9:35 am
BKX, our liquidity proxy, has declined beneath its Cycle Top support at 121.78, creating an aggressive sell signal. The Cycles Model points to a three week decline, with possible targets at the Cycle Bottom at 92.15. Should a panic develop, a possible target may be the neckline of a very potent Head & Shoulders formation. This has implications for both banking and non-banking institutions.
ZeroHedge observes, “The transformation of banking and financial services away from traditional public markets and the banking system itself has been dramatic since the Global Financial Crisis (GFC) of 2008.
This shift has reshaped the financial landscape, as more activities that were once dominated by banks and public markets have moved into private and non-bank financial sectors.
In 2008, when the GFC struck, the financial world experienced a severe breakdown. Banks, which had been the backbone of lending and liquidity, stopped trusting one another, ceasing to lend in overnight markets, which are crucial for short-term liquidity. Simultaneously, public markets suffered immense losses, with the S&P 500 plunging by roughly 50%.
As a result, both the banking system and public markets effectively froze, becoming illiquid and dysfunctional almost overnight. What had once been highly liquid, smoothly functioning financial ecosystems ground to a halt.
ZeroHedge reports, “Money market funds saw yet another week of inflows (+$40BN), taking the total AUM to a new record high of $6.508 TN…
Source: Bloomberg
The inflow into MM comes as bank deposits (on a seasonally adjusted basis) dropped a modest $13BN to the week-ending 10/23…
Source: Bloomberg
But, on a non-seasonally-adjusted basis, total deposits plunged $133BN (the biggest weekly decline since April)…”
Source: Bloomberg
8:00 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.”
SPX futures are probing lower over the weekend, but still above the 50-day Moving Average at 5697.67. The 50-day Moving Average is recognized by most traders as a major support and violating it may create a sell signal. Last Thursday we recognized an early confirmed sell signal at Intermediate term support/resistance at 5765.91,, which may be briefly tested a final time this morning. Should the 50-day Moving Average be broken, the Cycles Model claims a three week decline may lie ahead. Should the red trendline at 5550.00 be broken, the initial target may be the Cycle Bottom at 4889.25. Keep in mind, however, that a larger Cycle may be at play with its target at 4103.00, the October 23, 2023 low.
Today’s options chain shows Max Pain at 5750.00. Long gamma becomes strong above 5800.00, while sort gamma is strong beneath 5700.00.
ZeroHedge reports, “US equity futures are higher with Mag7 names mixed but NVDA higher on its Dow inclusion with semis also ticking higher; the dollar and yields are lower as the Trump reflation trade took a hit after several polls over the weekend showed a rebound for Kamala Harris. As of 8:00am ET, S&P futures are up 0.1%, while Nasdaq futures are flat; small caps are underperforming as the yield curve bull flattens with the USD weaker on a reversal in the Trumpflation trade. Commodities are catching a bid, led by Energy as OPEC+ decided to delay its production increase again. Today’s macro data is likely to be ignored but given the weaker than expected NFP, investors may want to know the state of the economy as we get past the Election and the Thursday’s Fed mtg. ISM-Services tomorrow is the most important print this week with Sentiment updates on Friday.”
VIX futures appear to be consolidating over the weekend after breaking through the Cycle Top at 23.08. The Cycles Model shows rising volatility this week, with a virtual explosion of strength in the following week. Peak values may occur in early December, although the current SPX Master Cycle is due to mature earlier. There may be a couple of fractal variations that may accommodate that pattern.
While there is an accumulation of puts at 15.00 and 18.00, the calls are beginning to dominate above 20.00-23.00.
TNX slid down to 42.81 this morning, but that may be short-lived as the Cycles Model proclaims a day of strength. The action of the last week shows a possible phase-shift in which normal retracements are suspended due to unusual strength in the Cycle. The Cycles Model supports that observation. The new Master Cycle may las up to 2 months, with serious implications.
ZeroHedge remarks, “TLT.US, the long-dated US treasury ETF, is back trading below its 200-day moving average, and on current form is looking at its fourth year running of negative price returns.
Not that this sell-off reflects any lack of retail investor enthusiasm for US bonds. Quite the contrary.
As US treasuries pulled back, flows into TLT.US went parabolic – and the ETF’s market cap rose from US$10bn in 2019 to US$60bn today.
But long-dated bonds continue to sell off. And like successes, sell-offs usually have many fathers.”
USD futures declined from Friday’s high at 103.89 to a morning low at 103.49. However, the Cycles Model shows today having a double dose of strength, suggesting a possible breakout above the USD previous high. The current Master Cycle has about three weeks left as the USD forges higher.
Japanese Yen futures are continuing to climb, having reached 66.08 over the weekend. The advance is showing growing strength, with a possible Cycle high by the end of November. Should a panic develop, the Yen may target its September high. The neckline of a potent Head & Shoulders formation lies at 71.55.
Crude oil futures are coming off a period of strength, having reached a retracement high at 71.81 this weekend. Should crude fall back beneath the Head & Shoulders neckline at 66.72, that formation may be triggered with consequences shown on the chart. The Cycles Model suggests that a decline may resume through the end of December.