On news the coronavirus outbreak was spreading, Monday’s huge gap-down opening (SPY 322.66) resulted in a 3% decline from the high (332.95) – extended to 3.7% by Friday – meeting our minimum downside target of 3% to 5%.
The bounce-back rally almost touched a perfect .618 Fib retracement 329.02. (Actual high 328.63). With the Fed announcing continued repo fresh money injections until April, along with $60 billion of monthly “not QE”, its hard to envision more than a 5% correction off the highs. The New Economy sector continued to lead the market, registering a new high vs the Old Economy on Wednesday – finally falling off on Friday’s trade. The bearish technicals remain intact: Upside/Downside Volume, weakening Breadth (6 month low in NYSE 52 week lows), Daily negative Momentum (4 month low). The net result is a severely bifurcated market you can “rent” but not “own”. The bounce-back rally should end February 6/7, followed by another assault on the lows. SPY support 312.77. SPY resistance 328.,77.
After trading down to 1564.70 on Wednesday, spot gold rallied to close near the high for the week, 1586.50. The gold shares lagged bullion, and are consolidating 4% off the highs (XAU 103.94) established 8 weeks ago (108.35). Bullion is in a mid-cycle consolidation, heading for an important target 1670, which it should hit end February/early March, after which an important correction is due. Intermediate term targets: GDX 34.58, GDXJ 50.51, SLV 19.22.
The greenback bounced early in the week, approaching Fib resistance UUP 26.51. (Actual high 26.49). Then closed the week on the lows (26.28), as interest rates fell on surprise news of a weakening economy, with the Chicago PMI massively missing expectations, plunging to lowest level in 5 years – 42.9 vs 48.9 expected.