US markets snapped a four-day losing streak ever so slightly, and this stabilization in SPX near its 50% retracement level along with a confluence of breadth and DeMark related exhaustion on intra-day charts look important towards thinking a low should be in place between Wednesday-Friday of this week. QQQ has also pulled back to short-term trendline support, and as markets push into the final seven trading days of the year, the path of least resistance looks to be higher. Bounces likely won’t be successful in recouping more than SPX 4000 before weakness sets in again early next year. This would line up with the currently “Uber-successful” 80-day trading day cycle, which argues for selling strength into early January ahead of a pullback into January expiration. At present, despite ongoing trends being negative, it looks right to bet on a bounce.
Breadth has gotten down to levels which marked prior lows
As discussed in last night’s Technical video, the Percentage of SPX names above their 20-day moving average (m.a.) has now dropped to single digits as of Monday 12/19/22’s close.
This represents the lowest levels seen since October, and also is near levels reached back in mid-June. While the percentage of issues above their 200-day m.a. remains constructive, it looks like US Equity indices 8% decline over the last four trading days could have stripped away too much too soon.
Bounces are likely when Percentage >20% gets under 10% combined with evidence of DeMark exhaustion and the start of intra-day positive divergence. While DeMark exhaustion is purely present on an intra-day timeframe only, markets likely can bottom out into end of week and produce a final week bounce, which might help the “Santa Claus rally” to produce a positive result for 2022 after a tough year.
Upon rallying into 1/5-1/7, I anticipate that markets could still have a downward bias into mid-January 2023.
Gold’s rally looks nearly complete after shining in December
Technically the precious metals rally in December looks to have occurred on schedule as per what many of the short-term cycles said might occur. However, both daily and weekly DeMark indicators on Gold could possibly line up with upside exhaustion into early next week.
Given that both the US Dollar and Yields are at/near support and have begun to stabilize and turn higher, it’s likely this Gold rally consolidates into January, which should materialize on a lift in real yields. However, the wave structure finally has begun to look a bit more bullish on this lift for the first time in more than a year.
Overall, I expect that Gold, Silver and Copper should have a better 2023 than 2022. Cycles show these beginning rallies early in 2023 which should last into mid-year, initially. Daily charts of Gold show Tuesday’s lift to likely hit a 50% retracement of its decline from Spring 2022, but am skeptical that 1900 is exceeded on this rally.
One should be on the lookout for any consolidation in precious metals into late January/February which would provide attractive buying opportunities for a more robust rally higher in the metals between February and June of next year.
Gold cycles show some ability for Gold to shine in 1H 2023
Gold’s weekly cycles over the last dozen years have seen a few pronounced lows and highs which form the basis of this weekly cycle composite, shown below, which has proven quite accurate.
If this follows suit to what the composite says, Gold prices should consolidate and pullback and retrace some of this recent rally before beginning a sharp rally into late Spring 2023 before some weakness into Summer before another rally higher gets underway.
For those wondering, part of this composite involves the 246-week cycle along with a 74 week, which shares harmonic properties to the 24-week cycle. While other longer-term have not been included which have been part of the 20-Year+ picture for Gold (and other shorter-term cycles are more accurate for month-to-month swings) this composite shows a bullish bias for 1st Half 2023.
This also lines up with the idea that a minor consolidation per Gold’s Elliott-wave pattern should prove to be a buying opportunity for a more meaningful bounce back to new all-time highs in 2023. I’ll monitor this heading into 2023 and combine some shorter-term cycles to get a better feel for how these can work in tandem. However, the key takeaway is that this Metals rally looks ripe for consolidation over the next month, but ultimately should pave the way for a much better rally in the metals next year. (Copper’s cycles are different and will be reviewed in future reports).