Folks,
Market Observations for the Week: The SPX opened down after MSFT sold the futures off overnight (traders liked the earnings but not the forward guidance). A weakening USD helped both the SPX and PM sector rally back into the close. 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, which gave us a nice reversal higher today. Crude oil fell Tuesday on a big increase inventories but has still traced out a "cup and handle" pattern on its hourly chart - we could see bullish action into Friday. After early weakness, gold grinded higher to test $1950 but could see more post Comex-option-expiration-volatility on Thursday. The key chart here is still the USD and it appears to be rolling over to test its recent low at 101.53.
1/25/23 (Commentary for Wednesday) Bad guidance from MSFT led to a gap-down open for the SPX, but a weakening USD helped stocks to fight their way back into the close. The SPX gave us an ideal setup today - a 3-wave SPX correction into 1/25, the 34-day Fibonacci step out from 12/22. 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 just gave us a 3-wave correction into 1/25 which was 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 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 - the 3-wave pullback into 1/25 was 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 – The SPX gave us a bullish setup this morning - an EW 5-waves higher from the 12/22 low into Monday and then just a 3-wave pullback into Wednesday. We added some AAPL this morning for a trade.
Gold – Gold rallied to test $1950 but could still see some post-Comex-option-expiration volatility on Thursday.
Silver – Silver bottomed early Wednesday and then led the PM sector higher into the close.
Bonds - Bonds have given us 5-waves down on the hourly chart and the bounce from Monday still looks 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 is rolling over and looks to test its recent low at 101.52.
TURNING POINT DAY
The turn window for this week is 1/24.
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