1:05 pm
SPX bounced off the rising wedge trendline near/at 5675.00 in a throw-over. A further decline beneath it may signal the end of the rally and offer an aggressive sell signal.
10:15 am
The upward progress of the BKX was halted yesterday at the Cycle Top resistance at 115.70. This morning we may be watching the beginning of its reversal. Since BKX turned at a lower high at resistance, we may take that as an aggressive sell signal. For those more cautious, the next support is the 50-day Moving Average at 111.16. Just as the Fed has experienced massive losses in its portfolio, so have the banks. The lower TNX has put a bandage over a mortal wound. However, the prospective rise in the 10-year treasury yield may expose the inadequacy of this move. The Yen carry trade may be offering some temporary relief, (see the Japanese Yen below) but may make things worse should the banks choose not to exit that trade in a timely fashion.
8:30 am 2 Chronicles 7:14
“If my people, which are called by my name, shall humble themselves, and pray, and seek face, and turn from their wicked ways; then will I hear from heaven, and will forgive their sins, and will heal their land.”
Good Morning!
NDX futures have consolidated overnight, neither making new highs or new lows. There are increasing comments of a melt-up until Christmas due to the oversized rate cut. What is not being taken into account is that the Fed is suffering serious losses in its portfolio and may have a concern for bank losses, as well. Today is day 259 of the current Master Cycle and may be the last. The 50-day Moving Average lies at 19300.00, providing final support of this probe. A decline beneath it provides a clear sell signal. A further confirmation lies at Intermediate support at 19105.50.
SPX futures remained flat overnight after yesterday’s all-time high as $2.6 trillion SPX options expire at the open. Investors may be unaware of the negative seasonality that may follow as the options are unwound. The Cycles Model anticipates the end of the current Master Cycle and a strong reaction in the opposite direction. The anticipation of a shortened negative seasonality may be crushed by the looming election. The Cycles Model suggests a decline that may last through late November.
Today’s am options chain shows long gamma above 5600.00. Traders will be taking their profits this morning. The pm options are less clear and may be subject to 0DTE traders.
ZeroHedge reports, “After yesterday’s delayed (and technically-driven) post-rate cut meltup, futures are set to close the week on a downbeat note as they slide across the board, following European stocks lower, but still just shy of the all time high they hit yesterday. As of 8:00am S&P futures are down 0.3% as disappointing earnings (FDX cratered -13% after missing and cutting guidance, dragging UPS -2.4% and logistics names lower) tempered the euphoria around the trajectory for interest rates; Nasdaq futures were down 0.4% with most MegaCap Tech names lower: TSLA (-3.6%) is the top mover, followed by META (-1.8%) and AAPL (-1.7%). The yen plunged more than 1% after the BOJ announced no hike to its policy rate, in line with expectation, and further signaled the gradualist approach to its rate hikes. USDJPY +0.8% to 143.8; NKY +1.5%. PBOC left loan prime rates unchanged. Throwing a potential wrench in what may have been a quiet end to the week is that today brings the ninth option expiry of 2024, and the last “quad witch” before the US election, where a record for September $4.5 trillion in notional will expire between now and 4pm ($2.6 trillion of this is SPX Sep regular / the remaining is split across etf and single stock at end of day) potentially triggering volatility, although market implied vol is low enough to rent delta in either direction. Yields are mostly higher, and USD is largely unchanged; 5-, 10-yr yields are 5bp, 10bp higher. Commodities are mixed with oil and metals higher, while ags are mostly lower. There is nothing on the macro calendar.”
VIX futures re down to a morning low of 16.06 on day 253 of the current Master Cycle. This may be the low of the season. A buy signal lies above the 50-day Moving Average at 18.00.
The September 25 options chain shows Max Pain at 17.00. Short gamma is building at 14.00-16.00. Long gamma begins at 17.00-18.00 and runs strong to 60.00. Equities options may have a gamma flip on Monday, reinforcing long gamma in the VIX.
TNX is consolidating this morning, digesting its gains. The Cycles Model suggests trending strength may arrive this weekend as it prepares for multiple breakouts on its way to the 50-day Moving Average at 39.28., signaling the end of the massive throw-under. It may have been this throw-under that influenced the Fed into the jumbo rate cut.
ZeroHedge notes, “The last time the Fed cut by 0.5% was in October 8, 2008, three weeks after the collapse of the venerable investment bank Lehman Brothers. This was the time when panic was gripping the markets with the Great Financial Crisis (GFC) surfacing with the failure of Lehman Brothers (the crisis had been brewing under the surface since September 2007).
Make no mistake. 50bps cut, is a panic cut. So, why did the Fed panic?
Most likely, there were four reasons:
- The Fed is racking up massive losses.
- Political pressure to not crash the markets before the Presidential elections on November 5 (last FOMC meeting before).
- The Federal Reserve is genuinely worried about the economy, but especially about debt levels.
- Banking sector fragility.”
Japanese Yen futures continue to correct to a morning low of 69.44. This may produce a sigh of relief within the Yen carry trade, but the decline may be merely a correction of the new uptrend. A normal Wave (2) correction may decline to the mid-Cycle support at 66.22. However, should the trend be strong, the correction may find support at the 50-day Moving Average at 67.39. ZeroHedge offers an extensive explanation of the Yen carry trade.
ZeroHedge comments this morning, “After a week full of central bank fireworks, at least there were no surprises from the Bank of Japan last night, which was in focus as it kept policy unchanged, as expected However, after initially rising, the yen tumbled more than 1% after Governor Kazuo Ueda proved less hawkish than many traders expected, especially after his dramatic hawkish pivot back in July when he not only hike rates but signaled an aggressive tightening campaign, crushing the yen carry trade in the process and sparking the biggest Japanese stock market crash since Black Monday. Ueda signaled little urgency to hike rates, and said that upside risks to inflation are easing, pushing the likelihood of an October rate hike further to the sidelines Friday with a cautious message that pointed to ongoing concern over the market meltdown that followed July’s rate increase.”
Crude oil futures have reversed this morning to resume its decline, targeting the Cycle Bottom at 68.95. Just beneath it is the Head & Shoulders neckline, beneath which confirms its target near 40.00. The Cycles Model sees this decline extending to late October, giving ample time for this destructive phase. The decline may pick up momentum in early October, giving way to a possible panic.