All market references below refer to the S&P 500 Index Continuous Futures Contract – 24-hour Session.
Oil has been my “One Thing” lately. I always try to find one thing that tells where we find ourselves in this crazy environment. Oil has fallen more than 20% in the last month – otherwise known as a bear market. It looks like there is some accumulation around the $65 level. But the implication is that the markets expect the China Virus insanity to continue and negatively impact the economy. It is already starting in Europe, and they can ill afford any more policy mistakes. Neither can we.
Prices at the pump should begin to fall. Perhaps this will lead to a peak in inflation. Why? The crash in oil / gas-pump prices tells me that the policy errors by the Federal Reserve may now lead to faster tapering – and deflation. They will need to be the most skillful Fed in history to avoid an asset implosion and debt crisis. Demand should wane – right as supplies skyrocket. What timing!
But this crash potential has me doubting whether they are really going to taper or raise interest rates. They could be jawboning us. That may be all they can do to avoid the inevitable reckoning ahead. Perhaps this latest virus salvo is part of the engineering to do the Fed’s job for them, leaving the politicians blameless.
Let me also say that this is the most serious conundrum any Fed has faced in my 34-year career. They have inflated assets and now goods and services at the expense of the lower and middle classes. Is it any wonder that there is a wealth gap? Is it any wonder that there is so much unrest?
Oil is telling us a recession is possible in 2022. If so, look out below. And since the powers that be had already taken the “Great Recession” label for the last debacle in 2007-2008, let’s coin a new phrase. How about Armageddon? It will seem so when the piper has to be paid.
It was only a week or so ago that I was waiting for the breakouts in the Dow, IWM, XLF, and DBC to retest, and I had my finger on the trigger. All three indices crashed through their retest levels and now sit back at the bottom of their trading ranges. It is a “Look Above and Fail on the daily charts per our Balance Rules. It is also a notable reversal from a final bull flag.
My thoughts continue to be that this latest virus scare has been engineered. See the real story here (forward to the interview with Dr. Robert Malone, inventor of mRNA). I have discussed the disconnect of the latest virus to reality in previous writings. It is Mass Formation Psychology at work. The question remains, who is running the program?
Speaking of Mass Formation Psychology, all major indices are on support and should bounce here. The spikes in volume and negative sentiment support a bounce soon. The S&P 500 finally tested the 50-day line and the weekly mean. But the index still struggled to overtake the 5-day line all day. It may be worth a swing trade for a very aggressive trader here.
However, we do not have a Navigator buy signal as yet. Given the vertical bear candles behind us, I expect a minor reversal before we roll over again, at least for a retest of Tuesday’s low. And all I am doing right now is scalping/day-trading. I lay out the roadmap here every morning. Follow it, and you will wrap up your day with a smile.
To understand my approach, all one needs to do is look at last week’s overnight thrashings before you awakened. That is why I avoid overnight (weekend) trades unless I plan to stay up all night. With the VIX trading over 20, it does not make sense to hold overnight.
At the risk of being too negative, I will also disclose that I see the same setup now that preceded the March 2020 virus crash. When we get the Navigator sell signal and any such setup, I can never predict the magnitude of the decline except to ascertain the current cycle at work.
The 80-day cycle seems to be the culprit right now, and we don’t typically see crashes on that cycle. Contrast that with March 2020, when the 9-year and all lesser cycles were overdue. The greatest uncertainty is whether the 18-month cycle bottomed in October. That could be the wildcard. In fact, I warned you about this late November dip on August 30th, more than three months ago! Who says I don’t have a Crystal Ball?
Swing Traders
The check is in the mail. I will let you know.
Day Traders
Closing above yesterday’s high at 4693.75 gets the ball rolling north, but it will be a rocky road with the five and 21-day lines to conquer up to 4620. Taking out yesterday’s halfback at 4550 brings doubt to the table. Markets love to retest new lows, or at least attempt a retest in the first five trading days. Keep that in mind if we are in the southbound morning lane.
The WEM low is at 4445 if the market really wants to put on a show before the weekend, but I doubt we could tag that level this late in the week. I am more in the bounce camp than another spike low. But I am not infallible – Crystal Ball and all.
I will update any necessary comments and levels after the employment report in the morning if required. Otherwise, I think the roadmap is clear right now.
A.F. Thornton