Folks,
Market Observations for the Week: Both the SPX and NDX gave us "inside days" on Tuesday as the market waited on the earnings report from MSFT but both indices closed near their diagonal resistance line. After a "glitchy open in stocks" the SPX and NDX gave us a sideways correction into the close. MSFT rallied hard after its earnings report but got sold off later overnight. The NDX has been leading the market higher and has outperformed both the SPX and DJIA -investors have moved from the industrial stocks back to chasing technology stocks again like AAPL. The SPX rallied in 5-waves from the important 12/22 low and just a 3-wave pullback to 1/25, the 34-day Fibonacci step out from 12/22, would be ideal for a reversal higher. Crude oil fell Tuesday on a big increase in inventories but has still traced out a "cup and handle" pattern on its hourly chart - we could see bullish action on Wednesday. Gold grinded higher to highs for the move at $1943 - we could still see some pullback into Wednesday on Comex option expiration. The key chart here is still the USD and it continues to move sideways in a possible bear flag pattern.
1/24/23 (Commentary for Tuesday) The SPX continued its sideways correction from late Monday after finishing an EW 5-wave rally from 12/22 and still closed above its diagonal resistance. Just a 3-wave SPX correction into 1/25, the 34-day Fibonacci step out from 12/22, would be a bullish setup to go higher. Uranus turned DIRECT on 1/22 and that added to the upside volatility on Monday. This week is a big earnings week and should also be a market catalyst - the earnings from MSFT rallied the market at first but that was given up later in the evening. The SPX rallied into our 1/24 turn window and is just giving us a sideways correction so far which is bullish. The US economic data came in weaker across the board last week and threatened the "soft economic landing" idea that traders have clung to recently - can stock earnings reports this week turn this narrative around? We'll see how MSFT acts on the open. We did not see a SPX capitulation or a VIX blow off in 2022 but do believe that lower SPX lows are due in Q2 of 2023 for the stock market. The China reopening after its Covid lockdown is bullish for crude oil – we like buying pullbacks below $70 if seen. We currently hold 70% cash, 10% uranium stocks and 20% in physical gold/silver/platinum.
Big Picture on Stocks (UPDATED) The SPX rallied in an EW 5-wave pattern from 12/22 into 1/23 - just a 3-wave pullback into 1/25 would be bullish for more rally into the 2/1 Fed Minutes. However, the SPX could still give us a 20%-50% correction by Q2 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 late January/early February 2023 for an important turn - this should be a trading high for the SPX. We favor a high percentage of cash for capital preservation.
Big Picture on PMs (UPDATED) – We consider the rally from 10/13/22 as a bear market rally in gold, silver and the PM stocks that should peak in late January/early February. We still expect gold stocks to test their COVID lows sometime in Q2 of 2023 as the 8-yr gold cycle and the 20-yr stock market cycle converge on the downside. Central bankers loaded up on gold last year and global physical inventories continue to decline but higher nominal US rates could still pressure the PM sector down into Q2 2023.
Stocks – Powered by Uranus turning DIRECT on 1/22, the SPX rallied to give us an EW 5-waves higher from the 12/22 low on Monday and started a sideways correction that ran through Tuesday. Just a 3-wave pullback into Wednesday would give us an ideal setup to go long.
Gold – Gold rallied to $1943 but could still pull back into Comex Option Expiration on Wednesday.
Silver – Silver held up so far into Comex option expiration - we may have seen the low of the week on Monday.
Bonds - Bonds have given us 5-waves down on the hourly chart and the bounce from Monday may be corrective.
Crude Oil – Crude oil fell off on a big build in inventories but is still tracing out a "cup and handle pattern" on the hourly chart - bullish for a rally.
Dollar Index – The USD reversed down after testing its R1 resistance pivot at 102.38.
TURNING POINT DAY
The turn window for this week is 1/24.
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