BROAD STOCK MARKET and CRUDE OIL UPDATES (11:00 pm EST)
This year's "Santa Claus" rally continues to push higher as all three of our stock market indices (DOW, S&P 500, and NASDAQ) made new weekly highs today. We note, however, that while the DOW is making new all-time highs, the S&P 500 and NASDAQ are still below their all-time highs (4819 from Jan. 2022 in the S&P 500, and 16,212 in the NASDAQ from Nov. 2021). This gives us a strong intermarket bearish divergence signal until these latter two indices break those highs. (The S&P 500 is close, but the NASDAQ has a little more distance to climb.) This strong bearish divergence and the fact that these highs are happening inside our strong general reversal zone (Dec.12 - 21) suggests that a turn-down could be imminent.
Yet it is the "holiday season" and the Federal Reserve has recently given equity markets the gift of dovish rhetoric which might sustain a rally at least into New Year's Day (i.e. two more weeks). A more plausible scenario, though, could be a short-term corrective "dip" around now that would relieve the pressure of an overbought market and then set the stage for more rallying into January. There is a very weak reversal point coming up next week which theoretically could correspond to a corrective low (if we get one). Ideally, we would like to see a corrective drop to a sub-cycle low around 35,500 in the DOW, but the correction may not get that far and only test the 15-day moving average (now around 36,500 and rising).
We'll have to wait and see how this plays out over the next week or two. A significant "dip" may give us an opportunity to buy, That may come before New Year's Day. But if the rally continues into the first week of January, we may have to wait a bit longer for a significant corrective drop. We remain on the sidelines for now.
Last Wednesday (Dec. 13), crude oil seemed to make a significant bottom on the last day of our reversal zone specifically for crude and on the second day of a new strong general reversal zone. We entered a long position in crude on Thursday, and prices have been moving up from there. So far, it looks like a good trade, especially since prices have broken and closed above the 15-day moving average (now around $72 and falling), but we can't be certain a new medium-term cycle has started (from that Dec. 13 low at $67.71 - Jan. contract price) until prices at least close above the 45-day moving average ($77.25 and falling) and even better, above $80. There's a chance that last week's low was also the final bottom of a longer-term 4-year cycle. If that's the case, crude prices could be very bullish now and ready to rally strongly. Let's hold our long position for now with a stop loss based on a close below $69 or $67, depending on your risk tolerance (we bought near $71).
This year's "Santa Claus" rally continues to push higher as all three of our stock market indices (DOW, S&P 500, and NASDAQ) made new weekly highs today. We note, however, that while the DOW is making new all-time highs, the S&P 500 and NASDAQ are still below their all-time highs (4819 from Jan. 2022 in the S&P 500, and 16,212 in the NASDAQ from Nov. 2021). This gives us a strong intermarket bearish divergence signal until these latter two indices break those highs. (The S&P 500 is close, but the NASDAQ has a little more distance to climb.) This strong bearish divergence and the fact that these highs are happening inside our strong general reversal zone (Dec.12 - 21) suggests that a turn-down could be imminent.
Yet it is the "holiday season" and the Federal Reserve has recently given equity markets the gift of dovish rhetoric which might sustain a rally at least into New Year's Day (i.e. two more weeks). A more plausible scenario, though, could be a short-term corrective "dip" around now that would relieve the pressure of an overbought market and then set the stage for more rallying into January. There is a very weak reversal point coming up next week which theoretically could correspond to a corrective low (if we get one). Ideally, we would like to see a corrective drop to a sub-cycle low around 35,500 in the DOW, but the correction may not get that far and only test the 15-day moving average (now around 36,500 and rising).
We'll have to wait and see how this plays out over the next week or two. A significant "dip" may give us an opportunity to buy, That may come before New Year's Day. But if the rally continues into the first week of January, we may have to wait a bit longer for a significant corrective drop. We remain on the sidelines for now.
Last Wednesday (Dec. 13), crude oil seemed to make a significant bottom on the last day of our reversal zone specifically for crude and on the second day of a new strong general reversal zone. We entered a long position in crude on Thursday, and prices have been moving up from there. So far, it looks like a good trade, especially since prices have broken and closed above the 15-day moving average (now around $72 and falling), but we can't be certain a new medium-term cycle has started (from that Dec. 13 low at $67.71 - Jan. contract price) until prices at least close above the 45-day moving average ($77.25 and falling) and even better, above $80. There's a chance that last week's low was also the final bottom of a longer-term 4-year cycle. If that's the case, crude prices could be very bullish now and ready to rally strongly. Let's hold our long position for now with a stop loss based on a close below $69 or $67, depending on your risk tolerance (we bought near $71).
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