For those who wish

For those of you who wish to support a spiritual message during the Lenten Season I recommend looking up theholyfaceproject.com.  As a Catholic Christian I find this project worthy of support.  In fact, I have gone on a limb and have contracted 4 billboards in the Lansing area, with an option to expand to 12 until June 30.  I have found other communities who also have an interest in promoting this message and I am coaching them in setting up their own projects.  These billboards contain no advertising.  They simply have the face of Christ as seen on the Shroud of Turin with theholyfaceproject.com beneath it.

Lansing has its own support page on the website.  As I am not currently charging for my blog, I would appreciate your support of a project dear to my heart that I have committed my own support.  Thank you.

Posted in Published | 1 Comment

September 29, 2022

3:15 pm

SPX may be bouncing off the trendline at 3610.00 at this time.  All indications are that the decline may continue, whether crossing the trendline before the close or overnight.

ZeroHedge comments, “To quote Jim Cramer, “they have no idea how bad it is out there” so here is some perspective of just how bad it is.

After yesterday’s BOE rally fizzled with a bang, only two S&P 500 stocks were up this morning, which means a whopping 99.6% were down at a time when the S&P was plumbing new 2022 lows, down nearly 25% from the January all time highs. And as Bloomberg goes on to note, we are at the fifth day this month where more than 90% of the S&P 500 is declining. In March 2020, there were six such days.

Not enough? To get a fuller sense of the absolute bloodbath out there, catalyzed today by the second consecutive mauling of AAPL, this time courtesy of a BofA downgrade…”

 

8:15 am

Good Morning!

SPX futures reversed down in the overnight session to 3663.70.  There are 7-9 days left to the bottom.  Under the scenario illustrated above, SPX may decline to a probable target of 3430.00, or lower.  The rationale behind this format is that Wave (1) of [1] is 704 points in length while Wave (1) of [3] is only 702 points!  A hard and fast rule is that Wave Threes can never be the shortest.  Under the scenario above, Wave (1) of [3] may be 895 points in length, approximately 27% larger than the first Wave (1).  By another measure, Wave A  was 12.9 days in length, while Wave C is only 11.4 days in length to the bottom thus far.  Again, in impulsive declines, Wave C cannot be smaller than Wave A.  In the illustrated scenario, Wave C may be up to 21.5 days in length.

ZeroHedge reports, “The brief post-BOE euphoria has worn off, and risk-off sentiment returned to markets as concern about inflation and the global economy overshadowed the Bank of England’s desperate attempt to restore calm by restarting QE, exacerbated by more hawkish central bank talk and defiance by British PM Liz Truss’s tax plan (which has been slammed from the IMF all the way to the White House). Treasuries resumed their slide with UK gilts, while US equity futures fell as European stocks extended a selloff that’s caused valuations to drop to their lowest since 2012. As of 730am, emini S&P futures slid 0.7% to 3704, recovering from losses as big as 1.5% earlier.”

 

 

VIX futures resumed its rally in the futures, reaching an overnight high of 32.30.  VIX is on the same Master Cycle as the SPX, only inverted.

ZeroHedge(TME) comments, “Mean reversion is king

Earlier this week (here) we reminded our readers that equities are stuck in a range and today, before the squeeze kicked in, we pointed out just how much fear was being priced by vol markets (here). On Monday we wrote: “This is how it is supposed to feel; the world about to implode. SPX is down at June lows…” Ranges require the mean reversion mind and it hurts doing the contrarian, but this played out big time today. Max pain market continues…

Source: Refinitiv

Did they do it again?

The crowd loaded up on puts as fear took over…SPX has done nothing since Friday basically, so those puts bough in panic have managed losing a lot of value already…”

 

TNX futures rallied to an overnight high at 38.68, but eased back down as the morning progressed.  It may not hold above the Cycle Top at 37.90 as it corrects lower.  However, the Cycles Model shows that something is “cooking” over the weekend that may cause TNX to break higher into the week of October 10.

ZeroHedge reports, “Well this is not going to help fight inflation…

The number of Americans filing for jobless benefits for the first time dropped back below 200k last week (193k) – the lowest number since April…

Continuing Claims also fell to its lowest in 3 months.

Fed Chair Powell will not be happy that his cunning plan to fight inflation by easing the tightness in the labor market – by raising rates and crushing the economy – does not seem to be working.”

ZeroHedge (TME) explains, “There is no treasury liquidity

Market depth had improved modestly coming out of the Labor Day holiday, but has retraced lower over the last week, underscoring relatively depressed liquidity conditions…

Source: JPM

Footprints of treasury trades double vs 1 year ago

Price impact in the treasury market has moved higher, indicating the footprint of each trade in the Treasury market has risen.”

 

USD futures bounced of the Cycle Top support at 112.27, rising to 113.71 this morning.  It appears to have completed its Master Cycle yesterday, on day 258.  If correct, there may be a correction lasting up to three weeks and a decline to the 50-day Moving Average at 108.23.

 

 

 

Posted in Published | Leave a comment

September 28, 2022

11:52 am

SPX may be completing its bounce to yesterday’s high at 3717.53 where strong resistance lies.  Today’s day of strength appears to be the exact opposite of yesterday’s day of weakness where it tested the larger Lip of the Cup with Handle at 3600.00.  The higher Cup with Handle formation is in play, which indicates the probable target for the ensuing decline.   While the decline has had “near panic” days, there have been no real stampede for the exit yet.  Over the next 8-9 days we may yet see multiple panic down days.

 

10:10

The British Pound has entered a “waterfall” event for which I have no numerical target…only a probable date for it’s next Master Cycle low.  The minimum “speculative” downside target may be 90.00, with extensions to 73.00, then 60.00.  Under any of these conditions, the entire British financial system may collapse.  Who will volunteer to turn off the lights in Great Britain?

ZeroHedge comments, “Just a few days ago we wrote that “Something Is About To Break” and prompt a capitulation from one or more central banks, which oddly was met with mockery in the comment gallery. Also, a few weeks ago, we said that we are nearing a moment in time when central banks will do QE and rate hikes at the same time.

Finally, for much of the past year we have said it is only a matter of time before the coming market crash and economic collapse forces central banks everywhere, not just in one or two countries, to pivot as the price of economic collapse and tens of millions unemployed is far, far greater than simply shifting the inflation target from 2% to 3%.”

 

8:10 am

Good Morning!

SPX futures declined to test the Lip of the massive Cup with Handle formation at 3600.00, reaching 3601.60 before a mild bounce.  It remains in negative territory with a probable retest later today.  The Cycles Model calls for trending strength today, likely to drive SPX much lower.

It has been interesting how the options market has been controlled by the dealers and hedge funds to produce the least payout to investors (Max Pain).  This morning, neither $SPX nor SPY options are being shown by my brokerage company.  I wonder what gives?  There is some information in yesterday’s report that may give pause.

ZeroHedge reports, “With everything biw breaking, including an explosive move in bond yields in the UK, 10Y yields rising above 4.00%, and Apple “suddenly” realizing there was not enough demand for the latest iteration of its iPhone 5, it was only a matter of time before some central bank somewhere capitulated and pivoted back to QE, and this morning that’s precisely what happened when the BOE delayed the launch of QT and restarted QE “on whatever scale is necessary” on a “temporary and targeted” (lol) basis to restore order, which sent UK bond surging (and yields tumbling the most on record going back to 1996 erasing an earlier jump to the the highest since 1998)…

… the pound first surged before falling back as traders realized the UK now has both rate hikes and QE at the same time, the dollar sliding then spiking, the 10Y US TSY yield dipping from 4.00%, the highest level since 1998, and stock futures spiking from fresh 2022 lows, but then fizzling as traders now demand a similar end to QT/restart of QE from the Fed or else they will similarly break the market.”

 

 

VIX futures rose to an overnight high at 34.88, surpassing Cycle Top resistance at 34.21.  Protection against a meltdown is being ramped up in the options market while my dealer refuses to show the options chain for VIX as well.

ZeroHedge observes, “Protection ain’t easy

You buy protection when you can, not when you must. Premium is usually much cheaper in times when “you can…” The crowd tends to do the inverse though. VIX term structure is shifting higher today again. Note the backwardation now becoming rather extreme in the shorter end maturities. Fear is definitely here…

Source: vixcentral

MOVE – say hello to post Covid panic highs

Another day, another new recent high in bond volatility.

Source: Refinitiv

SPX/VIX – at least something is “back to normal”

Muted VIX is gone. The “gap” between SPX and VIX is basically gone. The sell off has been rather “controlled”, despite the “crash” feeling. VIX has “caught up”. On Aug 15/16 we outlined our logic on protection and VIX. If you played the “Fancy some VIX call spreads” (Aug 15 here), it is time to book profits and move on. Buying VIX/protection at these levels is only for the ones that believe we are crashing imminently. Recall, volatility is about pace and not direction…”

 

The NYSE Hi-Lo Index attempted a recovery yesterday, reaching a high of -65.00 before sliding back toward the prior lows.  The Cycles Model shows trending (declining) strength intensifying as this week ends and remaining strong throughout the following week.  Panic time?

ZeroHedge remarks, “Investors are becoming increasingly bearish on stocks as persistently high inflation has compelled the Federal Reserve to hike rates aggressively, with Bank of America analysts and the American Association of Individual Investors (AAII) both saying that investor pessimism has hit levels not seen since around the time of the financial crisis of 2008–09.

Traders work at the New York Stock Exchange in New York City, on Feb. 24, 2020. (Johannes Eisele/AFP via Getty Images)

The latest sentiment survey from AAII shows that the percentage of individual investors describing their six-month outlook for stocks as “bearish” rose sharply by 14.9 percentage points, to 60.9 percent. The last time the AAII investor pessimism gauge was higher was in March 2009, when it hit 70.3 percent.”

 

USD futures made a new high this morning at 114.72, extending the rally further.  However, the anticipated Master Cycle high may have been made this morning, with a pullback to the trading channel trendline a most likely outcome.  The correction may take up to three weeks before reverting back to trend.

 

 

TNX futures rose to 40.20 this morning before pulling back  beneath 39.00 at the cash open.  However, trending strength is due for a comeback by the weekend, suggesting that the attempts of unlimited QE by the Bank of England may fail.

ZeroHedge reports, “It’s only fitting that literally hours after the most clueless dwarf in capital markets history, Janet “No crisis in my lifetime” Yellen said that financial markets are functioning well, that the Bank of England literally panicked, and shocked markets by resuming unlimited QE.

We haven’t seen liquidity problems develop in markets — we’re not seeing, to the best of my knowledge, the kind of deleveraging that could signify some financial stability risks,” Yellen said in answering reporters’ questions Tuesday on a trip to North Carolina.

Fast forward just a few hours when the the Bank of England saw quite a few “liquidity problems” when it cited “significant repricing of UK and global financial assets… This repricing has become more significant in the past day – and it is particularly affecting long-dated UK government debt.” It warned that “were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability” and used that to justify the end of QT (before it even started) and the restart of QE.”

 

 

Posted in Published | Leave a comment

September 27, 2022

2:27 pm

SPX has taken out the June 16 low and is likely to challenge the Lip of the massive Cup with Handle formation at 3600.00.  The next two days may be instructive, as the target for the Cup with Handle formation may be 2543.00.

ZeroHedge observes, “Another day, another yield-driven market shock, and another down day for the S&P which is now lower for 6 consecutive days, the longest stretch since February 2020 when the world was about to shut down (worse, as the last chart at the bottom of this post show, stocks are now officially in meltdown pattern mode… read on).

For those who don’t see the pattern yet, it’s simple: with central banks seeing who can outhawk each other the most every day, even as their governments vow to go into a debt-funded fiscal overdrive at a time of rising rates and QT, yields are predictably surging, and real yields are surging even more with real 10Ys hitting 1.63% today, the highest since April 2010. And since real yields track fwd PEs, it’s getting uglier and uglier in risk land. Alas, it will likely get much uglier, as fwd PEs could drop as low as 12x.

Throw in some mild recession E of around 200-210 and you end up with S&P around 2400, a 50% drop from the market’s all time high this January.”

 

2:19 pm

Just when I say that TNX may take a rest, something new happens, and off it goes.  FYI, I have never seen the likes of this in my forty-some odd years in the business.  This may affect other assets, as well.  One example may be the US Dollar.  The BKX is also a candidate for a phase shift downward.  SPX and NDX are definitely in that category.

ZeroHedge comments, “For the second day in a row, a feeble attempt to lift risk assets overnight has fizzled dramatically, as what was a modest drop in yields has reversed completely, sending the 10Y TSY surging above 3.97% – reaching levels not seen since 2010 – and just shy of 4.00%, a critical level which will be crossed shortly…

… while across the pond, in an even more remarkable move, the 30Y Gilt soared another 50bps today (the second day in a row), pushing the yield above 5.00%…

… the highest level since 2002, and an increase which is simply stunning: the 30Y was trading at 1.0% at the start of the year… it is now 5%!”

 

8:04 am

Good Morning!

NDX futures rose to 11452.00 this morning, but aimed for yesterday’s peak at 11473.40  to complete an [a]-[b]-[c] retracement, a mere 25% retracement.  Remember that retracement bounces seem large, but in proportion to the declines, are often minimal.  Equities have completed 28 market days of a 37 market day decline.  Nine more days are left in the decline.  They are likely to be the most destructive of all, starting today.

In today’s op-ex, Max Pain is at 11330.00.  Long gamma may begin at at 11350.00-11400.00, with short gamma starting at 11300.00.  Options are light, so it is a difficult call.  QQQ (closing price: 274.73) Max Pain appears at 277.00 with a heavy population of both puts and calls.  Long gamma begins at 280.00, while short gamma may begin at 275.00 and becomes very strong beneath 270.00.

ZeroHedge remarks, “When it comes to sellside analyst performance in 2022, nobody can surpass BofA’s Michael Hartnett: having not only correctly called the bear market, and the inflationary and recessionary turmoil this year, Hartnett also timed his tactical bearish call just as stocks peaked in late August, and has provided actionable weekly commentary on every move in stocks before and after.

But while Hartnett’s legendary status for 2022 has been secured, close in second place is that other bearish “Michael”, Morgan Stanley’s own chief equity strategist, Michael Wilson, who – despite still unable, or refusing, to call the coming recession, has been largely accurate in calling for the continued drop in stocks without any grand, Goldman Sachs-esque pivots (which collapsed from an S&P price target of 5,100 to 3,600 in 10 months), and in his latest note he was quick to rub it in the faces of all those bulls who ignored his warnings.”

 

SPX futures attempted to overtake yesterday’s morning high at 3715.67, but may have stopped short at 3710.90, leaving yesterday’s high as the pivot.  Futures are receding and may open beneath 3700.00 as today’s first day of (downside) strength ushers in.  Yesterday SPX challenged the Cycle Bottom support at 3655.04, suggesting it may go lower today.  The Lip of the massive Cup with Handle at 3600.00 appears to be the next challenge.  From there we may see another 8.6 days of decline.

In today’s op-ex, Max Pain appears at 3675.00.  Long gamma may begin at 3700.00 while short gamma may start at 3650.00.  Today’s option are light, but tomorrow short gamma may begin as high as 3700.00 and puts are heavily populated.  Even more populated with puts is Friday’s op-ex, with short gamma beginning as high the strike at 3800.00 with 14,491 put contracts!

ZeroHedge reports, “US equity futures and European stocks staged a solid rebound after the recent rout which saw the S&P close at a fresh 2022 low on Monday, as the dollar finally weakened against all of G-10 peers, snapping a five-day gain of new record highs as Treasury yields fell and the pound rebounded from a record low, even as (or perhaps because) Goldman Sachs and BlackRock soured on equities for the short term and Citigroup said bearish positioning continues to rise. As of 715am, S&P Futures traded 43 points, or 1.2% higher, at 3,714 while Nasdaq futures were 1.3% higher. 10Y yields dropped to 3.80% after rising above 3.90% late on Monday.

The dollar gauge dipped but held near the record high set Monday, when a barrage of Fed officials repeated hawkish comments on policy. Meanwhile, European authorities are probing “unprecedented” damage to the Nord Stream pipeline system that transports Russian gas to the region. Benchmark European gas prices climbed as much as 12% on Tuesday, after four days of losses. Oil and gold also rose.”

 

VIX futures pulled back to a morning low at 30.48.  While the Cycles Model has no short-term indicators, the trend is decisively higher.  The Cycle top at 34.16 and the neckline of the Head & Shoulders formation at 40.00 are squarely in the target range as early as this week.

CNBC reports, “A measure of fear in stocks just hit the highest level in three months amid mounting worries over rising rates, a possible currency calamity and a recession.

The Cboe Volatility Index, known as the VIX, jumped nearly 3 points to 32.88 on Monday, hitting its highest level since mid-June when the stock market last reached its bear bottom.

 

TNX appears to be consolidating near the high this morning after hitting an overnight high of 39.12 in the futures.  A test of the Cycle Top support at 38.61 may be in order before strength roars back at the end of this week.

ZeroHedge comments, “MOVE on the move (again)

Bond volatility surged today again. Will this take out year highs and revisit Corona panic highs. You know things are extreme in bond world when the recent VIX rise looks “tiny” compared to MOVE’s trajectory since last autumn.

Source: Refinitiv

Fed destroyed bond volatility

Nothing really new to regular readers of TME, but Fed has destroyed bond volatility. Note MOVE closed at the highest levels on the weekly chart since 2009 (chart 2). Broken markets, bond edition.

 

 

USD futures may be consolidating near the highs.  Keep in mind that USD is approaching it’s Master Cycle high on day 257.  Yesterday’s high may have already fulfilled the requirement, so be on the alert.  The Cycles Model anticipates an approximate three week correction that may take USD back down beneath the trendline at 110.00.  But this may be a false flag, since the Model also indicates a likely 3-month rally to resume after that.

ZeroHedge observes, “Finally, and as everyone knows by now, the Fed’s historically hawkish action has led to record strength in the US dollar: indeed, the DXY is now up 21% Y/Y and still rising, while the Bloomberg dollar index is at new record highs day after day. Based on Wilson’s analysis that every 1% change in the DXY has around a -0.5% impact on S&P 500 earnings, 4Q S&P 500 earnings will face an approximate 10% headwind to growth all else equal. This is in addition, of course, to all the other headwinds discussed here for months – i.e., payback in demand and higher costs from inflation to name a few. And here Wilson echoes what we have been saying for month, namely that it is important to note that such US dollar strength has historically led to some kind of financial/economic crisis.”

 

 

Posted in Published | Leave a comment

September 26, 2022

3:45 pm

Today’s assignment for the dealers was to keep SPX above short gamma at 3650.00.  Mission accomplished…for today.  Tuesday and Wednesday both appear to be serious down days.

 

10:19 am

One of the reasons for the bounce in stocks this morning is the bounce off the Lip of the Cup with Handle formation by the BKX.  This shows a bounce in liquidity, primarily due to the currency interventions by Great Britain and other central banks.

 

7:40 am

Good Morning!

NDX futures dipped to 11199.00 this morning, not making new lows yet.  However, The Elliott Waves call for at least one more probe lower to complete an impulsive series of Waves.  Wave 3 cannot be the smallest Wave in an impulsive series, suggesting a probe to the Lip of the Cup with Handle, at a minimum.  Finally, the Cycles Model suggests a short-term pivot may await equities around mid-afternoon.   It may lead to a bounce for a couple of days or a phase shift, intensifying the decline.  The Model offers two days of strength Tuesday and Wednesday, which may either initiate a bounce or indicate a panic decline.   Today’s action is crucial to the outcome.

NDX expiring options are light, but indicate short gamma beneath 11400.00.  QQQ (closing price 275.51) is in short gamma beneath 282.00. with Max Pain at 283.00 and long gamma starting at 285.00.

ZeroHedge remarks, “Friday was a bad day for stocks, and while spoos managed to stage a tiny end-of-day bounce to avoid sliding below the 2022 June closing low of 3,666, one can only describe Friday’s action as a crash – which is what we did – especially in the bond world where things are starting to break, as Michael Hartnett explained in “The Bond Crash of 2022

But even just looking at equities, it was a full-blown capitulation: as Goldman’s flow trader John Flood observed, the last day of trading saw continued Long Only (L/O) derisking in broken names (Goldman’s asset manager sell skew peaked at 21% Friday which was 91st $-ile vs 52 week look back), at the same time as Goldman saw meaningful supply in growth complex.”

 

SPX futures made a weekend low of 3658.80 and is on a bounce.  The decline on Friday was not large enough to be a Wave 3, so we may conclude that either a bounce to 3790.00 (then a panic decline) may be underway or the decline continues this morning with a vengeance.  Should the bounce continue this morning, an afternoon pivot may set up for at least two panic down days later this week.  The current Master Cycle calls for a major low during the week of October 10.

Today’s op-ex shows Max Pain at 3695.00.  Calls are light but short gamma begins at 3650.00.

ZeroHedge reports, “The rout which hammered stocks on Friday, nearly pushing them to close at a new 2022 low, resumed overnight when the global FX crisis returned with a bang, and a flash crash in the British pound which as noted late last night, plummeted 500pips in thin trading, to fresh record lows following Friday’s shocking mini-budget announcement which confirmed the UK has no idea what it is doing and will cut rates and issue more debt just as the BOE is desperately trying to tighten financial conditions.

The plunge in cable was however just one symptom of a bigger malaise, namely the relentless surge in the dollar which overnight hit fresh record highs as the BBDXY rose as high as 1,355 before briefly fading the surge

… as every dollar-denominated debt issuer in the world is suffering crippling pain and begging Powell to do something to ease the unprecedented shock of the strongest dollar in history just as the world slumps into a global depression.

Alas, so far there is nothing but silence from the Fed – which will likely have to make some announcement on central bank currency swaps at some point before the open today to avoid an even more epic FX rout – and as traders await something to break big time across global markets…

… this morning futures have tumbled another 0.7%, as eminis drop to 3,683 while Nasdaq futures are down 0.8% to 11,290 on fears that Federal Reserve rate hikes to combat persistently elevated inflation will crush the economy into a full-blown recession, or depression, and the VIX soared above 32.”

 

 

VIX futures made a new high at 32.88 this morning before easing back.  I indicated the Master Cycle ending on September 9.  It is a legitimate low at 248 days, but a bit early.  The next few days will indicate whether that is the correct location.

In Wednesday’s op-ex, Max Pain is at 28.00 while short gamma may not begin until it reaches 24.00.  Long gamma begins at 30.00. and is heavy to 55.00.

ZeroHedge(TME) remarks, “VIX caught up (partly)

More and more equity sales people have started showing us the longer term MOVE vs VIX gap. This is usually a late sign. We outlined the lagging VIX in mid August in our post, “Beyond boring equities – BIG stuff is moving“. The VIX has moved sharply higher since mid August, while MOVE has done very little. People pointing out the gap here are very late to understanding cross asset volatility…

Source: Refinitiv

In puts we trust?

Put volumes exploding…

Source: GS

Put options bonanza – time to bounce?

Nobody has missed the “great” put options chart, but Spotgamma dives into something slightly more interesting comparing total premium bought vs sold (ETFs, bot-sold (open+close)). The latest move in puts is huge and could be a sign for the short term bounce ready to kick in.”

 

 

TNX futures ramped to 38.01 over the weekend session, while the cash market was a little less exuberant at 37.85.  New highs, in both cases.  This week may be especially strong in TNX, as the trending strength ramps up later in the week.  This is what a phase transition looks like.  Every time I call for a pause, it ramps higher.  There is no stopping a runaway train.  The end of the track may be November 15.  Please read the weekend special report.

 

USD futures hit a new high at 14.41 over the weekend.  Today is day 256 in the Master Cycle, suggesting a pullback may be in order later this week.  The Cycles Model suggest a correction may last up to three weeks. But the march to higher highs may resume with a vengeance.  Foreign governments and corporations borrowed money in USD because the rates were lower.  However, they did not factor in the rising USD which is driving them into default.

ZeroHedge remarks, “The rout which hammered stocks on Friday, nearly pushing them to close at a new 2022 low, resumed overnight when the global FX crisis returned with a bang, and a flash crash in the British pound which as noted late last night, plummeted 500pips in thin trading, to fresh record lows following Friday’s shocking mini-budget announcement which confirmed the UK has no idea what it is doing and will cut rates and issue more debt just as the BOE is desperately trying to tighten financial conditions.

The plunge in cable was however just one symptom of a bigger malaise, namely the relentless surge in the dollar which overnight hit fresh record highs as the BBDXY rose as high as 1,355 before briefly fading the surge

… as every dollar-denominated debt issuer in the world is suffering crippling pain and begging Powell to do something to ease the unprecedented shock of the strongest dollar in history just as the world slumps into a global depression.”

 

Gold futures are making new lows as it has declined beneath the Lip of the Cup with Handle on Friday.  It appears to have made a Master Cycle low on September 21, but only has an insignificant bounce at the FOMC announcement.  Normally we would see a three week bounce, but the Cycles Model suggests the decline may extend for up to two months.

 

 

 

Posted in Published | Leave a comment

September 24, 2022

SPECIAL REPORT

I had shown the above chart of the TNX at least twice over the summer, indicating that I was monitoring its progress.  Then in September I noted the breakout and calculated the target for this move.  What it shows is that the 10-year Treasury yield may go as high as 5.316%, a yield last seen in May 2007.  The reason for this move is the European countries spiraling into default and bankruptcy.  Italy, Greece, Spain and Portugal are all on the verge of leaving the European union and defaulting on their debts.  At first, it caused Treasury yields to go lower as the Fed attempted to bail European banks, but when the Biden administration decided to join the practices of the WEF, rates completely wiped out any economic stimulus derived from that action.  You can see it clearly on the chart.  It is now estimated that the interest alone has gone from 40% of the national budget to an estimated 70% of the budget in 2023.  Basically we are following the European model of default.  The Cycles Model suggests TNX may reach its intended target as early as mid-November.

 

UST broke down from its trend in April this year.  The decline started in June 2020 and may reach its intended target as early as mid-November.  The largest reservoir of capital in the world is being drained, with all the knock-on consequences.

ZeroHedge reports, “All year, Michael Hartnett – who has had the most amazing market timing call in 2022 and perhaps this decade, when he said to short stocks at 4,320 and the rest is history…

… has been warning about the crash that is currently taking place and he is finally right. But it’s not the stock market crash that is the topic of Hartnett[‘s latest Flow Show note (available to pro subs in the usual place), it’s what’s going on in the bond world where today’s shocking UK “mini budget” laid out the blueprints for what comes next and clearly markets do not approve.”

 

 

Posted in Published | Leave a comment

September 23, 2022

3:55 pm

Today’s low nearly made it to the June 16 low at 3636.87 as it bounced from the Cycle Bottom at 3645.66.  However, There may yet be another probe lower on Monday.  It is too early to tell, as SPX may open on Monday deep in short gamma beneath 3800.00.  There may also be structural issues with the Elliott Wave the may require (at least) another probe lower.

ZeroHedge’s closing remarks, “No cute videos today, just one photo summarizes the absolute carnage today, this week, this month and this year.

A week that started off with a huge chip on its shoulder after last week’s dramatic post-CPI plunge, and which was the worst since June, only got worse, as stocks tumbled a jarring 5% this week, which together with last week’s 4.7% means that in just the past two weeks the S&P has lost 10% of its value (it could have been worse if spoos had not bounced modestly off their June, and YTD, lows of 3,660).”

ZeroHedge explains, “S&P futures, now clearly in widespread panic liquidation mode and searching for any excuse to sell off more, found one just after 2pm when Fed Chair Jerome Powell said that the US economy may be entering a “new normal” following disruptions from the Covid-19 pandemic.

“We continue to deal with an exceptionally unusual set of disruptions,” Powell told business and community leaders Friday at a Fed Listens event in Washington, Bloomberg reported. Algos immediately took this as confirmation that the supply chain chaos that defined the post-Covid world is still prevalent in the Fed’s thinking, and since it is inflationary, it means even more rate hikes on deck.”

 

12:50 pm

SPX continues its rout.  It now appears more likely that Wave 3 of (3) may test the Lip of the Cup with Handle near 3600.00, at a minimum.  It may go lower, especially as SPX approaches major put holdings that require dealers to increase their shorts.  There are over 16,000 put contracts due to expire today at 3600.00.  A “limit down” may target 3400.00, should short gamma be too much to handle.

ZeroHedge remarks, “And while still some way away, a confirmed break below 3,700 could put the June lows in play: a close below 3637 would be concerning, Bloomberg’s William Maloney points out, as there isn’t a lot of support after that. You’d have to go back to 3588, last seen September 2020.

There is another reason why 3580 is a critical level: as SpotGamma notes in its daily market report, the 3580 strike holds the Sept Quarterly JPM collar long put. According to SG, there are 45,000 of these puts, which were at an 5-8 delta earlier this week, and are now closer to a 15 delta. The chart below shows how the price of 3580 put is up sharply today.”

 

9:48 am

The Ag Index has now finished its Masster Cycle and is due for a downturn.  The Cycles Model suggests the decline may last until mid-October.  This may be the strongest decline in equities and the loss of liquidity may also affect agricultural commodities, despite the rising demand and decreasing supply.

Theepochtimes remarks, “U.S. agriculture has been facing a poor harvest this year, aggravating the global food supply crisis, industry executives have said.

The supply of food worldwide has been tight, since Russia’s war in Ukraine cut off vital shipments of resources needed to make fertilizer and grain products from the region.

Several high-level executives from big agricultural firms such as Bayer, Corteva, Archer Daniels Midland, and Bunge, told The Wall Street Journal that it will take at least two more years of good harvests in North and South America to ease the supply pressures.”

 

9:37 am

BKX, our liquidity proxy, has dropped beneath the Lip of a Cup with Handle formation, triggering its sell signal.  The Cycles Model suggests the decline may accelerate in strength starting today and lasting through next week, with a potential target well beneath the Head & Shoulders neckline at 96.00.  The Caution is that the current Master Cycle may end late next week, as well.

 

7:50 am

Welcome to Fall!  We woke up to a temperature of 40 degrees outside.  Our family resort on Houghton Lake registered 31 degrees this morning.  The temperature patterns have downshifted significantly after 80 degree temperatures just a week ago.

NDX futures have declined to 11316.90 with a likely target at or beneath the Lip of the massive Cup with Handle formation at 11000.00.  More likely the Cycle Bottom support at 10755.04 may come into play in the next couple of days.  I have recalibrated the Elliott Wave to reflect that probability, possibly followed by a strong bounce into the end of September.

In today’s op-ex, Max Pain is at 11650.00, suggesting the pain is on the dealers’ side.  Short gamma starts at 11500.00 and runs to 10800.00.  This morning the NDX woke up to a probable runaway train.

ZeroHedge remarks, “NASDAQ “fear” isn’t buying the “panic”

The VXN has stayed very “well behaved” despite the NASDAQ having moved lower recently. Regular readers of TME are familiar with the fact vol is about pace and not direction, but is VXN starting to tell us something about direction soon?

Source: Refinitiv

 

This morning SPX futures declined to 3702.40 thus far.  The initial target appears to be the Cycle Bottom support at 3650.06, but ultimately the Lip of the Cup with Handle formation at 3600.00 may be the intended target.   Some investment banks are coming around to that opinion.  Thereafter, a short squeeze may develop, retracing most, if not all, of the decline beneath 3875.00.  An alternative may be a deeper dive that only recovers to the Lip at 3600.00.

In today’s op-ex, Max Pain appears at 3845.00.  Long gamma does not exist nearby, while short gamma begins at 3800.00 and remains strong down to 3550.00, or possibly lower.

ZeroHedge reports, “One week after stocks suffered their biggest drop since June, futures are in freefall on Friday with the dollar soaring to the now default daily record high…

… 10Y yields exploding higher, surging more than 10bps so far today…

… in what appears to be the latest bond market flash smash which has pushed 10Y yields to the highest level since 2010…

… and S&P futures plunging over 1.4%, and the S&P set to open at a fresh 2022 low…

… with futures set to drop nearly 5% (or more) for a 2nd consecutive week, and down 5 of the past 6 weeks!

 

VIX futures rose to an overnight high at 29.09, still beneath Wednesday’s high.  The Cycle Top resistance at 34.10 appears to be the next target, as the Cycles Model anticipates with the neckline of the Head & Shoulders fast on its heels.  Today is day 262 in the Cycles Model.  This suggests a possible Master Cycle high as early as Monday.

 

TNX futures were as high as 38.29 in the overnight session, although the cash session only registers 37.23, a large discrepancy.  The Cycles Model has offered little guidance in the short term, as I had mistakenly suggested that TNX may “take a rest” a couple of days ago.  My bad!  However, the Cycles Model offers a possible “big event” happening next week.  Folks, this ramp isn’t ending until mid-November, so buckle up.

TheMisesInstitute declares, “hen asked about price inflation in his Sunday interview with 60 Minutes, President Biden claimed that inflation “was up just an inch…hardly at all.” Biden continued the dishonest tactic of focuses on month-to-month price inflation growth as a means of obscuring the 40-year highs in year-over-year inflation. This strategy may yet work to placate the most ignorant voters, but people who are paying attention know that price inflation continues to soar.

Thus, while Biden may be pretending that it’s all no big deal, the Federal Reserve knows it better do something about price inflation which even the Fed now admits shows no signs of even moderating. ”

 

USD futures have ramped even higher to 112.10.  The dollar has been a mainstay for financial transactions worldwide.  Those owning the USD are feeling richer, while those owing the USD are getting poorer by the day.  The Cycles Model suggests a Master Cycle high may be due in a week.  However, the USD may be approaching 120.00 by that time.

 

Crude oil dropped to a low of 79.70 and remains near that level.  The Cycles Model suggests the decline may last until the end of October with some acceleration in the decline next week.

OilPrice.com reports, “Nearly seven months after Russia’s invasion of Ukraine, Russian oil exports have been quite resilient and just 400,000 barrels per day (bpd) below pre-war levels.

But come December, Russian oil supply could plunge by more than one million bpd after the EU embargo on Russian oil imports by sea enters into force. In February, another one million bpd could then come offline due to the EU’s fuel embargo.”

 

 

Posted in Published | Leave a comment

September 22, 2022

12:41 pm

SPX is on a bounce that may be an attempt to get above the short gamma zone at 3750.00..  However, overhead resistance lies at 3780.00, making it difficult to do so.  Should it rise above 3780.00, it may be possible to continue to 3800.00.  This may not be tradable, due to the short-term nature of the bounce.  The decline is likely to resume by the end of the day.

ZeroHedge remarks, “Yesterday’s market turmoil is re-awakening in early trading after the overnight hawknado from central banks around the world (except Turkey).

US equities are extending losses, now below overnight lows with Nasdaq down almost 4% from the FOMC statement…”

 

8:00 am

Good Morning!

SPX futures declined to test the short gamma zone at 3750.00 before bouncing back to the Max Pain area at 3785.00 this morning, likely in anticipation of today’s options expiration.  Yesterday’s nosedive at the close was deep into short gamma beneath 3800.00.  It may have given some hedge funds and dealers losses in the hundreds of millions which may show up in their quarterly reports next month.  No one is talking about it yet.  The current Master Cycle is due for a low in the second week of October.  In the meantime, weakness may prevail in equities through Monday.

 

VIX futures rose to 28.17 in the overnight market before settling back down below yesterday’s close.  Yesterday may have been a test of long gamma on it op-ex, as the long gamma zone began at 29.00,  Note the close was right on Max Pain.  The options market is tightly controlled, as you can imagine.  At some point, control may be lost and the VIX may soar.  The Cycle Model seems to indicate that may happen in the next few days.

In next week’s op-ex, Mas Pain is a 25.00.  Long gamma begins at 28.00 an is bolstered by 7,266 call contracts with a strike at 30.00.

 

Lets connect the dots.  The BKX, our liquidity proxy, is hovering just above two very important trendlines that, if broken, may lead to a liquidity crisis.  The Cycles Model for BKX shows a triple dose of trending (downside) strength next week.  Why are banks going down next week?  One reason may be the losses in the options market, as discussed above.

ZeroHedge remarks, “Don’t let the cacophony of central-bank rate-hike announcements mislead you: global policy settings are still historically loose. Monetary policy has room to tighten much more significantly, leaving asset prices exposed to further, potentially material, downside.

This week the Riksbank in Sweden unexpectedly hiked 100bps, on Wednesday the Fed delivered its fifth consecutive rate increase, while the Philippines, Indonesia, Switzerland, Norway, South Africa and the UK are all expected to lift rates today.

Yet despite this flurry of policy tightening, the Global Policy Rate – the median central-bank rate of the major EM and DM countries around the world – is only 3%. This rate was more than 5% before the Lehman crisis, and 15% in the early 1980s.”

Is Credit Suisse next?  ZeroHedge observes, “Credit Suisse is mulling several drastic options as it seeks to emerge from losses and scandals, including exiting the US market, firing more than 10% of its 45,000 global workforce, and splitting its investment bank into three – which would include the creation of a “bad bank” to silo risky assets, the Financial Times and Reuters report.”

 

TNX futures are hovering near the high, but may be due for a correction after a 17-Wave impulse may have ended yesterday.  Trending strength comes back in at the end of the month, so there may be a week of mild-to-sideways correction.

 

USD futures rose to a new high at 111.56 in the overnight market, exceeding Cycle Top resistance at 111.40.  However, trending strength may peak today, leading to a brief but sharp corrective decline to the trendline at a minimum.

 

Gold futures reversed this morning after making its (expected) Master Cycle low yesterday on day 261 of the Master Cycle.  There may be a week or so of rally,  with the probable target for this rally near the 50-day Moving Average at 1743.53.  Should the rally extend beyond the end of the month, gold may extend its rally to the mid-Cycle resistance at 1834.73.

But the decline may resume in October with the Cup with Handle formation triggered.

 

 

 

 

Posted in Published | Leave a comment

September 21, 2022

3:25 pm

The SPX did indeed make a new low…and tested 3900.00 to boot.  This afternoon had some pain for both the longs and the shorts.  Now the SPX is back below 3850.00 and testing short gamma for the second time this afternoon.  This time the brakes are gone and the train may be unstoppable, especially beneath 3825.00.

 

1:58 pm

I am taking the “risk” that equities may go down after the FOMC announcement.  Granted, there may be an effort to “elevate” the SPX, but the trend is down and we may see new lows before the day is done.

ZeroHedge chimes in, “everyone and their pet rabbit is heading into today’s FOMC meeting long the dollar, short bonds, and underweight/low-nets to stocks (with extreme negative gamma from hedges).

That combination has Nomura’s Charlie McElligott worrying about what is essentially a “butterfly flapping its wings” moment, where simple monetization / closing / or profit-taking then risks a larger unstable reversal, turning into a “un-economical” market impulse which is not related to any fundamental change in macro stance.

Despite Nomura’s “hawkish” out-of-consensus house view that The Fed will hike 100bps today…”

 

8:15 am

Good Morning!

SPX futures are rising again to test overhead resistance at 3875.00 after being slammed by the Russian announcement overnight.  The reasons for positivity may include, but not exclusively to (1) rise into the Mas Pain zone and (2) paint a picture of a positive market going into the FOMC announcement.  The possibility of any strength doesn’t show up in the SPX until next Wednesday.  It is possible that yesterday may have been the first day of a panic decline, having tested but remained beneath the Lip of the Cup with Handle formation.

Today’s option market shows Max Pain at 3865.00.  Long gamma begins at 3900.00.  Short gamma may begin at 3850.00, but is reinforced at 3825.00.

ZeroHedge reports, “With traders nervously doing nothing ahead of today’s FOMC meeting, where Powell will announce a 75bps rate hike but all attention will be on whether the 2023 median dot (which as we previewed will unleash havoc if it comes above 4.5% which is where market expectations top out for this hiking cycle), today’s extremely illiquid  market got an extra jolt of volatility just before the European open when shortly after 2am ET Vladimir Putin delivered his postponed message to announce a “partial mobilization” over the Ukraine war. The news slammed stocks, yields, and the euro while sending oil and commodities sharply higher. And while the initial spike lower has reversed and futures are modestly in the green now, there is zero liquidity right now and the smallest sell program could topples risk assets.

As of 7:15am ET, US futures pointed to a recovery from Tuesday’s tumble on anxiety policy makers are hoping to spark a recession in their zeal to subdue price pressures. S&P futures were up 0.2% after trading down 0.6% earlier, with Nasdaq futures 0.1% in the green. 10Y yields dipped 3bps to 3.54% even though the USD was higher and bitcoin fluctuated between losses and gains.

 

 

A look at the NYSE Hi-Lo Index shows internal weakness, suggesting any appearance of strength may come from a few mega-caps rather than the NYSE as a whole.  The current downtrend in the NYSE is not due to end until the second week of October.

ZeroHedge observes, “With the Fed successfully slamming stocks, corporate bonds and pretty much anything that isn’t the dollar, and tightening financial conditions the most in the past 2.5 years ahead of tomorrow’ 75bps rate hike…

… things went from bad to worse for the bulls today on surging Terminal-rate pricing – last seen at 4.49% down modestly from 4.52% earlier…

 

 

VIX futures rose to a high at 28.03 in the overnight session, but have subsided to a small loss as I write.  Today is day 260 in the Master Cycle, which appears to be running late due to the FOMC.

In today’s op-ex, the Max Pain zone is at 27.00.  Short gamma may begin at 26.00, with increasing positions beneath it.  Long gamma may begin at 29.00 with strong reinforcements at 30.00.  Today’s session may be extremely volatile.

 

TNX futures are “giving it a rest” after reaching new heights yesterday.  The period of consolidation may last up to a week with trending strength reappearing after the first of October, according to the Cycles Model.

ZeroHedge explains the reason for yesterday’s easing, “After last month’s terrible 20Y auction, which matched a record big tail of 2.5bps, expectations were not very optimistic for today’ sale of $12 billion in 20Y paper (actually 19-Y 11-month reopening of the ugly August issue) despite the Treasury’s attempt to boost demand by reducing supply. Well, for once consensus was wrong and moments ago Treasury Direct announced pretty strong results in today’ auction”

ZeroHedge comments, “The massive debt levels provide the single most significant risk and challenge to the Federal Reserve. It is also why the Fed is desperate to return inflation to low levels, even if it means weaker economic growth. Such was a point previously made by Jerome Powell:

“We need to act now, forthrightly, strongly as we have been doing. It is very important that inflation expectations remain anchored. What we hope to achieve is a period of growth below trend.”

That last sentence is the most important.’

 

USD futures may be resuming its advance higher as it reached 110.62 this morning.  Trending strength is reappearing and may continue through the end of the month with a possible new high for the current Master Cycle.

ZeroHedge reports, “On the eve of The Fed’s big decision to hike rates 75bps or 100bps in an effort to shock the system and tamp down out of control inflation, no lesser entity than the CCP-backed Global Times penned an editorial attacking US monetary policy, entitled: “The strong dollar should not become a sharp blade to cut the world.”

 

Gold futures rose to 1685.60, breaking above the Lip of the Cup with Handle in a probable bounce that may last up to three weeks.  It made a probable Master Cycle low last Friday and the rise above the Lip gives a potential buy signal.  Unlike the Head & Shoulders formation, the Cup with Handle formation is more permeable, allowing movement on either side of the trendline.  This is confusing for most traders who are familiar with the Head & Shoulders, but not the Cup with Handle.

 

 

Posted in Published | Leave a comment

September 20, 2022

10:00 am

SPX is now testing short gamma zone beneath 3850.00.  A plunge beneath that level confirms the continuation of the downtrend.  The trendline at 3875.00 remains as resistance.  Yesterday’s “bullish hammer” as reported by TME appears to be a fake out luring the inexperienced back into the market, only to be slammed today.  The Cycles Model suggests strength in the SPX may be deferred until the end of the month, while VIX shows trending strength through the end of the week.

ZeroHedge remarks, “With the Fed successfully slamming stocks, corporate bonds and pretty much anything that isn’t the dollar, and tightening financial conditions the most in the past 2.5 years ahead of tomorrow’ 75bps rate hike…

… things went from bad to worse for the bulls today on surging Terminal-rate pricing – last seen at 4.49% down modestly from 4.52% earlier…

… on the back of today’s European disaster inflation prints, specifically German PPI exploding to the highest since the Weimar Republic on insane Energy costs…”

 

8:30 am

Good Morning!

I have been busy with chart analysis as the patterns become clearer.  I had fallen to the temptation of putting Head & Shoulders and Cup with Handle formations at the purple trendline.  However, the significance of that trendline is that  it began in 1987.  SPX fell beneath it in 2008 and the SPX remained beneath the trendline until 2021, its final blow-off.  It fell beneath the  trendline in May, ending a 35-year Cycle.  The retest in August gives it finality.  The uptrend is over.  The decline is only beginning.

SPX futures have fallen back beneath the lesser trendline near 3875.00.  Yesterday’s ramp in the final hour was not a new uptrend, but the positioning for a destructive third Wave.

In today’s op-ex Max Pain is at 3895.00.  Dealers are still in control, but not for long.  Long gamma begins at 3925.00.  Short gamma is at 3850.00.

ZeroHedge reports, “Market sentiment was quite cheerful heading into the overnight session, with futures hitting a third-day high of 3,936 thanks to yesterday’ late day delta squeeze (plunge in VIX as both calls and especially puts were sold) but then it quickly soured after first German PPI came in at a mindblowing 45.8% (vs expectations of 37.1%) the highest on record since World War II…

…but what really spooked futures was the record hike by the Swedish central bank, the Riksbank, which pushed the repo rate higher by a more than expected 100bps to 1.75%, and even though the central bank eased back on terminal rate expectations, the market still saw the Riksbank surprise as potentially indicative of what the BOE and Fed may do in the coming hours.

As such, European stocks fell with US equity futures, giving up early gains, as traders braced for another supersized US rate hike amid rising anxiety the Federal Reserve could overtighten and raise the odds of a hard landing. Europe’ Stoxx 600 Index dropped 0.8%, paced by losses on real estate and miners as US equity futures also stumbled those the tech-heavy and rate-sensitive Nasdaq 100 underperforming S&P 500 peers. As of 730am, S&P futures were down 0.4% and Nasdaq contracts were down 0.5%. 10Y yields hit a fresh 11 year high as the dollar surged and gold resumed its slide.”

 

 

VIX futures rose to 26.69 in the morning session, but no new high has been made yet.  Today is day 259 in the current Master Cycle.  Thus far, VIX seems sleepy.  However, today begins a period of strength that may extend over the weekend.  This may confirm earlier comments that this Master Cycle may rise above the massive Head & Shoulders neckline at 40.00 this week.

 

TNX futures rose to 35.77 this morning with the cash market not far behind.  The rise is inexorable.  The odd part is that the Cycles won’t hit their period of strength until the end of the month!  The Curren Master Cycle is due to continue until mid-November.

ZeroHedge observes, “A little over a month ago we warned that even prominent traders on Goldman’ flow desk were concerned by the market’s extremely dovish take of Powell’s July FOMC “pivot”, which had sent stocks soaring and financial conditions easing back to extreme(ly easy) levels, in effect undoing much of the central bank’ tightening cycle.

Understandably, it was around then that Goldman trader Matt Fleury asked “did Powell really mean to be so dovish?” noting that with inflation still just shy of double digits, “”has the Fed chair truly pivoted and is he now putting risk assets back at the top of the Fed wall of worry?”

Of course, following the Jackson Hole symposium, in which Powell’s brief 8-minute speech crushed the latest bear market rally, we knew the answer.”

 

 

Posted in Published | Leave a comment

September 19, 2022

7:35 am

Good Morning!

NDX futures are on the decline, but not yet to new laws as I write.  On Friday the indices crossed beneath their respective Lip of the Cup with Handle formations, then rallied to close at that juncture.  Unfortunately, it gave bottom seekers hope that it was the end of the decline.  This morning, the new reality is that they were too quick on the draw and may suffer the consequences of a fresh decline to new lows.  I myself had estimated that, with the NDX is short gamma beneath 12000.00, the indices would close even lower on Friday, since the Cycles Model called for a burst of trending (declining) strength over the weekend.  Fortunately, buyers stepped in after 2:00 to save the day.  It would be interesting to see what the actual losses were on Friday.

In today’s op-ex, Max Pain is at 12010.00, while short gamma may begin at 12000.00.   While the put options are not numerous, call contracts are scarce beneath 12100.00.

ZeroHedge remarks, “After last week’s furious selloff in stocks, which was sparked by the one-two knock-out punch of an overheating CPI and FedEx’s “shocking” global recession warning, it”s not like stocks needed  more reasons to be bearish now that even the CTAs have turned decidedly short again. Alas, as even Goldman’s trading desk warned on Friday after the worst week for stocks in months in which global markets lost a massive $4 trillion in market value, anyone hoping for another bear market rally, or even a quick dead-cat bounce, will likely be disappointed for one main reason: that other giant, price indiscriminate buyer of stocks, corporate stock buybacks orders – the first one being CTAs – is about to go on a month-long hiatus courtesy of the start of the buyback blackout window.

As Goldman’ Michael Nocerino writes, it’s buy bye-backs, because the Buyback Blackout window began on Friday with 50% of the S&P 500 in their closed window. During such blackout periods, Goldman’ traditionally very busy buyback desk typically expects flows to decrease by 30-35% as 10b-5.1 plans kick in. Indicatively, Goldman’s buyback desk Friday ran at 0.7x the 2021 average daily volume, so this slowdown matters “and can’t come at a worse time.”

 

SPX futures declined to a new low at 3830.30 this morning. It also rallied late on Friday to close just beneath the lip of the cup with Handle formation.  The formation was triggered on Friday and there is a good probability of a panic decline lasting 4-6 days, starting last Friday.  This may be a horrendous week for the markets as liquidity has been draining and shorts are starting to pile on.

In today’s op-ex, Max Pain appears at 3885.00, while short gamma may begin at 3880.00 and is most certainly at work beneath 3850.00.  Long gamma begins at 3900.00.  There may still be a struggle to keep the SPX above the Lip in order to minimize the dealer pain this morning, but it may not last.

ZeroHedge reports, “After a dismal week for risk assets, which saw equities drop the most since June 17, global markets and US equity futures are tumbling in another extremely illiquid session (Japan and UK are both closed, the latter for the state funeral of QE2) as the realization sparked by Fedex that the world is in a global recession, is starting to finally seep through. Add to that Wednesday’s 75bps rate hike by the Fed (which however is more than priced in by now) as well as the previously discussed start of the buyback blackout period, and CTAs and pensions becoming forced sellers with investor sentiment that can at best be described as pervasive record doom and gloom, and it becomes clear why this week could be an even bigger bloodbath for stocks.

And sure enough, Nasdaq contracts have tumbled 1.2% as S&P futures are down 1.0%…”

 

 

VIX futures are approaching 28.00 again, having reached a morning high at 27.95.  A Master Cycle high is due this week, but not evident yet.  A new high at or above the Head & Shoulders neckline would fulfil the order.

Wednesday’s op-ex shows Max Pain at 27.00, while long gamma may begin as low as 28.00.  There are 147,513 call contracts at 30.00 with several six-digit clusters of calls above that level.  Short gamma lies at 26.00 and below.

 

TNX futures mad a new high at 35.18, while the cash market has topped out at 35.10 thus far.  The trend is clear and unrelenting.  This is called a phase shift showing virtually no corrections.  The Cycles Model suggests it may have the expectation to last until mid-November.  The probable target appears to be over 5.00.  Let it be said that, since records were kept in 1949, the Fed has never mad move ahead of the market.  In fact there is a lag of 1-3 months between the treasury market and Fed decisions.  Has Larry Summers been reading my blog?

ZeroHedge reports, “he dawning week couldn’t have been bigger in its import for the markets even if Treasury and other traders had asked.

Monday is perhaps is the calm before the storm, with Japan closed and the UK observing a day of mourning for the Queen. On Tuesday we get the first of several monetary policy decisions in the developed markets with Sweden’s Riksbank’s review coming under scrutiny. The central bank is widely expected to raise rates by at least 75 basis points, which given how inflation and inflation expectations are evolving in the economy shouldn’t come as a surprise to anyone. In fact, considering that this will be the Riksbank’s penultimate review this year, it may not be a complete surprise if the monetary authority were to go jumbo and raise rates by a full percentage point, giving itself some head start over the European Central Bank.

A day later we get the Fed, and the markets are still torn between a 75-basis point increase and an even bigger move. That apart, it would be interesting to see how the members’ dot plot evolves, with current market pricing making the version we have from June pretty much moot. From near-zero interest rates just a couple of years ago, are we going to a 5% zip code as former Treasury Secretary Larry Summers reckons?”

 

USD futures continued their consolidation above the trendline.  That may not last, as a surge of trending strength is about to arrive.  This strength may last through the end of the month when the next Master Cycle is due to end.

 

Crude oil has resumed its decline after a brief pause on Friday, making a new low at 82.23 as I write.  There is no nearby formation to give us direction  other than the Broadening Wedge, which may be triggered beneath 66.00.  The Cycles Model suggest the decline may continue for another month with the decline accelerating into a panic next week.

 

Gold is losing its grip on the Lip of the Cup with Handle formation, by declining to 1667.60 this morning.  However, it is due for a Master Cycle  low this week, so I am not recommending a trade here, despite the probability of a nasty sell-off.

 

 

 

 

 

Posted in Published | Leave a comment