BKX has been making new lows and The Cycles Model suggests that, after a brief show of strength this Friday (weekend?) it may resume its decline through mid-July before a bounce. Is another Lehmann awaiting? The news (below) prompted me to highlight this important liquidity proxy. A June 30 low beneath 3400.00 in SPX may give the banks a fever.
ZeroHedge notes, “It’s that time of year again when the banks face their annual health checks which dictate the required size of each bank’s “capital buffer” – the extra cushion of capital that’s set aside on top of the regulatory minimum needed to support daily business.
The tests also determine how much lenders can return to shareholders in the form of share buybacks and dividends, but banks have to wait until June 26 to reveal their actual dividend and buyback plans as well as confirm the size of their stress capital buffers.
In this year’s test, the Fed is looking at how banks would fare if unemployment rose to 10%, accompanied by a 40% drop in commercial real estate prices, widening corporate bond spreads, and increased market volatility, among other hypothetical scenarios.
All of the banks were still expected to pass, but could be told to set aside slightly more capital than last year.”
(corrected statement below)
SPX isn’t tracking as I had anticipated. Based on the speed of the bounce, I had calculated that SPX would go into the end of June at a high. Instead it lingered near the top of the bounce but not making a new high, leaving 6.15 days until the end of the 18.5-day Cycle (on Thursday). The Head & Shoulders target re-emerges as a viable target. Think about it. June may end with a 30% loss from the beginning of the year.
The Ag Index has stretched its Master Cycle decline to day 286, possibly due to some demand destruction (farmers buying less fertilizer) and market liquidity. This will only exacerbate the problem of higher prices not so far down the road. Today is the last day of trending weakness. The Cycles Model calls for a 2-month rally in prices that may set new all-time records.
ZeroHedge observes, “We are being warned well ahead of time that it is coming. Joe Biden has publicly admitted that the coming food shortages are “going to be real”, and the head of the UN World Food Program is now telling us that we could soon see “hell on Earth” because the lack of food will be so severe. Food prices are already escalating dramatically all over the globe, and food riots have already erupted in Sri Lanka and elsewhere. But most people in the western world are treating this crisis as if it is no big deal. Many seem to assume that our leaders have everything under control and that things will work out just fine somehow.
Unfortunately, the truth is that everything is not going to be okay.
So far this year, the number of hungry people around the globe has risen to more than 800 million…”
ZeroHedge offers another example of demand destruction, “Food riot risks continue to soar worldwide as the head of the food-aid branch of the United Nations halved meal rations for refugees.
On Monday, David Beasley, director of the UN World Food Programme (WFP), released a statement detailing “the heartbreaking decision to cut food rations for refugees who rely on us for their survival.”
“As global hunger soars way beyond the resources available to feed all the families who desperately need WFP’s help, we are being forced to make the heartbreaking decision to cut food rations for refugees who rely on us for their survival,” Beasley said.
NDX futures are challenging Cycle Bottom resistance at 11600.52 this morning. This may lead to a brief reversal, but not necessarily a new low. However, should it make a new low on day 262, it may vie for the Master Cycle low currently at 11037.21 last Friday on day 256. Today is not an op-ex day for NDX, so a decline is possible, but may bounce back by Fridays options closing.
ZeroHedge observes, “The bears are taking over the equity options market.
As Bloomberg markets live reporter and commentator, Cormac Mullen, details, the 10-day moving average of put options traded in the US stock market – a gauge of speculative downside protection bets – has pushed above the equivalent for bullish calls for the first time since 2020, according to data compiled by Bloomberg.
The latter was a good measure of speculative individual investor demand for US equities, peaking with the meme-stock waves that bookended last year. That suggests retail traders are shifting to betting against the market, albeit at an intensity well below the peak of meme madness.”
SPX futures reached an overnight high of 3793.40 and have since eased back. It may decline to the 2-hour Cycle Bottom at 3679.10 or lower before launching in a 4.3-day ramp to June 30. Thus far June is in horrible shape with a 10% decline (this month) and it must take back the better part of its losses by the end of the month.
In today’s op-ex, Max Pain lies near 3760.00 with calls dominating above 3775.00. On the other hand, puts dominate beneath 3700.00. This may be a good day for a pullback today. Friday’s op-ex is much more populated, with puts dominating beneath 3750.00.
ZeroHedge reports, “In a world where bad news is good news, and where the looming recession means an end to rate hikes and a start to easing, it didn’t take algos long to bid stocks up as treasury yields tumbled after comments by Jerome Powell and dismal PMI data in Europe justified fears that a global downturn is now just a matter of when, not if. After initially sliding more than 1% late on Wednesday, futures rebounded and recovered all losses and were last trading near Wednesday’s session highs, up 0.7% or 27 point to 3,790, while Nasdaq futs were up 0.9% at 11,375 as of 715am ET.
VIX futures are positive this morning with a high of 29.71. There may be a challenge of the Cycle Top resistance at 34.78 before coming back down to the 50-day Moving Average next week. Next Wednesday’s op-ex show calls dominate above 32.50 and long gamma sets in at 35.00. Short gamma starts at 28.00.
TNX continues its decline toward mid-Cycle support currently at 20.99. The bearish stock investors are being forced (out of habit) to reconsider bonds. The unfortunate problem is that the decline has two weeks left. Many investors will not take profits in time and may add to their losses. Many analysts believe that the next QE is just around the corner, justifying the purchase of bonds.
Yesterday ZeroHedge reported, “Moments ago, the Treasury sold $14 billion Treasuries in a 19-year 11-month reopening of the infamous “kink” tenor in the pancaked US yield curve. “Kink”, because as shown below, the yield on the 20Y remains the highest one across the entire curve..
… and today’s auction only added fuel to the fire.”
USD futures rose to test the Cycle Top resistance at 104.60 this morning. From here it may resume its decline to the lower trendline of the Broadening Wedge and mid-Cycle support at 87.91. The Cycles Model suggests the decline may be over by mid-August.