Folks,
Market Observations for the Week: After strong earnings from MSFT, the markets opened higher on Wednesday but corrective action continued after more banking fears from First Republic Bank. However, the SPX may have finished an EW a-b-c correction (4th wave?) and we are looking for a 5th wave higher above 4162.57 before the May 2-3 Fed meeting. With the renewed banking fears Wednesday, the markets were hit again with a deflationary tone and most commodities like gold, crude oil and wheat were hit. We are still looking for more corrective action in gold and silver going into the May 2-3 Fed meeting. The USD made lows for the week at 101 before bouncing on renewed banking fears.
4/26/23 (Commentary for Wednesday) It looks to us that the SPX finished an EW a-b-c correction(4th wave?) today and should now push higher in a 5th wave above 4162.57 before the May 2-3 Fed meeting. Even so, we will embrace the old stock market saying, "Sell in May and go away", if this view works out into next week. Big Tech earnings (MSFT, META and GOOGL) should help propel the 5th wave higher even with a diminished overall market breadth. With the "rate of change" of the M2 money supply falling by -4% year over year, the US economy is now slowing fast because of the bank led credit tightening and the stock market should feel the bite soon (the IWM is already feeling the bite as the small caps are the most sensitive to a credit tightening). We are looking for a potential 20% correction into late June but expect to be close to a 100% invested posture by early July at much lower levels in the SPX and NDX. Our cycle work is calling the SPX below 3500 by late June but the bulls are still in control in the short term. We still contend that the SPX market rally from October 13 is a Bear Market Rally that could make new lows in late Q2 2023 - we are not in the "this is a new bull market camp" - the bank failures argue for a hard economic landing as banks panic and tighten lending standards. Our Bear Market Time Window target in Q2 from the 20-yr cycle could take us for a test of SPX 3500 by late June. We did not see a SPX capitulation or a VIX blow off in 2022 but do believe that lower SPX lows are due iby Q3 of 2023 for the stock market. The China reopening after its Covid lockdown should be bullish for crude oil at some point, but renewed banking fears today knocked crude oil back to $74 which undercut last week's low. Our current positions are 10% natural gas and wheat, 70% cash and 20% physical gold, silver and platinum.
Big Picture on Stocks (UPDATED) The latest black swan of bank failures could drive the 20-yr cycle to a test of SPX 3500 by late June. The SPX could still give us a 20%-50% correction in 2023 as the 20-yr stock cycle low bottoms and the US economy slows into a recession.
Big Picture on PMs (UPDATED) – Gold gave us an all-time high monthly and end-of-quarter price in March - this is a Sign of Strength - if gold can hold above $1900 going into the May 3 Fed statement, we could see another test of the highs. 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 one more time into late Q2 2023.
Stocks – In our view, the SPX may have finished a 4th wave correction today and should push higher into a 5th wave high above 4162.57 by the May 2-3 Fed meeting - then we will embrace "Sell in May and go away".
Gold – Everybody seems bullish on gold here and that concerns us - we are looking for more corrective action this week but holding above $1900 into the May 2-3 will be bullish for post-Fed gains.
Silver – Silver stocks are trying to lead silver lower - more corrective action is possible this week.
Crude Oil – Crude oil corrected to $74 today on renewed banking fears - we are looking for a rebound in the coming week.
Dollar Index – The USD tested 101 this morning before banking fears gave us a bounce on rising rates.
TURNING POINT DAY
The turn window for this week is 4/24-4/25.
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