Folks,
Market Observations for the Week: The SPX rolled over today and looks like it wants to retest last week’s low. A divergent test of SPX 2700 on Friday/Monday would qualify as a 5th wave down on the hourly and set up another sharp recovery rally. Our next turn window is 10/24-10/25 and this could be a high or a low in this high volatility market – ideally we’ll get another snapback bounce to short. This is a rollercoaster market and we continue to look for lower lows going into December.
10/18/18 (Commentary for Thursday) We were wrong about Thursday seeing an early rally – the Chinese stock crash and other geo-political news items got us off to a weak start. The SPX rolled over and looks to test the 10/11 low – a divergent test of SPX 2700 on Friday/Monday would be counted as a 5th wave down on the hourly and would set up another sharp recovery rally into Tuesday/Wednesday. We believe that the 2016-2018 bull phase has come to an end 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 could validate this idea – we’ll see as the earnings keep rolling out. Hotel revenues are rolling over on a year-over-year basis – more evidence of a growth slowdown. 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 test of SPX 2435, the February low, by early December. 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 – a rollercoaster market. Crude oil continued its 5-wave decline on the hourly despite the horrific news coming out of Saudi Arabia- this confirms that a high has been seen for the year. In our view, gold has started a 3rd wave rally from the Dec 2015 bear market low – a sharp, short-covering rally should propel gold above $1300 by November – we are looking to buy pullbacks in gold – gold could benefit from a flight-to-quality rally. The USD is testing last week’s high but the PM sector is holding up.
·Big Picture on Stocks (UPDATED) – 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. In the short-term, we are retesting the 10/11 low at SPX 2700 which could be a 5th wave down on the hourly chart.
·Big Picture on PMs (UPDATED) – We believe that gold has started a 3rd wave higher on the daily chart from the Dec 2015 bear market lows. 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 over $1300 by November.
- Stocks – More stock weakness from China and numerous geo-political factors gave US stocks a weak open today – the SPX looks to retest the 10/11 low by Friday/Monday. We’re expecting a roller coaster market into December and expect at least a test of the February lows at SPX 2435.
- Gold – Gold is now coiling under the 100-day MA which is followed by many technicians and may get a flight-to-quality rally if the SPX opens lower on Friday. The language of the FOMC minutes Wednesday was hawkish but gold didn’t break down even though the USD rallied. We are looking for a fierce, short-covering rally to take us over $1300 by November.
- Silver – Silver is coiling under $15 – we expect an imminent, fierce, short-covering rally.
- Crude Oil – Crude oil continued its 5th wave down on the hourly chart – this confirms to us that we have seen the highs for the year.
- Bonds – The markets are still vulnerable to a global rate spike – we’re watching the bonds closely for a test of recent lows.
- Dollar Index – The USD is testing the recent highs after the hawkish FOMC minutes.
TURNING POINT DAY
The turn window for this week is 10/15-10/16.
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