Folks,
Market Observations for the Week: The 8-Day Fibonacci step out from 10/3 gave us a trading bounce on 10/11 – our next turn day to watch is the 13-Day Fibonacci step out on Tuesday – not sure if this will be a high or low – how we trade late Sunday/early Monday will tell us. We need to see more of a “panic signature” in the $TRIN and $VIX early Monday to get us to trade a sharp snapback rally – SPX 2700 looks like a pretty good target. We are expecting intense volatility into December. We are still amazed at the “complacency” in some of our indicators – a 20% decline in the SPX could come very quickly.
10/14/18 (Commentary for Sunday) We have been harping on the idea that the 2016-2018 bull phase was coming to an end since August and a correction of that 1100 SPX points move could be 600-800 points – this would signal a growth slowdown in the US economy into the spring – Q3 earnings guidance should validate this idea. The DJIA made a new all-time high on 10/3 and ended a broadening top formation by several major indices. We now believe that we could see a 20% SPX correction by early December or at least a test of SPX 2435, the February low. In the short term, we have a “pattern completion” target of SPX 2700 by early Monday – but we may not get it – and expect a sharp snapback rally to start by early Tuesday at the latest. Our Option Premium Ratio is testing 5-year highs which is a BUY SIGNAL. By early Monday, we would ideally see “panic signatures” in the $TRIN (>2.5) and the $VIX (> 30) before a snapback reversal. We have harped on declining financial liquidity for months here and believe that this is setting us up for a volatile ride into yearend for global markets. The strongest US economy that we have monitored/traded was in Q3 of 1987 where GDP growth was in the 5-6% – this did not inoculate stocks against the Crash of 1987 because the US govt 30-yr rate was spiking from 8-10% – this rapid spike in rates caused a chaotic re-pricing of US financial markets – we could POSSIBLY see a SIMILAR THEME going into year end. We believe that crude oil has made highs for the year – the XLE, as usual, was one of the last sectors to peak out in early October. Gold is making a breakout here and has finally “answered the bell” a “flight-to-quality” bounce is leading to a sharp, short-covering rally – gold should quickly test $1300 by November, especially if Fed Chairman Powell softens his rate-hike posture. The USD is sub-dividing down aggressively as a “global stock panic” would likely force the Fed to hold back from raising rates in December.
·Big Picture on Stocks (UPDATED) – The SPX broke down in an EW 3rd wave down on the daily chart after the passing of the 10/8-10/9 New Moon Timing Window. We believe that the SPX is correcting the 1100 SPX rally from 2/8/16 and the SPX could decline 600-800 points by December.
·Big Picture on PMs (UPDATED) – It took a global stock market panic to give gold a breakout above $1221 – we’re looking for a sharp, short-covering rally and a quick move to test $1300 by November.
- Stocks – If we get a divergent test of SPX 2700 early Monday, we will try some QQQ calls for a quick snapback rally. Look for the panic signatures of $VIX > 30 and $TRIN > 2.5 for a trade set up.
- Gold – It took a stock market panic to give gold a breakout above $1221 but a sharp, short-covering rally should take it from here and give us a quick test of $1300 by November. The language of the FOMC minutes on Wednesday will be key.
- Silver – Silver lagged gold on Friday but we are looking for a sharp, short-covering rally above $15.
- Crude Oil – Crude oil tested our symmetry target of $71 – our bias is that we have seen the high for the year.
- Bonds – Bonds have rallied in 5-waves on the hourly in a flight to quality – a big short-covering rally here could take us much higher.
- Dollar Index – The USD continues to sub-divide down in a bearish manner – the market is betting that the Fed will be forced to slow down its rate-hiking campaign.
TURNING POINT DAY
The turn window for this week is 10/15-10/16.
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