Omicron COVID variant-possible strong rally-INDU & TRAN
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
As we've been watching the markets recoil away from risks related to the new Omicron COVID variant and other factors, one simple thought keeps running through my head. What if the markets suddenly shift away from this panic selling and resume a rally/recovery trend – possibly pushing to new all-time highs before the end of the year?
Recently, the Put/Call ratio reached a moderate-high near 0.84. I interpret this as long traders buying protection in the event of an extended breakdown in the US/global markets. In the past, typically, when the Put/Call ratio reaches levels above 0.80 – the markets are very close to a bottom.
Prior Downside GAPS Setup A Potential Rip-Your-Face-Off Rally
Next, I noticed the GAP in price on the Dow Jones Industrial Average and the Transportation Index. That got me thinking, "a sudden reversal in price, possibly resulting in a series of price squeeze events, may prompt a strong rally phase back above the GAP levels." If this happens, we may see a 5% to 7% rally in the US markets take place to restart the Santa Rally phase.
INDU Gap Near $35,600 May Become A Clear Upside Target
This Daily INDU chart shows the GAP I'm talking about and shows what I expect may happen if the markets shake off the Omicron fears and get back into bullish trending mode. It won't take much to drive the INDU 7% higher from recent lows if fear subsides and traders pile into long positions expecting Q4:2021 to be strong and the Santa Rally to kick in.
TRAN Gap Near $16,800 May Provide Additional Confirmation Of A Bullish Rally Phase
This Daily TRAN chart shows a similar GAP in price that could also trigger a big rally towards new all-time highs if the markets suddenly shift gears. The fear that settled over the global markets because of the Omicron virus strain may have pushed the markets into a fairly deep pullback. As we've seen repeatedly, when these pullbacks end, the US markets shift back into strong bullish price trending and often rally to new all-time highs.
This GAP on the TRAN chart may further confirm that the downside price pressure has ended and a new rally phase is setting up for the US markets.
Just a few days ago, I posted a research article showing results from a proprietary data mining utility I use that illustrated the typical bullish market strength in November and December. You can read that article here: Thetechnicaltraders.com.
I believe the global markets will attempt to move past the fear we've seen related to the Omicron virus strain. It is becoming more evident that many nations are already somewhat prepared to deal with it throughout December/January. If there is sudden news that it, or any new virus strain, is far more dangerous, things could change very quickly. But I believe the US markets are searching for support and are very likely to end 2021 at or near new all-time highs – supporting a very strong Santa Rally.
Watch for end-of-day SQUEEZE events to push price levels higher and higher over the next few days – possibly targeting these GAP areas or higher.
Want to learn more about what affects the markets?
Learn how I use specific tools to help me understand price cycles, set-ups, and price target levels. Over the next 12 to 24+ months, I expect very large price swings in the US stock market and other asset classes across the globe. I believe the markets are starting to transition away from the continued central bank support rally phase and may start a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern start to drive traders/investors into Metals.
Have a great day!