SPX may be hit by a double whammy

By: Anthony_Cherniawski

While the SPX Premarket is slightly positive it has a cluster of Primary Cycle turns starting last Friday and lasting through this week that suggest something remarkable may happen. Friday morning was the terminus of an irregular (truncated) Wave (c) correction. The decline afterwards wasn’t very deep, but enough to cross beneath the trading channel trendline and become trapped beneath it at the close,

This morning’s positives may fade at the open, although there is room for a further bounce should SPX open above that trendline.

Wednesday is day 258 of the current Master Cycle. A low on that day would give the SPX 6.14 days (43 hours) of decline. The following day (Thursday)) is a Pi date which raises the likelihood of an extension to that date. An 8.6 day decline would carry over until December 28. I am not leaning toward the longer decline at the present, since there are no indications of a significant turn that week.

While the decline may be short, it offers the probability of being intense. First, there is likely to be no corporate stock buying of any significance this week as many companies have entered the blackout period consisting of 30 days prior to their earnings announcements. Second, there is some discord among the Electoral College that may be disquieting to the markets.

ZeroHedge also reports that global stocks are beginning to fade.

TNX has already made a substantial downward move this morning after completing its Wave [b] correction. It has made a small reversal pattern, but won’t be confirmed until TNX declines beneath 24.24. This currently advocates a partial long position in USB or UST.

Another source of potential volatility this week is the Chinese Yuan. The Yuan has exceeded its January 7 low and is now challenging its August 24 low. Both lows produced a significant sell-off in the SPX.

China’s FX reserves are becoming critical. ZeroHedge reports, “Two months ago, when looking at an alternative measure of Chinese capital outflows using SAFE data, Goldman found that contrary to official PBOC reserve data, "China's Capital Outflows Are Soaring Again", having hit $78 billion in September.

Over the weekend, and following the latest PBOC data which revealed an outflow of $56 billion in November (which was only $34 billion when FX adjusted), Goldman repeated its FX flow calculation using SAFE data, and found the China continues to mask the full extent of its outflows, which in November spiked to $69 billion, and that "since June, this data has continued to suggest significantly larger FX sales by the PBOC than is implied by FX reserve data", once again suggesting that China is eager to mask the true extent of reserve outflows, perhaps in an attempt to not precipitate the feedback loop of even further panicked selling of Yuan and even more outflows, and thus, even more reserve depletion.”

A look at the VIX futures shows a probable spike in the VIX up to the 50-day Moving Average this morning. This may confirm a buy signal from the VIX. We will wait until after the open to verify this move.

Regards,

Tony

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