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.

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March 5, 2021

9:00 am

Good Morning!

SPX completed a 12.9 day Cycle at 2:00 pm yesterday.  However, the Master Cycle have up to 8.6 days to go, completing on March 17.  If correct, we are due for a bounce that may stay beneath the 50-day Moving Average at 3815.08.  The top trendline of the Orthodox Broadening Top appears to lie in close proximity if not in agreement with the 50-day.  That is also the 50% Fibonacci retracement level.

SPX futures have ramped above 3800.00 this morning on the BLS February Employment Survey

ZeroHedge reports, “A much better than expected improvement in the labor market (unemployment rate down and bigger jump in payrolls) was not at all what the market wanted to see.

The ‘good news is bad news’ narrative is back, tilting attitudes slightly less dovish as the economy is believed to be back on the ascendance as more states ready for reopening.

That sent rates spiking higher…”

 

The 10-year note yield jumped to 16.26 this morning, then pulled back beneath 16.00.  It may extend a bit higher today, but it is also likely that this is the Master Cycle high, or nearly so.  Today is day 273 in the Master Cycle.  The time window is closing…

 

VIX futures have pulled back to 26.15, a 50% retracement of yesterday’s rally.  The Wave structure appears to be a (1)-(2), 1-2.  If so, the correction may be over in the first hour of the cash session.

 

 

 

 

 

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March 4, 2021

3:06 pm

SPX has broken the uptrend from last March’s low.  It has retested the trendline and may resume its decline with greater momentum.

ZeroHedge reports, “Just out from Tradestation:

Valued Futures Clients,

Due to potential market volatility, reduced intraday Futures Margin Rates will be suspended at 3:00pm ET.

All Futures accounts will be required to have full maintenance margin when trading futures products by 3pm ET.

Reduced intraday Futures Margin Rates will be available again at 8:00am ET Friday morning.

The last hour of trading is about to get very chaotic.”

ZeroHedge observes, “No hints at a ‘Twist’, refuses to speculate on repo issues, no pushback against recent bond vol, and no mention of SLR exemption.

This was the closest he came to saying anything of note:

“We monitor a broad range of financial conditions and we think that we are a long way from our goals,” he said.

“I would be concerned by disorderly conditions in markets or persistent tightening in financial conditions that threatens the achievement of our goals.”

Which is just more of the same generic platitudes, and that is not what the market wanted to hear…

Nasdaq is now down over 10% from its highs and the S&P has joined Nasdaq in the red for the year…”

 

7:50 am

Good Morning!

I thought I’d share a long view chart of the SPX that I keep for reference.  You may recall that I had mentioned 3950.00 as a possible target in the past month.  Here it is in all its glory.

 

SPX futures dropped to an overnight low of  3778.50 before rising to test the 50-day Moving Average at 3813.79 tis morning.  Others see a possible Head & Shoulders formation, but I disagree because the Head & Shoulders is much more rigid in its structure, while the Cup with Handle formation allows anomalies to occur.  This is a very bearish formation.

In reviewing the Cycles, I find an alternate to my original thinking that may explain the slow development of the decline.  The original Cycle layout called for the Master Cycle to be complete by Friday.  That does not appear likely with the bearish formation just being triggered.  The alternate calls for the Master Cycle to decline into options expiration week.  That would be in agreement with the destructively bearish targets in both the SPX and NDX.

ZeroHedge reports, “U.S. futures slumped alongside tumbling European and Asian stocks on Thursday, but have since rebounded and were back near unchanged levels as traders awaited remarks from Jerome Powell following a recent bout of bond market turmoil. Treasuries and bitcoin were steady, while the dollar and oil were slightly higher. Nasdaq futures rebounded after falling to a two-month low, wiping out all 2021 gains.

At 6:45 a.m. ET, Dow E-minis were down 48 points, or 0.15% and S&P 500 E-minis were down 10 points, or 0.26%. Nasdaq 100 E-minis were down 36points, or 0.29%.

The S&P 500 is set to open below its 50-day moving average, an indicator of short-term momentum that has proved to be a support line in the recent days.

 

NDX futures dipped to 12513.38 before bouncing back to breakeven.  The neckline is near 12700.00 and may be an attractor until it is tested.  You can see how much more structured the Head & Shoulders is in the NDX as opposed to the SPX.  However, it also simultaneously has a Cup with Handle formation with a much more bearish outcome.  It almost seems as if the market is hell-bent to decline no matter what Powell says.

ZeroHedge remarks, “As the NASDAQ took another drubbing on Wednesday, leading many to think that the turmoil of late isn’t just going to go away on its own, all eyes were on the market’s latest “visionary” investor, Cathie Wood at ARK Invest.

Wood has been in the news over the last 12 to 18 months due to the meteoric rise in ARK’s flagship ETFs, including the ARKK Innovation Fund. But of late, even more eyes have been on Wood because questions loom about how Wood’s fund would handle the tech bubble, that has been building in size and speed since March 2020’s Covid lows, if it burst.

And if this week has been any indication, we may find out soon enough.

Heading into Wednesday night, the NASDAQ had turned red on the year.”

 

VIX futures rose to a high of 27.78 before receding back to the mid-Cycle support at 25.98.  The Cycles Model suggests a possible explosion of strength through the weekend.  Further strength may occur during options week.

 

TNX made a low of 14.50 overnight, then began its probe higher.  We have a Powell speech this morning and a 10-year treasury auction, to boot.  The market may be on tenderhooks until then.  A probable targe for today may be 17.00 or higher, depending on the reaction of the crowd.  Once the peak is in, the rush to cover may be astonishing.

ZeroHedge reports, “Something crazy happened in the repo market today: according to Curvature repo guru Scott Skyrm, the 10Y traded as low as -4.00% in repo, a record low level and an unprecedented dislocation for the world’s most liquid security, one with potentially tremendous consequences for what Jerome Powell may say tomorrow. Incidentally, Skyrm was far more dramatic about this historic move:

It’s all over for the 10 Year Note! Clearly a significant amount of shorts rolled forward and now short-demand has overwhelmed the available supply. The issue traded as low as -4.00% today and already traded at -3.05% for tomorrow. Both of those rates are lower than Fail Charge, which is the equivalent of -3.00%.

What is remarkable is that the 10Y was barely “special” last Thursday when yields exploded higher amid the liquidation panic.

Actually scratch that: last week there were barely any shorts in the 10Y – that’s why the massive stop loss liquidation after last Thursday’s 7Y auction was just longs puking. It was only after that the flood of shorts arrived and hammered the 10Y to “fails” levels in repo.”

ZeroHedge further observes, “One of the biggest buzzwords in finance right now is the three letter acronym SLR, which stands not for a discontinued and particularly expensive Mercedes model, but for Supplemental Liquidity Ratio – a limit on how leveraged US banks can get – and whose fate could mean the difference between a stabilization in the bond market a violent, marketwide crash.

Here’s what’s going on.

Back on April 1, 2020, just as the market was crashing and one week after the Fed unleashed its bazooka to avoid a total systemic collapse, the Fed announces temporary change to its supplementary leverage ratio (SLR) rule “to ease strains in the Treasury market” and “increase banking organizations’ ability to provide credit to households and businesses.” Specifically, the Fed change would exclude U.S. Treasury securities and deposits at Federal Reserve Banks from the calculation of the rule for holding companies. The change would be in effect until March 31, 2021.”

 

USD futures rose to 91.22 this morning, still consolidating, but ready to move higher.

 

 

 

 

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March 3, 2021

3:20 pm

NDX broke through the neckline/lip of the Cup with Handle formation.   This should prepare us for a panic decline that is likely to catch on to the SPX and DJIA.  The Hi-Lo indices appear to be off kilter (going higher) or it may be that retail is still buying smallcaps.  The final figures aren’t available until tomorrow’s open.

ZeroHedge reports, “Things have accelerated south as the day wears on, with US equities all down hard led by a 2.5% plunge in big-tech.

Nasdaa is now down almost 1.5% since the end of February (and down almost 5% from Monday’s exuberant highs)…

 

10:58 am

TNX is approaching/testing its 15.00 pain threshold for stocks.  It appears that the target may be 17.00 or higher which may set off a panic in equities.  The 5-year note is also approaching its threshold at .75.

ZeroHedge remarks, “Just around the time we showed that 5Y breakevens have soared to 2.50%, a level last seen just before the 2008 global financial crisis (and when oil was trading at $140), Mizuho rates strategist Peter Chatwell cautioned that with the 5Y nominal yield rising dangerously close to 0.75% again, this is  “warning #2 for stocks and credit.”

 

7:30 am

Good Morning!

NDX closed beneath its 50-day Moving Average at 13112.96 yesterday.  NDX futures rallied above the 50-day overnight but appear to have retreated back beneath it this morning.  Should it be unable to hold its grip on that support, the next target is the neckline/lip of the Cup with Handle formation.  This formation is as bearish as it gets.

There are two scenarios that present themselves.  The first is that investors are caught offsides and off guard.  The panic is so profound that the bottom literally falls out in just a matter of days.  The second scenario posits that the Master Cycle ended last Friday at the low (day 256).  What happens next depends on whether downside support is broken.

 

SPX futures tested Short-term resistance at 3897.01 in the overnight session, but has pulled back down.  Mid-Cycle support must be broken to resume its bearish pace.  A close beneath the trendline and the 50-day Moving Average at 3806.62 confirms the crash scenario.

ZeroHedge reports, “Once again market sentiment has reversed violently – or rather the opposite – overnight, with yesterday’s late day spoo slump inspired by the short squeeze in Rocket Mortgage – which forced hedge funds to liquidate their best positions – being faded and on Wednesday Emini futures jumped 0.6%, global shares gained with European indexes echoed positive moves in Asia, as a recent retreat in Treasury yields fuelled demand for riskier assets… even though the 10Y has rebounded 5bps to 1.45% overnight as focus again turned back to the stimulus-fueled recovery from the pandemic. The MSCI world equity index gained 0.4% while oil halted its longest losing streak since December.

At 0730 a.m. EST, Dow E-minis were up 202 points, or 0.64% and S&P 500 E-minis were up 21.5 points, or 0.56%. Small caps were sharply higher with Russell 2000 futures up 1.1% while Nasdaq 100 E-minis were up 86.5 points, or 0.65% as a swift global roll out of vaccines and a new round of stimulus bolstered bets on a quick economic rebound, with investors also focusing on private employment and service sector reports.  Bank of America, Goldman Sachs and Morgan Stanley were up between 1.2% and 1.7% in trading before the bell.

 

VIX futures declined to 22.45 in the overnight session, making a 76% retracement and may have completed its correction pattern.  A breakout above the Cycle Top resistance at 34.62 confirms that Wave (3) is in progress.

 

USD futures are consolidating after yesterday’s gains.   The next move will be very painful for dollar shorts as it breaks out to a new high.  The Cycles Model suggests unusually high trendline strength today in the USD which may be a result of short covering.

 

Gold futures are being hit hard as the decline approaches round number support at 1700.00.  Trend strength may grow as the decline may break down even further through the weekend.  The Cycles Model suggests three more weeks of decline, profoundly disappointing the gold bugs.

SchiffGold opines, “Gold and silver continue to struggle with significant selling pressure. Last Friday, gold dropped some $40 as bond yields rose yet again. There continues to be this expectation that rising inflation and economic growth are going to force the Fed’s hand and cause it to pivot to tighter monetary policy sooner than expected. But in his podcast, Peter Schiff reminds us that inflation is not a threat to gold. And he says anybody betting against the yellow metal and on the dollar is going to lose.”

 

TNX resumed its rally as futures hit a high of 14.74.  The final probe higher may peak between Thursday and Monday in an extended Master Cycle.  No one is expecting this to happen.

Investing comments, “(Bloomberg) — President Joe Biden’s $1.9 trillion relief plan, plus the prospect of more stimulus later this year, is setting the stage for a shift away from historically low Treasury yields that’s likely to lead to a pickup in volatility in currency markets.

U.S. yields have marched higher even before the plan’s arrival — offering an inkling of what may be in store. BlackRock Inc (NYSE:BLK). sees as much as $2.8 trillion in additional fiscal spending this year and the risk of a further rise in long-term rates. BNY Mellon’s John Velis says a 2% 10-year Treasury yield is possible by April as part of a “tantrum without the taper” of Federal Reserve bond purchases. And volatility in currencies is so low that it’s all but certain to go up, says Harley Bassman, creator of a widely watched gauge of Treasury-market movements.”

 

 

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March 2, 2021

10:51 am

NDX is approaching its 50-day Moving Average at 13106.17.  A cross beneath it would produce a powerful (confirmed) sell signal.  The 1987 crash had both a Head & Shoulders and Cup with Handle formations.  Both were met in 4.3 days.

RealInvestmentAdvice observes, “As I worked through this past weekend’s newsletter, I noticed that multiple markets are starting to exhibit topping patterns. It will be crucial for markets to reverse these patterns in the short-term if the bullish advance continues.

As we discussed with our RIAPRO.NET subscribers yesterday:

“The good news is that the S&P 500 held its 50-dma during its recent selloff. With the market getting back to more oversold levels, we are likely to see a counter-trend rally for a few days that could get us back above the 20-dma. It will be necessary for the rally to set new highs to negate the “head and shoulders” pattern. If the market rallies, fails, and breaks the neckline, we could well see a deeper correction ensue.”

Topping Patterns, Technically Speaking: Topping Patterns Popping Up Everywhere

 

10:42 am

SPX has loosed itself from Short-term support at 3896.39 ands is heading for mid-Cycle (intermediate-term) support at3857.01.  Options turn bearish  beneath that level.  This is an aggressive sell for those who have covered.  Support at the trendline at 3810.00 and the 50-day Moving Average at 3804.56 may trigger a barrage of selling.  Trend strength is starting to build and may peal on Friday.

ZeroHedge remarks, “Back in mid-December, when stocks were melting up furiously daily amid unprecedented retail euphoria, which would only get crazier and crazier until eventually it forced Citi to use a bigger chart two months later to capture the market’s retail euphoria…

… we reported that Bank of America’s first proprietary sell signal since February 2020 was triggered:

According to BofA., equity “barbell” strategies all the rage while (the few remaining) bears note cash levels fall to 4.0%, triggering an FMS Cash Rule “sell signal”; The last time the sell signal was triggered was in February 2020 – everyone knows what happened next.”

 

9:42 am

The S&P Ag Index is replacing DBA as there were anomalies in DBA (an ETF) that did not agree with the Index.  The Master Cycle (shown in red) may not be complete, and may terminate at the potential low being made in Wave (C).  GKX has been on a steady rise since last April with the high at 397.74 being a perfect 8.6 months from the April low.  Wave (B) has extended on trending strength, as they are wont in a momentum move.  Wave (C) is targeted for the bottom shown at Wave (A).  The Current Master Cycle is due to end at the low toward the end of next week.

ZeroHedge reports, “Food prices are undeniably soaring faster than inflation and incomes around the world. As everyone’s favorite permabear, SocGen’s Albert Edwards, who, unlike Goldman, has already sounded the alarm on rising food inflation.

As a reminder, the Food and Agriculture Organization’s Food Price Index surged to a seventh consecutive month in December.

With the FAO food index rapidly rising, Edwards noted that “annual inflation in cereals reached 20%, the highest annual rise since mid-2011 when the Arab Spring was in full flow!.”

 

8:00 am

Good Morning!

As improbable as it seems, what the SPX has demonstrated is a probable expanding Leading Diagonal.  The Cup with Handle formation is the dominant formation with a high probability of a massive decline.  While there are alternate structures to be considered, the Leading Diagonal is the most bearish and corresponds closely with the structure in the NDX>

SPX futures have weakened, testing Short-term support at 3855.69.  Should the Crash scenario be in place, the crash may be starting at the 3:00 pm high.  The strongest part of the decline is expected to be on Friday, according to the Cycles Model.

ZeroHedge reports, “Lately not a session seems to pass without some “exciting”, unexpected event forcing momentum to reverse course, and sure enough following the best day for US stocks since June, overnight futures dropped after China’s top banking regulator said he’s “very worried” about risks emerging from bubbles in global financial markets and the nation’s property sector, sparking fresh concerns about further tightening in the world’s second-biggest economy and slamming risk assets.

Asia stocks immediately tumbled on Guo’s comments, with the MSCI Asia Pacific Index erasing earlier gains of as much as 0.8%. The CSI 300 Index in China fell as much as 1.4% and Hong Kong’s main gauge dropped almost 1%….

… while Chinese government bonds gained from a shift toward haven assets, sending yields on benchmark 10-year notes to a nearly three-week low.

US futures also dropped, reversing some of Monday’s gains…

… before recovering much of the loss. In notable premarket moves, Bank of America, Citigroup, JPMorgan, Wells Fargo and Morgan Stanley all dipped between 0.3% and 1.1%. Zoom Video jumped about 10% after the company forecast current-quarter revenue above estimates, as it expects millions of people to continue using its video-conferencing platform. GameStop and other “meme” stocks AMC Entertainment and Koss shed about 1% and 4.4% after a sharp surge on Monday with no apparent news on the shares.

 

NDX futures slid toward the 50-day Moving Average at 13098.70, but partially recovered.  It has formed a perfectly structured Primary Wave [1]-[2] that may have terminated near the top of Wave (4), a normal retracement for a Cycle Wave I of Super Cycle Wave (c).

 

VIX futures appears to be consolidating within yesterday’s trading range.  We look for the VIX to close above its 50-day Moving Average at 23.34 to begin Intermediate Wave (3) of Primary Wave [C].  The probability of matching or exceeding the high of March 2020 is very high.

 

TNX appears to be steady today, if not slightly higher in the futures.  The Cycles Model implies growing strength of trend through early next week.  This may be the spark to set off the powder keg in equities.

ZeroHedge observes, “The housing boom unleashed by the Federal Reserve during the pandemic was built on historically low mortgage rates (thanks Powell), low inventory, city-dwellers moving to rural areas, and remote-work phenomenon. In all, housing prices in 20 U.S. cities surged in December at the fastest pace since 2014 as mortgage rates fell to record lows. But a new rate regime is in town, one where bond traders are pricing in inflation as they believe the vaccine rollout and stimulus will lead to a sizzling economic recovery, one that could force the Fed to hike rates earlier (and more aggressively) than expected…

…all of which has resulted in the latest treasury and mortgage bond rout.

If you called up your mortgage lender last week for a 30-year fixed loan, the rate was around 2.81% – this week, the rate jumped to 3.06% on Friday, the highest since August. Rates have been increasing since hitting a record low of 2.65% in early January.”

This morning ZeroHedge further comments, “U.S. 30-year mortgage rates have rebounded sharply since two weeks with the 30-year treasury yields spiking above 2.25% on Thursday (highest since January 2020). The recent shock to the Fannie Mae 30-year mortgage — used as a benchmark for U.S. home loans — was meaningful. On a 5-day basis, outside of one time during the Covid crisis last spring, it was the biggest percentage rise in mortgage rates on record.

Despite the latest report from Freddie Mac suggests that 30-year mortgage rates were still at 2.97% (highest since August 2020), it seems that reality is a bit different.”

 

USD futures hit a new high at 91.39, pushed higher by the specter of rising rates.  Last Thursday’s Master Cycle low at 89.68 now appears to be locked in, with the USD rising through mid-April.  The rising USD has not reached recognition status  yet.  A breakout above the previous high at 91.61 may finally gain the recognition the rising dollar deserves along with the increasing pain leading to short covering.

 

Gold futures have bounced off the Cycle Bottom support at 1720.00 to 1734.35 in overnight trading.  However, the decline is not due to end until the week following options and futures expiration.  This move is the biggest argument against a new super Cycle bull market in commodities.  The other commodities may soon follow.

 

 

 

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March 1, 2021

8:00 am

Good Morning!

SPX futures have challenged the mid-Cycle (Intermediate-term) resistance at 3852.74 this morning.  This bounce may be Minute Wave (c) of Minor Wave 2.  The 50% Fibonacci retracement of Wave 1 is at 3859.09.  The 61.8% Fib retracement is at 3875.51.  Should this bounce meet or exceed Friday’s retracement high at 3861.08, the countdown for the crash scenario starts here.  As mentioned last week, a crash scenario takes at least 4.3 days.  The trigger for that scenario appears to be the Lip of the Cup with Handle formation.

ZeroHedge reports, “After last week’s global bond rout, central banks weren’t taking any chances, and as soon as the overnight session started yields plunged first in Australia and then everywhere else after the RBA doubled the amount of daily QE to enforces its YCC, sending 10Y Australian bond yields plunging by as much as 32bps, the biggest drop since last March. Other joined in verbally, with the ECB saying said it will not tolerate higher yields even though the Fed has for now said it sees little cause for concern in the rapid run up (BofA disagrees and expects Powell to calm markets as soon as this week). Meanwhile, a barrage of sellside reports over the weekend, sought to reassure investors about the risk of a breakout in inflation, with the likes of JPM and Goldman all saying that fears of a rapid increase in consumer prices are overblown (although in case they aren’t, Goldman conveniently provided a list of companies that will be hammered if yields continue to rise).

In any case, S&P500 futures jumped more than 1% on Monday thanks to the stabilization in bond yields and as Johnson & Johnson’s newly approved COVID-19 vaccine and progress in a new $1.9 trillion coronavirus relief package fueled optimism over a swift economic recovery. At 07:30 a.m. ET, Dow E-minis were up 297 points, or 0.954% and S&P 500 E-minis were up 40.00 points, or 1.05%. Nasdaq 100 E-minis were up 167.50 points, or 1.29%

The risk advance was broad, with stocks tied to economic reopenings and faster growth notching some of the biggest gains. Futures on the small-cap Russell 2000 Index outperformed the Nasdaq 100 Index.”

 

NDX futures are coming off a high of 13132.38 this morning and have fallen beneath the 50-day Moving Average.  Don’t let this bounce fool you.  The only support left is the neckline/Lip of the Cup with Handle formation with dire consequences when the NDX declines beneath them.

ZeroHedge observes, “In today’s equity update we are following up on our analysis of the Tesla-Bitcoin-Ark risk cluster showing an updated positions analysis, cross-correlations in the flagship Ark Innovation ETF, and an drawdown analysis. Yesterday, was another bad session for this risk cluster and Ark Invest had a day with outflows across all their ETFs highlighting that risk sentiment has changed. With the founder’s bold move to increase the position in Tesla during the week the risk has gone up that this risk cluster could turn into an ugly forced selling dynamic causing pain in not only Tesla, Bitcoin, and Ark funds, but also US biotechnology stocks where Ark Invest is a major holder with high ownership in selected names.

A little over a month ago we first flagged the Tesla-Bitcoin-Ark risk cluster as something to take note off as short-term correlation between Tesla and Bitcoin was shooting up. A survey from Charles Schwab also confirmed our suspicion that there is a big overlap as these two instruments are among the top five holdings by millennials. Our analysis quickly led us to Ark Invest with its famous Ark Innovation ETF which had a big position in Tesla and its charismatic founder Cathie Wood is a big believer in the so-called disruptive innovation culture of Silicon Valley. This class of people believe firmly in technology as mainly good for society in all its aspects and that Bitcoin is a protection against future wealth confiscation which is most likely inevitable due to historically high wealth inequality.”

 

VIX futures made an overnight low of 24.74, making a 58% retracement of its Wave (1) off the Master Cycle low.  his would be expected, as Intermediate Wave (3) of Primary Wave [C] of Cycle Wave III portends a crash may be developing.  Cycle trending strength appears to be highest on Friday, which supports the 4.3-day crash scenario starting today.

 

TNX is lower this morning, but while today is day 269 in the Master Cycle (suggesting last week’s high may have been the top), the Wave structure may be deficient, leaving room for another probe higher this week.  The outside limits of the Master Cycle is plus or minus 17.2 days (241 to 275).  There are multiple reasons for this:

  • The first is that, contrary to my expectation of a 10-year Treasury auction last week, the next scheduled auction is on March 4.  Remember, last week’s 7-year auction was a disaster, causing the rate spike on Thursday.
  • The FOMC meets this week, leaving a news blackout until Wednesday.
  • CTAs and hedge funds are still liquidating their bonds while foreign investors have been staying away.

ZeroHedge observes, “It was just last Tuesday when he presented our readers with the latest observations from JPM quant Nicholas Panaigrtzoglou, who warned that the rapid rise in bond-equity correlations…

… was bringing memories of previous violent bond tantrum episodes, including Bernanke’s famous Taper Tantrum from May-June 2013, the Bill Gross-inspired Bund tantrum of May-June 2015, the period into the US election Oct-Nov 2016, Feb 2018 and Q4 2018. All of those ended with pain for both bond and equity longs, and certainly risk parity and 60/40 balanced funds who were crushed on both long legs.

Well, just two days later this warning was realized as we saw a surge in bond volatility as global bond prices plunged and yields soared as the latest inflation scare finally came to the fore (catalyzed by the catastrophic 7Y auction which sparked massive liquidation volumes across the curve).”

 

USD futures have hit a new high from its Master Cycle low at 89.68.  Most investors are apparently ignoring this move and may not recognize a (short-term) change in trend until the USD rises above 91.61.  The Cycles Model suggests the rally may extend until mid-April.  Thus, the normal target at mid-Cycle resistance at 92.94 may be exceeded.  A possibility may be a rally to the Cycle Top resistance, currently at 97.39.

 

After a brief rebound from Friday’s surprise reversal, WTI futures have turned back down.  The decline should be no surprise, as Friday was day 256 in the Master Cycle.  The Cycles Model indicates that, should the decline get underway, we may see it continue up to six weeks through early April.  After weeks of declarations of a new Super Cycle bull market in oil, the hedgies and CTSs are jumping in with both feet.

ZeroHedge remarks, “Two weeks ago when the world was still transfixed by the rolling squeezes of the most shorted stocks triggered by the WallStreetBets subreddit, we reported that JPMorgan said to ignore the spectacle du jour in the illiquid, left-for-dead smallcaps, and instead focus on what was coming: a coming massive, marketwide squeeze as quant, momentum and other systematic investors soon start covering what is a historic short across the energy sector. Importantly, JPM also gave us the timing of said squeeze: early March.

Fast forward to today when various funds have naturally frontrun what is expected to be a massive market move. Yes, the systematic short squeeze that JPM’s Kolanovic wrote about two weeks ago, has started and as Rabobank’s Ryan Fitzmaurice wrote, “the one-year rolling momentum signal for Brent flipped from bearish to bullish this week, effectively leaving systematic traders “all-in” with respect to their directional oil market bias.”

 

 

 

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February 26, 2021

7:30 am

I will be out most of the day, so I have given as comprehensive account as I can for what may transpire.  Be prepared!

Good Morning!

NDX futures are flat this morning after having bounced off the Head & Shoulders neckline.  The probability of a crash scenario is very high, and becomes certain once the NDX declines beneath 12750.00.  So let’s review what the Cycles may offer us.

First, a crash takes a minimum of 4.3 days.  The time would be measured from the top of Wave 2 at 13312.40, so one day has elapsed thus far.  That gives a minimum time to the bottom at Wednesday morning.  However, the decline and correction from the top at 13879.80 took exactly 6.45 days, (1.5 Cycles).  That suggests a possible 6.45 day decline from the top of Wave 2, indicating a possible bottom at mid-day on Friday.  We will have to monitor the situation as it develops.

 

SPX futures also remain flat.  SPX has not (yet) crossed the 50-day Moving Average at 3798.76.  It also must decline beneath the massive Orthodox Broadening Top trendline.at 3750.00.  Once accomplished, point 6 awaits at 2100.00.  Should the Broadening formation be valid, that target appears to be the minimum for this move.

ZeroHedge reports, “Global bond yields slid on Friday following Thursday’s epic meltdown as markets returned to firmer footing at the end of a week that saw the biggest decline in the Nasdaq 100 since the pandemic meltdown. Meanwhile, the quant who predicted this week’s meltdown in both bonds and stocks, turned bullish overnight (more in a separate post) a further indication the liquidation may be ending.

US futures found support around 3,800 and have since rebounded, as global markets stabilized after central banks from Asia to Europe moved to calm a panic that had sent US government bond yields to their highest level in a year and triggered a loss of almost $900 billion in the value of the tech-heavy Nasdaq, the biggest since March.

Contracts on the Nasdaq 100 and S&P 500 fluctuated before turning modestly higher. Thursday’s rout in yields which sent the 10Y as high as 1.61% after a catastrophic 7Y auction, has reversed with broad-based buying across the curve, especially after central bankers stepped in with the usual jawboning to convince markets of their commitment to Yield Curve Control (as the alternative is simply unthinkable). The scale of the sell-off prompted Australia’s central bank to launch a surprise bond buying operation to try and staunch the bleeding. The ECB is monitoring the recent surge in government bond borrowing costs but will not try to control the yield curve, ECB chief economist Philip Lane told a Spanish newspaper.”

 

VIX futures are lower, but remained above the mid-Cycle support at 25.98.  There is no formation that gives a target, other than the prior high from last March.  Past experience would suggest the top of Wave (1) may terminate near 85.00.

ZeroHedge observes, “Following a series of warnings that risk parity funds may be on the verge of capitulation and deleveraging into the maelstrom of tumbling stocks and bonds…

… yesterday it was JPMorgan’s turn to join the chorus of warnings that the continued selloff in rates, coupled with the accelerating drop in tech/growth stocks would result in very unpleasant consequences for both risk parity and conventional 60/40 balanced funds.

In his report, JPM quant Nick Panigritzoglou looked that the recent surge in the bond-equity correlation (which is usually negative and “helps to contain the volatility of risk parity funds and balanced mutual funds”)…

… which he wrote was “raising concerns about de-risking by multi-asset investors, such as risk parity funds and balanced mutual funds.”

 

TNX futures are also flat, giving an eerie sense of calm to the markets.  However, it is not yet time to breathe easy.  I have marked yesterday’s high as the top of the current Master Cycle.  However, today the 10-year treasury auction is being held.  After yesterday’s disastrous 7-year treasury auction, things don’t look good for today’s outcome.

ZeroHedge reports, “This is as close to a failed auction as we have ever come…

Ahead of today’s closely watched 7Y treasury auction, where the bulk of the recent Treasury rout has been concentrated as traders hammered the belly of the curve, we said that “If the 7Y tails a lot, watch out below” as that would only add insult to today’s furious selloff injury. Well, that’s precisely what happened, because with the 7Y pricing at 1.195%, this was a whopping 4.1bps tail to the 1.151% When Issued.

The auction was, in a word, catastrophic. 

Starting at the top, the bid to cover tumbled from 2.305 to 2.045the lowest on record, and far, far below the 2.35 recent average.

But if that was ugly, the internals were even worse, with the Indirects plunging from 64.10% to just 38.06%, the lowest since 2014, as no foreigner suddenly wants to even smell US debt!”

 

 

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February 25, 2021

12:38 pm

NDX is on a sell signal and declining fast to its Head & Shoulder neckline.  Beneath that is confirmation of a 15% plunge from the top.  The 200-day Moving Average is at 11564.00.  The 2011 trendline lies at 8900.00.  Could they be met or exceeded by the end of April?

ZeroHedge observes, “‘Stonks’ are puking this morning (led by Nasdaq) since the cash markets opened.

And while most of the attention for the plunge has been focused on rate-velocity anxiety, we suspect there is another, even more powerful reason.

Starting at around 1500ET yesterday, the ‘old’ WallStreetBets ‘Short-Squeeze’ stocks exploded higher once again amid a major gamma squeeze in GME…”

 

12:24 pm

TNX is at a new 1-year high and roundly beat its Head & Shoulders target.  With all the hoopla from ZeroHedge, the reversal cannot be far away.  Base on today’s actions, the 10-year auction tomorrow may be a milestone.

 2:30 pm update  TNX hits a new high at 16.14.

ZeroHedge remarks, “Yesterday, when looking at the latest CTA positioning, we said that “CTAs Are The Most Short Treasurys Since 2018… And Getting Shorter” warning that we could see a massive flush if and when the 10Y broke above 1.50%. Well, one look at the 5Y future today and it looks like we were right.

Making matter worse, the CME today reported that its Ultra 10-Year Note and 30-Year Bond futures broke volume records on Feb. 23, as the U.S. Treasuries rout paused before resuming the next two days, meaning that real money is now also aggressively selling rates.”

2:45 pm

ZeroHedge reports, “This is as close to a failed auction as we have ever come…

Ahead of today’s closely watched 7Y treasury auction, where the bulk of the recent Treasury rout has been concentrated as traders hammered the belly of the curve, we said that “If the 7Y tails a lot, watch out below” as that would only add insult to today’s furious selloff injury. Well, that’s precisely what happened, because with the 7Y pricing at 1.195%, this was a whopping 4.1bps tail to the 1.151% When Issued.

The auction was, in a word, catastrophic. 

Starting at the top, the bid to cover tumbled from 2.305 to 2.045the lowest on record, and far, far below the 2.35 recent average.

But if that was ugly, the internals were even worse, with the Indirects plunging from 64.10% to just 38.06%, the lowest since 2014, as no foreigner suddenly wants to even smell US debt!”

 

12:08 pm

VIX is now above the 50-day Moving Average at 23.55.  This is considered an aggressive buy for the VIX (Sell the SPX).  Further confirmation lies at the mid-Cycle resistance at 25.95 and a breakout at 27.01.  These are your markers for considering your actions.  The Feb 23 high at 27.01 is a likely candidate for the end of the Master Cycle.  This is the first positive Cycle since October.  If this is the beginning of the uptrend, we may not see the  Master Cycle high until the end of April!

 

12:01 pm

SPX has just crossed beneath Short-term support at 3891.92.  Aggressive shorts may be considered at this time.  Further confirmation lies at mid-Cycle /Intermediate-term support at 3852.17.  3850 is where puts begin to outnumber calls which forces the dealers to go short to cover the gamma.  The trendline at 3805.59 may be considered the next hurdle to cross.

ZeroHedge remarks, “Did TINA just die?

The 10Y Treasury yield has soared back in line with the S&P 500 dividend yield for the first time since Jan 2020.

And for foreigners, Treasuries haven’t been this attractive since 2015…

So it appears ‘there is an alternative’ to record-expensive US stocks now?”

 

Good Morning!

I’m back in business after the horrible outage down it Texas.  I found out that it was where my server was.  Apparently the power failure corrupted not only my files but the backup program as well.  My website has been running for 20 years and many of the programs were patched as updates were applied.  The patches finally gave way under the stress.  I have relocated to a new and more powerful server and have restored the month of February.  The prior history may be gone.

SPX futures are down, but not under 3900.00, a critical level.  Since we are so near the end of the current Master Cycle, we may see it end on a high, given that the DJIA has just made a new all-time high.  The Master Cycle is scheduled to end by Monday, which would be day 259.

ZeroHedge reports, “It’s not just the surge in meme stocks that is a case of deja vu all over again: the big action this morning is in another closely watched asset – the 10Y – where yields have soared by almost 10bps, rising from 1.38% to a one-year high of 1.46%, rising just 4bps shy of the closely watched 1.50% level which Nomura predicts will spark an equity selloff.

“Inflationary signals, including a surge in commodity prices, are higher than we have seen in years,” said Geir Lode, head of global equities at the international business of Federated Hermes. “The prospect of a sooner-than-expected economic recovery has led to a surge in the U.S. 10-year yield.”

And amid fears that the stock rout will only get worse, Nasdaq futures fell 1% on Thursday, sliding for seven out of the last eight sessions, as investors rotated out of technology-related stocks…

… and into small cap and reflationary shares that will benefit from an economic rebound later in the year. The Russell 2000 index rallied and S&P500 eminis were modestly in the red. At 715 am ET, Dow e-minis were up 5 points, or 0.01%, S&P 500 e-minis were down 12.35 points, or 0.3%, and Nasdaq 100 e-minis were down 123.5 points, or 1%.”

 

NDX futures are down after being repelled at mid-Cycle and trendline resistance.

ZeroHedge comments, ”

We bought NASDAQ for the yields down logic…

The Market Ear Picture

…but what do you do when yields are up, and continue higher?

The rate of change in this rates move is violent, catching most by surprise. We are approaching 1.5%, a level that was not in many excel models only a few months ago.

NASDAQ has just woken up to the yields move. NASDAQ futs vs US 10 year inverted chart.”

 

TNX futures rose to 14.68, while the cash market rallied to 14.66 this morning.  The Price Target has finally been met on day 265 of the current Master Cycle.   Its now time for a reversal that is likely to retest the supports under it.

ZeroHedge observes, “A little over a month ago, on January 7 when looking at the technicals in the Treasury market and when the 10Y was trading at just over 1%, we warned that “it’s about to get ugly”…

… revealing that the key catalyst for further downside in rates would be when trend-following funds such as CTAs liquidated their long positions and flipped from long to short, an event which Nomura’s Masanari Takada said would take place when “10yr UST yields remained above 1.10%”…. which they clearly have in the past few weeks.”

 

VIX futures are off yesterday’s low, but haven’t broken through the 50-day Moving Average.  We may still see a volmageddon event, as the Wave count appears to be a perfect (1)-(2), 1-2.  This suggests an extended Wave 3 of (3) is due to follow.

 

USD futures made a new low at 89.69 this morning in day 260 of the current Master Cycle.  Stay tuned for a reversal to the mid-Cycle resistance or higher.

 

In the past week I had warned that the target for WTIC is 63.15.  This morning WTIC futures hit 63.79 on day 255 of the current Master Cycle.  A reversal may be imminent.  The calls for a new commodities super Cycle may be premature.

ZeroHedge remarks, “Amid all the issues ignited in the Texas turmoil, and as oil prices roar to post-COVID highs, analysts across the energy space appear to be outdoing each other with their bullish forecasts.

Source: Bloomberg

Brent Crude prices could hit $70 a barrel in the second quarter of 2021, while they are set to average $60 this year, Bank of America said this week, raising its average price outlook by $10 a barrel from its previous projection.”

 

 

 

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February 23, 2021

February 23, 2021

8:00 am

Good Morning!

We should not be surprised to see NDX futures plummet beneath the 50-day Moving Average at 13048.35 this morning.  The NDX closed yesterday at the one-year uptrend line.  The break this morning closes out that chapter and opens a new one.  There are at least four more days left in the current Master Cycle.  A lot of damage may occur in those four more days.

ZeroHedge reports, “Global stocks, US equity futures and cryptocurrencies all tumbled on Tuesday as the recent surge in inflation, bond yields and commodity prices continued to hammer technology shares while investors awaited fresh reassurance from U.S. Federal Reserve Chair Jerome Powell on the path for monetary policy in United States.

The MSCI world equity index fell 0.1% to fresh two-week lows, having earlier risen on gains in commodity-heavy equity indexes in Asia. After rising during the Asian session, S&P 500 futures also fell once Europen came online, and were last down 0.4%.

Nasdaq futures tumbled as much as 2%, and were last down 1.4% a day after the tech-heavy gauge posted its longest losing streak in four months. Heavyweight tech stocks slid premarket, with Apple -2.7%, Amazon -2.4%, Tesla -7.5%, Alphabet -1.6%. Tesla crashed 6% in pre-market trading, sliding below the $695 level at which it entered the S&P500.  Tesla shares were set to plunge into the red for the year, hit by a fall of bitcoin, in which the electric carmaker recently invested $1.5 billion.”

 

SPX futures gapped down to test the 2-hour mid-Cycle (Intermediate-term) support.  The damage is not yet as severe as the NDX.  However, it may have entered negative gamma territory where the downside momentum is sure to pick up.  The leveraged bullishness is at an extreme, but may soon evaporate as the decline gathers strength.

ZeroHedge reports, “While the S&P has been weaker since Friday’s opex, Nasdaq is the “messiest” due to the index-level price-movement “unclenching” based upon the sheer amount of $Gamma running-off post last Friday’s Op-Ex.

As Nomura’s Charlie McElligott notes, the effect was particularly notable in Nasdaq with QQQ experiencing over 50% drop in aggregate $Gamma, which meant that the prior Dealer hedging barriers have also collapsed and are no-longer providing insulation.”

 

VIX futures tested mid-Cycle resistance at 26.03 in the overnight market after closing at the 50-day Moving Average at 23.45 yesterday.  VIX may be at the cusp of an explosive move in the next week.  Last week’s options expiration dropped the largest short-vol options and futures volume in recent times.  This may be reminiscent of the volmageddon event that happened in February 2018.

 

TNX futures hit an overnight high of 13.82.  However, this morning’s open only registers at 13.70 thus far.  Today is day 263 in the Master Cycle, a bit longer than the average but still within the Cycle turn window.  You may often see me discuss time and price.  It is rare when both targets (if known) are not met.

Investing comments, “The reflation and inflation meme tightened their grip on the markets. Interest rates have risen, and curves have steepened. Two events occurred around the same time in early November that sent a similar signal: the US election with prospects for significantly more stimulus and a vaccine’s availability. Since the US election and the announcement of a vaccine in early November, the 10-year US break-even has risen from about 165 bp to over 225 bp, before finished the week near 2.15%. accounting for the nearly 50 bp increase in the nominal 10-year yield.”

 

USD futures have risen to test the trendline at 90.44 after making a low of 89.99.  Today is day 258 of the current Master Cycle, leaving the probability of a Master Cycle low yesterday.  If so, we may see the USD rally to the Cycle Top resistance by mid-April.  I am monitoring the USD moves to determine if that may be correct.

 

Crude oil futures hit an overnight high at 62.99, nominally testing the monthly mid-Cycle resistance at 63.14 mentioned yesterday.  Today is day 253 of the current Master Cycle, a bit early, but within the window for a reversal, having met time and price targets.

Investing comments, “WTI crude oil traded higher yesterday and continued marching north today as well, breaking above last Thursday’s high of 62.20, thereby confirming a forthcoming higher high. However, did not move much higher and pulled back to settle near that barrier. Overall, the black liquid trades well above the upside support line drawn from the low of January 4th, and thus, we would consider the near-term outlook to be positive.”

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February 22, 2021

February 22, 2021

8:00 am

Good Morning!

SPX futures have fallen to test Short-term support at 3866.44 this morning, having made a low of 3861.38 thus far.  This may be a result of the gamma-driving options market that kept SPX above 3900.00 most of the week.  As the call options fall away at expiration, the dealers can now relax now that the options market no longer acts like the tail wagging the dog.  One thing is certain, however.  Investors may have had a change in sentiment, or rather I should say the longer-term puts that remain may now have a greater influence on the SPX going forward.  The options market turns negative below 3850.00.

ZeroHedge reports, “After a week when everyone was focusing on the i) blowout in bond yields and ii) how much worse it could (and would) get, it got worse on Monday, when the 10Y yield jumped from Friday’s close of 1.34% to 1.39%…

…. while the 5s30s (the gap between 5- and 30-year yields) blew out to the highest level in more than six years…

Following a weekend in which the main news was “The Big Short” Michael Burry predicting Weimar-style hyperinflation, there have also been real-life indications of soaring price pressures to back up the market moves. Last week we saw 6-sigma beat in retail sales and PPI, hinting a scorching overheating in the US economy, while PMI surveys indicated record inflationary pressures. Even in Europe, the prospect of inflation is being entertained. It’s so bad that even sworn bond bulls such as HSBC strategist Steven Major abandoned his recommendation to buy U.S. long bonds, saying he “cannot ignore” the reflation trade.”

 

TNX futures reached a high of 13.59 this morning, not quite blowing out Friday’s high at 13.62.  However, the threat remains that TNX may reach its Head & Shoulder target at 14.46 in the next few days.

ZeroHedge advises, “For many months, traders and strategists have been warning – and dreading – a sharp spike higher in both nominal yields and real rates, and last week they finally got it with Real Yields finally surging the most since March…

… and joining the historic post-covid rally in Breakevens…

… sent 10Y yields to 1.36% the highest level since the pandemic and just 14bps away from the 1.50% level that Nomura predicted would hammer stocks as systematic, quant and CTA funds start actively shorting 10Y futures.”

 

VIX futures reached a high of 25.09 this morning, crossing above the 50-day Moving Average at 23.41 and creating a buy signal.  We would want to see the SPX decline beneath short-term support at 3866.44 in combination with the VIX above the 50-day for a SPX sell signal.

 

NDX futures made an overnight low at 13364.75, gapping through both trendlines.  This creates a sell signal for the NDX.  NDX is on the same Master Cycle as the SPX.  This may be a very fast decline ending between February 26 and March 4.

ZeroHedge reports, “ARK Invest’s Cathie Wood joined CNBC’s Scott Wapner last week. She warned of the increasing risk of a stock market correction if rates continue to “sharply” rise.

Around the 3:30 minute mark of the CNBC video, Wood told Wapner, “I do believe if rates were to take a sharp turn up, that we would see a valuation reset and our portfolios would be prime candidates for that valuation reset of course.”

 

USD futures have eased to 90.21 this morning, above Friday’s low of 90.17.  Today is day 257 in the Master Cycle, so there may be room for a further decline.  There is an alternate view that the February 6 high may have ended the current Master Cycle early.  If so, the USD may go into a deep dive to the Broadening Wedge target as early as mid-April.

 

I am probably one of the few market commentators that keep the very long view of the markets.  They help inoculate me against those who would call for a new Super Cycle bull market in oil.  What this chart is showing is an unfinished Ending Diagonal in a (still) secular bear market.  I am willing to be wrong should WTIC rise above the monthly mid-Cycle resistance at 63.12.  However, today is day 252 in the current Master Cycle, suggesting that the rally is nearly over.  The next Master Cycle (low) is not due for another 6 weeks.  A lot can happen in that time.

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February 21, 2021

February 21, 2021

9:00 pm

Good evening!

When I first started reading about winter storm Uri, I felt sorry for those poor people in Texas who were unprepared for what was about to happen.  Then I found out that my web server is located in Texas!  By Friday there was only partial restoration, which meant that many parts of the country still could not access this website, including my own location.  The world wide web is a lot more intricate than I could have imagined.  Anyway, The Practical Investor is back in business.

One of my thoughts was to create a backup plan for a downed server.  This means that I would have to re-start a subscription plan and use emails as a backup.  No decision has been made yet.  However, if you agree with the idea please email me at tonycherniawski@gmail.com.  My decision to continue with a “Plan B” backup plan would be appreciated.

In the meantime, I have updated my Cycles chart.  The last Master Cycle landed on January 29 at day 260.  The next Master Cycle is due as early as Friday, February 26 (day 256), but may last until March 4 (day 262).  I will be monitoring this for signs of expected completion this week or next.

 

VIX is hovering just above a one-year old gap between 17.08 and 22.19 that remains unfilled since last February 24.   This gap has been tested but not filled for the past six months and it is my belief that it will hold for two reasons:  First, gaps in a trending market often remain unfilled until the trend changes.  That suggests the trend began in December 18, 2018 at 8.90 with higher lows ever since.  The second reason is that the Master Cycle low was made on February 10 at 19.69 with the next Master Cycle (high) due the same time as the SPX.

Last week ZeroHedge remarked, “Specifically, McElligott explains that “volatility is the exposure toggle” in modern market structure risk management – whether a discretionary / active manager on VaR, a risk-parity fund, a systematic CTA Trend fund with a specific vol target, a variable annuity with downside protection triggers, tactical allocation models from roboadvisors etc..

In other words, this means that the size of a position is set to be inversely proportionate to the instrument’s volatility.

The reason all this could be of concern is the worrisome echoes from Feb 2018, home of the “Volmaggedon” Equities Vol shock, driven by the extinction event for most of the leveraged VIX ETN space on account of their impossible supply or demand needs of VIX futs at end-of-day rebalancing, and eerily triggered by Fed policy-tightening concerns after a series of better than expected inflation / price data over the month of January culminated in a big CPI beat the Friday prior to “Volmageddon” on Monday, which “waterfalled” into crescendoed SPX selling, -6.5% in 2 days.”

 

TNX is “in the window” for a Master Cycle high, but thus far may not have made it.  TNX futures have reached a weekend high of 13.94, suggesting a higher open on Monday, day 262 of the Master Cycle.  A sudden spike to 15.00 may cause a panic sell-off in equities and a spike in volatility, even with a pullback hat is bound to follow.  Remember my comments that the Head & Shoulders target was due to be met in the current Master Cycle, so we may see the fireworks begin tomorrow at the open.

ZeroHedge observes, “For many months, traders and strategists have been warning – and dreading – a sharp spike higher in both nominal yields and real rates, and last week they finally got it with Real Yields finally surging the most since March…

… and joining the historic post-covid rally in Breakevens…

… sent 10Y yields to 1.36% the highest level since the pandemic and just 14bps away from the 1.50% level that Nomura predicted would hammer stocks as systematic, quant and CTA funds start actively shorting 10Y futures.”

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