2022-05-14

The Two Paths Ahead

There are two paths ahead over the next four to eight weeks. One is energy down, bonds up, stocks up. A bear market rally. The other is all hell breaks loose. Crude breaks out, treasury bonds break down and stocks collapse.

The immediate future is cloudy because there has been no capitulation in the bear market. There has been no VIX spike. There doesn't need to be, but it is a glaring missing piece for a clear bottom. I expect a low could be around the 3700-3800 area if that capitulation comes before the longer rally. If the plug gets pulled, then it's straight down to 3400 area and then a rally.

FWIW, Xtrends thinks VIX will spike this coming week:

One day moves aren't much to go on, but crude oil broke higher. Bonds might only be pulling back within the context of a reversal. High-yield bonds did not make a new 52-week low on Friday, but came close.

BTC is right at my support line at $28,817 today. A Tehter blowup isn't necessary here, I think that could come later this year. A short-term, capitulation spike lower in stocks would be preceded or coincident with a breakdown in BTC to around $20,000 because it is believed MicroStrategy has a signficant position that will get a margin call at $21,000.

For a plug-pull, something out of the box will be needed, such as an EU embargo on Russian oil that sends U.S. oil prices soaring. Or something that breaks the bond market, but I don't expect that because I think deflation/disinflation is right around the corner.

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