A Wall Street Surprise!

In WW11, after the Allies had landed in Normandy and continued the invasion towards the German heartland, the writing was on the wall. Reason and logic said Hitler and Germany should capitulate to save lives; to begin to rebuild their bombed out country. Instead they prepared for and launched the Ardennes offensive, better known as The Battle of the Bulge. It was a case of desperation calling for desperate measures, but it had no chance of lasting success. All it did was buy some time at great cost in lives. Was Friday’s 850 point swing on Wall Street a re-enactment of similar behaviour?

Last week’s subject was the question whether ”This was it, for Wall Street.” It was a set-up that after October 1987’s Black Monday gave rise to the saying that, “A weak Thursday on Wall Street, followed by a weaker Friday, set up for a dark Monday.” The week before last, equities had several down days, including Thursday and Friday. On Monday the Wall Street futures gave no real warning that something was in the wind. When trading opened, the sell-off began, but then soon ran into sufficient buying to reverse the trend – briefly. The jump in demand did not last long, because sellers flooded the market and it looked as if the old saying would hold true.

Strong and sustained buying reversed the trend and later the day pushed prices into a high that meant a small gain on the day. The Bears had been defeated, but they were not yet vanquished. Tuesday began with an immediate sell-off and took a day long battle to keep the loss on the small side. Wednesday started with a buying spree to set a positive note for the day, which held until early in the afternoon. Then the sellers returned in volume and the DJIA ended down 130 points.

A Big Buyer on Wall Street again kicked off Thursday with strong demand, but then had to capitulate before lunch time. Most of the afternoon was a no-winner sideways battle to hold the 34 000 level on the DJIA, as shown on the first chart below. Three down days in a row, Tuesday through to Thursday for a total of more than 200 points, clearly were setting the market up for a slaughter on Friday.

On Friday, the support at the 34 000 level that was so strongly defended on Thursday, soon gave way as determined selling continued; it looked as if the week would end on a really low note, with Monday then looming as a disaster in the making. The DJIA was soon down by 300 points when the Big Buyer stepped up with deep pockets full of cash. Prices began to rebound and sellers briefly took over again, but then had to beat a retreat. Before lunch time the DJIA was up by 200 points, for a 500 point swing and then recovered after resurgent selling tested the previous closing price.

Friday afternoon on a weekend close to the end of a bearish January, to set the tone for the year, had sellers keen to get out of equities and persistent selling again had the DJIA in negative territory for the day. That was the signal to launch what possibly could turn out to the stock market equivalent of the ‘Battle of the Bulge.’ When the Big Buyer called up the reserves, the DJIA went higher in almost a straight line to close more than 550 points up for the day, a gain of better than 800 points off the low of the day. Evidently, the rally must have been supported by any number of stop loss levels that were hit along the way.

In WWII, the Ardennes offensive came as a major shock to the Allies; they did not expect the Germans to have that kind of reserve ready for a rear guard action of the magnitude in the inhospitable terrain of the Ardennes mountains and forests and in the midst of winter. Nevertheless, the offensive could not last and the Allies could resume their advance after some bitter fighting against the enemy and nature. Will this prove true of the rear guard action on Wall Street as well? This coming week and Monday in particular, should provide an answer.

Dollar index. Daily. Last = 97.27

After breaking below line Z in a new sign of impending weakness, the dollar jumped from 94.775 two weeks ago to a 20 month high at 97.27 – a big move for the US currency. This coincides with the period that the 3 month average turnover of the Dow 30 shares went from 303 million to now 366 million – an increase of better than 20% in only the few trading days while the Big Buyer was stopping the recent sell-offs. Is the simultaneous strength in the dollar – after the signs of weakness – unrelated?

Also of interest is that this late spike in the dollar value is exactly what was needed to complete leg 4 of rising wedge formation MZ and thereby also the technical picture for a reversal lower into a bear trend. There was a false break below line Z, and a similar false break above line M cannot be excluded. This week ought to become interesting on more than one front.

As January proceeds to its end, the prices of gold and silver were also subjected to the regular late month attacks to ensure that speculators in the metals contribute towards the bottom lines of the Big Banks and the bonuses of their PM traders. A tragic refrain that has repeated for much longer than a decade and which hopefully will come to an end before the end of 2022 – although one would not bet the house on it, unless it is a position that goes back at least a decade or so.

It is amazing that PM traders go long of the metals month after month in the hope of showing a good profit, only to be disappointed when the prices slip so badly as time runs out. Or can it be that clever traders buy the month end dips and then take profit in the third week of the new month, breaking the momentum of the rally even before the Big banks begin to sell and thereby banking most of the profit?

This is a major and mostly unexpected development. Where it will take the pressure to be vaccinated and masks and vaccine mandates is not clear at the moment, but there are all manner of ramifications looming on the horizon. I wonder whether this has anything to do with the case of genocide that a London attorney and colleagues have lodged at the ICC in late 2021 against prominent political figures in England and others, which include top management of Big Pharma.

The genocide case at the ICC in Brussels is being heard by a grand jury. One can assume that this kind of evidence will form an important part of what is presented.

Euro–Dollar

Euro–dollar, last = $1.1143 (www.investing.com)

The euro was just starting to look bullish with a break above line X and a challenge on line G when the dollar ramped steeply higher and the euro got a fright. On Wednesday the euro was resting on good support along line S, then ended the week with a break below lines S and E and ending on the new trend line T, part of the set PQRST.

There is a backstop at line W, the bottom of euro bear channel WZ, but it would be technically more propitious for the euro if broad bull channel PT is to hold. Doing so would point to Monday bringing a significant change to the dollar and perhaps then to Wall Street as well?

Would such broadly felt changes possibly on the technical horizon – if these were to happen – imply that fresh news that affects the markets across a broad front is due to become known over the weekend?

DJIA daily close

DJIA last = 34725.47 (money.cnn.com)

As has been mentioned before, Wall Street is the primary barometer of the state of the US economy. Few presidents realised this more than Trump, and Biden is equally aware how much his credibility is determined by the stock market.

Channel MABC is the primary bull channel and the DJIA approached and has been bumping up against line M for much of the past year. The almost steady and steep bull market since the March 2020 Covid panic has changed to a laboured and volatile slow pace to set new highs. This is not the time investors should strike a new panic.

Channel PQ is one Fibonacci transformation shallower than the gradient of the main bull channel, with the formation MP developing as a bullish megaphone. The recent break below steeper channel JK brings a bearish bias to the DJIIA, which has to break below lines P and A to be confirmed. However, a test of the support of these two trend lines has held, assisted by Friday’s strong recovery.

Technically, Wall Street remains on thin ice and any significant weakness now could see a bearish break below support. A critical time lies ahead for the stock market, as it does for the euro and the dollar index.

Gold London PM fix – Dollars

 Gold price – London PM fix, last = $1788.15 (www.kitco.com)

A combination of a stronger dollar and the usual shenanigans at month end spelt an end to any attempt for the price of gold to break above triangle WC. The price has been rebounding repeatedly off line C and it looked ready to challenge line W and perhaps achieve a recovery into bull channel PQ when fresh weakness struck. So far, the triangle and support along line C is holding and if the new month sees an end to the current attack on the metal – and perhaps other changes discussed above – gold could see something positive happening in February.

Euro–gold PM fix

The rising trend of the euro price of gold in bull channel QR is still intact, ably assisted by the weaker euro which more than counter-balanced the weaker dollar price of gold.

After failing to break above bear channel JKL on a first attempt, the upwards trending force of support along line R assisted the price to break higher – which failed to hold when the dollar rallied out of the blue.

The reversal lower, back below line L, held at line R on Friday and must continue to do so to provide a bullish bias for gold, in both euro and dollar price versions. A brief and minimal break below support can always be tolerated, but then a recovery back above the old support also has to happen soon after to resume the original trend. Perhaps here too the start of a new month could favour the price of gold.

Euro gold price – PM fix in Euro. Last = €1603.08 (www.kitco.com)

Silver Daily London Fix

Silver daily London fix, last = $22.50 (www.kitco.com)

Silver has been trapped in the broad bull channel JKL since 2018. The Covid rally that started in March 2020, ending the early panic, reached lines J and T just short of $29 to define the steep slope of the bull channel. Since then, the price of silver has spent the past nearly four years in a broad horizontal range, holding mostly above about $21. Recently, line L has come into play as support and the price has rebounded three times off the bottom of the bull channel – twice only making a little headway, but then it spiked higher to test resistance at line Y of bear channel XYZ on Friday 21st.

Last week saw the price collapse as steeply as the previous rally under the combined onslaught of a suddenly stronger dollar and the usual month end increased selling, to end a little below line L for the first time. As mentioned above, a brief and small break below a strong formation – typically only to touch and confirm the presence of another preferred gradient not recognised in the analysis – is of little consequence, provided the main trend soon recovers. Perhaps February will prove to be kind to the metals and the rising trend can resume.

U.S. 10–year Treasury Note

10–year Treasury note, last = 1.778% (Investing.com )

The new break of the yield to above line R extended into channel CD as if this break could become more permanent than the initial break which reversed lower off line J at the top of channel JKL. The yield recently held quite well in the narrower channel KL and has again failed to break back into the upper half of channel JKL. However, it is – so far – holding the break into channel CD, which opens up room for further increases. Perhaps when the next CPI announcement comes, with a possibility of a 1.0% month on month jump in inflation, or higher, the rising trend will resume.

West Texas Intermediate crude. Daily close

Much like the yield on the 10-year Treasury had done earlier, the price of crude oil has also settled mostly in the upper band of the new rising channel, JKL. Unlike the yield on the Treasury, the price of crude has not held a break into the lower band, but then immediately returned to the upper band. The recent steep move higher, following the failed break below channel JK, also broke above line B – previously key resistance on two occasions – but then just failed to hold the break.

Failure to hold the break above line B could be another consequence of the suddenly stronger dollar. What happens this week, if the dollar does develop as anticipated by the rising wedge on the dollar index, would then see the price of crude resume its rising trend.

WTI crude – Daily close, last = $85.43 (www.investing.com)

©2022 daan joubert.

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