In my opinion and analysis, the SPX will likely go higher in the coming days off of artificial optimism from the OPEC deal. While the equity market lately has found some sort of normalcy (we haven't seen anymore 10%+ declines), this is only short-term for what will likely be the next leg down to new lows sometime mid to late April and through the first half of May.
I would not be surprised if the market has a fairly decent week this week. While the OPEC meeting seems to be delayed (unless something changes) it is likely that they will meet sometime this week and provide the market with some type of crude production cut. This will allow crude to close the $38-42 gap before falling again to new lows beginning a few weeks thereafter.
While this is mostly artificial hope, the reality is the market is irrational - not rational - so people have to realize that its not about what "should" happen, but rather, what is "likely" to happen.
Traders should not be surprised if the market has a pretty decent week this week, however, DO NOT fall for it and enter longs. This will be used as short accumulation. Swing trading is the only thing advise here.
Remember: Elevated crude prices supports the equity market; therefore in the time crude closes the aforementioned gap, this will result in equities likely going higher. Although this won't last longer than a week, it is likely to happen as I state here.
*****
Elliot Wave - Important Note - A lot of people on here are trying to predict the timing of Wave 5 down to new lows. While this will eventually bring about new lows, the reality is we have NOT had confirmation on timing. EW theory is retroactive, not proactive. Therefore, we must have a confirmation we are IN Wave 5 BEFORE we can say that we are in Wave 5 - The market has NOT given us a confirmation of Wave 5 yet but I suspect [speculate] we will get confirmation sometime just after Easter
Hi zSplit. I tend to agree with your analysis, but in this case I firmly disagree with the sentiment presented. On a Macro scale, US Shale has undercut OPEC+ and crude since the introduction of hydro fracking. Fracking at its core is a far more labor intensive endeavor and requires a far higher capital expenditure and operating expenditure in order to produce the same amount of oil when compared to traditional crude production. US Shale companies don't hit profits unless WTI is trading at above 60/BBL; as you know, WTI is currently trading at $29 which is already heavily inflated because of the Trump tweet. Many shale companies have already turned off their pumps for the time being and more will continue to every week proceeding forward. The oil price war started by the Russians and instigated by the Saudis is no closer to being solved. Like I said before, since the introduction of hydrofracking, Shale has been responsible for the global production increase, undercutting OPEC standards. Russia specifically, has no intention in cutting production to give back market share to uneconomical US shale producers. Furthermore, Russia knows that the US producers can not cut production as it violates anti-trust laws in the US so they are going to continue to flood the market with cheap oil. To make matters worse, reports of oil supply shortage are sure to keep prices low. Now the elephant in the room is that oil consumption is at a 20 year low and likely will continue to get worse as Corona debilitates travel, supply chains and manufacturing. We saw the biggest single day spike in price on Thursday based off of a superficial tweet, it would not surprise me to see oil have historic drops in the upcoming weeks. I also disagree that the sentiment is positive from the OPEC+ talks, anyone with half a brain knows they are not going to cut oil by 15mbbs and even 5mbb would be a far out stretch.
PaulDeep19131
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@chadsatoshi, Thanks for your comment. I agree with everything you have said. My point is that sentiment can often change to positive even if information is incorrect or ends up having no end-goal impact. It goes for changing sentiment when the Fed provides stimulus, rate cuts and many other forms of QE (amongst many other things I could list), that in the long-term, only makes the economic situation deteriorate for even longer.
Believe me, I totally understand the almost 0 impact any production cut will have, however, traders are irrational and are looking to grasp straws on absolutely anything to try to find an excuse to buy equities.
Trading is always based on figuring out what "will" happen, not what "should" happen. In reality, you are absolutely correct in that it will have no meaningful impact and the market should fall, however, I highly suspect the market will have a modest week if OPEC announces something - or - anything.
- zSplit
chadsatoshi
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@zSplit, thanks for the quick response. I see where your head is at, and as someone who has been burned by the FED unlimited QE I tend to agree with you that general public sentiment is not always logical. I also agree that we are just kicking the can down the road here. Short term victories at the expense of a long term healthy economy. Ie. Trump just needs to make it to November, then who cares.
One other point that I feel like I should make in regard to public sentiment and perception is the rumor that the US and Canada will install heavy tariffs on foreign oil in an effort to "protect" energy workers. Certainly this would provide a short term pump in the price in oil, however I believe in the mid-long term this would be catastrophic to the US economy. Not only would the price of oil p/bb increase exponentially, it would harm companies already struggling with the decreased travel and limited cashflow. Airlines, Cruises, Logistics companies are relying on cheap oil right now as they are looking for any expense they can cut to stay afloat.
For an even more far out point, we could see the US dollar's value diminish at an even faster rate as foreign countries would not be so inclined to trade oil in the dollar denomination. Countries such as China, Russia and even European countries could use this to their advantage to cut out foreign dependence on the dollar. Just a thought, I have no evidence to back this up.
As for the market going forward, I know you believe a lower bottom is yet to come (as do I), however I can't imagine a world where we see a V-shaped recovery. With +10million (more like 20) Americans out of work, consumer demand is going to be shocked for quarters to come, 70% of US GDP derives from consumer spending. I also worry the real estate market is on the precipice of an even sharper decline in Q3/Q4. Let me know your thoughts on the recovery.
PaulDeep19131
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@chadsatoshi, You are absolutely correct that the US dollar's value will diminish significantly, however, I view the dollar rising in the near-term before falling sharply thereafter. It is virtually an inevitable certainty that at the beginnings of a recession (or depression) the US dollar rises typically off of a wave 5 - this time is no different - I see 105 by early June or sooner. I have been quite consistent in my view on this which is why I am also bearish on Gold in the near-term.
As per your tariff statement - it is certainly possible. I have heard the same as well!
And finally, this will certainly not be a V-shaped recovery. People will slowly start to realize what we had for the past decade - especially from 2016-2020 - was a giant bubble. You can't recover to a bubble and people don't realize it. My predict has been for the past while that once we get a crash (now we have it) that we won't see new ATHs in the markets for probably at-least half a decade or more.
Cheers man!
mansofun
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@zSplit, i have have enjoyed your comments.
You do see the world as it really is while able to translate to what it actually will mean for the traders. Thank you for your posts.
I know the mark is going down soon too thats why I am long on TVIX and holding
While feeling the pinch which gets harder as VIX has been going down too which is mind bogling
chadsatoshi
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@zSplit, Very interesting thoughts here. I have followed your GLD and SLV posts closely and have followed DIX myself.
I too am bearish on equities and commodities alike, however, as discussed above, public sentiment is not always rational. I think being short GLD and SLV has to be the most contrarian thinking right now. The narrative is now, "The Fed is printing trillions, inflation is here, buy gold and silver to hedge." I realize we will undergo a deflationary period as more investors hold cash, however in the case that equities do not sell off at the rate predicted, will GLD and SLV also not sell off, maybe not at all?
Grafikgurl
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@zSplit,
As I am still learning, I think your explanation in plain english (as in no fancy financial terms) is simple, direct, easy to follow and understand for investors like myself. Thank you for your time in writing these updates. I enjoy them so please keep them coming.
@chadsatoshi Thank you for your response to zSplit. I also enjoy reading other reader's response to see their point of view and perspective.
UnknownUnicorn5306454
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Tend to agree with your analysis zSplit, good work, although my 5/15 puts won't be happy with a green week lol. 2 questions for ya if you have time for a response:
1) Thoughts on the VIX? I still think a pop back up to or past ATHs is possible on a big catalyst (ie: OPEC no deal + worsening economic fallout). Sitting on my 5/20 $70 calls.
2) Would you personally get out of 4/17 AAPL puts? Sitting on a 40% loss right now and have stops set at 50%. I think tech is going to take a massive hit, i think I screwed up and bought too early of an exp ($220 strikes). My thought is to roll these out to june/july at a lower $180-$190 strike.
Look forward to your response and thanks for all of the work you do!
PaulDeep19131
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@optionsguru14, Hey man.
1) I still see VIX making new highs sometime later this month or the first half of May.
2) I don't like big tech right now. I would sell it on a "green" day but in the next wave of selling I envision big tech getting hit hard.
Cheers mate!
UnknownUnicorn5306454
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@zSplit, thanks for the response mate! We're aligned.