For those who wish

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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.

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August 8, 2022

12:33 pm

SPX is testing its modified Ending Diagonal trendline at 4135.00.  The odds of yet another rally higher are slim, but may not be completely ruled out until SPX breaks down beneath trendline support.  Additional confirmation of the breakdown occurs at the 100-day Moving Average at 4116.50.  There may be a bounce soon, so patience is the byword.

ZeroHedge comments, “Investors’ fear of missing out is back, stoking a rally in equity markets that most strategists say has gone too far against a gloomy economic backdrop.

The Stoxx 600 has risen nearly 9% since hitting a 17-month low a month ago, though that doesn’t tell the full story of what has been a significant rebound for many cyclical sectors in a big turnaround from the first half. Tech is up 20%, automaker stocks have risen 16%, consumer and industrials each advanced about 15%.

According to Nomura cross-asset strategist Charlie McElligott, the rally has been “an angst-ridden pain trade” that’s leading to an “increasingly unstable FOMO-type behavior” and carries potential for further equities inflows.”

 

10:30 am

The structure in GKX is troublesome, but the Cycles Model may have the proper outlook.  The current Master Cycle may end in mid-August with a potential new low near the Cycle Bottom at 392.82.  The 61.8% retracement level is at 387.70.  This may be due to the high profile reporting of the export of Ukrainian grain.  Should this occur, it may be a deep value buy.

Reports of the decline are belatedly coming out after nearly three months of decline.  However, the production of food worldwide is deteriorating.

  • ZeroHedge reports, “The president of the largest farmers’ union in France has warned that a shortage of feedstock caused by severe drought may lead to a milk shortage.”
  • ZeroHedge observes, “The effects of elevated food prices have rippled worldwide and forced governments to impose price controls and trade restrictions. Price increases are due to supply constraints driven by several variables, including high energy prices, geopolitics, and weather. Ukraine restarted maritime transport of crops to the rest of the world, forcing grain prices to slip, though the food crisis is far from over.We pointed out in April that the next challenge for the global food supply could be a plunge in rice production (read: here). Fast forward months later, and our suspicions appear to be right as India, the world’s largest rice exporter, has seen planting areas of the crop decline by 13% due to heatwaves and drought.”
  • On Friday, ZeroHedge commented, “video showing pigs eating a deceased pig on a farm in China went viral recently. Some of the pig farmers, working for a major Chinese financial group, said that the cannibalism occurred because of feed shortages. One expert believes that feed shortages are a reflection of bigger problems in China’s economy.”

 

8:05 am

Good Morning!

SPX futures re flirting with a possible probe higher this morning, on day 259 of the Master Cycle.  The new high this morning was at 4170.50, re-opening the possibility of SPX at 4200.00 – 4225.00. The retracement has been somewhat irregular, making it more difficult to follow.  However, the Cycles Model did point out the last bit of strength for the SPX arriving over the weekend.

In today’s op-ex, Max Pain is again at 4145.00.  Calls dominate above 4150, with long gamma beginning at 4180.00.  Puts rule beneath 4140.00 with short gamma at 4125.00.  This is a very tight market and there may be some gamma-driven fireworks.

ZeroHedge reports, “US equity futures rose to start the week as the “most hated meltup” continued just as we said it would over the weekend as stubborn bears are forced to cover and start chasing higher out of FOMO, while Treasury yields fell while investors assessed the path of monetary policy ahead of this week’s critical CPI data. Nasdaq 100 futures rose 0.7% while S&P 500 futures gained 0.5% by 7:30 a.m. in New York after the underlying benchmarks dropped on Friday following news that US job growth soared beyond expectations. Meanwhile, the yield on the 10-year Treasury dropped to 2.79% after soaring at the end of last week, while the dollar dipped and bitcoin jumped above $24K.”

 

 

VIX futures were higher this morning despite the rally in equities, reaching a morning high of 21.87 after being beaten down on Friday.  The Wave structure is unreadable.  As mentioned before, Wave Es are rogues.

Wednesday’s op-ex shows Max Pain at 22.00.  The shorts (puts) beneath that are sparse, while long gamma resides at 25.00.

Bloomberg reports, “Rising volatility may be about to test the US stock market’s 13% jump from June lows.

That’s the picture painted by technical charts looking at the Cboe Volatility Index, a gauge of implied equity swings for the S&P 500 known as the VIX.”

 

TNX pulled back this morning after Friday’s surge higher.  The rise in yields doesn’t appear to pose a threat, but a move above overhead resistance (50-day Moving Average) at 29.63 may paint a different picture for investors.

 

USD futures pulled back to test Intermediate-term support at 106.05 this morning.  It is now on a buy signal after making its Master Cycle low last week.  The Cycles Model suggests a 7-week rally, giving it the capability of retesting the July 2001 high at 121.21.

 

West Texas Intermediate Crude has consolidated this morning inside Friday’s trading range.  It still has about two weeks of further decline in the current Master Cycle.  The next support is the Cycle Bottom/ Broadening Wedge trendline at 66.14.

ZeroHedge remarks, “Oil prices have tumbled 25% since early June, driven by low trading liquidity and a mounting wall of worries: recession, China’s zero-COVID policy and real estate sector collapse, the US SPR release, and Russian production recovering well above expectations.

However, Goldman’s Damien Courvalin believes that the case for higher oil prices remains strong, even assuming all these negative shocks play out, with the market remaining in a larger deficit than we expected in recent months.”

 

Gold futures rose above 1800.00, but remained within Friday’s trading range.  It appears to have made its Master Cycle high on Thursday, day 261.  Once beneath the Lip of the Cup with Handle formation, it may have 5-6 weeks of decline ahead.  I found it interesting that there are two Cup with Handle formations on this chart.  The lower formation has extended from June 2020.

 

 

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August 5, 2022

4:01 pm

Imagine that!  Closing price at Max Pain 4145.00.

 

2:28 pm

SPX stopped its retracement at 4151.58, short of the Ending Diagonal trendline and 2-hour Cycle Top.  It is on an aggressive sell signal with confirmation beneath the 100-day Moving Average at 4118.00.  Take appropriate action.

 

10:06 am

SPX has erased much of the loss seen at the open of the market.  While it has broken beneath its Ending Diagonal trendline and 2-hour Cycle Top at 4156.03, it stands as as top line resistance.  Should it exceed that level, SPX may still go higher to the 50% retracement level at 4225.00.  However, options are still dominating the market.  Remember, 4145.00 may be the Max Pain level.  We may see some strong moves on either side of that level.

 

8:55 am

ZeroHedge observes, “The massive beat in the payrolls print has removed any hopes of a Fed Pivot and sent rate-hike expectations soaring…

With the odds of a 75bps hike in September now topping 70% once again…

All of which stole the jam out of the market’s bullish donut with stocks plunging…”

 

8:37am

The Employment Situation Summary reads, “Total nonfarm payroll employment rose by 528,000 in July, and the unemployment rate edged down to 3.5 percent, the U.S. Bureau of Labor Statistics reported today. Job growth was widespread, led by gains in leisure and hospitality, professional and business services, and health care. Both total nonfarm employment and the unemployment rate have returned to their February 2020 pre-pandemic levels.”

The news of this report has sent the SPX directly down to the 100-day at 4118.20.  We have almost an hour before the market opens.  Stay alert and, provided the market remains negative find the earliest opportunity to go short.  Short gamma begins at 4120.00.

ZeroHedge reports, “We are now well and truly in bizarro world.

In a time when the US is in a technical recession, when tech companies are mass laying off thousands of people, moments ago the BLS reported that in July the US added a whopping 528K jobs, more than double the 250K expected, up solidly from last month’s upward revised 398K (up from 372K) and the highest since February’s 714K!

 

7:20 am

Good Morning!

NDX futures declined to 13272.20 as I write, still above critical support at 13020.00.  NDX has a structural resistance at 13450.00, which limits its upside today, on day 256 of the Master Cycle.  An aggressive sell awaits at a reversal today.  A decline beneath the Lip/Neckline at 13020.00 may confirm a sell signal.

In today’s op-ex, Max Pain lies at 13150.00 with long gamma at 13200 and short gamma at 13100.00 in a moderately populated options screen.  This may produce a very volatile options expiration.

ZeroHedge remarks, “Earlier today we said that JPM’s 7th and unstated reason why the rally would continue is that Goldman sellside desk warned that “without clear signs of a positive shift in macro momentum, temporary re-risking could actually increase risks of another leg lower in the market rather than signal the end of the bear market.” And since Goldman’s sellside desk is – whether on purpose or purely by accident – always wrong, and since Goldman is currently aligned with the Fed itself in hoping talk jawbone risk assets lower, we said that the translation is: “we are going up.”

But maybe this time Goldman is right?”

 

The Shanghai Composite bounced for a second day, but remains firmly on a sell signal.  The Cycles Model suggests another three weeks of decline that has the capability of making a new low.  The Cup with Handle formation remains in play.  Its Wave (2) peak was made in September, two months prior to the NDX peak in November, suggesting that the Shanghai Composite may lead the NDX in its decline.

ZeroHedge comments, “For a while, it was a popular narrative: Chinese stocks would outperform those in the US and other advanced economies. The thesis was simple. China needs to ease financial conditions, via a stronger equity market and weaker currency, to engineer an economic recovery, whereas the US and Europe are doing the opposite to cool inflation at the risk of a recession.

It was a great trade in June following Shanghai’s reopening from lockdown, but since then it has given up all the profit. That shows that China’s efforts to reflate the economy are facing considerable constraints.

US House Speaker Nancy Pelosi’s visit to Taiwan has left few scars in financial markets so far. Japan reported Thursday that China likely fired missiles over Taiwan during military drills for the first time, but markets have largely stayed quiet. Without dramatic escalation in coming days, geopolitical risks may give way to central bank policies and economic data as the major driver for markets.”

 

SPX futures are lfat this morning, holding above the 100-day Moving Average at 4118.20.  While the SPX may rally to 4200.00, a reversal from that level may be an aggressive sell, based on today being day 256 of the Master Cycle.  A decline beneath 4118.00 confirms the sell signal.

In today’s op-ex, Max Pain lies at 4145.00, while Calls dominate above 4155.00.  Long gamma may start there, as well with 5801 contracts.  Short gamma starts at 4120.00, close to the 100-day MA.  Dealers need the market to stay calm, but it may see a spike in volatility instead.

ZeroHedge reports, “Markets are muted this morning with US equity futures paring back modest gains, ahead of the much-anticipated US jobs report later Friday. S&P 500, Nasdaq 100 and Dow Jones futures are little changed as sentiment gets hit after China imposed sanctions against Pelosi and would halt military talks with the US over Pelosi trip, while European stocks slipped after a stronger Asian session. The Nasdaq has stopped just short of a 20% rebound from its June low that would meet the technical definition of a bull market. The dollar and Treasuries were steady. Oil and gold slipped and Bitcoin recouped much of yesterday’s losses.”

 

 

VIX futures started rising this morning after bottoming at 21.49 in the overnight market.  The Cycles Model suggests a double dose of strength beginning this weekend and lasting through next week.  This may be a great entry point for a long position.  The ensuing rally may last through late September with strength, I may add.

ZeroHedge remarks, “VIX – getting there

VIX has retraced the latest uptick, but note the VVIX is still above the most recent lows. Watch this closely as a constantly crashing VVIX could be reversing, and that matters. Let’s see if we can get some more inverse panic during Friday that could open up for trades using cheap(er) options plays.”

 

 

USD futures rose above Intermediate-term support/resistance at 105.96 this morning, confirming the rally may be back underway.  The next resistance is the Cycle Top at 107.94.

 

 

 

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August 4, 2022

8:30 am

Good Morning!

SPX futures inched higher, to 4170.70 this morning.  Today is day 255 of the Master Cycle. This is the final phase of the rally where we may see a pullback, then the final probe to 4200.00.The 50% retracement value is 4225.00, but that target is fading.  Friday we may see a final move in strength, but a reversal may happen imminently afterward.

In today’s op-ex, Max Pain is at 4155.00, with calls dominating above 4160.00 and puts showing strength at 4150.00.  Long gamma may begin at 4165.00, so moves both up or down may be exacerbated.  Friday’s Max Pain is at 4145.00 with much heavier population of options.  Friday’s long gamma is at 4170.00 and short gamma beneath 4100.00.

ZeroHedge reports, “US futures are mixed on Thursday, first trading in the red, then turning green before moving unchanged, as investors shrugged off growth warnings from the bond market while Taiwan war fears faded further despite drills launched by China overnight. Oil bounced back from the lowest level in almost six months. Contracts on the S&P 500 were flat while Nasdaq futures were modestly green, suggesting the tech-heavy Nasdaq will extend an advance of 19% from its June 16 low on the back of a massive CTA, buyback and retail-driven buying frenzy.”

 

 

VIX futures consolidated near 22.00 as investors doze off with only modest fear of a decline in equities.

Investing comments, “Wall Street’s most closely watched gauge of market anxiety shows expectations of choppy trading ahead despite a recent snapback in U.S. stocks, though institutional investors’ low exposure to equities may help curb gyrations.

The Cboe Volatility Index, an options-based indicator that reflects demand for protection against drops in the stock market, recently stood at 23, following a sharp rally in stocks that has taken the S&P 500 index up 12% from its mid-June low on expectations that the Federal Reserve may be less hawkish than anticipated in its fight against inflation.

VIX readings above 20 are generally associated with an elevated sense of investor anxiety about the near-term outlook for stocks, while readings north of 30 or 35 point to acute fear.”

 

TNX has bulled back this morning.  Investors’ fear of a conflict with China has subsided.  However, China keep selling its US Treasuries, adding pressure on the yield.  The Cycles Model indicates the next Master Cycle only has two weeks left, but it may rally in strength.  However, an extension of the decline may alter the Wave structure, allowing for a much higher target (TNX over 50.00).

ZeroHedge remarks, “The Federal Reserve may have to go further than what the markets are factoring in to quell inflation in the current cycle.

Treasuries and stocks rallied after the Fed suggested last week that the monetary authority had reached the neutral rate, signaling that increases down the line may be more measured.

However, the Fed’s suggestion about the neutral rate — when the policy benchmark is neither contractionary nor expansionary — is likely flawed.

In its latest summary of economic projections made in June, the median of the longer-run Fed funds rate was 2.50%, alongside an inflation projection of 2%. In other words, the Fed is willing to set its benchmark at a real rate of 50 basis points.

However, with headline inflation running at 9.1%, it can scarcely be argued that the neutral rate would be less than where it was back in December 2018, when the Fed ended its hiking campaign in the previous cycle. It then projected a neutral rate of 2.75%, while inflation was comfortably around 2%.”

 

 

USD may be consolidating above Intermediate-term support at 105.94 as it hovers in no-man’s land.  It only has a week until its next Master Cycle pivot and, unless there is a terrific boost to the USD, it may end up lower by mid-week.  An MC low next week gives the USD the ability to rally through the entire months of August and September while equities sell off.

 

 

 

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August 3, 2022

2:53 pm

NDX has slipped above the Lip/Neckline at 13020.00 to reach the 38.2% retracement value at 13213.31.  I currently have no higher target for this rally.  Mid-Cycle resistance at 14002.00 may be a faint possibility.  Friday also stands as a potential reversal day.  However, a decline beneath the trendline at 13020.00 is useful as a sell signal.

ZeroHedge observes, “NASDAQ – huge levels watch

NASDAQ is back to the 100 day moving average. As Bear Traps notes, this has been the longest period of tech trading below the 100 day moving average since Lehman. 13000/13200 is a huge resistance area to watch. Why not a flag here, another push higher, possibly overshoot the trend line and then another frustrating move lower. That would definitely be the main pain trade…

 

2:41 pm

SPX has subdivided into an Ending Diagonal with a potential target near 4200.00.  The Cycles Model infers that the reversal may come on Friday, although it may come sooner.  The main resistance is now at 4225.62, the 50% retracement value and location of the Lip/Neckline of the Head & Shoulders formation.  In the meantime, a reversal beneath the Cycle Top at 4130.75 may call an end to this rally.  The 100-day Moving Average at 4118.00 may confirm the sell signal, should SPX decline beneath it.

 

8:40 am

Good Morning!

SPX futures rose to an overnight high of 4118.90, just beneath the 100-day Moving Average at 119.80.  It may be on an aggressive sell signal, subject to closing beneath the 100-day.  Today is day 254 of the Master Cycle.  Thus far, the high occurred on Monday, day 252, which also marked an inverted Trading Cycle high.

In today’s op-ex, Max Pain is at 4090.00 in a thinly populated market.  Calls rule above 4120.00  while puts have the majority beneath 4075.00.

ZeroHedge reports, “If yesterday morning markets were losing their mind over the potential risk of World War 3 ahead of Nancy Pelosi’s arrival in Taiwan, this morning it has been a mirror image, with risk assets rising and fears unclenching as investor anxiety over tense US-China ties eased after Pelosi left Taiwan less than 24 hours after arriving after pledging solidarity and hailing its democracy, leaving a trail of Chinese anger over her brief visit to the self-ruled island that Beijing claims as its own. Meanwhile, despite all the jawboning, China’s response to Pelosi’s Taiwan visit fell short of more aggressive expectations raised by nationalists like Hu Xijin, the former editor-in-chief of the Global Times, giving markets a breather. Among them:

  • Trade: Beijing added boycotts to fish and fruit imports from Taiwan and banned natural sand exports. It also prohibited dealings with some Taiwanese companies including Hyweb.
  • Markets: China’s potential to weaponize its almost $1 trillion pile of US bonds became a source of chatter after yesterday’s surge in Treasury yields.
  • On the ground: Pelosi flew off after vowing the US wouldn’t abandon Taiwan as she met with President Tsai Ing-wen. She was expected to meet with TSMC’s chairman.

As a result, both S&P 500 and Nasdaq 100 futures rose by about 0.5%. In New York premarket trading, while Treasuries extended a slide sparked by hawkish Federal Reserve comments (and the lack of world war). The dollar fell against most G-10 peers, gold fluctuated and oil was lower ahead of an OPEC+ meeting where some report output may be boosted by a modest 100kb/d  (or less jet-fuel than Biden consumed flying on Air Force One to Jedda last month) as Saudis “appease” the president.”

 

 

VIX futures consolidated, making a low of 23.13 and a high of 23.92.  Yesterday’s high tested the mid-Cycle resistance at 24.91.  It is commonly believes that the VIX may give a buy signal above 25.00.  Max Pain in today’s op-ex is at 24.00 with calls going gamma long at 25.00.  Shorts are thinning out.

DailyFX comments, ”  When it comes to implied (expected) volatility measures, there is a certain revision-to-mean characteristic that is expected. If there isn’t a crisis-level event, it is likely that the VIX volatility index and its acolytes tend to deflate over time. While there has been meaningful retreat in the capital market benchmarks these past months, it is fair to say that there wasn’t much in the way of outright panic-like price action that would charge hedging costs to exceptional heights. That said, there is a point where the market can become too complacent in the face of tangible threats, and I do believe we had already passed that threshold. My assessing markets are ‘too quiet’ is one thing, for the financial system to come to the same conclusion usually takes an overt motivator to force balance. That recognition seemed to come with the headlines around a prominent US politicians visit to Taiwan, adding geopolitics to the threat of recessionary pressures and restrictive monetary policy that has dominated the fundamental scene of late. Just like the S&P 500’s slip, a check higher from the VIX and volatility of volatility index (VVIX) is best served with a clear charge for motivation rather than taking its traction on belief.”

 

TNX continues its rally that may last through options expiration.  This may come as a surprise for those who had watched the decline for the past month.  The odds are even that TNX may make a new high in the next three weeks.  If so, the chances of an extension even higher may increase.

ZeroHedge reports, “In a time when the Fed’s QT is expected to soak up sloshing investor liquidity, while the end of Fed TSY buying (and phased out rolling of maturities) is meant to lead to a (gradual)  increase in Treasury auction sizes, today’s quarterly refunding announcement by the Treasury was counterintuitive, because instead of boosting the size of auctions across the curve for August and futures months, the Treasury reduced its quarterly sale of longer-term debt for a fourth straight time (in line with expectations) and laid out plans for cuts to a range of maturities in coming months, with the 20-year bond – which has long been “kinked” on the curve and paying a higher yield than even 30Y paper – singled out for the biggest trimming.

The Treasury Department said in a statement in Washington that it will sell $98 billion of long-term securities at its so-called quarterly refunding auctions next week — down from May’s $103 billion. According to Bloomberg, this marks the longest string of declines in about eight years. The offering sizes are as follows:

  • $42 billion of 3-year notes on Aug. 9, compared with $45 billion at the May refunding and $43 billion at the July auction
  • $35 billion of 10-year notes on Aug. 10, compared with $36 billion last quarter
  • $21 billion of 30-year bonds on Aug. 11, versus $22 billion in May”

 

The NYSE Hi-Lo made its Master Cycle high on July 29 on day 241, the earliest it can end its Master Cycle.  I’ll be watching this indicator for two reasons.  First, it may offer a sell signal below zero.  And, second, should the Hi-Lo reverse quickly, there may be enough time to extend the Master Cycle low during the week of August 15.  this offers another anomaly, since Monday’s high counts best as a Master Cycle for the SPX.  Yet there is time to make a very deep low in time for options expiration.  While it may not register as a Master Cycle in the SPX due to its proximity to the last Master Cycle, it may have the same magnitude as the crash in 2020, since these are both Intermediate-term declines.

 

USD futures made a new high at 106.40 as it gets another boost higher.  Although the USD may have only a week to go in its Master Cycle, it may get a turbo boost into options week, due to the rush to liquidity.

Investing.com comments, “Emerging markets posted a fifth straight month of portfolio outflows in July, setting the longest such streak in records going back to 2005, as global recession risk, inflation and a strong dollar drew away cash, data from the Institute of International Finance (IIF) showed on Wednesday.

Non-residents pulled $9.8 billion out of emerging market portfolios in July, the data show, compared with an outflow of $3.8 billion in June and a $35.1 billion inflow in July 2021.

Net outflow over the past five months totaled $39.3 billion, according to the IIF.”

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August 2, 2022

7:15 am

Good Morning!

NDX futures declined to 12797.50, beneath their 100-day Moving Average at 12879.76.  The Chart shows that NDX challenged the neckline at 13020.40 and failed to close above it yesterday.  There may be an aggressive sell signal at the bounce, provided it stays beneath the neckline.  NDX has the most obvious reversal points of all the indexes and may lead the charge lower.  While most analysts think that massive shorting leads to more short covering, there comes a point when the shorts are correct.  The beginning of Primary Wave [3] may leave little doubt of the market’s direction.

ZeroHedge remarks, “uly was a tremendous month for stocks, it was also a mediocre (at best) month for hedge funds which not only underperform the S&P when stocks slide (as they did during the crashes of 2020 and early this year), but also underperform the broader market during sharp squeezes like the one that took place in July, prompting some to ask just what is the point of paying someone 2 and 20 to some overweight billionaire to always underperform.

The question of hedge fund utility becomes that much more pressing when one reads in the latest Goldman Sachs Prime Services hedge fund weekly report that while the GS Equity Fundamental L/S Performance Estimate rose +0.57% between 7/22 and 7/28 (roughly a third the performance of broader – and free – MSCI World TR +1.74%), this return was driven almost entirely by beta of +0.56% (i.e., market exposure), with alpha of just +0.01%.

In other words, not only can’t hedge funds generate alpha, they can’t even keep up with the market’s own beta! That will cost 2 and 20, please.”

 

SPX futures declined to 4082.30 after failing to overcome the 100-day Moving Average at 4121.42.  This would be an early sign of a reversal and aggressive selling/shorting on the bounce may be advised, provided the 100-day is not breached.

Today’s op-ex shows Max Pain at 4115.00 in a thin market.  Options are long above 4120.00 and short beneath 4100.00.  Long gamma is not discernible, but short gamma may begin at 4050.00.  The shorts are becoming more confident in the options market.

ZeroHedge reports, “Forget inflation, stagflation, recession, depression, earnings, Biden locked up in the basement with covid, and everything else: today’s it all about whether Nancy Pelosi will start World War 3 when she lands in Taiwan in 3 hours.

US stocks were set for a second day of declines as investors hunkered down over the imminent (military) response by China to Pelosi’s Taiwan planned visit to Taiwan, along with the risks from weakening economic growth amid hawkish central bank policy. Nasdaq 100 contracts were down 0.7% by 7:30a.m. in New York, while S&P 500 futures fell 0.6% having fallen as much as 1% earlier. 10Y yields are down to 2.55% after hitting 2.51% earlier, while both the dollar and gold are higher.”

 

VIX futures rose to an overnight high of 24.58, just short of the mid-Cycle resistance at 24.87, where a buy signal lies waiting.  Of course, Friday’s (Master Cycle) low occurred on day 268, so confidence is high that the reversal was made yesterday.  This may be an aggressive long signal, as well.

InvestingCube explains, “The VIX index jumped sharply this week after steadily dropping since June. It is trading at $22.85, which is about 7.63% above last week’s low of $21.34. However, this price is about 37.54%, below the highest point in May this year. The rise coincides with the ongoing Dow Jones and S&P 500 sell-off.

Volatility inches up slightly

The VIX index is one of Wall Street’s most popular volatility gauges. It is used to measure the sentiment among investors by considering activity in the S&P 500 options market. In most periods, the index has an inverse relationship with the S&P 500, Dow Jones, Russell 2000, and Nasdaq 100.”

 

TNX futures declined again to a new low of 25.16 as it sinks toward the mid-Cycle support at 22.89.  Today is day 266 of the current Master Cycle, putting us on alert for an abrupt reversal.  The talk of a Powell pivot may be premature, as rates appear ready for a reversal higher.  Should TNX break out above the Cycle Top resistance in the next three weeks, we may see TNX reach 50.00 by year end.

ZeroHedge remarks, “For many people, former Fed Chairman Paul Volcker’s relevance today is rooted in how he broke the back of surging inflation in 1980. He is widely credited with employing the harsh policies that ended the high levels of inflation seen in the United States during the 1970s and early 1980s. back then few people realized his brave and bold move would shape the economic system for decades.

Paul Volcker served two terms as the 12th Chair of the Federal Reserve from 1979 to 1987. He was nominated to the position by President Jimmy Carter and renominated by President Ronald Reagan. Paul Volcker died on December 8, 2019. Before his death, Volcker participated in an interview with Ray Dalio. I recently stumbled upon this video from February 2019 on YouTube.

 

USD futures may have bounced off the 50-day Moving Average at 104.72 this morning, on day 251 of its Master Cycle.  If the low has been made, the USD may embark on a two-month rally.  The next resistance is the 2001 top at 121.21.

 

WTIC futures are in consolidation after threatening its July low.  This has thrown investors off, as this is a zigzag formation that will end mush higher in the next three weeks.  The 50-day Moving Average at 107.35 remains the target.

 

 

 

 

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August 1, 2022

2:03 pm

SPX appears to be consolidating near its high.  It may still have yet another probe as high at 4225.00. the 50% retracement of the decline from January 4 to June 17.  Today is day 60 from the June 2 high, an inverted Trading Cycle (60 days).  It is also day 252 in the Master Cycle.  VIX has made a reversal from Friday’s low, so we may see the SPX reversal in the next few days.  VIX reversals often lead equity reversals by several days.  Current resistance is at the 100-day Moving Average at 4121.40.

Today’s op-ex shows Max Pain at 4095.00.  Calls rule above 4100.00 with long gamma at 4120.00.  Short gamma starts at 4025.00.

 

7:05 am  I will be taking my wife in for minor surgery this morning.  Please excuse the absence until later this morning or afternoon.

SPX futures are in a shallow pullback.  This may develop into something deeper, but the likelihood is strong that there may be a final push higher to reach the trendline above 4200.00.  The 50% retracement is at 4225.00.  Today is day 252 of the Master Cycle.  There is a potential for another week of rally.

 

VIX futures have reversed off Friday’s low in what may be a Master Cycle reversal.  Friday was day 258, so this may be a new trend forming.  VIX may temporarily go higher while SPX is still climbing.  No signal yet.

 

 

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July 29, 2022

8:05 am

Good Morning!

NDX futures challenged the Wave (4) high resistance at 12897.63 by rising to 12906.70.  It has since pulled back from that resistance.  Should it go higher, the next resistance is the Lip/Neckline at 13020.40.  In today’s op-ex, calls dominate above 12450.00 in a thin market.  Gamma zones, if they exist, are difficult to place.  Op-ex in QQQ (309.81) shows Mas Pain at 304.00.  Calls dominate a 305.00 and above with long gamma beginning at 310.00.  Short gamma begins at 300.00.  Insurance companies, which have quietly dominated the calls in their indexed annuities, have now switched to offer limited downside protection (up to 20%) using puts.  This may make short gamma a much larger force in the next phase of the market.

ZeroHedge observes, “It was another torrid meltup for markets, one which steamrolled bears and underinvested hedge funds, but regular Zero Hedge readers were prepared for the move for two reasons: i) we previewed the dramatic impact the early Fed pivot would have a few weeks ago, and ii) over the weekend we warned that there is a massive tidal wave of buying on deck in the form of $11BN VWAP bids between stock buyback orders and CTAs blindly buying risk just because VIX keeps dropping.

Well, prepare for much more of the same because as a reminder, Goldman’s trading desk calculated that if spoos rise above 4070, CTAs will double their daily buying from $5BN to $10BN per day, to wit:

CTAs: have $5b of S&P to buy per week at these levels. North of 4070 (long term momentum) this demand essentially doubles.”

 

SPX futures rose above round number resistance to 4106.10 before easing back under it.  The 4000.00-4114.65 zone remains strong resistance.  Today is day 249 of the current Master Cycle.  A Master Cycle top maybe put in at any time in the next few market days.

In today’s op-ex, Max Pain is at 4015.00.  Long gamma starts at 4035.00 and short gamma begins at 3950.00.  Remember, long gamma forces the dealers to “buy high” to cover expiring in-the-money options.  This can be a painful process as they must sell longs to cover their liabilities.

ZeroHedge reports, “US and European stock were set for their best month since November 2020 following blowout earnings from the likes of Amazon and Apple last night, and record profits from energy giants Exxon and Chevron this morning, boosted by expectations of shallower Federal Reserve monetary tightening now that the US is technically in a recession. S&P futures rose 0.6% following yesterday’s meltup while Nasdaq 100 futures rose more than 1% after US stocks hit a seven-week high Thursday, as record underinvested hedge funds are forced to chase the move higher now that most downside catalysts (peak inflation, hawkish Fed, earnings disappointment) have been eliminated. The dollar was flat, and 10Y yields rose slightly to 2.70% after plunging as low as 2.65% yesterday after the Q2 GDP print confirmed news of the unofficial US recession.”

 

 

VIX futures made a new low at 21.81 on day 269 of its Master Cycle.  I had been puzzled by the “mismatch” of the SPX and VIX this month until now.  It is becoming evident that the current Master Cycle in the VIX is stretching, while the SPX Master Cycle is shrinking to make a match.  It may happen as early as today.

 

TNX rose from its Master Cycle low, made yesterday on day 261.  The new Master Cycle is scheduled to top out during the August options expiration.  It appears that the rally in TNX may go much higher than expected.

ZeroHedge reports, “After remarkably solid 2 and 5 year auctions earlier this week, moments ago the Treasury sold $38 billion in seven year paper in the week’s final coupon auction, which saw demand just as blistering as the previous two.

The high yield of 2.730% was a huge drop from the 3.280% in June, one of the biggest monthly drops on record, but in a testament to just how much duration is in demand today, the auction stopped through the When Issued 2.735% by 0.5bps despite the massive rally across the curve earlier, now the the US is in a recession.

The bid to cover of 2.604 was also a major jump from the 2.481 last month and well above the 2.46 six-auction average.”

 

 

 

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July 28, 2022

3:45 pm

SPX has risen nearly to the 38.2% retracement of the entire decline from January 4 to June 17, approximately 5.5 months.  Today is calendar day 41 out of the low and 28 market days have elapsed since then.  The Cycles Model suggests another possible day of strength tomorrow.  The alternative may be a violent reversal, but that is more likely to happen early next week.  Yesterday I was marveling at the accuracy of the Cycles.  One or two days of extension does not alter the analysis.  It may fall within the “normal” range that allows these discrepancies.

Today is day 248 of the current Master Cycle.  While not common, a Master Cycle may turn in as little at 241 days.  There are three nearby resistance levels.  The first is the 38.2% Fibonacci level at 4085.07.  Next, Wave Equality is reached at 3091.00.  Finally, we have round number resistance at 4100.00.

ZeroHedge remarks, “The market’s dovish price-action response to the perception of “past peak tightening” from the Fed remains mutually exclusive from what was a “still hawkish on inflation” message, as Chair Powell did not stand-down there – repeating that it is the only mandate and largest challenge right now, outweighing any growth (i.e. “recession”) concerns.

“We’re going to be focused on getting inflation back down and as I’ve said on other occasions, price stability is really the bedrock of the economy.  Nothing works in the economy without price stability.  We can’t have a strong labor market without price stability for an extended period of time. We want to get back to the kind of labor market we had before the pandemic where differences between racial and gender differences and that kind of thing were at historic minimums.  That’s not going to happen without restoring price stability. So, that’s something we see as, as something we simply must do.  And we think that in the — we don’t see it as a trade-off with, with the employment mandate.  We see it as a way to facilitate the sustained achievement of the employment mandate in the longer term.”

And Nomura’s Charlie McElligott points out that this is how things can get “awkward” again in coming months to keep things “uneasy” versus the perception of “dovish pivot,” as Powell’s repeated emphasis on the June SEP (which shows ongoing rate hikes into 2023) looked clearly “intentional,” which would then seemingly push-back on the market’s “quick turn” pricing of early rate CUTS seen in start 1Q23…”

 

8:15 am

Good Morning!

SPX futures rose to 4027.20, then eased back toward 4000.00, as suggested at the close.  This is a very options-driven market, since today’s Max Pain is at 4010.00.  Long gamma may begin at 4025.00.  Puts take over beneath 4000.00.  In tomorrow’s op-ex however, Max Pain is at 3945.00.  The dealers’ dilemma is how to keep the market from going too far in either direction.

ZeroHedge reports, “One day after the Nasdaq 100 posted its biggest jump since November 2020 when the market exploded higher after it interpreted Powell’s forward guidance purge and comment that it is “likely appropriate to slow rate increases at some point” as more dovish than expected, US stocks were set to pull back as downbeat earnings and a dire outlook from bad to Metaworse weighed on demand. Futures contracts on the technology-heavy Nasdaq 100 dropped 0.5% by 7:15 a.m. in New York, after the underlying gauge rallied 4.3% in the previous session. S&P 500 futures were down 0.2% after the benchmark index jumped to its highest level in seven weeks. Treasury yields were little changed and the dollar and bitcoin edged up.

 

 

VIX futures declined further to 22.84, an 85% retracement.  The August 3 op-ex Max pain appears at 24.00 while long gamma begins at 26.00.  It is on an aggressive buy signal, confirmed above the mid-Cycle resistance at 24.78.

 

TNX appears to be consolidating in place, awaiting it’s reversal after a Master Cycle low.  The Cycles Model reveals no particular strength, suggesting that yields may flop around for a while before giving a directional push.

ZeroHedge observes, “Did He, Or Didn’t He? That Is The Question

Markets responded incredibly well to yesterday’s FOMC meeting. The Nasdaq was up over 4%, CDX IG tightened 4 bps, high yield bonds were up about 1%, the 2-year treasury dropped 6 bps (despite a 75 bp hike) and the 10-year moved a couple bps lower as well.

Did Powell come across as dovish? Did he make the case that the Fed would take into account economic risk? That the Fed was data dependent? That the Fed was almost done hiking?

I’ve read the transcript several times and keep thinking that:

  • He did a very good job suggesting that we are near a neutral rate. That is positive for markets and dovish.
  • He mentioned data dependency several times and did mention some concerns about the economy. Slightly dovish.
  • On the other hand, he tried to drive home the point that fighting inflation was still the priority. That he would sacrifice the economy and jobs for lower inflation, since inflation is so problematic. He didn’t take even 75 bps off for September and did say they could hike above neutral to fight inflation. Hawkish.

 

USD futures declined to 105.93 before moving higher.  The Cycles Model projects growing strength starting today and lasting the next two weeks.  A “normal” final push higher may take USD to 111.00-112.00.  Additional Cyclical strength may push it higher.

 

Crude oil futures rose to 99.83 in the overnight session, as it begins to test round number resistance at 100.00.  The Cycles Model suggests a bounce to mid-August with a potential target at the 50-day Moving Average at 108.16.

 

 

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July 27, 2022

3:35 pm

SPX has reached a new high of 4039.56 as I write.  It is in long gamma which may force dealers to buy high to cover today’s maturing options.  In any event, we must see SPX come back down to 4000.00 by the close or the market may wake up with a hangover, since Dealers will have to sell their longs to pay today’s in-the-money options.

ZeroHedge remarks, “Yesterday, ahead of today’s FOMC meeting we were musing what would happen if the Fed followed in the ECB’s footsteps and killed forward guidance.

Well, we got the answer today when Powell effectively confirmed he is just as clueless as Lagarde when it comes to forecasting the future, and his admission that the Fed will be pretty much exclusively data-dependent…

  • *POWELL: PACE OF RATE HIKES TO DEPEND ON INCOMING DATA

… coupled with the Fed Chair’s confirmation that it will “likely be appropriate to slow increases at some point” is all the market needed to unleash a huge buying spree, sending the Nasdaq more than 4% higher, and triggering the biggest buy program since March 2021!”

 

3:15 pm

SPX made a new correction high, but I was amazed at the precision of it all.  From the 4177.51 high, it took 56 calendar days (18.5 X 3) ,exactly 37 market days (18.5 X 2) and 259 market hours (18.5 X 14).  You may recall that I mentioned that the market patterns were divisible by 18.5 (4.3 squared).  It seemed that this Cycle was breaking all the rules and I had attempted to find the new pattern, to no avail.  Today was like a bullseye.  We may now expect to see a 12.9-market day panic decline where Wave C may equal or exceed Wave A to fulfill the Head & Shoulders Minimum Target.

 

6:55 am

Good Morning!

I have a 7:30 breakfast appointment, so here is a brief summary to tide us over until I return.

SPX futures rallied to a 54% retracement of yesterday’s decline, at 3965.20.  It appears that the “status quo” is being held until the FOMC announcement later today.

In today’s op-ex, Max Pain is near 3940.00 with options favoring calls at 3950.00 with long gamma beginning at 4000.00.  Puts dominate  at 3915.00 and short gamma may begin at 3900.00.

ZeroHedge reports, “Global markets and US equity futures got a strong boost on Tuesday from reassuring big tech reports including Microsoft, Texas Instruments and Google, which delivered double-digit revenue growth reversing the doom and gloom from other reporters. Microsoft assuaged fears that the strong dollar and a weakening economy would hurt sales while Alphabet posted advertising revenue that surpassed analysts’ expectations amid an industry slowdown. Credit Suisse CEO Thomas Gottstein will to be replaced by asset-management head Ulrich Koerner next week after the Swiss bank posted its third straight quarterly loss and its worst trading first half in decades. All of that, of course, pales ahead of the day’s main event Later today, the Federal Reserve is expected to increase its benchmark interest rate by three quarters of a percentage point.

Nasdaq 100 contracts led gains rising 1.3% and reversing much of Tuesday’s plunge. S&P futures rose 0.8% alongside European stocks which also rose, with the banking sector up even as Credit Suisse Group AG posted a larger-than-expected loss, Deutsche Bank AG warned on costs, and the outlook on Italy’s sovereign debt ranking was lowered by S&P. The dollar and Treasury yields slipped, while oil and European natural gas prices extended gains.

 

  VIX futures pulled back to 24.04 after closing above the mid-Cycle support at 24.52.  It is on an aggressive buy signal with additional confirmation above the 50-day Moving Average at 27.17.  VIX is recognized as a “buy” above 25.00.

SeekingAlpha observes, “Summary

  • Since the beginning of 2022, the Cboe Volatility Index® (“VIX”) futures curve has shifted higher, indicating that expectations for volatility in the market remain elevated.
  • A state of contango represents the expectation that the VIX index will increase from its current level moving forward.
  • When the VIX futures curve does go into backwardation it could signal weakness and overall risk in the market but the market can recover quickly.

 

TNX remains slightly elevated above yesterday’s possible Master Cycle low (day 259).  The Cycles Model projects the next Master Cycle pivot (high) during the August monthly options expiration.  A likely target may be the Cycle Top resistance at 35.21, but may be higher.

Yesterday ZeroHedge reported, “After soaring last month to 3.27%, the highest level since July 2008, in what was an ugly auction that tailed by a whopping 3.5bps, moments ago the US Treasury sold $46 billion in a much more solid auction.

The high yield of 2.860% tumbled from last month’s 3.271%, the biggest one month drop since the Covid crash. It also stopped through the When Issued 2.870% by 1 basis point, a spike in demand which was no doubt facilitated by the concession during this morning’s modest selloff.

The bid to cover jumped from June’s dismal 2.28 to 2.46, the highest since March and above the six-auction average of 2.44.”

Today ZeroHedge observes, “What the Fed says at Wednesday’s meeting is going to matter much more than what they do.

That, according to Bloomberg’s Garfield Reynolds, will be the case even if Powell shocks us all by hiking less or more than the three-quarter point shift that’s been solidly priced in for most of the time since the June meet.

But assuming policy makers meet those projections, then all of the focus is going to be on what guidance we get from the policy commitment statement and Chair Powell’s presser. Traders are betting the cash rate will be about 3.1% in a year’s time and 2.6% in two years, following rate cuts which are expected to start in Q1 2023. Making matters more complicated, the Fed’s WSJ mouthpiece, Nick Timiraos today published an article warning that the Fed could nuke the practice of forward guidance (similar to what the ECB did last week).”

 

USD futures traded in range this morning, awaiting the FOMC announcement and guidance.  The Cycles Model shows USD ending the week in strength with only two more weeks left in this Master Cycle.

 

 

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July 26, 2022

2:32 pm

BKX, our liquidity proxy, just gave us a sell signal.  It has declined beneath the 50-day Moving Average at 106.43.  Yesterday it made its Master Cycle high on day 265.  The Cycles Model shows that the next Master Cycle low may not come in until September 30.  This may be the 15th reason for an economic crash in the second half of the year.

ZeroHedge gives the other 14 reasons, “It looks like we are going to get official confirmation that a recession has already begun when the GDP number for the second quarter comes out later this week.  But that isn’t what we should be focusing on.  Yes, things weren’t great during the first half of 2022, but they are going to be significantly worse during the second half.  Small businesses are starting to fail all over the country, a housing crash of potentially epic proportions has started, layoffs are on the rise from coast to coast and economic activity is really slowing down all around us.  So if you think that things are bad now, just wait, because they will soon be a whole lot more painful.”

 

10:23 am

SPX is making new lows and potentially challenging the 50-day Moving Average at 3921.00.  A decline beneath the 50-day confirms the sell signal.

ZeroHedge highlights Goldman’s change of tune, “Some very concerning market observations from Goldman trader John Flood discussing the real rot below the market surface:

Monday was the lightest volume session of the year with 9.32b shares trading across all US equity exchanges breaking previous low mark of 9.4b back on 7/11/22. YTD daily avg for shares traded across all US equity exchanges sits @ 12.5b. Monday was also the lightest notional trading session of the year w/ $392b trading vs ytd daily avg of $638b.

Our desk was a 3 on 1 – 10 scale in terms of overall activity levels. I am personally taken aback by how resilient mkt has been over the past few weeks.

I don’t see L/Os putting their ~$210b of cash to work. I am seeing them use pockets of strength to sell lower conviction more illiquid names in block form and raise even more cash. Last week our desk had 11 blocks which is noteworthy.

Positioning, sentiment and liquidity all incredibly depressed. Feels like we are due for a real pullback but clearly it wont be a straight line down.”

 

10:12 am

The Ag Index leaped higher with strength today as it emerges out of a very stretched correction.  The Cycles Model calls for up to three weeks of rally prior to a pause in mid-August.  Primary Wave [3] until late November or early December with the potential of more than 100% gains.   And excellent long potential.

ZeroHedge observes, “Wheat prices soared Monday after Russia attacked the Black Sea trade port in Odessa, Ukraine, on Saturday. The strike comes less than one day after Ukraine and Russia brokered an export deal — mediated by Turkey — to export millions of tons of grains.

On Friday, officials from the U.N., Turkey, Russia, and Ukraine signed an agreement to reopen three ports, including Odessa, the country’s largest port. It’s a move heralded by these officials to alleviate a global food crisis.

Kremlin spokesman Dmitry Peskov insisted the weekend missile attack is “in no way related to infrastructure used for the export of grain.”

 

7:50 am

Good Morning!

SPX futures dipped to a low of 3947.30, within yesterday’s trading range.  It appears to be marking time for the FOMC announcement.  The top of the squeeze may have made its appearance last Friday.  SPX is on an aggressive sell signal with confirmation beneath the 50-day Moving Average at 3921.54.

It should be no surprise that Max Pain in today’s op-ex is at 3965.00.  Options turn bullish at 3975.00 and long gamma begins at 4000.00.  Puts dominate at 3950.00 and short gamma may begin near 3925.00.  Wednesday’s Max Pain is at 3945.00 with very little call action.  Puts dominate beneath 3900.00.

ZeroHedge reports, “US stock futures dropped as investors braced for Wednesday’s Federal Reserve meeting, while Walmart’s surprise profit warning fueled concerns about the strength of US consumer spending. A barrage of earnings including notable misses by the likes of GM and a 3M guidance cut, did not help the mood. Contracts on the S&P 500 and the Nasdaq 100 were each down 0.4% by 7:45am in New York. European stocks rose driven by energy stocks amid a fresh surge in gas prices following Russia warnings of an imminent halving in NS1 shipments even as European Union countries reached a political agreement to cut their gas use. The dollar jumped and 10Y yields tumbled below 2.75% as a recession looks inevitable, no matter how Biden defines it.

 

 

VIX futures rose to 24.07, within yesterday’s trading range.   A breakout beneath the June low is encouraging shorting the futures and ETFs.

Next Wednesday’s op-ex shows Max Pain at 29.00 with calls dominating above 30.00.  Puts prevail at 28.00 and short gamma starts at 26.00.  The crowd has really piled on to the short side of the ledger, which is typical near a Master Cycle low.

Bloomberg proclaims, “A recent bout of volatility in US equities has prompted some traders to think Wall Street’s so-called fear gauge should be higher. For Goldman Sachs Group Inc., that isn’t necessarily the case.

In fact, strategists led by Rocky Fishman recommend investors buy puts on the Cboe Volatility Index, effectively betting on relative calm in coming months. The VIX, a gauge of cost for S&P 500 options, historically tends to move in the opposite direction of the equity gauge 80% of the time. At one level, the team’s prediction for lower VIX implies a call for higher share prices.”

 

TNX is challenging last Friday’s possible Master Cycle low.  Today is day 259 of the old Cycle, so there is a potential for making a marginal new low.  The Cycles Model calls for 3-4 weeks of rally that may exceed the previous high.  The next technical resistance appears at 53.16, made in 2007.  Recession risk is high, but that won’t stop the Fed from hiking aggressively, since that is the only tool they have left.

ZeroHedge comments, “Risk Assets Are Hoping July Will Be Last Jumbo Fed Hike

The way yields and equities are dropping underscores the message from investors to the Fed: “You better slow down!”

The recession drumbeats grew louder after last week’s slump in US activity gauges and with rates traders pricing for the Fed rate to peak some time between November and February at about 3.3%. That’s going to make it very hard for the central bank to do anything but ease back, unless it wants to create real panic across markets.

The inflation-recession conundrum remains for the Fed, however, so such “tough love” can’t be ruled out. There’s been a strong undercurrent in Fedspeak and commentary from former Fed officials that the central bank has to be willing to risk recession to tame inflation if that’s what is needed.”

 

USD futures rose to 107.14 this morning, signaling a change in direction.  The Cycles Model shows significant strength this week as it rises toward its Master Cycle high due during the second week of August.

 

Gold futures eased back toward the Cycle Bottom support at 1708.24 prior to a fresh rally higher.  The weakness may not last, as the Cycles Model shows exceptional strength for the rest of the week.  The next Master Cycle Pivot is due early next week.

 

Crude Oil futures rose to 98.98 this morning as the retracement continues for the next few weeks.  The target for the retracement appears to be the 50-day Moving Average, currently at 108.41.  A period of strength ignites later this week and continues with strength into the Master Cycle high, due in mid-August.  A probable tax increase may be the fly in the ointment to sour this rally.

Bloomberg reports, “Big Oil is poised for a record-breaking $50 billion profit in the second quarter, but the industry’s stellar performance could contain the seeds of its own decline.

The soaring earnings are direct result of the high energy prices that have stoked inflation, piled pressure on consumers, raised the risk of recession and prompted calls for windfall taxes. Amid this political and economic turbulence, shareholders may have to temper their expectations for rising returns.”

 

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