The chart shows a possible path to as high as 6704.25, about 11% above current levels. Although it would seem to flout the solidly bearish implications of a longer-term SPX chart I presented here recently, the two can be reconciled by allowing most immediately for a hard selloff to the green line. That would set the stage for a powerful rally, although not necessarily one that would reach the D target. We'll worry about that when the time comes, but anyone who has watched dozens of 'mechanical' trades unfold in various time frames will see nothing unusual in the way I've drawn this chart. To avoid muddling the two scenarios, let me note that the more bearish one looks like a 70% shot, meaning this is probably THE top, even if it becomes a raggedy one.
Get Microsoft right, as I continue to remind you, and your forecast for the stock market can't go far wrong. The tech giant is among the most valuable companies in the world, with extraordinary profit margins tied to an 80% market share in operating systems. The subscription-based revenue model the company has put in place over the last decade is built to withstand a severe economic downturn. And as long as the shares continue to make new highs regularly, it's safe to assume the stock market will, too. The trouble is, MSFT hasn't made a new high in six months, raising the possibility it has entered a bear market. This would have occurred last summer when shares topped at 468 on July 5. The steep plunge that followed over the next 30 days took the stock down $83, or about 18%. That's two percentage points shy of a statistical bear market, although investors who have stuck by Microsoft - i.e., every portfolio manager on earth -- would find scant consolation in this statistic. Still, most of them probably have little doubt that new all-time highs await, and they could be right. But a chart stretching back to 2023 suggests persistent distribution, along with ponderous supply that has prevented a run-up to new heights. The chart would take on a rosier look, however, if the stock were to pop just 22 points, or 5%, surpassing an important peak at 455 recorded less than a month ago. MSFT could easily do that in a week, and we should not bet heavily against it. What About Bitcoin? A second, nettlesome concern for bears who have already placed their bets is the feisty performance of Bitcoin. Like Microsoft, it appeared to have made a very important top a month ago when it hit a
Last week's spike surpassed an important peak at 4.74% recorded last April. On its way to a presumptive high at 5.55%, the rally will face additional resistance at 4.87%, a 'voodoo number': and at the 4.99% peak notched in October 2023. If these invisible impediments do not put up a fight, it will increase the likelihood that the 5.50% target will be achieved. The two years TNX spent head-butting the midpoint resistance at 4.01%, then trying to break free of its gravitational pull imply there's a chance the rise in rates will abate somewhere close to the 5.13% midpoint between p2 (47.59) and D. ______ UPDATE (Jan 18): Rates on the 10-Year have rolled down from somewhat below the 4.87% voodoo number, but I'm not ready to infer the uptrend is weakening. Let's see if this presumptive minor correction can catch a bounce from this pattern's 45.22 'D' target.
The rally could go a little higher, but it would likely be corrective. The initial downside penetration of p=45.62 in December was sufficiently decisive to imply that GDXJ will eventually fall to D=40.21. In fact, the breach was brutal enough to warrant trying a 'mechanical' short from the red line. If so, it would take a stop-loss at 47.42. That trade has already triggered and is slightly profitable, so I'll suggest enjoying it from the sidelines.
The futures narrowly missed triggering a conventional short at 75.26 after Friday's powerful rally. The trade remains viable, but it should be attempted only by traders who can limit entry risk to perhaps 10% of the implied risk of 2.61 points per contract. The trade triggered via a voodoo number whose location will remain a proprietary secret. The chart shown is generic, but I'll mention that half of the position should be covered at 72.6 if your order fills. If you can retro-engineer the chart pattern, you are qualified to trade this one.
The paper-trade I'd suggested last week, a 'mechanical' long from 95,354, is still live, but I'm glad we didn't take an authentic piece of it. Bitcoin spent four days threatening to trigger the stop-loss at 91,270, socking the position with a $4000 loss. I am still tracking it diligently because a failure to achieve the 107,604 would imply that Bitcoin, and therefore all cryptocurrencies, have made their bull market top. It got some lift off Friday's low, but not quite enough to waft it beyond danger. It's hard not to notice the clean look of the head-and-shoulders pattern that has been forming since mid-December. Symmetry would put the right-shoulder collapse somewhere toward the end of the week or early next.
The year-long struggle the Dollar Index had getting past the midpoint resistance at 106.31 argues against giving it a free pass to the 113.02 'D' target that would complete the pattern shown in the chart. Even so, the way the rally picked up steam to pierce p2=109.66 as the week ended was impressive and suggests more headway toward the target is likely. We have still-higher targets outstanding, including one at 124.82 that I reiterated here last week. A middling resistance at 110.08, an inch above Friday's high, will also be shortable and warrants your attention. It is notable that the dollar's strength has not crushed gold, only hindered it. _______ UPDATE (Jan 18): A short from 110.08 as suggested would have caught the top of a nasty swoon. The low of the move did not quite reach a 108.40 correction target, and that is bullish. Look for a push above the recent high at 110.18 in the week ahead.
Although the major indices were down just 1.6% on Friday, it felt like a big day. Everything that matters to the U.S. economy was moving the wrong way: stocks were falling across the board; interest rates and energy prices were climbing; dollars were growing dearer, especially for debtors; and gold, perhaps imagining a bevy of black swans, was stressed with fear, up as much as $60 intraday. Cumulative losses for the week totaled nearly 3%, adding to the feeling that the granddaddy of all bull markets is over. I am taking this possibility seriously, in part because the S&Ps topped a month ago a hair above a 6136.25 Hidden Pivot target of mine that had been nearly five years in coming. Similarly, Bitcoin, the hophead that has been inspiring speculative excesses in all markets, apexed in mid-December within 0.1% of a $107,343 Hidden Pivot target first identified here when the price was $15,000 lower. If any chart provides a reason for hope, it would be Microsoft's. Shares of the recession-proof software giant ended the week on a thin ledge, $3 above a key Hidden Pivot support at 415.57. A closing bar decisively beneath it would announce the almost certain start of a bear market. MSFT would be on its way down to at least 374.18 at that point, presumably the first wrenching drop into an unimaginable abyss. Why This Time? Why would this market top differ from the mostly minor ones that have occurred routinely over the last 16 years? Mainly because it is happening with Southern California in flames. Ordinarily, we might expect investors to buy stocks aggressively, as they always do in the wake of natural disasters, since it will require enormous sums of capital investment to rebuild. This time, however, there is a palpable feeling that the
If the so-far moderate short squeeze off Thursday's 5874 low touches the green line (x=6031.56), it would trigger an enticing 'mechanical' short, stop 6107.75. Since this would follow a record high in early December at a major Hidden Pivot resistance, we may soon have more evidence that a long overdue bear market has begun. Paper-trade this one unless you are adept at using 'camouflage' triggers to shrink entry risk. A relapse to the D target at 5803.75 would not be impulsive, although it would follow an A-B leg that was, unmistakably. ______ UPDATE (Jan 6, 9:34 a.m. EST): The short triggered at 6033.25 and produced a theoretical gain moments later of 8 points ($400) per contract. The trade is still live, with two contracts covered at p=6025.25, and two remaining to be covered at d=6009.50 (15m, a=5965.75 on January 3 at 9:45 a.m.). The stop-loss would be at your discretion now.
Last week's leap through the 2662 midpoint Hidden Pivot of the pattern shown shortened the odds of a further run-up to d=2728,30, but I doubt the rally will top the record high 2826 achieved on October 30. That's because of the power of the bearish impulse leg in November that took the February contract from 2826 down to 2565 in just two weeks. This implies that quotes will fall to 2500 before this vehicle can get good traction. More immediately, a drop to the green line (x=2629.60) should be regarded as an opportunity to bottom-fish 'mechanically'. The implied $33 stop-loss means the trade should be executed only with a small-pattern (i.e., 'camouflage') trigger to reduce entry risk by at least 90% theoretical. _______ UPDATE (Jan 6, 9:43 a.m.): Using reverse a=2636.50 (15m, Jan 6 a7 2:45 a.m.) produced a quick, theoretical gain of $700 per contract, with two contracts covered at 2638.20 and two still 'live'. The 'd' target lies at 2651.80, and a pullback to 2631.40 would trigger another 'mechanical' long, stop 2624.50. _______ UPDATE (11:16 a.m.) Feb Gold has pulled back $9 after coming within a dime of the 2651.80 rally target I furnished a little more than an hour ago (see above). Going by-the-book and using reverse a=2636.6 would have produced a profit of around $4,800 on four contracts. That assumes a 50% partial profit at p=2,638.20, 25% at p2=2645.00, and the last 25% at d=2651.80. _______ UPDATE (Jan 8, 8:26 p.m.): Careful, since the current uptrend may have limited potential. I'm using a 2728.30 rally target, and your trading bias should be bullish until the futures get there. If buyers surprise by blowing past this Hidden Pivot resistance, it would open a path to at least 2765.80 or even 2866.00.
