly diverged on 10/21 from gold and traded better last week.
- Crude Oil – Crude oil sold off on Friday but strength in the OIH(the oil service stocks) suggests that we started a new upleg higher.
- Dollar Index – The USD has given us just a 3-wave correction into today - we could still test the recent highs at 114.
TURNING POINT DAY
The turn window for this week is 11/2-11/3.