Sorry for the extended absence. We have been traveling extensively to remote places and many did not have internet access.
Folks,
Market Observations for the Week: The SPX started some kind of correction last week as we entered monthly option expiration week. Many of the major indices showed MACD divergences and on Thursday we actually has a lower low and lower high day for the SPX. Even so, the bulls are still in control, but as the $VVIX/$VIX ratio continues to spike, we expect more corrective action in the coming week. A correction of 100 SPX points would not surprise us. Both the SPX and gold gave us corrective action going into the 4/19-4/21 New Moon Timing Window which lasted into expiration weekend. The spike on the $VVIX is from traders adding to June volatility calls for hedging. For the record, we still do not believe that the SPX has started a "a new bull market" and still believe that there is a chance of testing the October lows near SPX 3500 in the May/June timeframe. We believe that the bank failures are suggestive of a weaker economy and weaker stock market in Q2 2023 because bank lending standards are being tightened in real estate and auto lending. In our view the SPX has now started to price in a "harder economic landing" and we continue to remain cautious - there will be a much better opportunity to buy the SPX in May/June based on our cycle count. One special trade that we are working involves a non-leveraged scale-in trade for UNG - we added a position in UNG in March with natural gas < $2.0 and we also favor wheat (WEAT) at this time. Our portfolio is now about 70% cash, 10% natural gas and wheat, and 20% in physical gold, silver and platinum.
4/23/23 (Commentary for Sunday) We still favor more corrective action in the SPX this week as we enter the May time frame - we are watching $VIX and $VVIX closely for signals. We find the market too difficult to short here and so are looking for value areas like natural gas and wheat. Gold and silver started a correction last week and we got a 3-wave bounce into the 4/19-4/21 New Moon Timing Window for gold - this should give us another leg down this week in the PM sector. Our cycle work is calling the SPX below 3500 by June but the bulls are still in control. We still contend that the SPX market rally from October 13 is a Bear Market Rally that will make new lows in Q2 2023 - we are not in the "this is a new bull market camp" - the bank failures argue for a hard landing. Our Bear Market Time Window target in Q2 from the 20-yr cycle could take us for a test of SPX 3500 by June. 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 should be bullish for crude oil at some point – crude oil gave us just a corrective pullback to $77 on Friday.
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 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 Q2 2023.
Stocks – The SPX started a correction last week - we could see a 100 point SPX pullback going into the May Fed meeting. Market breadth has been deteriorating but the bulls are still in control. However, Thursday did give us a lower high and a lower low day in the SPX.
Gold – Everybody seems bullish on gold here and that concerns us and the 3-wave bounce into the New Moon argues for another leg down this week.
Silver – Silver stocks are trying to lead silver lower - another leg down is possible this week.
Crude Oil – Crude oil corrected to $77 last week into Friday's New Moon - we are looking for a rebound in the coming week.
Dollar Index – The USD found support near 100 and could bounce more this week.
TURNING POINT DAY
The turn window for this week is 4/24-4/25.
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