Folks,
Market Observations for the Week: Friday ended up a rally for the SPX and left its short-term wave count up in the air. However, the EW count for the Russell 2000(IWM) is 5-waves down and 3-waves up for the hourly chart and we view that as bearish. Our Option Premium Ratio SELL SIGNAL from last week argues that the 11/15 high at SPX 4028.84 might have been the high for the rally and we turned defensive last Thursday. We are cautious here and believe that the Bitcoin contagion may have legs and the ability to further undercut the financial markets like sub-prime mortgages did in the fall of 2008. The weakness of crude oil and gold into the weekend also added to the concern of a strong deflationary wave hitting global asset markets. We understand that holiday seasonals this week are usually bullish but we have a 11/21 turn window that could surprise many traders. A SPX rally above 4020 this week would be short-term bullish (making higher highs past the 34-day step out from 10/13). Bitcoin has only rallied in 3-waves from its low last week and we are looking for lower prices for the move this week. Gold gave us an EW 5-wave decline into Friday and we view this as bearish for the PM sector. The USD and the 10-yr US rate have both only given us a 3-wave decline and appear to be reversing higher here.
11/20/22 (Commentary for Sunday) We have turned cautious on the stock market here despite the bullish seasonal for this week. The bearish price action in gold and crude oil into the weekend and further contagion in the crypto currency sector is a WARNING FLAG to us about a possible DEFLATIONARY WAVE that could hit global stock markets into the Spring of 2023 - the combination of our dominant 20-yr stock cycles and 8-yr gold cycle argue for this. Our Option Premium Ratio gave us a SELL SIGNAL on Tuesday and the IWM(Russell 2000) gave us a 5-wave decline from its Tuesday high - this is bearish for the short-term. However, if the SPX takes out 4028.84 to the upside on Monday, this could be short-term bullish. Our alternate EW count that the SPX made its 5th of C high at 4028.84 on 11/15 is now our primary count. The Russell 2000(IWM) gave us 5-waves down from 11/15 with just a 3-wave corrective bounce - this has turned us short-term bearish on the stock market. After a 3-wave bounce into Friday, Bitcoin appears close to rolling over - an undercut low below 14925 is likely by Monday. Crude oil is rolling over and its H&S pattern on the hourly chart is the controlling pattern and predicts a move to $75. Gold spiked to $1791 on Tuesday but then went 5-waves down on the hourly chart into Friday's close which is a sell signal. The USD finished a 3-wave correction to 105.34 on 11/15 and is coiling for a reversal higher.
Big Picture on Stocks (UPDATED) – The SPX may have peaked on 11/15 at 4028.84 as we got an Option Premium SELL SIGNAL on 11/14. Longer term, the SPX could give us a 20%-50% correction by spring 2023 - down to SPX 2400 - as the 20-yr stock cycle low bottoms and the US economy slows into a recession. The 13-month Fibonacci step out from the 1/4/22 SPX 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) – 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 and global physical inventories continue to decline but higher nominal US rates could still pressure the PM sector down.
Stocks – An EW 5-waves down on the Russell 2000 from 11/15 and an Option Premium Ratio SELL SIGNAL on 11/14 have turned us bearish on the SPX - how we trade on Monday, a turning point day, will define the short-term trend in the SPX.
Gold – Gold tested $1791 on 11/15 and then turned down in 5-waves into Friday which is bearish for the PM sector.
Silver – A move under $20.79 on Monday would give us an EW 5-waves down on the hourly chart and a SELL SIGNAL.
Crude Oil – Crude oil is rolling over bearishly and is targeting $75 from its H&S pattern on the hourly chart.
Dollar Index – The USD completed a 3-wave correction at 105.34 early on 11/15 and is coiling for a rally leg.
TURNING POINT DAY
The turn window for this week is 11/21.
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