August 31, 2020
SPX futures hit a new all-time high at 3524.50, but eased down this morning to a low at 3506.38. A potential aggressive sell signal lies at 3500.00. Each support, when broken, strengthens the sell signal, with Short-term support at 3413.93. Should the SPX make a new morning high, but break beneath Friday’s low at 3484.28 it may form a Key Reversal.
ZeroHedge reports, “The melt-up continues: S&P futures rose on Monday for the eighth session in a row alongside European markets, despite fading some of their earlier gains after setting fresh all time highs on Friday amid investor confidence that central bank support will prop up risk for years, setting up the S&P 500 for its best August in over three decades.
VIX futures have risen to 24.86, just under the Lip of the Cup-with -Handle formation at 25.00. You can see that the VIX has tested the declining trendline near 27.00, but has not risen above it yet. Compare this with the VXN which has risen above its trendline last week (See August 30 report). VIX is on an aggressive buy signal, with confirmation of the new Cycle above 27.00.
NDX futures also made a new all-time high late yesterday, but have been declining since then. The daily chart registers the all-time cash high at 12048.00 on Thursday. Be aware that the VXN (NDX Volatility) has made a buy signal by rising above its declining trendline (see Aug 30 report). The Cycle Top support is at 11942.55 where an aggressive sell signal awaits. Additional confirmation lies beneath Short-term support at 11512.06.
TNX opened at 7.33, beneath Friday’s high. However, the Cycles Model suggests a very sharp move in the next 9 days. A decline beneath support at 6.26 foretells a decline.
August 30, 2020
As I reviewed my charts I noticed that the VXN had broken above its march 23 trendline on Thursday, leaving a buy signal. We know that the melt-up in the NDX has been caused by call buying of the top 5-10 Mega-Tech stocks. This, in turn is causing the dealers to reluctantly buy shares to Gamma hedge those calls. However, there is an ever-growing downside risk that the calls may expire worthless in a down market while the underlying gamma hedges remain exposed. Thus, the buying of VXN to hedge the hedges. This is getting serious, since this activity in the VXN may also show up very soon in the VIX.
ZeroHedge reports, “Yesterday, we published a collection of some of the most striking, outlandish and shocking market charts we have seen in recent weeks, and while we touched on various issues including the collapse in market breadth, Apple’s imminent overtake of the entire Russell 2000, the historic “growth vs value” decoupling, the record overvaluation of the tech sector vs the collapse in “value”, the fulcrum point was undoubtedly the bizarre moves in the VIX in general, and single name call activity of several giga-cap stocks in particular.
Perhaps of all the charts, one of the most curious observations was the recent meltup in the VIX, and especially the Nasdaq Vol index, which last week was tracking the Nasdaq almost tick for tick, a paradox when considering that the Nasdaq just hit all time highs virtually every day which should depress vol. What was behind this unprecedented inversion of one of the market’s most fundamental correlations?
August 28, 2020
The SPX has been forming a Triangle pattern, which often signifies the next move to be the last in a rally. I may have overstated the throw-over, since it appears the rally may be complete today. This is not a sell signal per se, but good news, nonetheless. Have a good weekend!
SPX future rose above 3500 last night, but has dropped back beneath yesterday’s high. This morning should tell what’s next. The trendline and Cycle Top (the next set of resistances) are at 3608.18.
August 27, 2020
VIX has now crossed the rim of the Cup-with-Handle formation and the 50-day Moving Average at 26.55. While it may pull back momentarily, this is a clear buy signal for the VIX and a potential sell signal for the SPX.
The Hi-Lo Index is out on a limb, so there seems to be no signal there. The SPX has crossed beneath its 2-hour Cycle Top at 3478.00, but we await a trendline crossing at 3450.00 to give an aggressive sell signal. Remember, an aggressive sell is not necessarily “all in.” This is where fractional proportions may be bought with additions at the bounces.
11:32 am: There appears to be a cup-with-handle formation in the VIX with a bullish outcome. Look for a breakout above 25.00 to trigger that formation and a buy signal in the VIX.
This morning I mentioned that the Powell speech may give rates direction this morning. Well, he unknowingly did, since the assumption in his inflation targeting program assumes no rate hikes for a very long time. TNX promptly broke out higher.
ZeroHedge reports, “It’s official: as Powell unveiled moments ago, the Fed is now operating under an explicit Average Inflation Targeting platform, with the Fed seeking inflation that averages 2% over time, a step that implies allowing for periods of overshoots, and assures no rate hikes for years to come (according to BofA simulations, a 2% AIT would mean no rate hikes for up to 42 years). At the same time, the Fed’s shift on maximum employment will allow labor-market gains to run more broadly.”
SPX futures have been easing down in anticipation of Fe Chairman Powell’s speech at 9:00 am. SPX remains in throw-over as part of an exhaustion top. The lower trendline of the 2.5-month Ending Diagonal lies at 3400.00, where a sell signal awaits. We will monitor the VIX and the Hi-Lo to discover an earlier signal.
ZeroHedge observes, “Powell is on deck and here’s where we stand…
Between rising US-China tensions, unemployment insurance benefits expiring and dwindling volumes the last month, one would have thought, a pullback would have come to fore. But that’s also probably the reason why it didn’t. In fact, it’s been the opposite has happened with global equities making new all-time highs.
As we move into September, which has been SPX’s worst month on average since ’00, while the same risks remain, the positioning set up is quite different. Further, what is concerning now is that we have “peak Fed” and potentially a growth/rates scare around the corner. According to Mike Wilson, this is likely to drive a tactical pullback in the coming weeks (but it is also the reset the market needs before the next leg of the bull market).”
NDX came oh-so-close to the 12000.00 level before the close, but the futures did not follow through. The futures dipped, but not enough to raise the bears’ interest. It would need a move beneath the Cycle Top at 11758.69 to give a sell signal , since once crossed, it becomes overhead resistance.
ZeroHedge reports, “S equity futures and global stocks fell on Thursday and the dollar tried to stage a rebound after two days of losses, as tensions between Washington and Beijing dampened the mood ahead and as investors braced for Powell’s speech at the virtual Jackson Hole conference at 910am ET, at which he is expected to unveil the Fed’s “new policy” of tolerating higher inflation.
VIX futures rose to 23.45 as the anxiety level of hedgers ratchets higher. The Cycles Model suggests that strength in the VIX may continue to elevate culminating a potential Master Cycle high during the week of September 7.
BKX (Liquidity) appears to be testing Intermediate-term support at 75.63. There may still be a bounce into the weekend (or Monday) but it appears ready to shift into a panic mode in the very near future.
USD futures continue to hover near the Cycle Bottom at 92.99. A Master Cycle turning point is imminent. One possibility is an early Master Cycle low may have been made on August 18 at 92.14. However, the USD appears weak and may not be able to hold above the Cycle Bottom, leading to a potential panic decline through mid-October.
TNX is lower this morning. Powell may give direction to the bond market in his speech. At this time, rates still appear to be going higher. The direction set this morning may continue through mid-October.
SPX futures reached a high of 3448.00, but did not exceed the prior day’s high at 3448.75. Current overhead resistance is at 3450.00, so the probe over 3400.00 may be over, or nearly so. Currently (8:00 am) futures have flat lined near the close.
ZeroHedge reports, “U.S. equity futures were unchanged on Wednesday, while global stocks and bond yields rose as investors were stuck in a holding pattern amid optimism about U.S.-China trade and expectations of ample central bank stimulus before a key speech by Jerome Powell at Jackson Hole. Treasuries and European government bonds declined, while the dollar was flat.
Eminis were flat at 3,443 after the cash index closed at another record high on Tuesday.
The NYSE Hi-Lo Index closed beneath its 50-day Moving Average at 72.56 yesterday. This may be a potential sell signal that we will be watching for a repeat performance and a lower close today.
NDX futures made a new all-time high at 11783.50. The appearance of a “runaway train” may be the result of aggressive call buying of a few mega-tech stocks in the options market by retail investors. Dealers who have to cover the calls have no choice but to reluctantly buy more shares in a feedback loop that appears to have no end. Dealers normally would “delta hedge” by selling puts to reduce their exposure, but cannot do so. Therefore they can only “gamma hedge” which entails buying the underlying shares. This will not end well, as a reversal may destroy the options market.
Futures are still positive, but declining rather sharply. The NDX Hi-Lo Index also closed at 96.00, beneath its 50-day Moving Average at 112.44. However, due to the elevation of this indicator and the dominance of a few mega-tech companies, the NAHL will need to clos below zero to effect a sell signal.
RealInvestmentAdvice considers, “The First Trillion is Always the Hardest- Analyzing Apple Mania
“Fundamentals might be good for the first third or first 50 or 60 percent of a move, but the last third of a great bull market is typically a blow-off, where the mania runs wild and prices go parabolic.” – Paul Tudor Jones
From 1976 when Apple (AAPL) began in Steve Jobs’s garage to 2019, its worth rose to $1 trillion. Subsequently, from March 20, 2020, the trough of the COVID market crash, to today, the value increased by another $1 trillion. Over 44 years to hit the first trillion, and less than half a year for the second. Apple is up 240% from the March lows.
We consider ourselves value investors. That means we prefer to invest in companies that are “underpriced.” Over time, this strategy typically translates into better than market returns and a margin of safety. In our view, it offers a better risk/return profile. The graph below shows the value of this strategy over the last 80 years.”
VIX futures attempted another flash crash to 20.92 at 8:00 am, but has recovered somewhat. This appears to be a barefaced attempt to send the SPX higher, as the VIX is perceived as the “tail that wags the dog.” Thus far it doesn’t appear to be working.
TNX opened up over 5% again this morning, giving us warning of a potential panic rally ahead. As mentioned on Monday, the Cycles Model shows a rally working at triple strength this week and may extend to the week of September 7.
CNBC reports, “Treasury yields rose on Tuesday as traders awaited for a key speech from Federal Reserve Chairman Jerome Powell later this week.
The yield on the benchmark 10-year Treasury note gained nearly 4 basis points to 0.695%, its highest level since Aug. 17. The yield on the 30-year Treasury bond jumped to 1.410%, its highest level since Aug.20. Yields move inversely to prices.
Investors were monitoring news that the U.S. Trade Representative and Treasury Secretary hold a phone call with the Chinese Vice Premier Monday evening to discuss the state of the U.S.-China phase one trade agreement.
USD futures surged above the Cycle Bottom resistance at 93.06 this morning. The Cycles Model suggests that, while the current Master Cycle is due to end on Friday, there is an indication of strength that may last through next week.
Gold futures plunged beneath Intermediate-term support/resistance at 1926.47 to a low of 1908.45 before bouncing back on a retest. It remains on a sell signal for the next four weeks as liquidity dries up.
West Texas Crude futures may be making an extended Master Cycle high today on day 271 of its current Master Cycle. The PPP loans and other Federal programs have especially kept the oil patch alive longer than the fundamentals might allow. The Cycles Model suggests a potential 4-week decline ahead.
OilPrice reports, “The American Petroleum Institute (API) reported on Tuesday a draw in crude oil inventories of 4.524 million barrels for the week ending August 21.
August 25, 2020
The Agricultural Index (food) appears to have peaked with the SPX this morning, after a 7.5% rally from its low on June 26. It is at a minor liquidity high, to be followed by a rapid decline to mid-October. However, the price of food may be more closely linked to actual shortages rather than market liquidity.
ZeroHedge reports, “Readers may recall we outlined months back how the COVID-19 pandemic increased the risk of famine across the world’s more impoverished regions (see: Hunger Pandemic: Visualizing COVID-19’s Effect On Global Food Insecurity).
While virus cases and deaths dominate headlines, other humanitarian crises also need attention, that is, an emerging “famine of biblical proportions” that threatens much of the world, United Nations World Food Program (WFP) Director David Beasley told TASS News last weekend in an interview. ”
SPX futures rallied to the 2-hour Cycle Top early this morning, making a new all-time high before pulling back. Today is day 266 in the current Master Cycle and, coincidentally, the 33rd anniversary of the Top in 1987. The new Master Cycle is due to terminate on October 19-20. We think of Monday, October 19, 1987 as Black Monday. However, the intraday low occurred on October 20.
ZeroHedge reports, “Three things send the market higher these days: i) optimism that Congress will finally renew the fiscal stimulus which expired on July 31; ii) optimism that a covid vaccine will miraculously fix the global economy, and iii) in a throwback to 2019 optimism on the US-China trade deal. We got a dose of iii) late on Monday when the USTR reported that top U.S. and Chinese trade officials reaffirmed their commitment to a Phase 1 trade deal which has seen China lagging on its obligations to buy American goods, with a call (originally scheduled for Aug 15) in which both sides saw “progress and are committed to taking the steps necessary to ensure the success of the agreement”, and demonstrating a willingness to cooperate even as tensions rise over issues ranging from data security to democracy in Hong Kong.
Given the exchanges between the U.S. and China recently “have been negative, any small bit of positivity is seen as a big step forward, even when it isn’t,” said David Madden, market analyst at CMC Markets UK. It was certainly enough to push US equity futures higher for a fourth straight session, with the Emini punching to a new all time of 3,448.75 during the Asian session which saw shares rise throughout most of Asia, before trimming gains to around 3,440 after the European open.
NDX futures, however, remained in the red all night long. By the way, it finally hit a Fibonacci relationship where Primary Wave  is 5.5 times the length of Primary Wave  at 11710.19. What a stretch!
MarketWatch opines, “Are tech stocks in a bubble?
It’s a question that markets observers pose frequently, in part because the good times just keep rolling on for stocks like Amazon.com Inc. AMZN, +0.69%, Apple Inc., AAPL, +1.19% Facebook FB, +1.64%, and Netflix NFLX, -0.71%, and perhaps in part because overvalued tech stocks bursting in spectacular fashion is a script we’ve seen in not-too-distant memory.
BCA Research tackled that question several times over the summer.
“We believe that tech stocks are in a bubble,” wrote Mathieu Savary, in its signature piece known as the Bank Credit Analyst, “and the mania will expand further as long as inflation remains low and monetary conditions stay accommodative, despite occasional pullbacks. Moreover, the broad market will suffer when the bubble eventually bursts.”
VIX futures flash crashed twice in the overnight session, but immediately recovered. The lowest decline went to 21.53, remaining above the August 11 Master Cycle low. The next Master Cycle high in the VIX will occur on the week of September 7, not confirmed on the SPX Cycles. However, it matches the September 9 low made in 1987 in the SPX.
The European Financial Index mirrors the BKX. What that tells us is that the entire banking system is in meltdown. The reason why many European banks and insurance companies have expanded in the US is because the banking system in Europe is especially wobbly with negative interest rates. Not only are European banks unprofitable, but have insufficient reserves to withstand the recession/depression already evident in Europe.
ZeroHedge observes, “In this blog, we present the anatomy of a financial crisis. A characteristic feature of a banking crisis is that it tends to follow, more-or-less, the same path regardless of the ‘shock’ or ‘trigger’ that initiates it.
The next phase of the crisis is likely to be a global financial crisis, as we have been anticipating for quite some time (see, e.g., Q-Review 4/2017). However, few understand what a financial crisis is, though it is probably among the most feared economic phenomena of mankind.”
TNX is melting up, as suggested by the Cycles Model. This melt-up is due to end during the week of September 7, the same as the VIX.
ZeroHedge reports, “Readers may recall last week we outlined the dam of pent up mortgage delinquencies continued to crack, with the share of delinquent Federal Housing Administration’s loans hitting a record high in the second quarter.
With millions of Americans out of work due to the virus-induced recession, their personal income has become overly reliant on Trump stimulus checks, as we’ve outlined, a quarter of all personal income now comes from the government.
USD futures declined to challenge the Cycle Bottom at 93.14 in the overnight session. The Cycles Model tells us that the current Master Cycle bottom may occur next week. This appears to be an expanded correction, as Wave B makes a low substantially beneath Wave (1). The Alternate scenario is a very strong Wave (3) following a running correction Wave (2).
Gold futures challenged Intermediate-term support at 1923.42 this morning. It has four weeks left in the current Master Cycle, which suggests a potential panic decline in Gold. There is some attempt to link the price of gold to external (fundamental) events. However, the Cycles suggest “It’s just time.”
MarketWatch observes, “Commodity investors also were watching for the latest update on Federal Reserve policy from a speech by Chairman Jerome Powell on the first day of the annual Jackson Hole central banker conference on Thursday which could influence trade for precious metals.
Top U.S. and Chinese officials were said to reaffirm their commitment to an initial phase of a Sino-American trade deal, helping to calm some concerns that tensions between the two sides were intensifying.
Bullion has mostly been under selling pressure, finishing lower in four of the past five sessions, including Tuesday, as equities take cues from optimism on vaccines and treatments for the COVID-19 pandemic. Uncertainty about the economic impact of the pandemic and the outsize policy measures to combat it have been at the heart of gold and silver’s rally since March.”
August 24, 2020
SPX futures have risen to a morning high of 3422.12 (as of 7:25 am). As mentioned previously, the resistance zone above 3400.00 is being challenged. However, today is day 265 of the current Master Cycle, suggesting a possible Key Reversal may be imminent should investors decide to “sell the news.”
ZeroHedge reports, “You knew it was coming when Trump scheduled his news conference to announce the FDA’s emergency authorization for convalescent plasma as a treatment for Covid-19 at 530pm on Sunday afternoon, half an hour before futures opened, and sure enough shortly after futures levitated to all time highs, hitting a record 3,422 moments ago, with European stocks rallying to a one-week high.
NDX futures have reached a new all-time high at 11680.50 (as of 7:45 am) this morning. An alternate calculation to the monthly chart (below) shows that Cycle Wave c equals 7.382 times Cycle Wave a at 11678.00.
ZeroHedge observes, “We thought that the Apple levitation would end on Friday ahead of Monday’s 4:1 stock split record date (because in this market stock splits are bullish) which is scheduled to take place on Aug 31, but we were wrong and with AAPL closing just shy of an all time high $500 on Friday, the stock has smashed the psychological barrier of half a grand, rising to $515 this morning, and adding another $65 billion to its market cap after Morgan Stanley raised its price target to a street-high $520 from $431, writing that the stock had more room to run after eclipsing a $2 trillion market valuation.
Apple “trades at a discount to both tech platforms and strong consumer brands,” wrote Katy Huberty, who reiterated an overweight rating on the stock, saying it “has further room to run.” She noted the growth rate Apple has posted in revenue, earnings and free cash flow over the past four quarters despite iPhone revenue declining over the same period.”
VIX futures have been remarkably steady this morning, although slightly negative (at 7:37 am). While there is no assurance of this, the cycles Model suggests the VIX may be considerably higher by the end of the day.
USD futures slipped back beneath Cycle Bottom resistance at 93.21 this morning. The USD has only a week or so left in its current Master Cycle and it now appears that it may end in a new low.
TNX is flat this morning, sitting on the 50-day Moving Average at 6.38. The Cycles Model indicates a triple strength week which may take TNX to a much higher level. The current Master Cycle ends during the second week of September. The next three weeks may be quite instructive as to the direction of treasury yields.
August 23, 2020
Tonight I wish to review the Fibonacci limit/target for the SPX. On February 6, I first brought up these calculations and also suggested that the top would arrive on or near February 17. The reason that I was quite certain was the fact that two different calculations agreed within a point of each other. More than six and a half months later the calculation still stands. On more than one occasion I mentioned that the SPX may briefly challenge the Fib but not succeed. Tonight is the test of the veracity of that statement. The market breadth is so horrible that the entire market performance appears to rest on one stock.
ZeroHedge reports, “With the S&P500 closing at a new all time high just shy of 3,400 on Friday, one may be tempted to think that there is a raging bull market (if one sparked by trillions in Fed liquidity, and certainly not due to economic fundamentals). Alas, one couldn’t be further from the truth. In fact, the series of consecutive record highs last week have been entirely on the back of just a handful of stocks as market breadth has collapsed to levels that typically precede major downward market crashes.
While we previously discussed the unprecedented market cap concentration of just a handful of companies (spoiler alert: it’s the FAAMGs with AAPL surpassing the $2 trillion barrier last week, and then adding a quick $100 billion in market cap on Friday on no news and merely due to a surge in call buying ahead of Monday’s stock split record date, which pushed the stock within inches of $500/share) consider that all of last week’s record highs in the S&P were set on negative breadth, meaning that there were more decliners than advancers.
It gets better: as the traditionally bullish and cheerful Bloomberg commentator Andrew Cinko writes, “Friday was even more outlandish in terms of narrowness” as it wasn’t a market of stocks on Friday, but just one single stock that moved the market (guess which one):
NDX futures challenged the Primary Wave  calculation and has pulled back. The buildup for the 4 for 1 stock split in AAPL leads me to speculate that tomorrow’s reaction may be to “sell the news.” If so, we may have the largest bear trap in history.
August 21, 2020
I am getting an early start this morning as I am involved with a family project during the day.
SPX futures are also off to an early start, having declined from their overnight peak at 3393.38. Should the decline continue, retail options investors may be “thrown under the bus.” August options are usually ignored by professionals since it is the first of the three most negative months of the year. In addition, August is a vacation month and this leads to very light trading by institutions. This first indication of a sell signal lies at Short-term support at the trendline at 3361.45.
ZeroHedge reports, “US stock index futures dropped, tracking European markets a day after the tech-heavy Nasdaq closed at a record high, as optimism in a virus-vaccine breakthrough and faith in the record tech rally was challenged by concerns over an unexpected frop in Eurozone PMIs which put the biggest recovery narrative in recent months in doubt.
VIX futures remain positive, although still trading within yesterday’s range. Market volatility may explode higher at the open should the sellers have their way. The first indication of a buy signal is at 25.00.
NDX futures made a new all-time high at 11522.62 in the overnight market, showing us where all of the interest really is. However, that too appears to be reversed in the overnight session. The first indication of a breakdown occurs at Short-term support at 11199.05.
USD futures are making another attempt a the Cycle Bottom resistance at 93.28. We may see a breakthrough and buy signal a early as today. The current Master Cycle runs out at the end of the month, so the retracement may be short but sharp.
TNX has slipped beneath the 50-day Moving Average at 6.44 in the overnight session and appears to be making its way to Intermediate-term support at 6.16. The decline may be short-lived as TNX appears to be due for a period of strength through the rest of August and possibly extending to mid-September.
Gold futures declined even further, testing Intermediate-term support at 1915.14 this morning. A breakdown beneath that support and the 50-day “locks in” a potential panic decline through the end of September.
August 20, 2020
The NYSE Hi-Lo opened well beneath the 50-day Moving Average at 69.06. This is a conditional sell signal, provided the Hi-Lo closes beneath the 50-day.
SPX futures declined to challenge short-term support at the Short-term trendline at 3354.98 in the overnight session. It has since made a 50% retracement to 3370.12 from its all-time high at 3399.54 and may be ready to resume the decline. This is a good entry point for aggressive short positions. There may still be some blow-back, but the Master Cycle inversion appears complete.
All signs now point to an October panic.
ZeroHedge reports, “US equity futures, Asian and European markets fell on Thursday after the U.S. Federal Reserve’s latest meeting minutes did not guide to more easing or hint at yield curve control while highlighting doubts about the recovery of the world’s largest economy which knocked the S&P500 from its record highs, although sentiment got a modest boost overnight after China announced it had agreed with the US to resume trade talks “in the coming days” to evaluate the progress of their Phase 1 trade deal.
VIX futures rose to an overnight high at 24.60, possibly testing the perceived resistance at 25.00. That is where an aggressive buy signal awaits. You may ask why VIX has been consolidating since the August 11 low. The primary reason I can find is that the options market for VIX has been overwhelmingly short. Since the VIX options expired yesterday, washing out many of the shorts, it now has the ability to rise unfettered by market forces.
NDX futures ventured even lower to 11222.00 in the overnight session. It also made an approximate 50% retracement in the futures. Short-term support is at 11175.00 (aggressive sell) while Intermediate-term support and the trendline lie at 10885.75, where confirmation may be made.
USD futures rose to 93.19 in the overnight session. It has not yet pierced the Cycle Bottom resistance at 93.37, where a buy signal awaits. The current Master Cycle is due for an inversion high near the end of the month. It may be similar to the rally we witnessed in March.
TNX has tested the 50-day Moving Average at 6.44 this morning. Thus far it has made nearly a 38.2% Fibonacci retracement from its recent high. The current Master Cycle extends through September 9. The 50% retracement level happens to be at Intermediate-term support at 6.16.
Gold futures have ventured lower, to 1930.30 after closing beneath Cycle Top resistance at 1973.46. It is on an aggressive sell signal, to be confirmed on a decline beneath Intermediate-term support at 1910.54.
August 19, 2020
TNX tested the 50-day Moving Average at 6.48 and bounced today. That may support the thesis for higher yields going into the current Master Cycle that is due by mid-September. With all the new Treasury issuance (Federal borrowing) investors are beginning to be aware of rising risks of owning Treasuries.
ZeroHedge reports, “After last week’s dismal 30Y auction, which we said “bombed” due to a surprising lack of investor demand and significantly repriced the bond market sending yields sharply higher, bond traders were cautiously looking forward to the results from today’s 20Y auction, the 4th since the tenor was relaunched in May. And just like last week, it wasn’t pretty.
The sale of $25BN in 20Y bonds priced at a high yield of 1.185%, well above July’s 1.06% and tailing the When Issued 1.176% by 0.9bps.
The bid to cover was just as ugly, sliding to 2.26 from 2.43 last month and the lowest of all 20Y auction since the May resumption.
Lastly, the internals were also ugly, with the Indirect takedown sliding to just 62.6%, well below last month’s 67.0% if better than the foreign demand in May and June. And with Directs ending up with 11.2% of the auction, Dealers were left with 26.2%- the highest allottment so far.”
RealInvestmentAdvice comments, “The Ludicrous Deviation Between Bond Spreads and Reality
“The current environment may be more uncertain and riskier than any we have seen in our lifetimes. Yet, spreads say the future has never been more certain.”
We recently wrote that line in The Markets Are Sending Confounding Messages. The article discusses a “metaphorical fog”, induced by central banks. The fog envelops all market signals and, in the process, take away all means of orientation. Investors, unaware of the fog, are pushing the pedal to the metal with little concern.
This article examines the corporate bond fog. In particular, we show how corporate yields are priced for perfection while the economy languishes in what some describe as depression.”
SPX futures have risen to an overnight high at 3393.88, equivalent to 3396.00 or higher in the cash market. However, the futures have eased back down. We may expect to see a dull market until the 2:00 pm FOMC announcement.
Today is day 260 of the Master Cycle. Dangers to the bull market abound. See the article below.
ZeroHedge reports, “S&P futures edged higher, alongside European stocks, flirting with record highs and just shy of 3,400 following blockbuster earnings from retailers Target and Lowe’s, a day after the S&P 500 completed its fastest recovery from a bear market in history. The dollar headed for a sixth daily drop while Treasuries rose again, the 10Y yield sliding to 0.6477%.
ZeroHedge observes, “The S&P 500 just reached a new record high after a wild ride that saw the index plunge 34.07% in 23 trading days, a record.
We believe the risks of an intermediate decline are higher than average and would advocate a more cautious stance toward equities right now.
n January 2018, September 2018 and February 2020 there were a variety of sentiment indicators that reached extreme levels and signaled the possibility of a correction.
Currently, we count 9 indicators that are at/near/above the more extreme readings than previously experienced prior to significant intermediate corrections.”
VIX futures spiked higher near 10:15 pm (Did this have anything to do with the AOC speech?), then pulled back. We await a potential buy signal as VIX rises above 25.00 or the 50-day Moving Average currently at 27.69.
NDX futures backed away from its 11429.75 overnight high and are currently in the red.
Investing observes, “U.S. stocks are set to edge higher at the open Wednesday, continuing Tuesday’s positive tone after the benchmark S&P 500 index registered a record close. Investors will be keeping an eye on the Federal Reserve minutes as well as more earnings from the retail sector.
At the close Tuesday, the Dow Jones Industrial Average declined 0.2%, while theS&P 500 added 0.2%, closing at an all-time peak, and the Nasdaq Composite index added 0.7%, its 18th record closing high since early June.
The closely-watched S&P 500 index has made up all the losses seen when the onset of the Covid-19 pandemic drove the benchmark index to lows on March 23. This has taken just 126 days, the fastest ever recovery from a bear market.”
TNX futures slipped beneath the 50-day Moving average at 6.55 this morning. The next support is Intermediate-term support at 6.16. The Cycles Model suggests about 4 weeks until the end of the current Master Cycle. Should TNX find support by the end of the week, it may go considerably higher. However, there is currently an equal chance of the Master Cycle ending on or near September 8 at a (new?) low.
ZeroHedge observes, “Lacy Hunt has not yet changed his mind on where bond yields are headed but he has his eyes on one thing that could change his mind.
Literal Printing Would Change the Game
The first half hour of our discussion went about as expected. Even though the coronavirus pandemic has led to unprecedented Federal Reserve interventions and fiscal relief efforts, Hunt insisted it was mostly a continuation of what he’s seen for years.
Then, I asked about Modern Monetary Theory and other novel policy ideas, like direct monetary financing. That’s when his tone shifted to what he sees as a “great risk” in the years ahead.”
USD futures appear to be rising again. This appears to be a swing (fakeout) low that may reverse into a Master Cycle high in the next two weeks. The catalyst may be funds exiting equities.
CNBC reports, “The Japanese yen and Swiss franc remain relatively safe bets, Morgan Stanley said Tuesday, but the investment bank picked the U.S. dollar as the best safe-haven currency in what’s left of turbulent 2020.
The greenback fell to a 27-month low on Tuesday against a basket of its peers, where the dollar index reached 92.477 — a level not seen since May 2018 as investors took on more risk. The S&P 500 rose to its highest level ever after regaining all of its coronavirus-related losses, having rallied more than 54% from its March low.
“We expect the US dollar (USD) to be the best safe-haven currency, especially now that lower US rates make it a more attractive funding currency for carry trades,” Morgan Stanley analysts wrote in a research note. Still, the analysts expect risk sentiment should remain supported for now, hence they said they keep a “bearish skew” on the dollar.
Gold futures have come down to a low of 1988.30, triggering a sell signal. The trendline at 2000.00 is the demarcation for the p;otential beginning of a bear market in gold.
Investing comments, “The contract gained 0.72% on Tuesday, as yellow metal’s price further extended its short-term uptrend after breaking above short-term local highs along $1,970-1,975. It has been fluctuating following last week’s Wednesday’s-Thursday’s bounce from the local low of $1,874.20. On Tuesday the market has retraced more of its 10.3% decline off new record high of $2,089.20. Gold reversed sharply lower following previous Friday’s release, among other factors. The bounce still looks like an upward correction, as we can see on the daily chart:”
August 18, 2020
While SPX and NDX are making all-time highs, BKX is floundering badly. The 50-day Moving Average is at 75.90. BKX is already challenging it, so it is likely that it may decline beneath it, giving us a confirmed sell signal.
One of the reasons why the SPX and NDX are going higher despite the liquidity drain is buybacks. This is one of the techniques for hiding insider buyouts. No one complains in a rising market.
ZeroHedge reports, “Three months ago, we showed that contrary to conventional wisdom and corporate reps and warranties that buybacks had been put on hold for the duration of the covid pandemic, not only were companies still repurchasing their shares but it was the tech names – those who have stormed higher since the March lows – that were the biggest culprits.
ZeroHedge observes, “In addition to manipulating what was once a “market” and is now simply a political tool, the Federal Reserve has also proven itself to be the best manipulator of investor psychology, because after it relentlessly ramped stocks since their March lows to a new all time high hit moments ago, the bears have well and fully capitulated as the latest Bank of America fund manager survey funds.
According to BofA CIO Michael Hartnett, who just concluded the August Global Fund Manager survey which polled 181 participants with $489 billion in AUM, a majority of professional investors say it’s no longer a “bear market rally” contrary to the prevailing view since the March lows...
It now appears that SPX has made a reversal on 2 principles. The first is the Ending Diagonal Trendline at 3395.00 and second, Wave 5 is equal to Wave 1 at 3390.00. In addition, Wave (5) is nearly equal to Wave (1). The double Fibonacci resistance at 3400.00 also remains intact.
I have cleaned up the chart a bit, removing extraneous data that no longer applies. A sell signal awaits at short-term and the Ending Diagonal trendline at 3338.31.
ZeroHedge remarks, “US equities tagged a new record high this morning for the first time since Feb… and then things escalated to the downside quickly…
SPX futures have made a new retracement high at 3388.62, testing the upper trendline of the Ending Diagonal. In the cash market, it would translate roughly to 3390.62. What we are seeing is a probable attempt by large institutions to goose the market at the open and see what the follow-through brings. Over the past week, there has been a lack of follow-through, suggesting that retail investors are taking a wait-and-see attitude.
ZeroHedge reports, “Equities reversed initial losses in a morning devoid of economic data, which saw the Eurostoxx 50 turn solidly green after having dropped as much as 0.9% in early trading, while S&P futures also turned lower at first, before following Europe’s rebound to trade in the green. However, it was Walmart blowout earnings report at 7am that pushed the Emini back to the edge of all time highs despite fresh tensions between U.S. and China over Huawei. Elsewhere, treasuries edged higher and gold climbed back above $2,000 an ounce. Iron ore futures rallied to highest since 2014.
VIX futures have bounced to breakeven this morning after going modestly lower in the overnight session. Last Tuesday’s Master Cycle low remains intact.
NDX futures ramped up to 11335.50 overnight, a new all time high. At this level, Wave  has reached an exact Fibonacci 5.25 times Wave , made in 2009-2010. This compares to SPX Wave  only having reached 1.5 times the length of Wave  for nearly the same period. Wave c is equal to 7 times the size of Wave a at 11126.00. You can see that the NDX (especially) is truly stretched beyond any semblance of normalcy.
CharlesHughSmith remarks, “With only 56 trading days and fewer than 80 calendar days to the election, the Deep State camps seeking to torpedo Trump’s re-election have reached the do-or-die point.\
Back in June I speculated that the only way the Deep State could deep-six Trump’s re-election was to sink the stock market rally, which the president has long touted as evidence of his economic leadership.
Since then, stocks have lofted ever higher, with the Nasdaq index hitting new all-time highs and the S&P 500 reaching its pre-pandemic heights of euphoria.”
USD futures reached a new low at 92.48. This is day 249 of the new Master Cycle so it appears that there may be another 1-2 weeks of decline in USD, unless there is a quick reversal higher. I had originally tagged this Master Cycle as an opportunity to make a strong retracement. This new low may be a Wave B followed by Wave C to complete the retracement.
TNX appears to be hovering just above Intermediate-term support at 6.55. The Cycles Model suggests that tomorrow may be a Trading Cycle low with the possibility of a reversal higher, should TNX stay above critical support. This corresponds with the release of the FOMC report at 2:00 pm on Wednesday.
ZeroHedge reports, “Foreigners were net buyers of US Treasuries in June ($28.9b), but official entities cut their holdings by $20.6bn as private buyers bought $50.3bn. Additionally,
Gold futures rallied to the higher trendline at 2021.00 this morning. Recall that I had suggested that gold my rally to the lower trendline at 2000.00. The Cycles Model indicates potential strength through the end of the week. However, what follows is likely to be a month-long decline to a new Master Cycle low.
ZeroHedge reports, “One of the biggest trends in the gold market this year, apart from the rapid rise in the gold price, has been the large investor inflows into gold-backed Exchange Traded Funds (ETFs), and the corresponding swelling of gold holdings in these ETFs.
As highlighted by the World Gold Council, the sponsor of the mammoth SPDR Gold Trust (GLD) through its fully owned subsidiary World Gold Trust Services, gold-backed ETFs had their eighth consecutive monthly inflow during July.”
August 17, 2020
SPX came within 30 ticks of matching last Wednesday’s high. It is also testing the Ending Diagonal trendline again. It may give way below 3375.00-3380.00. That would be an aggressive sell signal. The question is…Double Top or new highs? Either way, the outcome may be the same.
ZeroHedge observes, “The S&P500 is up 54% over 102 trading sessions – its strongest rally in history over that period – inching closer to the record high, leaving investors wondering if the current stock-market setup will either be a double-top or an upside breakout.
SPX futures remained above the Ending Diagonal trendline at 3370.00. The contract has been shifted to the December expiry, so it will be difficult to say what affect this is having until after the open. Futures show that a new high has not been made, despite the headlines.
ZeroHedge reports, “Markets drifted higher in a slow start to the week as China flooded the market with a new one-year liquidity and as most European equity indexes traded modestly in the green, shrugging off the unexpected postponement of US-China trade talks and EU regions raising coronavirus travel warnings.
U.S. equity futures rose and traded just shy of all time highs again, as retailers prepared to wind down a better-than-feared quarterly earnings season, while the countdown to Election Day was set to begin with the Democratic National Convention kicking off later in the day.
VIX futures rose to a high of 22.82 over the weekend. Tradable breakouts occur at 25.00 and the 50-day Moving Average at 27.2. The Cycles Model points out two potential peaks before the election. The first is on September 9 and the second occurs on October 15.
NDX futures are testing their all-time highs again. Today may be a do-or-die day, since a new high would mean that the momentum may carry the index even higher through options expiration this Friday. However, August is generally a weak market month and a decline here would easily shift upcoming options in the other direction.
ZeroHedge observes, ““The price of just about every financial asset is heading up… and they are heading up in unison,” is the ominous warning that The FT’s Robert Armstrong begins the brief clip below as he (ed. ???)
From stocks to bonds to commodities – everything is levitating on a bed of ultra-low (if not negative) rates and as more excess liquidity than the world has ever seen.
This “sychronized exuberance” is being driven by a collapse of real yields into negative territory for the first time…
TNX appears to have begun a pullback that may last bout 3 weeks. Normally we would expect it to decline to the 50-day Moving Average at 6.15. However, the depth of the decline in yields may correspond with the depth of the sell-off in stocks.
ZeroHedge comments, “Three things we learned last week:
1. Bond bulls’ faith is being challenged by data and vaccine hopes.
USD futures appear to be pulling back this morning. A buy signal may be had at the crossing of the USD above the Cycle Bottom resistance at 93.66. The normal pullback might take USD to mid-cycle resistance at 97.74. However, a strong sell-off in stocks may send USD to the Cycle Top at 101.83.
ZeroHedge reports, “It’s official: as of this past week, the number of futures contracts amid the speculator community that were net short the DXY (via other FX pairs) was tied for the highest on record going back to the late 1990s.
Gold futures rallied to a high of 1973.70 over the weekend and may reach the trendline at 2000.00 before the pullback is over. However, this would be a good place to go short as the decline may resume later this week.
August 14, 2020
The NYSE Hi-Lo Index gave a sell signal by declining beneath the 50-day Moving Average at 67.96. The SPX is flirting with its short-term trendline at 3365.00 This is a surprise since usually the Hi-Lo is usually a laggard. However, while most are waiting on the VIX at 22.43, the Hi-Lo appears to be stepping out with a good signal. Take appropriate action.
SPX futures have declined, bouncing off the short-term trendline at 3350.00, or the alternate Tuesday’s low at 3326.44 this morning. That is the level to watch this morning (hopefully). I am writing early since I have a very full day out of the office. I may be back from time to time with comments, but here is the general outline:
SPX goes on an aggressive sell beneath 3350.00 with further confirmation at short-term support at 3310.00. A confirmed sell signal comes with either the VIX over 25.00 or the breach of the longer trendline at 2275.00.
VIX futures are up nearly 4% as they have climbed to an overnight high of 23.55. Note the prior high was 24.93, giving us 25.00 as a breakout point and buy signal.
NDX futures rose to 11236.25 before easing lower. A breakdown occurs at the breach of short-term support at 10980.85. Further damage is done at the one-year trendline at 10800.00, giving a confirmed sell signal. Can the VIX make a new all-time high? Yes, but the Cycle Top resistance is at 11333.11 (See the calculations below.). The same levels still apply on the downside. I am not ruling out another key reversal being made here. Since the last Key Reversal failed, investors may be prone to ignoring the next. Key Reversals have roughly a 92% follow-through rate. The odds are now stacked in favor of a Key Reversal taking hold.
It so happens that Wave  equals Wave  X 4.382 at 11333.00. There is another Fibonacci calculation. (Cycle Wave c equals 7 X Cycle Wave a at 11126.00. This is a truly stretched bear market rally. On Average, Wave 5 equals the distance of Wave 1 and Wave C is often equal to Wave A. What we are looking at is truly the exception to the general rule.
TNX appears to be making a consolidation with more upside possible through the weekend. The poorly received 30-year Treasury auction may show some aftermath.
ZeroHedge reports, “After the stellar, record-sized 3Y and 10Y auctions earlier this week, moments ago the Treasury concluded refunding week with another record auction, this time in the form of an all time high $26BN in 30Y bonds.
USD futures have eased, but an attempt at Cycle Bottom resistance at 93.73 may still be in the cards. There may be another two weeks of retracement ending in a potential Master Cycle high near the end of the month.
CNBC reports, “The dollar slid on Thursday against some major currencies such as the euro, Swiss franc, and sterling, weighed down by the impasse in Congress about additional U.S. stimulus to help cope with the coronavirus pandemic.
In the afternoon session though, the dollar trimmed its losses, as U.S. stock indexes fell.
After losing 10% of its value from a peak in March, the dollar has been bouncing around its lowest levels in more than two years since late July.
Investors, however, remained focused on the stimulus package talks, which broke down last week.”
August 13, 2020
SPX futures have been drifting lower, although no critical supports have been breached. Yesterday’s rally has caused a change in the Elliott Wave structure, but has not changed the targets. You may recall that in January I had done long-term Fibonacci calculations on the rally target. I came up with three calculations that agreed within a few points at 3400.00. Based on the latest Wave structure, the shorter-term calculations show a target near 3392.76. Yesterday’s high at 3387.89 may have met the requirements for that target.
ZeroHedge reports, “S&P 500 futures dipped along with European stocks on Thursday, one day after briefly rising above the previous record high and closing just a few points below its all time high close, as the global rally showed signs of faltering as stimulus talks in Washington remained deadlocked. Gold and Treasurys were flat, while the dollar fell before key unemployment data.
NDX futures are modestly higher after testing the trendline near 11090.00 in the overnight session. The Cycle Top at 11106.00 and the trendline may serve as sell signals once they are breached.
BKX pulled back from a long-overdue Master Cycle high on August 11 and is due for the worst decline ever. You may recall that in early 2009, the BKX fell to a low of 17.75. This low, by definition, will be much lower.
VIX futures are modestly lower this morning. The decline appears to be complete. While there appears to be an effort to suppress the VIX, there doesn’t appear to be an impulse to go lower.
TNX appears to be challenging its prior high at 6.90 as it continues its ramp higher. The Cycles Model seems to agree that TNX may finish the week at its highs.
First-time claims for unemployment insurancecame in at 963,000 last week, marking the fist time the total fell below 1 million since March 21. Economists polled by Dow Jones estimated a number of 1.1 million.
USD futures have weakened in the overnight session. However, this may simply be a pullback prior to an attack on the Cycle Bottom at 93.80. The rally may have another two weeks to go before losing upward momentum.
(Reuters) – The dollar fell to its lowest in a week against a basket of currencies on Thursday, with analysts pointing to equity market resilience and stalemate over additional stimulus for the U.S. economy as reasons for its weakness.
After losing 10% of its value from a peak in March, the dollar index has been bouncing around its lowest levels in more than two years since late July.
On Thursday, it traded 0.3% lower at 93.093 =USD. Against the euro EUR=D3, the dollar fell 0.5% to $1.1840, adding to a 0.4% decline on Wednesday.
August 12, 2020
SPX futures have made nearly a 50% retracement this morning. Whether the retracement is over or more to come is unknown. However, equities may be hypersensitive to bad news as TNX continues to rise overnight.
ZeroHedge reports, “Reversing yesterday’s sharp Nasdaq and precious metals-led selloff, S&P futures rebounded from Tuesday’s drop ignoring the continuing deadlock in Washington on more stimulus spending which could significantly delay the U.S. virus rescue package, and pushing the Emini to within inches of the all time high.
VIX futures have also made a near-50% retracement. This is to be expected this morning…and now we look for the follow-through.
NDX futures also made a 50% retracement in the overnight market.
ZeroHedge comments, “There are only so many “positive news” levers a company can pull in the absence of consistently turning a legitimate profit: stacking up receivables, releasing and taking deposits for “new” products that may not ever materialize, pulling borrow and securing the float while mysterious out of the money call option purchases go off daily, selling regulatory credits to claim profitability while your core auto selling business loses money and adjusting warranty reserves to gear your accounting are a few examples.
This box of tricks, inclusive of most everything aside from just being a consistently profitable company, includes very few tactics that Tesla hasn’t tapped. But today, the company pulled one more rabbit out of their hat with the announcement of a 5-for-1 stock split.
TNX continues its ramp this morning, keeping the rest of the markets on tenderhooks. Chances are good that TNX may continue to rise to its mid-Cycle resistance at 10.81. The massive issuance of 10-year notes today is having an effect on European markets, as well.
(Reuters) – Euro zone government bonds sold off on Wednesday before the largest-ever 10-year U.S. Treasury auction, with the German 30-year bond yield turning briefly positive, even after euro zone industrial output showed the economic recovery was slowing.
The Treasury will sell a record $38 billion in 10-year notes on Wednesday and $26 billion in 30-year bonds on Thursday.
Core euro zone bonds sold off, with most yields up 3 to 4 basis points. Southern European bonds also sold off, with spreads narrowing.
The 10-year U.S. Treasury yield rose the most in two months on Tuesday, extending gains on Wednesday to reach a five-week high of 0.68%.
USD futures appear to be taking a breather today after rising from last Thursday’s Master Cycle low. It still has a considerable rally ahead, with a likely target at mid-cycle resistance at 97.81.
(Reuters) – The dollar rose on Monday, including against major currencies such as the euro and Swiss franc, as investors focused on the fiscal stimulus plan in the United States and U.S.-China tensions ahead of key trade talks this week.
The greenback rose to one-week highs against the euro and Swiss currency.
The dollar index also recouped some losses from July when it fell 4%. Friday’s data on the non-farm payrolls report calmed fears about the U.S. labor market, but the dollar still posted its seventh straight weekly decline.
After talks in Washington over the next round of fiscal stimulus broke down, U.S. President Donald Trump signed executive orders on Saturday, partially restoring enhanced unemployment payments to millions of jobless Americans.
Gold futures continued their overnight decline to Intermediate-term support at 1876.31 before bouncing. It is currently being stymied at the Cycle Top resistance at 1946.30. The next level to be tested appears to be the 50-day Moving Average at 1826.97. It is on a sell signal
August 11, 2020
SPX has broken beneath its 1 week trendline at 3367.00 and 2-hour Cycle Top (and retested it). It appears to be continuing its decline. This gives us an aggressive sell signal (subject to whiplash and the like), but with the best possible short entry. It is also crossing beneath its weekly Cycle Top at 3348.34. Should it decline beneath yesterday’s low at 3335.34, it will have made a Key Reversal. In Candlestick language, that is a Bearish Engulfing candle.
The VIX has shot up to 23.92 so far and the Hi-Lo is backing away from its daily high.
TNX has rallied to a new high at 6.61, above the 50-day Moving Average at 6.55.
Since April 6 the NYSE Hi-Lo has stayed above its 50-day Moving Average. It’s as if some machine is monitoring the new highs and new lows to keep it above…very mechanical. Currently the 50-day is at 66.70. A decline beneath that level gives us a sell signal…when the pump quits working.
Has anyone noticed what is happening to TNX??? It appears to be approaching the 50-day at 6.55. Should/when it break(s) through, all hell cuts loose. This rally has been a long time coming and may break some records.
(11:28am) Finally, ZeroHedge recognizes the problem, “Over the weekend, Morgan Stanley’s global macro strategist Andrew Sheets published his latest market outlook, which as we noted, boiled down to one thing: investor duration exposure is at all time highs, and it won’t take much of a reflationary trigger to spark a liquidation puke in fixed income securities which would send yields higher and trigger a risk asset selloff even if ultimately the reflationary signal will push beaten up value stocks higher.
As Sheets noted, “this is one reason why my US colleagues have downgraded software from overweight – a sector with very high valuations and interest rate sensitivity. With duration exposure surfacing across portfolios, we like owning interest rate volatility (while we prefer to sell equity volatility). And for central banks, this dynamic should highlight the dangers of overcooking markets that are already doing quite well.”
Looking ahead, the MS strategist was cautious, warning that “the rise in duration across asset classes, at its most expensive levels on record, suggests that the transition won’t be smooth.”
ZeroHedge reports, “Precious metals are getting pummeled this morning as real rates rise amid vaccine optimism and hotter than expected inflation data…
Today’s futures rose to 3378.88, less that 15 points from the all-time high. Could the SPX exceed that high? Possibly…but based on the Wave structure, it may not exceed 3400.00.
The original Orthodox Broadening Top may have been invalidated after reaching its Point 6 at 2191.86. The reason is that the final retracement after Point 6 is usually 38.2% to 61.8% of the decline. I have never seen that range exceeded in a Broadening Formation, especially for the major indices. The retracement is now (nearly) equal to the decline, turning this rally into Point 5 all over again. In addition, a “normal” Broadening Top retracement may rarely, if ever, exceed the mid-Cycle resistance at 2919.23, which is also near the 61.8% retracement level at 2935.00.
This puts the new target for Wave [A] of Wave III at 2100.00.
ZeroHedge reports, “S&P 500 futures hit a record high as investors shrugged off continuing U.S.-China tensions and instead focused on news of an approved, if largely unclear, Russian vaccine, and more stimulus optimism as President Donald Trump said he’s considering a tax cut on capital gains. According to Reuters calculations at the current levels, the benchmark index is set to open about 12 points below its Feb. 19 record peak of 3,393.52.
NDX futures reached a retracement high of 11155.50 overnight at the Orthodox Broadening Top trendline before losing its grip in a decline this morning. Remember, beneath the Cycle Top at 11046.17 is an aggressive sell signal.
ZeroHedge reports, “All major US equity indices spiked in the early hours overnight on the back of optimistic vaccine headlines from Russia. However, while Russell 2000 futures are holding gains up over 1%, Nasdaq has tumbled into the red as the last few days trend of momo/growth vs value rotation appears to be accelerating…
VIX futures made a new Wave  low at 20.50 on day 259 of its Master Cycle. Last week’s low occurred on day 254, which was within normal parameters for a Master Cycle.
TNX has vaulted above Intermediate-term support at 6.10, putting it on a buy signal. Equities investors appear to be blind to the notion that the Fed may be losing its grip on the treasury market.
The media seems to be missing this altogether.
USD futures appear to be consolidating just beneath the Cycle Bottom resistance at 93.95.
Gold went on an aggressive sell signal yesterday and this morning gold futures crashed through the second trendline at 2000.00, confirming the sell signal. Analysts refuse to see the reversal, trapping many with fresh purchases over 2000.00.
FXEmpire comments, “Gold and silver, two of the best performing assets in 2020, have both run into an overdue correction following a three-week surge. Real yields and the dollar have both stopped falling and these two continue to be the main source of inspiration. Gold is now set to be engulfed in a battle between short-term technical traders looking to sell, as the steep uptrend is broken, and longer-term buyers who missed the first move above $2000/oz”
One index that I may not have spent enough time on appears to be Agricultural Commodities. After making its Master Cycle low on June 26, it has climbed above the 50-day and Intermediate-term support at 13.71. It may retrace down to that level (50% retracement) before moving higher. DBA is on a confirmed buy signal and appears to be an excellent long-term play.
August 10, 2020
SPX appears to have bounced from its short-term trendline at 3335.00 and may now seek to break through that support. Should that happen, an aggressive sell signal may be had at that level. This may be considered very aggressive, but the nearest confirmation is at 3276.45, over 2% lower and the 3-month trendline is at 3250.00, about 3% lower. The trade-off is managing potential whipsaw vs more certainty at lower levels. Today marks 140 calendar days and nearly 100 market days since the March 23 low.
NDX has challenged both the Cycle Top and trendline at 11045.25, giving a potential aggressive sell signal. It seems to have slipped beneath 11000.00 and appears to be accelerating. It’s time to take appropriate action.
SPX futures are holding steady after challenging Friday’s high at 3352.54. What’s unusual is that the usual algo surge appears to be MIA after Asian and European shares lifted higher. President Trump’s Executive Order doesn’t appear to satisfy those who were expecting a much more generous handout from Congress.
ZeroHedge reports, “S&P futures edged higher with European stocks, and approached all time highs after President Donald Trump signed 4 executive orders to maintain some assistance, including for unemployment benefits, a temporary payroll tax deferral, eviction protection and student-loan relief, in doing so bolstering investor enthusiasm and helping market shrug off a brief wobble after China announced token sanctions against 11 US politicians over Hong Kong but no members of Trump’s cabinet.
VIX futures are trending higher, indicating a possible lift-off after a Master Cycle low on Thursday. Round number support/resistance at 25.00 appears to be where an aggressive buy signal may be given.
NDX futures are still languishing beneath their all-time high at 11282.24. This appears to be a possible early indicator of a change in trend as it quit its ascent on Thursday. The Upper trendline and Cycle Top support/resistance is at 11013.00 where a probable aggressive sell signal awaits. It appears that the first indicator of a market breakdown may occur here.
RealInvestmentAdvice comments, “Bulls Charge To All-Time Highs
As discussed previously in “Insanely Stupid,” we noted the market remained confined to its consolidation channel, but the bullish bias was to the upside.
“While the market has not been able to push above the recent July highs, support is holding at the rising bullish trend line. With the short-term ‘buy signals’ back in play, the bias at the moment is to the upside.
However, as we have discussed over the last couple of weeks, July held to its historical trends of strength. With a bulk of the S&P 500 earnings season behind us, we suspect the weakening economic data will begin to weigh sentiment in August and September.“
TNX has made a small pullback as it steps higher away from last week’s Master Cycle low. As of Friday it had risen nearly 12.9% of its Master Cycle low. Those buying longer-term bonds for higher yield now face a potential risk. Duration risk means that your portfolio is more sensitive to the slightest rise in yield.
ZeroHedge observes, “You Have More Duration than You Think
2020 has seen a pandemic inflict enormous human and economic cost. In 2Q, the global economy contracted by the largest amount on record and, as autumn approaches, major questions around returning to school, work and other aspects of daily life remain.
USD futures have continued making progress toward the Cycle Bottom resistance at 94.03. A rally above that level gives USD a buy signal. Demand for dollars appears to be rising as stocks lose their lustre.
(Reuters) – The dollar strengthened on Monday, including against the euro and the Swiss franc, as investors focused on fiscal stimulus in the United States and U.S.-China tensions ahead of key trade talks on Aug. 15.
The dollar index is recovering from a losing streak which saw it lose 4% in July. It picked up on Friday after jobs data calmed some fears about the U.S. labor market but still weakened on the week, for the seventh in a row.
After talks in Washington over the next round of fiscal stimulus broke down, U.S. President Donald Trump signed executive orders on Saturday, partially restoring enhanced unemployment payments to tens of millions of jobless Americans.
BKX extended its Master Cycle high to Friday, day 274 in the Cycle. However the new retracement high is not being confirmed by the momentum oscillators. This bears watching today as the next Liquidity Cycle low is due in early August, followed by yet another low in mid-October. Equities appear to agree with that outlook, as well.
August 7, 2020
I am being called out of town for the duration of the day, so please follow instructions previously given.
SPX futures bounced off the trendline at 3325.00 mentioned yesterday. Today offers the probability of an extreme catalyst that may begin the next phase of the bear market.
VIX futures rose to 24.02 this morning. A ramp above 25.00 may be the indicator we need to take bearish action on stocks, bullish on the VIX.
Good luck and good trading!
August 6, 2020
SPX futures have not made new highs in the overnight session and have bounced off a very short-term trendline (not shown) near 3300.00. The loss of round number support raises the level of bearishness and may be an indication for an aggressive short position. Short-term support at 3258.44 provides additional confirmation. Final confirmation for a sell signal lies at the two trendlines at 3225.00. Those who wait for the bounce off the trendlines may also have a short entry.
ZeroHedge reports, “US stock index futures dropped on Thursday alongside European stocks as investors looked forward to the latest weekly jobless claims report to gauge the pace of a rebound in the labor market, while also anticipating a new fiscal stimulus bill.
NDX futures have also consolidated beneath yesterday’s high. Round number support lies at 11000.00 and a breakdown beneath that level may be an opportunity for an aggressive short.
ZeroHedge reports, “In a sale which we are confident will be defended as just “selling for tax purposes” or “considering charitable giving” and certainly not “an admission that Amazon is overpriced”, Jeff Bezos took to the open market this week to dump a million shares of Amazon stock, worth just over $3 billion, company SEC filings revealed on Wednesday.
Bezos sold the majority of the shares between $3,106 and $3,167, decreasing the number of shares he beneficially owns from 55,488,700 to 54,488,700. The company’s CEO of Amazon Web Services, Andrew R. Jassey, also sold 6,945 shares on August 3, 2020 at a price of $3,183, netting him about $2.2 million.”
VIX futures have risen over 24.00 in what may be the first meaningful rally out of the Master Cycle low. The number 25.00 offers an aggressive long position, should it go above it.
USD futures tested Friday’s low by declining to 92.55. Should it proceed higher, we will have confirmation that the Master Cycle low is in.
MarketWatch observes, “A falling U.S. dollar is getting a lot of attention from stock-market investors, and according to the chart below from Wells Fargo Investment Institute, the focus isn’t misplaced.
The chart sums up how the stock market and a variety of sectors have performed during past episodes of dollar weakness stretching back to 1988. As noted previously, the dollar’s long-term correlation with the S&P 500 SPX is somewhat negative, meaning that equities tend to rise as the dollar falls — though there are exceptions.
Dollar weakness has generally been seen as a positive, in particular, for shares of companies, typically large-cap multinationals, who derive a larger share of their revenues overseas.”
Gold futures consolidated beneath their Master Cycle high.
ZeroHedge reports, “And with gold surging on Tuesday, blasting above $2000 and hitting a new all time high earlier today, increasingly more investors are turning their attention to silver, which just hit $27/oz…
TNX appears to be consolidating above Tuesday’s Master Cycle low. There is no buy signal until it exceeds Intermediate-term resistance at 6.20. Keep in mind that, if this is a Wave , yields may climb “off the chart.”
BusinessInsider reports, “The Treasury Department plans to offer $112 billion in notes and bonds next week as the bill for widespread economic stimulus skyrockets.
The sum marks a record for the department’s quarterly debt issuance. The Treasury will also pivot from issuing shorter-dated notes to focus on longer-term securities at the upcoming offering. By boosting the sale of longer-dated bonds, the department can lengthen the average maturity of outstanding government debt
Next week’s sales include $48 billion worth of 3-year notes, $38 billion worth of 10-year notes, and $26 billion worth of 30-year bonds, according to the department’s Wednesday release. In the three-month period ending in October, the department plans to boost nominal debt issuance by $132 billion compared to the prior quarter.”
ZeroHedge observes, “Another record low was recently made in Bank of America’s MOVE Index (considered Treasury Market ‘VIX’), falling to an unprecedented 40.66 last week, has since turned up to 44.11 in early August.
August 5, 2020
SPX has hit the Cycle Top at 3330.77 and may have begun its reversal with Wave (v) being 50% the size pf Wave (i) of [c] of 5. As indicated this morning, it has not exceeded its cycle Top. While something else may develop, the Wave structure appears complete. Neither the VIX nor the Hi-Lo are showing signs of a reversal, so there is nothing but the completed pattern to warn us. Wave (5) has taken 41 days to complete.
SPX futures marked a new retracement high at 3320.38 this morning. It appears to be on its final leg, where Wave (v) of [c] equals Wave (i) of [c] at 3352.00. We can also see the Cycle Top Resistance at 3330.08. While Wave (3) may exceed the Cycle Top (it has), Wave (5) generally does not. However, there is a trendline at 3350.00 that may act as a temporary attractor. This final surge may be over in the next 24-48 hours.
ZeroHedge reports, “Everyone is piling into everything.
That’s probably the best way to describe the market frenzy this week which has seen an all time high in the Nasdaq and gold, an all time low 10Y yields, and an S&P that is just shy of its all time highs.
Sure enough, on Wednesday, gold jumped to a new record high pushing further past $2,000…
NDX futures have climbed to 11143.38 this morning, a new all-time high. This performance mirrors that of early 2000, where the Dow and SPX faltered, while the NDX careened higher until the whole thing collapsed. The NDX declined by 65% back then and may do likewise this time as well.
ZeroHedge remarks, “Semiconductor stocks have experienced significant multiple expansion since mid-March despite second-quarter chip sales “roughly flat compared to the first quarter,” reported Semiconductor Industry Association (SIA).
SIA said, “worldwide sales of semiconductors were $34.5 billion in June 2020, an increase of 5.1 percent from the June 2019 total of $32.9 billion. Sales in June were 0.3 percent less than the May 2020 total of $34.6 billion. Sales during the second quarter of 2020 were $103.6 billion, an increase of 5.1 percent over the second quarter of 2019, but a small decrease of 0.9 percent compared to the first quarter of 2020.”
Worldwide semiconductor revenue remains under peaks seen a few years back.
VIX futures appear to be testing the Master Cycle low with an overnight low at 23.06. Normally we may see the VIX starting its ascent during the final phase of Wave 5 in the SPX. That may depend on holders of large positions of volatility shorts taking profits at this time.
Bloomberg reports, “Wall Street’s volatility speculators are staring down one of the most confounding trading landscapes in years, even as bullish conviction pushes U.S. stocks back toward records.
USD futures reached an overnight low of 92.88 as the USD was pressured by news from the Middle East and coronavirus worries. The next Master Cycle (low) may be due at the end of August, so there could be an extension. However, the current analysis suggests at Master Cycle retracement high may be due instead.
(Reuters) – The dollar extended declines on Wednesday as euro zone data reassured after a U.S. coronavirus relief package stalled in Congress, pushing U.S. bond yields down as investors weighed prospects of further Fed easing.
Gold futures jumped to 2048.00 this morning. Investing appears to be using the September futures while ZeroHedge discusses the December futures contract, which explains some discrepancies in reporting.
Today is day 265 in the Master Cycle, which urges extreme caution for the longs. Should gold follow the Liquidity Cycle, it may stay elevated through the weekend with 2100.00 as the next target. The SPX Cycle calls for a turn on Friday.
MarketWatch reports, “Gold prices were headed sharply higher Wednesday, extending a record run for the precious metal that has helped it log four straight gains and eclipse a historical milestone above $2,000.
The yellow metal has soared about 35% in 2020, surpassing the year-to-date rally in the Nasdaq Composite Index COMP, +0.35%, composed of highflying technology stocks that has led to the overall equity market rally.
Early gains for gold Wednesday put it on track for its seventh record close in eight sessions, which would represent the most record closes over such a span since April of 2011, according to Dow Jones Market Data.
Bullion’s buoyancy has been supported by central-bank monetary easing during the COVID-19 pandemic that has led to super-low interest rates in the U.S. and sub-zero rates in parts of the developed world that have helped to stoke appetite for gold, which doesn’t offer a coupon.”
TNX has bounced off yesterday’s low, on day 271 of its Master Cycle. This may be the launch of Primary Wave  of Cycle Wave I in yields. As the government announces the issuance of a record debt sale, concerned investors may want to see higher compensation (yields) for the additional risk.
TNX’s counterpart, UST has completed its rally as an Ending Diagonal. A decline beneath Intermediate-term support at 139.42 gives it a sell signal. Yesterday was day 281 in the UST Master Cycle. In many respects, UST is a mirror image of TNX. However, UST made a new all-time high, while TNX has not made a new low.
FinancialTimes describes the angst suffered by investors about the low rates.
ZeroHedge reports, “Just two days after the Treasury unexpectedly hiked its forecast for debt issuance in the current quarter by $270BN from $677BN to $947BN (after a record $2.75 trillion last quarter)…
August 4, 2020
Wave (5) appears to be still incomplete. It is possible to rally to the Cycle Top at 3329.75 over the next two days. The next news catalyst that may shake the markets is the July Jobs report by the DOL on Friday. That also makes the length of Wave (5) 43 days.
BKX appears to be consolidating beneath all supports. In fact, the BKX appears to be the worst sector of the market with no strength whatsoever. In addition, should it make new all-time lows, the target of this decline is negative. Banks are going for the biggest bailout in history, since the outlook is that their net assets will be negative. Consider the next two articles:
NorthmanTrader observes, “As $SPX is entering the February gap zone into 3300 (an area we’ve been mentioning for weeks in Straight Talk) and Nasdaq is again making new all time highs as investors keep relentless chasing into high cap tech, it may be worth pointing out that something’s rotten in the state of markets.
And no it’s not valuations although that’s a discussion on its own. Rather it relates to a specific component of equal weight namely the banks.
The price action is an absolute horror show. Just look at the year today performance versus the Nasdaq:
Which is odd considering all that is supposedly positive. Banks exceeded expectations in recent earnings. The Fed has been supporting the banks intensely including propping up the entire distressed debt sector by buying high yield debt and pushing $JNK prices back to near highs:
Not only that, but the Fed has managed to completely reverse the stress in financial conditions:”
ZeroHedge reports, “One quarter ago we pointed out something concerning: shortly after JPMorgan reported that its loan loss provision surged five fold to over $8.2 billion for the first quarter, the biggest quarterly increase since the financial crisis, in preparation for the biggest wave of commercial loan defaults since the financial crisis (a number which in the latest quarter surged to $10.5 billion along with all other banks’ loan loss provisions)…
SPX futures have declined to 321.12, not enough to consider a sell signal, but we must be wary of the avalanche effect, nonetheless. Yesterday SPX tested reound number resistance at 3300.00 and failed. A rejection at this level may be considered an aggressive sell signal.
ZeroHedge reports, “S&P futures posted a rare overnight drop alongside shares in Europe as President Trump’s moves to force China-owned TikTok into a sale of its U.S. operations drew a sharp rebuke from Beijing, ratcheting up tensions as the world slides into a pandemic-fueled recession; at the same time a string of poor earnings illustrated the continuing hit from the pandemic while jittery investors also awaited news on whether fresh fiscal stimulus in the U.S. will get approval. The dollar reversed overnight losses and 10Y yields tumbled back to all time lows.
VIX futures are higher, but some distance from mid-Cycle resistance and the 50-day Moving Average at 28.17. We may see a sudden spike above those levels should some catalyst shake up the market.
SeekingAlpha remarks, “July’s return for the S&P 500 Index of 5.64% pushed the index into positive territory for the year, returning 2.38% year to date. More impressive is the S&P 500’s return since the March 23 low at +46.2%. It is hard not to agree there appears to be an upward bid to the equity market in spite of concerns around the virus induced weakness in some of the economic data, especially in the jobs/employment data. In my last post I wrote about the AAII Sentiment Survey and concluded the market seems to be climbing a wall of worry given the low level of bullishness being expressed by individual investors.
Noteworthy from a calendar perspective is the November election is beginning to factor into other sentiment measures like the VIX and more specifically the 3-month Volatility Index (VXV). Just like most investor sentiment measures, the significance of the readings works best at their extreme. In the case of the VIX and VXV, it tends to be easier to gauge market bottoms with high VIX values than market tops with low VIX levels. As can be seen in the below charts, both the VIX and VXV spike at times of market fear. With the 3-month Volatility Index, VXV, at a higher level, the option market is expecting higher volatility three months out versus over the next month (VIX), this is referred to as the VIX curve being in contango.”
NDX futures have declined and are threatening the 11000.00 level. Beneath round number support lies an aggressive sell signal. Confirmation lies at Short-term support at 10722.29 and the trendline at 10500.00.
TNX made a new low this morning on day 271 of the Master Cycle. It has until the end of the week to reverse higher. If not, the current Wave structure remains the “best fit.” Treasury bonds are also in “avalanche mode.”
ZeroHedge reports, “Yesterday’s brief interruption in the demise of yield (driven by rate-locks due to the massive Alphabet issuance), has ended with Treasury yields erasing the entire move and then some.
USD futures are higher, but not yet above the Cycle Bottom resistance at 94.40. The standard Wave (2) retracement may normally meet mid-cycle resistance at 97.97. However, should the decline in stocks be severe, the retracement may go to the Cycle Top at 101.53.
MarketWatch opines, “The U.S. dollar began August with a bounce after suffering its worst monthly fall in just shy of a decade, but it did little to dissuade bears who are looking for further weakness in the greenback.
“We expect the currency to be undermined by an ebbing of safe-haven flows, a reduction in the U.S. rate advantage, and political uncertainty ahead of the November presidential election,” wrote analysts at UBS, in a note last week.
The ICE U.S. Dollar IndexDXY, 0.45%,a measure of the currency against a basket of six major rivals, fell 4.2% in July, its biggest one-month decline since September 2010, according to FactSet data, trading Friday at its lowest in more than two years.”
Gold futures are hovering just above the Broadening Wedge trendline at 1975.00. An aggressive sell signal lies beneath that level. Stay alert.
Crude oil futures challenged Intermediate-term support at 40.23 this morning, suggesting further losses. Crossing that support line gives us an aggressive sell signal with further confirmation at the 50-day at 39.03. This may be yet another decline for the records, with an official low near 2.00, un some intraday distress with negative prices.
The dividend cut by BP comes at no surprise. Major oil companies were crushed in the second quarter as coronavirus lockdowns led to a sharp decline in demand for oil and gas products. Royal Dutch Shell is a major oil and gas company that recently announced a cut to its dividend.
BP said the outlook for energy demand and prices remains “challenging and uncertain,” warning that the virus-induced global recession could weigh on demand for a “sustained period.” As to how long, well, no specific guidance was given. We noted last month, KPMG estimates 14 million fewer vehicles on US highways due to remote working trends and permanent job loss.
Tuesday’s halving of the dividend (first cut in a decade) to 5.25 cents per share was much larger than what analysts expected, due primarily to the company needing to get its massive debt load under control while adapting to a new environment, one which demand languishes as the global economic recovery is sluggish.”
August 3, 2020
ZeroHedge remarks, “2020 has been quite a year for the stock and options markets. We have witnessed a gut-wrenching roller coaster ride from highs to lows and back to highs. The volumes of both stock and options trading have ballooned as discount brokers offer zero commission trading.
SPX futures are straining to overcome the July 23 high at 3279.99 (cash), and now appear to havedone it. In the process, it is making yet another Broadening Formation portending yet another 20%+ drop once the structure is complete. In futures the number to beat is 3284.38.
ZeroHedge reports, “World stocks rose and US futures jumped to the highest level since late February even as U.S. lawmakers struggled to agree on the next round of coronavirus aid while Covid cases around the globe continued to rise, while a squeeze on crowded short positions left the dollar clinging to a tentative bounce.
NDX futures are also straining to make a new all-time high, having attained 11004.12, but not exceeding the two previous highs. Tis may be the moment of truth for stocks, as money is pouring in on one hand, while smart money is bailing out on the other.
ZeroHedge remarks, “Two months ago, we showed that contrary to conventional wisdom and corporate reps and warrants that buybacks had effectively been put on hold for the duration of the covid pandemic, not only were companies still repurchasing their shares but it was the tech names – those who have stormed higher since the March lows – that were the biggest culprits.
Now, two months after we first revealed Wall Street’s worst kept secret, the Financial Times has also noticed that Corporate America is finding it hard to kick the share buyback habit, even after the US slipped into its worst recession in decades.
While total buybacks are indeed expected to drop this year as the downturn caused by coronavirus saps corporate profits, companies in the S&P 500 that have reported second-quarter earnings so far have reduced the number of their outstanding shares by an average of 0.3 per cent from the previous quarter, according to calculations from Credit Suisse.
Furthermore, updates showed that some of the largest US multinationals continued to buy back their own stock or even accelerated stock repurchases and nowhere more so than the tech names we first highlighted at the end of May.”
VIX futures are higher, despite rising stock prices. Analysts start taking notice at 25.00 and our indicators suggests a spike above mid-Cycle resistance at 28.11 may offer a buy signal.
USD futures continued their bounce over the weekend, leaving Friday’s bottom tick as a likely Master Cycle low. Should stocks decline, the flight to cash may elevate the USD considerably higher.
ZeroHedge reports, “Following the worst month for the dollar in a decade, there has been a bout of position squaring as we start August, largely on the back of a slump in the Euro, which is down 200 pips in 2 days, and accelerating weakness in the Yen, which have sent the Bloomberg dollar index to its highest level in a week, surging the most since June 14.
TNX opened higher this morning after making a potential Master Cycle low on Friday. However, it has not yet crossed above the “neckline” at 5.73. There are at least three different interpretations of what is happening in treasuries. I will address the labels is the best fit emerges.