In addition to the U.S. Dollar turning up, last week two other noteworthy stories deserve attention. First, buy the dippers turned the IT sector and therefore the Invesco QQQ Trust ETF higher, and second, the S&P 500 Index probably completed an a-b-c corrective wave. The Market Review explains along with the usual indicators.

S&P 500 Index (SPX) 3298.46 slid another 21.01 points or -.63% last week almost the same as the week before, but Friday's 51.87 point or 1.60% gain increases the likelihood the correction may have ended. While still below the 50-day Moving Average at 3350.93, downside momentum stalled.

Last Monday IT, "buy the dippers" turned the sector positive while all other sectors declined and cyclicals got pounded. By Tuesday, buy the dip activity spread to Consumer Discretionary and Communication Services and SPX closed up on the day.

Friday's upturn, presuming it continues higher this week, will be labeled the end of an a-b-c corrective wave since the top on September 2 at 3588.11, looks like a 5th wave top from the March 23 low. See more the Strategy Section below.

Invesco QQQ Trust (QQQ), 271.56, called "the decider," added 4.69 points or +1.76% last week closing just below and the 50-day Moving Average at 273.67. "Buy the dippers" turned the tech and cloud stocks higher as money rotated back to growth from industrials, gold and mining sectors.

CBOE Volatility Index® (VIX) 26.38 gained .55 points or +2.13% last week. Our similar IVolatility Implied Volatility Index Mean, IVXM using four at-the-money options for each expiration period along with our proprietary technique that includes the delta and vega of each option, added more up 1.05 points or +4.85% ending at 22.69.

The IVXM chart below shows a slight advance while Friday's gain on the SPX chart looks insignificant. The 10-day VIX correlation indicator returned to a more normal -.89 on Friday, moving inversely to SPX.

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VIX Futures Premium 

This next chart shows as our calculation of Larry McMillan’s day-weighted average between the first and second-month futures contracts as of last Friday.

With 17 trading days until October expiration, the day-weighted premium between October and November allocated 68% to October and 32% to November for a premium of 20.51%, with the volume-weighted version almost the same at 20.96%.

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Beware the chart reflects increased hedge positioning with November futures contracts at 32.90 that are 6.52 points or 24.72% above the VIX creating an unusual bubble in the term structure. Typically, during a correction the VIX quickly advances and often exceeds the slower moving futures contracts creating a negative premium. For example on June 12 during the island top correction the premium contracted to -3.21%. However, during the current decline the premium remained positive as the entire futures curve shifted higher while the VIX only spiked up slightly before settling back down. 

While hedgers have pushed the November futures higher creating a term structure that looks like a playground slide going eight months out, option open interest declined creating a diversion, although option activity may increase as November 3 approaches.

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The relationship of the futures curve to the VIX, as measured by the premium, makes a good real-time sentiment indicator based upon actual commitments of large Asset Managers and Leveraged Funds. 

Foremost Indicators

Market Breadth as measured by our preferred gauge, the NYSE ratio adjusted Summation Index that considers the number of issues traded, and reported by McClellan Financial Publications, gained downward momentum declining 287.99 points or -97.95% ending at just 6.03. This reliable indicator can't be encouraging for the bulls, but for now, the narrow Invesco QQQ Trust (QQQ) calls the shots.

U.S. Dollar Index (DX) 94.64 jumped up 1.71 points or 1.84%, activating a well defined Head & Shoulders Bottom pattern while ending the hopes of the gold, silver, and copper bulls. Take a look at the chart below that answers the question raised in Digest Issue 35 "New Highs Everyday [Charts]" just when the potential bottom pattern began forming.

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Already close to the minimum measuring objective at 95.25, the big advance came last Monday on what may have been dollar short covering followed by another on Tuesday that closed above the neckline while already above the downward sloping trendline (DSTL) and the 50-day Moving average. Gold reacted simultaneously declining 51.50 points or -2.62% last Monday and then ended the week 95.80 points or -4.88% lower. 

Our tweet last Wednesday:

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The VanEck Vectors Gold Miners ETF (GDX) October long call spread began with Digest Issue 30 "Invesco QQQ Trust Breakdown [Charts]" and continued with updates through issue 35 before calling for its close last Wednesday. 

Keep an eye on DX as it approaches the measuring objective at 95.25. While currencies have a tendency to trend for long periods, these remain uncertain times and the recent € weakness that makes up 58% of DX, could be Covid-19 scare related and temporary.

Strategy

For the time being the long gold, silver, and copper trades are over but not completely forgotten since the U.S. Dollar Index could soon run out of gas if the euro finds some support.

As for the a-b-c- corrective wave comments above,

"...Elliott pointed out that the stock market unfolded according to a basic rhythm of pattern of five waves up and three waves down to form a complete cycle of eight waves. The three waves down are referred to as a 'correction' of the preceding five waves up." Frost and Prechter, Elliott Wave Principle, p.20.

Should SPX continue higher this week and confirm a completed a-b-c corrective wave, consider removing some hedges as the probability increases that it will advance back up and retest the September 2 high at 3588.11 and then (1) attempt to form a double top or (2) exceed the previous high and start forming a potential H&S Top pattern (3) or resume the long-term uptrend. 

In addition, continue watching the IPO schedule as it still represents considerable potential selling pressure since hedge funds and privileged clients of the underwriting banks typically need to sell existing positions to raise cash for new hot ones.

Last week's Freeport-McMoRan (FCX) trend suggestion came too late as copper and other metals were whacked along with gold.

Summary

"Buy the dippers" and a stronger U.S Dollar may have turned equities higher last week despite terrible market breadth. Confirmation that a corrective a-b-c wave ended last week will mean the S&P 500 Index and the Invesco QQQ Trust could advance up to retest the previous highs although hedging with VIX futures suggests implementation of some cautious strategies until November.