Folks,
Market Observations for the Week: The SPX managed an early rally that peaked around 11:10 AM EDT before reversing down into Friday’s close which was also the final day of the quarter. The SPX and NDX hit their lows for the year on the last day of Q3. We may have seen a lot of end-of-quarter trading hit the tape last week. However, we saw bullish divergences again today on the Russell 2000 and we saw far fewer 52-wk new lows hit on Friday and our TRIN-5 tested its low for the week at 5.50 – far lower than the panic peak of 8.66 on Monday. More importantly, even with hotter than expected Core PCE inflation data, the US bond HELD WELL ABOVE THE LOW OF THE WEEK AT 123’30 and the 10-yr US rate closed Friday at 3.804% - well off the highs for the week at ~4.0%. Bitcoin spiked above 20000 resistance and tested its R2 resistance pivot at 20255 before falling back overnight to test 19550 – it still looks to be tracing out a bear flag pattern. Crude oil tested its S2 support pivot at $79.07 early today before bouncing into the close. Gold bounced to $1683 before pulling back to $1668 on Friday’s close. Gold rallied in an EW 5-waves higher off its low for the week at $1622.2 which is short-term bullish.
10/02/22 (Commentary for Sunday) So may global stock markets broke to lows for the year last week – the SPX and NDX made theirs on Friday, the last day of Q3. Last week US Treasuries made their lowest level since November 2007 and the British Pound made its level versus the USD ever. Still, with things looking so bearish and the astro-finance looking so dire, this could be a setup for a reversal higher with Mercury turning “direct” today. The SPX made its last high on 9/12 at 4119.28 when Mercury turned “retrograde” and when that happens, the SPX can reverse higher when Mercury turns “direct” again like on today, 10/2 – a hope for the bulls. Also, from a technical point of view, the Russell 2000 also held above its Wednesday lows for a case of bullish divergence. The US long bond, made 52-week new lows and our TRIN-5 indicator also showed bullish divergence from the declining SPX going into Friday’s close. The US long bond actually rallied today in defiance of the hotter than expected PCE inflation report. The 10-yr US rate tested 4.0% on Wednesday and Friday closed at 3.80% - a short-term positive. However, credit default swap(CDS) spreads for Credit Swiss is at 14-yr highs – a negative sign for counter-party risk in Europe this weekend. At this point we continue to stay in cash and watch the action as the SPX decidedly closed below the 6/12 SPX 3636 low on Friday . Bitcoin continues to struggle below 20000 resistance and looks like it is tracing out a bear flag pattern. Crude oil reversed down and tested $79.17 on Friday and could work even lower Sunday night. Gold actually made higher highs to $1684 on Friday as the USD traced out a modest bounce on Friday – both gold and silver had pattern completions on the hourly timeframe on Wednesday. We are ~80% cash and ~20% in physical gold/silver/platinum.
Big Picture on Stocks (UPDATED) – The SPX and NDX made lows for the year on Friday’s end of quarter, but the Russell 2000 bullishly diverged as did the US long bond. 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) – Despite hotter than expected PCE data the US bond held up and gold finished an EW 5-wave rally to $1684. Still, we expect gold stocks to test their Covid lows by 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 and NDX made lows for the year on Friday but the Russell 2000 bullishly diverged. Mercury turning “direct” on 10/2 gives the bulls hope that the negative astro-finance setup could reverse the SPX higher this week.
- Gold – Gold traced out an EW 5-waves high from Wednesday’s low at $1622 to $1684 on Friday – this is bullish.
- Silver – Silver’s rally from Wednesday to $19.3 could just be an EW a-b-c bounce – how we trade overnight Sunday is key.
- Crude Oil – Crude oil fell and tested $79.17 on Friday – how we trade on Sunday night is key.
- Dollar Index – The USD gave us just a 3-wave correction to 111.57 so far but following the Bank of England’s lead, China is setting up to sell its USD bonds and buy its own currency – is the USD peaking here?
TURNING POINT DAY
The turn window for this week is 10/3-10/4.
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