December 2020

December 31, 2020

I found this article on Tuesday and wanted to put it in the blog.  This is a good juxtaposition to the Velocity of Money, below.  What these articles are saying is that money is being hoarded in great quantities because there is (1) no reasonable place to employ it and (2) profits being held into next year are almost certainly going to be taxed at a higher level.

Happy New Year!

10:00 am

The Velocity Of Money  rose ever-so-slightly to 1.147 in the third quarter.  This is the reason that the Fed is frantically trying to keep interest rates as close to zero as possible.  A rise in rates may stifle the economy even more, as there are very few investments that haven’t already reached all-time highs with nowhere to go.  It is sad that so few people understand this.

9:00 am

SPX futures declined to 3715.25 this morning (the Orthodox Broadening Top is near 3710.00) before coming back to flat.  I don’t expect much on New Year’s Eve as most traders and institutions are already taking a holiday.  However, I would not this article that bears attention.

ZeroHedge reports, “US equity futures traded flat in the last trading session of the day, set to end a tumultuous year in muted fashion just shy of all time highs alongside global markets which likewise traded at or near record levels.

While global stock markets were muted on the last trading day of 2020 , Bitcoin’s tremendous rally this year refused to pause and rose another 0.3%, briefly surpassing $29,000, up about 50% for the month of December, its biggest monthly percentage gain since June 2019, bringing its year-to-date advance above 300%.”

 

VIX futures reached a low of 21.24 before going positive this morning.  On December 29, the VIX completed a (60-day) Trading Cycle from the October 29 high and a half Trading Cycle from the November low.  The current Maser Cycle is not due to end until it has completed another Trading Cycle at the end of February.

 

TNX appears to be declining to either the Intermediate-term support at 9.07 or the 50-day Moving Average at 8.84, where it is anticipated to end its Master Cycle early next week.  This sideways consolidation for the past month has silenced the pundits.  A Master Cycle completion is likely to end in a full reversal after pension and hedge fund rebalancing, suggesting a breakout above the Head & Shoulders neckline in the New Year.

(Reuters) – The U.S. Treasury yield curve flattened on Wednesday afternoon as traders bought longer-dated debt to rebalance their portfolios ahead of the month-end.

The 30-year yield was last down 1.4 basis points at 1.660%, pulling the spread between five- and 30-year yields flatter to 129.5 basis points. That spread had hit a high of 131.2 basis points earlier in the day.

The benchmark 10-year yield was a basis point lower at 0.925%, bringing the two-year, 10-year spread to 80.3 basis points.

 

USD futures made a new low at 89.48 this morning as USD reached day 261 of its Master Cycle.  Whether it reaches its Cycle Bottom at 88.80 is to be determined, but the decline is likely to extend into next week.

Investing reports, “The US dollar continued to beat a modest retreat overnight, weakening across the board versus G-10 and Asian currencies. The dollar index fell 0.38% to 90.00 and has fallen by 0.25% this morning to 89.76. Today’s fall has left the dollar index testing support at 89.75. A daily close below 89.75 tonight signals that further losses to 89.00 are on the cards next week.”

December 30, 2020

8:10 am

Good Morning!

SPX futures rose to 3738.12 to complete a 45% retracement of yesterday’s reversal.  Key supports are the trendline at 3708.00 and Short-term support at 3693.91 for an aggressive sell signal.  Confirmation of the sell signal lies at the lower Ending Diagonal trendline at 3670.00.  Quarterly rebalancing may have begun, but appears that it may be extended after the New Year.  There is always a chance of a final probe higher as long as the trendlines have not been violated.

ZeroHedge reports, “US equity futures and world stocks rose again as the last thrush of the year end rally levitated risk assets, with the S&P inching closer to recent all time highs and Asian shares hitting a record on Wednesday. Futures on the S&P 500 added 0.4%, recouping much of Tuesday’s losses, and emerging-market stocks advanced to the highest levels since 2007 on buoyant inflows. U.S. stocks retreated from an intraday record high on Tuesday after Mitch McConnell put off a vote on President Donald Trump’s call to increase COVID-19 relief checks from $600 to $2,000.

 

VIX futures appear to be consolidating near the low, hitting 22.41 before a bounce.  A VIX buy signal is made by crossing above the 50-day Moving Average at 25.48.

 

TNX futures tested the Cycle Top resistance at 9.57 this morning before easing back.  Intermediate-term support lies at 9.09.  The Cycles Model suggests an end to the current Master Cycle early next week.  The current consolidation has the appearance of a Triangle formation, suggesting a breakout above the Head & Shoulders neckline at the end of the Cycle.

Morningstar comments, “U.S. Treasury yields rose slightly on Wednesday as bond-market trading remained calm in the holiday-shortened week.

The bond-market will close early on Thursday and stay shuttered on Friday, based on recommendations from the Securities and Industry Financial Markets Association.

The 10-year Treasury note yield was up 1.1 basis points to 0.946%, while the 2-year note rate edged up 0.4 basis point to 0.131%. The 30-year bond yield added 1.4 basis points to 1.688%.”

 

USD futures are challenging last week’s low by declining to 89.61.  Today is day 260 in the Master Cycle, suggesting a reversal may now be imminent.  It appears that the USD may change direction after the first of the year.

ActionForex reports, “The US dollar continued to beat a modest retreat overnight, weakening across the board versus G-10 and Asian currencies. The dollar index fell 0.38% to 90.00 and has fallen by 0.25% this morning to 89.76. Today’s fall has left the dollar index testing support at 89.75. A daily close below 89.75 tonight signals that further losses to 89.00 are on the cards next week.”

 

Gold futures appear to have made their Master Cycle high on December 21.  This morning’s high at 1890.05 did not form a breakout.  On the other hand, crossing beneath the 50-day Moving Average at 1872.45 may offer a sell signal.

December 29, 2020

11:45 am

Mission accomplished!  Should the reversal continued as it has begun, SPX may decline to Short-term support at 3692.22 or the trendline near 3660.00.  The upper trendline is at 3708.00 where we may make an aggressive short position.  Chart confirmation (of the sell signal) lies beneath the lower Ending Diagonal trendline at 3660.00.  I will keep you posted on the VIX and Hi-Lo Index.  The VIX 50-day Moving Average is at 25.46.  it is currently at 22.29 and rising.

PS.  ZeroHedge is being Hacked.  Be careful with your data.

8:00 am

Good Morning!

SPX futures hit an all-time record high at 3747.62 this morning.  It appears that SPX may be closing in on the Cycle Top resistance at 3756.20.  Note that the Cycle trading bands are narrowing as a prelude to a probable reversal.  Today is day 281 in the Master Cycle, so time has been extended.  We now look for the price target (3750.00) to be met.

Markets die hard at this overstretched level.  A recalcitrant Republican Senate may be the market’s undoing.

ZeroHedge reports, “US index futures and global stocks rose for a fourth straight day, hitting new all time highs on Tuesday after the Democrat-controlled House sided with Trump and passed a bill boosting stimulus payments for most Americans from $600 to $2,000 (which will almost certainly die in the Republican-controlled senate). The dollar dropped while oil and 10Y yields rose.

At 07:30 am ET, Dow E-minis rose 129 points or 0.43%, S&P 500 E-minis gained 16 points or 0.43% and Nasdaq 100 E-minis added 46.25 points or 0.36%.

 

VIX futures appear to be consolidating and not making a new low.  This is critical as it appears poised to launch a new rally.  The current Master Cycle still has two months (43 market days) to develop Wave [C].  It may be virtually double the size of the March rally in which Wave [C] took 22 days.

 

TNX is tracking higher, but must break through its Cycle Top resistance at 9.53 for a breakout above the Head & Shoulders neckline.  Today is day 252 of the current Master Cycle.  The consolidation should break within the week.  There appears to be a lack of commentary on treasuries in the mainstream press as the consolidation has been in effect for an entire month.

ZeroHedge reports, “ust 90 minutes after subpar buyside demand saw the latest record 2Y auction tail in one of the last Treasury auctions of the year, moments ago the Treasury sold another record batch of debt, this time in the form of $59 billion in 5Y coupons, the biggest amount for the tenor sold on record.

And just like this morning’s 2Y auction, the 5Y also tailed the When Issued, pricing at 0.394%, virtually unchanged from last month’s 0.397%, and a 0.3bps tail to the 0.391% WI.

The bid to cover was also lackluster, printing effectively flat for the third month in a row at 2.39 vs 2.38 in Oct and Nov.

Finally, the internals were also disappointing because with Indirects taking down 57.1%, this was below the 61.2% six-auction average, if just above last month’s 56.5%. And with Directs poking a bit higher, and at 18.1% the highest since April – the same as today’s 2Y auction – Dealers were left with 24.9% of the final allotment, virtually on top of the 23.9% recent average.

 

USD futures eased lower to 89.98 as the prospect of a Master Cycle low nears.  Today is day 259 of the current Master Cycle.  We should see a resolution by year end.

December 28, 2020

10:17 am

A new all-time high for the NDX.  However, this is day 280 of the current Master Cycle.  This is the longest “stretch” in memory.  And it is overbought by virtually all standards.  The conditions are ripe for a Key Reversal.

RealInvestmentAdvice observes, “Maybe this time is different. Those words, supposedly the most dangerous to utter in the investing realm, came to mind amid the frenzied pops in the highly anticipated initial public offerings recently.” That quote was from Randall Forsyth discussing why the current market mania reminds him of the “Shades of 1999.”

There are certainly many similarities between today and 1999. From exceedingly high valuations to a rush by private equity investors to IPO overly priced companies as quickly as possible, prices are high. Of course, such is not possible without an underlying “Fear Of Missing Out, or F.O.M.O.” by retail investors.

As discussed previously, “valuations” are a representation of market excesses. In other words, psychology is key to the formation, and inflation, of a financial bubble. However, it requires a supportive underlying narrative, a “siren’s song” to lure “sailors onto the rocks.” 

 

9:15 am

 

Good Morning and Merry Christmas!

SPX futures have risen to a high of 3725.88 on Trump’s signature of the Stimulus Package.  The December 18 high is still intact, but Wave 2 may come up to, but not exceed, the prior high.

ZeroHedge reports, “Global stocks jumped and US equity futures spiked in light overnight trading, after President Trump unexpectedly signed the $2.3 trillion spending package on Sunday evening and as investors continued to celebrate a last-minute trade deal clinched between Britain and the European Union.

By backing off from his previous threat to block the bipartisan bill, Trump allowed millions of Americans to continue receiving unemployment benefits and averted a federal government shutdown. The stimulus “could be supportive of the market, supportive of the U.S. economy,” said Suresh Tantia, strategist at Credit Suisse Group AG. “Next year all the building blocks are there for markets to continue this rally.”

 

VIX futures reached a low of 21.33, but bounced back into the green this morning.  While retail speculators may be excited with the Stimulus Package, professionals appear to be underwhelmed.  Year-end rebalancing is due this week and it may produce a backlash greater than most would anticipate.  The top five articles in a Google search advise us to short the VIX.

 

TNX reached a high of 9.63 this morning, shy of the Head & Shoulders neckline at 9.75.  The current Master Cycle terminates in a week.  All signs point to a breakout above the neckline, but we may see a challenge of the 50-day Moving Average to end the Cycle before emerging above the neckline in a new Master Cycle.

December 23, 2020

3:29 pm

SPX challenged the Orthodox Broadening Top trendline at 3702.00 and is now bouncing.  However, the retracement appears complete and a close beneath the trendline puts the SPX back on an aggressive sell.  At some point it will decline past the point of no return, so if one had decided to go short, it should remain that way, despite all the shenanigans.  Tomorrow the market closes at 1:00 pm.  Many traders have already left for the holidays.  Don’t expect any big moves until Monday, but it may open with a bang.

Good luck and good trading…

…and Merry Christmas!

 

7:30 am

Good Morning!

SPX futures continue to consolidate in a sideways fashion.  The low was 3652.62 and the high was 3690.38 as the range compresses, possibly due to the converging trendlines.  It appears that there is an effort to maintain elevation in the face of deteriorating liquidity.  The SPX may not break down until after Christmas.

Trump threatened to veto the current bill, due to inadequate relief for our citizens and too much pork for special interests.  Pelosi and Schumer claim to agree.

ZeroHedge reports, “After initially tumbling after President Trump shocked the establishment and traders with a surprise tirade against the $900 billion relief package, calling it a “disgrace” and demanded stimulus checks be raised to $2,000 from $600 while demanding that “wasteful and unnecessary items” be eliminated, futures staged a full rebound as analysts said investors shouldn’t worry about Donald Trump’s Tuesday attack on Congress’s coronavirus relief package as the president can only delay passage by about a month, while his prodding might boost checks to individuals.”

 

NDX futures reached a retracement high of 12 738.50, seemingly range-bound until after Christmas.

CNBC reports, “Tech has been a source of strength in this week’s choppy market, and big technology names could well be the leaders to take the market higher into the first quarter, technical analysts said.

In the tug of war between cyclicals and growth, tech has been winning lately. The sector is the top performer this week, with financials the only other major S&P sector showing some strength. The S&P 500 is down 0.6% in the same period, closing at 3,687 Tuesday.”

 

VIX  futures were lower this morning but still above Friday’s low at 21.52.  Although the Master Cycle which began on November 27  is off to a slow start, Monday’s breakout above the 50-day Moving Average signals an opportunity to accumulate VIX futures, options and ETFs.  The current Master Cycle may last until the end of February.

 

On another note, China’s Shanghai Index peaked on December 3 and is weakening since then.  It closed yesterday just above the 50-day Moving Average at 3345.61.  A decline beneath it opens the floodgates.  China’s economy has had a rough year and it may not be as resilient as the US.  It is one of the first markets to open each day (after Japan) and has a substantial influence on the European and US markets.

ZeroHedgehttps://www.zerohedge.com/markets/historic-reversal-chinas-credit-impulse-just-peaked-what-means-global-markets reports, “Back in June 2017, we wrote that if one had to follow just one macro indicator that impacts virtually every aspect of the global economy, that would be the Chinese credit impulse. Not surprisingly, the article was titled “Why The (Collapsing) Credit Impulse Is All That Matters.” Then, a few years later just in case there was any confusion, we again wrote “Why The Collapsing Chinese Credit Impulse Is All That Matters.”

The reason for this is simple: with western central banks woefully unable to spark benign inflation both domestically or globally, China has emerged – starting around the time of the global financial crisis – as the only source of global economic and reflationary momentum, which in turn depends on China’s ability and willingness provide yet another stimulus to its domestic economy.  It does so by injecting trillions of new credit into its financial system, as the following chart of Total Social Financing over time clearly shows.”

 

TNX continues to consolidate above critical support at 9.02 but beneath its Cycle Top at 9.44.  There are only two weeks left in the current Master Cycle.  The final impulse could go either way.  A distinct possibility may be a decline to the mid-Cycle support at 7.24, a near 50% retracement.

 

USD futures declined to a morning low of 90.34.  The probability of the USD declining to its Cycle Bottom at 89.04 is high, as it has up to another week to the end of its Master Cycle.

 

December 22, 2020

3:40 pm

The Ending Diagonal Trendline and Short-term support are at 3679.50.  A breakthrough may cause a cascade down to the Head & Shoulders neckline and beyond to the 50-day Moving Average.  Being short SPX may be the only option.  Even if it bounces, there will be the follow-through in the overnight session.  Good luck and good trading!

 

8:20 am

Good Morning!

SPX futures traded between 3663.88 and 3694.88, challenging Short-term support and the trendline and being resisted overhead by the Orthodox Broadening Top trendline.  Yesterday’s rally may have been due to retail excitement about an “Opportunity” to buy the dip, while pensions, hedge funds and dealers have no appetite for moving the markets higher with year-end rebalancing coming due next week.

ZeroHedge reports, “S&P futures erases their drop to trade 0.3% higher as of 730 a.m. ET, tracking gains for shares across European markets, which reversed an earlier Asian loss. Emini futures fell as much as 0.6% earlier despite the successful passage of the covid relief bill late on Monday in both the House and the Senate. The S&P dropped 0.4% on Monday as optimism over the $900BN Covid-19 relief bill was offset by the emergence of a mutant variant of the virus and a frenzy of lockdowns and travel curbs to contain it.

Nasdaq 100 futures outperformed the S&P 500 after U.S. lawmakers cleared a $2.3 trillion year-end spending bill and stimulus package yesterday, which now passes to President Donald Trump to sign. Treasuries and the dollar pared an earlier advance. The stimulus package, the first congressionally approved aid since April, comes as the pandemic accelerated in the United States, slowing the economic recovery.”

 

NDX futures surged to 12759.75 this morning, testing the high.  Retail speculators in individual stocks appear to be in charge, while institutional investors remain sidelined.

(Reuters) – Gains for Apple dragged S&P 500 and Nasdaq futures higher on Tuesday, buoyed by signs it was set to push into car production, as investors worried about the threat of a new coronavirus strain uncovered in England.

Shares of Apple Inc (NASDAQ:AAPL), the most valuable company on Wall Street, were up more than 2% in trading before the bell after Reuters reported that the iPhone maker was moving forward with self-driving car technology and was targeting 2024 to produce a passenger vehicle.

ZeroHedge comments, “Tesla faced what appeared to be its first reality check in years in trading on Monday. After being included into the S&P 500 index, Tesla shares finished the day down 6.49%, falling $45 per share amid a coming implied volatility collapse and a liquidity triggered “normalization” that very well could prevent Tesla from being pushed higher by call option buys, they way it has been over the last year or so.”

 

VIX futures declined to a low of 23.53 before bouncing, but remaining beneath the 50-day Moving Average at 25.77.  This is a good tome to accumulate VIX futures and options as the uptrend is well established.  We may see the uptrend last at least until the February options week.

 

TNX appears to be consolidating beneath its Cycle Top resistance at 9.41. According to the Cycles model, a period of strength appears imminent, so a breakout and a run for the Head & Shoulders target may be anticipated over the next two weeks.

CNBC reports, “Treasury yields were flat on Tuesday after Congress passed a $900 billion Covid-19 relief package.

The yield on the benchmark 10-year Treasury note was little changed at 0.935%, while the yield on the 30-year Treasury bond dipped slightly to 1.671%. Bond yields move inversely to prices.

Congress passed a mammoth coronavirus relief and government spending package. The package includes a boost to jobless benefits, more small business loans, another $600 direct payment and funds to streamline critical distribution of Covid-19 vaccines. The bill now goes to President Donald Trump’s desk.”

 

USD futures rose to an overnight high of 90.36.  However, there appears to be no Cyclical strength, suggesting the decline may not be over until the end of the year, when the Master Cycle is complete.  Friday’s low at day 248 may not be the Master Cycle low.  The Master Cycle may run out through the end of the year, as indicated in the Cycles Model.  A triple period of strength appears in early January where the USD may develop a furious rally lasting nearly two months.

SouthChinaMorningPost opines, “There is a saying in currency markets that it’s never wise to stand in the way of an express train, especially when it’s speeding downhill. The US dollar seems on a hiding to nothing after losing 11 per cent of its trade-weighted value over the past nine months.

It’s a big boost for the US economy as the dollar’s fall is the monetary equivalent of around 2.5-3 per cent knocked off short-term interest rates, sparing the Federal Reserve from more easing measures for the time being.

Shorting the deflated dollar may look like a sure-fire bet for investors right now, but maybe not for too much longer. One of the biggest reasons for weak dollar perceptions, US President Donald Trump, will soon be leaving office and dollar bears should be on their guard about President-elect Joe Biden’s future currency intentions.”

Gold futures made a low of 1871.60, beneath the 50-day Moving Average of 1875.48.  The bounce may be weakening, but not over, as the Master Cycle may be due to top out early next week.  Earlier, I had mentioned that the bounce in gold may go as high as the November high at 1966.10.  It may be a tough call as there may only be three more trading days until the Holiday.

December 21, 2020

Good Morning!

SPX futures had the trap door open this morning, tumbling to a morning low of 2596.38.  I has since bounced but only recovered small portion of its losses.  The threatened panic decline has begun.  That confirms the Friday morning high at 3726.70 as the all-time high.  While the old Master Cycle was stretched (the low-to-high lasted 34.4 days), the new decline may last up to 43 market days, double the length of time it took for the March decline.  We will be wishing that Powell hadn’t goosed the market so badly.

ZeroHedge reports, “Between the fiscal stimulus deal agreed over the weekend, and the first day of Tesla trading in the S&P (where for every $11.11 dollar move in TSLA stock, the S&P changes 1 point), there was some hope that futures would be even higher record-er today… and they were for about 10 seconds after they reopened for trading at 6pm on Sunday when the Emini briefly spiked to 3,724 just after Senate majority leader Mitch McConnell confirmed congressional leaders had agreed a roughly $900 billion COVID-19 relief bill.

It wasn’t meant to be, however, and just a few hours later, S&P futs had plunged as much as 125 points, or down 2.5%, sliding briefly below 3,600 before rebounding modestly to 3,640 with risk assets were crushed as markets digested newsflow that focused on virus mutations in the UK which sparked a new round of UK lockdowns (as well as a panicked attempt by Londonders to flee), coupled with continued lack of clear progress on Brexit.

Oil & gas, banks and auto names drop over 4% and are the worst hit sectors in a sea of red, with oil tumbling in response to fresh airline travel fears while the dollar soared and VIX exploded 40% (!) rising above 30 after trading near 20 last week.”

 

NDX futures also cratered 2.5% to12464.88 to bounce off the lower trendline and short-term support at 12469.49.  While the uptrend hasn’t been broken, the damage has been done.  Hedge funds may begin selling below 12465.00, if not sooner.

 

VIX futures ramped 45% to an overnight high of 31.46 as futures traders scrambled to buy protection against the sell-off.  As recent as last Friday SeekingAlpha released an article entitled “Short The VIX.”

 

TNX declined to Intermediate-term support at 8.95 this morning.  The turn window is now open for TNX at day 244, but we reserve judgement until a clear breakout is made.  Should the Master Cycle take its normal course, it may decline further, testing/challenging the 50-day Moving Average at 8.58 through the end of the year.

CNBC reports, “U.S. debt yields fell on Monday as fears over a new, more contagious strain of coronavirus sparked demand for the relative safety of government bonds.

Those fears were checked by a new, $900 billion Covid-19 relief package from Congress and longer-term optimism about the global vaccine rollout.

The yield on the benchmark 10-year Treasury note fell about 5 basis points to 0.905% while the yield on the 30-year Treasury bond dropped 6 basis points to 1.646%. Bond yields fall as their prices rise.”

 

USD futures ramped to an overnight high of 91.02 before easing back.  It appears that the Master Cycle may have ended last Thursday at 89.64 on day 247.  This likelihood of a deeper low appears minimal, since the USD is showing Cyclical strength the entire week.

ZeroHedge observes, “After collapsing to critical support levels, the USDollar has soared overnight – its biggest spike in six months…

Source: Bloomberg

Various reasons for the move include the fact that the USD sits at the epicenter of macro right now (everybody ‘short’ it through various expressions) but between cable weakness (on mutant COVID strain fears as well as Brexit), and desk chatter about a Bloomberg article focused on potential Biden admin Treasury Secretary Janet Yellen, the move was dramatic and, as Nomura’s Charlie McElligott, has forced traders to accelerate year-end de-grossing to protect P&L.”

December 18, 2020

11:34 am

SPX is through the trendline for an aggressive sell signal.  Confirmation comes with the crossing beneath the lower Ending Diagonal trendline and Short-term support at 3671.64.  It is hard to say whether SPX will decline to that level today or not.

On another note, TSLA is at 666.00, having made an all-time high of 684.75.  It appears that TSLA may make 700.00 by Monday if the sell-off hasn’t already started.  Then, the deluge!

 

10:00 am

SPX made a possible Key Reversal by first, making a new all-time high.  Second, it tested the trendline (beneath yesterday’s low) at 3706.74.  Should it break through, the decline is on.

ZeroHedge warns, “US equity markets surged higher as Europe opened overnight, but as the US cash market opened, stocks broadly speaking puked as the effects of options expirations started to impact direction…

 

8:00 am

SPX futures declined to 3699.38 at 10:00 pm before the algos kicked in to save the 3700.00 massive call position.  At 7:30 am the futures eased back.  It’s a toss-up whether those calls pay off or expire worthless.  My bet is on the latter.

Today is day 270 of the Master Cycle, making it extended.  The normal range is up to 17 days before or after the 258-day average.  In addition, SPX shares must be sold to allow for the entry of TSLA into the SPX on Monday.  The shock from the sale of the 30 largest companies could be the market’s undoing.

ZeroHedge reports, “Normally, “quad-witching” option expiration days tend to be volatile affairs resulting in bursts of volatility and occasionally aggravated downside for risk assets. Today’s quad-witch, however, will not be one of those days because while some 45% of outstanding SPX option open interest – totaling more than $2.5tln of notional – expires, the concentration of strikes is below the current spot level and will thus have limited potential gamma impact, as we noted yesterday.

And since what won’t go down must come up in these bizarro markets, Emini futures hit a new all time overnight, up 5.00 points, or 0.18%, to 3,718 despite fresh US-China tensions following a Reuters report that the US is preparing to blacklist Semiconductor Manufacturing International Corp. and dozens of other Chinese companies, while little progress was made on a federal spending deal in Washington; ironically, the latest dismal retail sales data and unemployment claims were seen as good news as they bolstered the case for further stimulus. The dollar rose for the first day in five.”

 

 

VIX futures rose to 22.22 in the overnight session and remains elevated.  Not enough to raise a firestorm of volatility, but edging higher into the early morning index options expiration.  It appear that the big options players may get paid but if they have no skin in the game at the end of the day volatility may rise.

 

NDX futures tested the upper trendline at 12776.25, making a new all-time high.  It is possible that TSLA’s entry into the SPX may cause the NDX to “throw over” the Ending Diagonal trendline.  The potential target for NDX may be 13000.00!

Unfortunately, a “throw-over” leads to a reversal.  Tuesday, possibly?

Bloomberg observes, “Brandon Smith does not own one of Tesla Inc.’s sleek electric cars. In the small town south of Milwaukee where he lives, even seeing one on the road is rare.

But in late June 2017, Smith poured $10,000 of savings into Tesla’s stock. He said it was the first time he’d ever invested in a company. That was just the start. Each paycheck, Smith, a video producer, would pay his bills and then buy additional shares with the rest.”

MarketWatch observes, “The most heavily shorted stocks underperform the broad market, on average. But try telling that to Tesla TSLA, +5.32%  bulls, who at least so far have enjoyed the last laugh at short-sellers’ expense. In January 2020 Tesla was the most heavily shorted U.S. stock, with 18.2% of its float (total tradable shares) sold short. Yet the stock’s gain this year so far is nearing 700%.

Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners, who focuses on the share-lending market that supplies shares to short sellers, was quoted inInstitutional Investorin mid-August as saying that the bet the short sellers are making against Tesla is “by far the longest unprofitable short I’ve ever seen.” Tesla’s stock has since gained more than $200 a share.

Is this time different? I know that these are the four most dangerous words in investing. But Tesla’s short squeeze seems so exceptional to make it at least worth asking the question.”

 

TNX remains beneath the Cycle Top resistance at 9.33, but the challenges have proven that this pullback is a time to accumulate TNX for the breakout above the Head & Shoulders neckline.

CNBC reports, “The yield on the benchmark 10-year Treasury note was flat at 0.926%, while the yield on the 30-year Treasury bond also held steady at 1.671%. Yields move inversely to prices.

Congress on Thursday appeared to draw closer to reaching an agreement over a coronavirus aid package, with both major parties citing progress.

Lawmakers have run short on time to pass government funding and a pandemic rescue package before federal funding lapses at 12:01 a.m. ET on Saturday.”

 

USD futures have begun climbing this morning after a low at 89.64 yesterday.  That was day 247, which is a bit early for a Master Cycle to end, but within the 17-day window.  My target continues to be the Cycle Bottom support at 89.24, so I do not have an opinion whether a Master Cycle low was made.  We should know early next week.

 

Gold futures appear to be consolidating beneath 1900.00 this morning.  As mentioned earlier, the target may be the high made November 9 at 1966.10.  Gold is on an inverse Cycle to the US Dollar.  It’s expected high may be the week after Christmas.

MarketWatch observes, “Gold prices on Friday were set to take a pause from a recent series of gains that have taken it to around a six-week high, but the precious metal was on pace for its third consecutive weekly advance.

Precious metals have been partly supported by central banks that have vowed to keep key interest rates lower for longer amid the COVID-19 pandemic and governments that have committed to printing more money to limit the economic damage wrought by the pandemic.”

December 17, 2020

10:27 am

SPX has reached its initial target and Wave equality at the Micro level.  The issue is, does it have enough momentum (greater fools) that may push it higher?

ZeroHedge offers an analysis surprisingly similar to my own, “With futures trading just around 3710 following a quiet overnight session, out partners at SpotGamma note that their indicative levels have made some significant moves resulting in the options range shifting north, with 3750 now the Call Wall which provides a higher available target in the SPX. Meanwhile, 3700 remains the largest gamma area on the board, and key support/resistance “pivot” area.  Finally our our key risk line (Volatility Trigger) has filled in at 3675.  As SpotGamma notes, “we generally consider this type of range shift to be healthy.”

Based on this, Spotgamma writes that the odds of the market staying >3700 into Dec. 18 “seem pretty strong” but they flag two things:

  • First, the quad-witching and S&P rebalance tomorrow could cause some uninitiated movement. One potential hiccup: index funds must sell $50BN of S&P to sell in order to buy TSLA.
  • Second is the VIX, which still holds 22: this elevated VIX level presents a “clean setup” into 12/18, because with lots of implied vol already priced in, if the VIX breaks lower then “the odds of the SPX trying for 3750 increases.” Of course, should the VIX spike and SPX break below 3675, is where SpotGamma sees market risks increasing substantially.”

7:40 am

Good Morning!

SPX futures appear to be working in a final probe of Wave (v) of [v] of 5.  Futures have reached an overnight high of 3717.12, approaching the initial target of 3720.00.  The short-term trading channel trendline, however, is near 3745.00, where Wave [v] equals Wave [i].  NorthmanTrader has opined that 3750.00 may be the probable top.

The problem with a move like that going into options expiration is that dealers become extremely reluctant to gamma hedge at this level, since it would trap the dealers into buying long in a self-reinforcing spiral that may ultimately collapse in a loss.  Today is day 269 in the now extended Master Cycle.  This does not bode well, since there is little room to maneuver in this tight situation.

ZeroHedge remarks, “Global stocks scaled new record highs, bitcoin exploded to never before seen levels and oil also marched higher on Thursday as investors waved in anything that isn’t nailed down, on hopes of a U.S. fiscal stimulus and the Federal Reserve’s pledge to keep pumping cash into markets and extending FX swap lines, which naturally kept pressure on the dollar. At 7:15am, S&P 500 E-minis were up 18 points, or 0.49%, trading off openinghighs. Dow E-minis were up 100 points, or 0.35%, while Nasdaq 100 E-minis were up 59.75 points, or 0.41%.

 

NDX futures have reached an overnight high of 12748.62 and appear to be testing the Ending Diagonal trendline near 12750.00.    It closed above the Orthodox Broadening Top trendline shown in the daily chart, which has given it “permission” to move higher.  The Cycle Top is at 12918.00, so this may be viewed as an alternate target, should it “throw over” the Ending Diagonal trendline.

Retail options speculators are piling in to call options in selected tech stocks, causing dealers to have to gamma hedge, meaning they must buy the underlying stock to pay off the calls.  One would think that there may be some move to pull out support for this rally before options mature.

The Cycles Model does not show strength in this move, suggesting investors may be out on a limb that’s ready to break.

 

VIX futures made a new retracement low at 21.85 this morning.  21.66 is the 61.8% Fibonacci retracement level.  ( I had mistakenly suggests it was 21.95 yesterday.)  Today is the day after VIX options expiration, not including the ETFs.  This may be the appropriate time and place for the VIX to forge higher.

 

TNX continues to consolidate near its Cycle Top at 9.28.  Yesterday’s show of strength may be an indicator that TNX may follow through to break out above the Head & Shoulders neckline at 9.75.  The pullback after the breakout on December 4 appears complete.  An alternate view is a possible test of the 50-day Moving Average at 8.52 in the next few days.

USAToday reports, “The Federal Reserve said Wednesday it will continue its bond-buying stimulus “until substantial further progress has been made” toward its goals of full employment and 2% inflation, laying out a roadmap that could keep the pump-priming strategy going at least through 2022.

While Fed officials also upgraded their economic outlook, the more detailed guidance on bond purchases is partly aimed at assuring markets the stimulus campaign will persist for a prolonged period as the COVID-19 pandemic spikes across the country, likely leaving an imprint on the economy for years. The strategy is also intended to avoid a rerun of the 2013 “taper tantrum,” when Fed officials’ signals that they would wind down the bond-buying caused Treasury yields to spike.”

 

USD futures made a new Cycle low at 89.82.  With only a week to go to a potential Master Cycle bottom, it is likely that its target may be the Cycle Bottom currently at 89.32.

BusinessInsider reports, “As COVID vaccines roll out and a long-awaited US economic aid package looks increasingly likely, investors are piling into the kinds of assets that do well when times are good – and that’s not the US dollar.

The dollar has fallen by nearly 4% so far in the fourth quarter, its weakest performance in the final three months of the year since a 6.4% loss in the fourth quarter of 2003, and the losses look unlikely to slow any time soon.”

 

Gold futures rallied to 1895.55, beyond the 50-day Moving Average at 1876.59.  It may be headed for the 61.8% Fibonacci retracement level at 1966.10, since it also has a week to go until the Master Cycle is complete.

KitcoNews reports, “Gold price are holding on to strong gains but is seeing little reaction to falling momentum in the U.S. labor market as more workers apply for first-time unemployment benefits.

Thursday the U.S. Labor Department said that weekly jobless claims rose by 23,000 to 885,000, up from the previous week’s revised estimate of 853,000 claims.

The latest labor market data missed economists’ estimates as consensus forecasts called for initial claims to be round 817,000.”

December 16, 2020

3:02 pm

It appears I spoke too quickly.  SPX is challenging the trendline again…

NorthmanTrader observes, “If you thought fundamentals, valuations and earnings growth matter the joke is on you.

In 2020 central banks have managed to do the unthinkable: Not only once again save investors from any damage in markets, but they intervened to such a degree that negative earnings growth is now the stuff of new record highs as well.

After all, never before have we seen indices vertically catapult to new record highs 2 years in a row on the cumulative reality of no earnings growth (2019) and negative earnings growth in 2020 with a multiple expansion of a near 50% in just 12 months with an unemployment rate of near 7% to boot.”

2:15 pm

SPX did not go above the December 8 high and did not emerge above the trendline.  It is now in the red.  While those who went short last week at 3675.00 are still underwater, it is only ankle deep.  While the SPX has not declined appreciably, the inability to make a new high after a week of waiting is telling.  This is one of the most difficult spots to be, but having been rejected at the trendline again, the uptrend appears to be broken.  Confirmation of the sell signal remains at 3658.75.  It is possible that the SPX may remain calm for the rest of the day, but with TNX rising this market may break down in a real hurry.

According to ZeroHedge, the Fed has left all its policies unchanged.

ZeroHedge comments. “For now, the statement did not offer enough to satisfy the market…

Stocks are down…

Bonds are down…

And the dollar up…

As it appears The Fed is holding back on its QE Twist ammo for what is to come (A Double Dip)?

 

6:30 am

Good Morning!

SPX futures stopped cold at 3700.38, meeting round number resistance and the  Orthodox Broadening Top trendline.  The Wave Structure appears complete as a correction (not exceeding the prior high at 3712.39).  It remains to be seen whether it forges on to make a new all-time high.  The release of the FOMC minutes at 2:00 pm may influence the final outcome.  Should the old Master Cycle extend, today would be day 270.  We simply need a reversal that will put the old uptrend to rest.

Equities are ripe for a reversal.  The Elliott Waves tell us so, although the pattern is a frustrating zigzag structure that seems to extend endlessly.  The combination of Elliott Waves, Cycles and trendlines all suggest an outright collapse is imminent.  However, bad news which has been ignored up until now will be blamed for the reversal.  The media will rage about how something or somebody caused it to happen after the fact.  They will ignore the problems as long as the markets are in an uptrend.  Investigations will be called for, but the jury will likely walk away blaming some minor players for the disaster.

ZeroHedge observes, “Another overnight session, and – predictably – futures are higher in keeping with the most glaringly obvious market trend since 2016 of stocks surging during overnight US trading (while trading flat in regular trading hours)…

… alongside world stocks which rose to a fresh record high on Wednesday ahead of today’s Fed meeting – the last for 2020 – on optimism a fiscal deal is imminent after congressional leaders from both parties met for several hours yesterday and afterwards reported that they are making progress with Mitch McConnell said nobody is leaving Washington for a break until a deal is completed, which should happen “soon.”  The dollar reached its lowest in more than two and a half years, on the prospect of effective coronavirus vaccines; the 10-year Treasury yield was at 0.9262% and gold gained.”

 

 

VIX futures made a low of 22.29 this morning and appears to be rising from the low.  It may be consolidating after making an exact 61.8% Fibonacci retracement on Monday at 21.95.

 

NDX futures aren’t making it any easier to analyse.  They made an overnight high at 12648.00, just shy of the all-time high.  While they have backed away from the morning high, we may still see NDX break a new all-time high today.  Again, the Cycles Model suggests “not.”

 

TNX leaped above the Cycle Top at 9.27 as it rises to challenge the Head & Shoulders neckline at 9.75.  Bond traders are wary as they note the breakout last week.  This time its for real.

CNBC reports, “U.S. Treasury yields inched higher on Wednesday ahead of the Federal Reserve’s latest policy decision.

The yield on the benchmark 10-year Treasury note rose slightly to 0.942%, while the yield on the 30-year Treasury bond climbed 2 basis points to 1.693%. Yields move inversely to prices.”

 

USD futures continue to decline, hitting a low of 90.13 this morning.  This has become an expanded correction.  The consequences are that traders are all herded on one side of the ledger.  It is now fashionable to be bearish on the dollar.

FinancialTimes observes why it may be a foolish bet.

 

December 15, 2020

3:04 pm

SPX has made what may either be an A-B-C correction or 1-2-3 of Wave (C).  The first option leads to an immediate decline, while the second option leaves the possibility of completing the correction at the trendline near 3700.00.  It may also “throw-over” the trendline as high as 3720.00.  We will just have to wait it out.

Investors are downright giddy.  ZeroHedge comments, “At the start of December, we showed in a handful of charts how current market euphoria had blown away past “dot com” levels, and was in uncharted waters… and why not: as KLC put it, “there couldn’t be a greater bullish cocktail of recent news, with three COVID vaccines showing strong promise against a backdrop of zero interest rates, a record fiscal deficit and an uber-dove – Janet Yellen – in charge of it all.” And keeping it all going is a continued firehose of central bank liquidity which even in 2021 will amount to 0.6% of global GDP injected every single month.

Obviously, none of this is lost on investors who have been dragged into the year-end meltup. As a reminder, not only is December the most bullish month of the year, up 74% of the time with an average return of 1.3% –  but the last 10 days of the month are most bullish…”

 

 

 

10:39 am

SPX remains on an aggressive sell signal beneath the Orthodox Broadening Top trendline.  I had warned when I issued the aggressive sell that there would be speed bumps along the way.  This morning the bounced retraced 61.8% of yesterday’s decline. This confirms the decline has further to go.   Short-term support is at 3647.78, where confirmation of a further decline lies.

ZeroHedge comments, “December’s calm markets to date may be misleading. Many financial assets will probably close the year a chunk away from their current pricing, in contrast to the relative stability of the past two weeks.

There’s an unusual dichotomy between the extraordinary level of consensus around what positions participants want to have in 2021 and the sharp binary divide of the investor base’s capacity to act right now.

Almost everyone wants to be long equities and commodities versus short the dollar next year, as Cameron Crise outlined Monday. However, the extreme moves of November effectively segregated traders into two polarized camps. There are those who, like me, have got the last six weeks entirely wrong. I argued that U.S. stocks had a high chance of correcting lower after the U.S. election was out of the way and the virus news took over; I also warned that complacent dollar bears would probably have to contend with some painful short squeezes. There’s been nary a hint of either theme.”

Keep an eye on the VIX.  It has broken out above 25.00 Friday and has made a 66% retracement of that breakout this morning.  It is now primed for a larger move.  The Cycles model suggest growing strength going into the end of the week.

 

7:30 am

Good Morning!

SPX futures reached a morning high of 3668.12, slightly exceeding a 50% Fibonacci retracement.   The retracement may be over, but we must allow for another algo-driven probe to 3700.00 by mid-morning.  The premarket surge may be a product of overseas money finding a haven in US stocks.  In addition, institutional money usually “tests” the market in the first hour after the open.  By mid-morning, the SPX may have completed the first 4.3-day Cycle from the high at 3712.37.  Critical support is at the Short-term line at 3647.47 where SPX closed yesterday.  On a cautionary note, the FOMC releases its minutes at 2:00 pm on Wednesday.

ZeroHedge proclaims, “Yesterday morning, after the early swoon, we said that as part of a gloriously repeating pattern, the drawdown will promptly reverse and on Tuesday morning things will be back to normal with the vaccine, stimulus narrative regaining the upper ground.

And sure enough, on Tuesday morning risk is solidly higher, with the Emini up 26  points or 0.7%, on absolutely nothing incremental, except for the usual “explanation” such as this from Reuters:

U.S. stock index futures rose on Tuesday as progress toward a massive government spending bill and COVID-19 relief measures kept spirits high, while investors awaited new economic cues from the Federal Reserve’s final meeting of the year.”

 

VIX futures pulled back to a low of 23.08 as it seesaws beneath overhead resistance at 25.00-26.27.  Wednesday is options expiration for the VIX which may release a lot of downward pressure from the options market.  Dealers are worried that there is only a limited supply of VIX put contracts, which may give them trouble in another downdraft.  However, the Cycles Model suggests the VIX may gain strength once options expiration is past on Wednesday.

SchaeffersResearch observes, “The CBOE Market Volatility Index’s (VIX — 23.31) pullback to multi-month lows proved to be an opportune time to hedge long positions. That is, if the decline in equity’s last week continues in both duration and/or magnitude.

In fact, as you can see on the chart immediately below, after the VIX peaked at 40.28 in October (a level 200% above its 2019 close), it has found support at the 20.14 area, which is not only half of its October closing high, but also an area that is roughly 50% above its 2019 close of 13.78.”

 

NDX futures appear to be revisiting the Orthodox Broadening Top trendline near 12550.00 as they reached a high of 12544.75 in the overnight session.  There may be a “throw-over” as demand for QQQ call options surges.  However, the indications that the high on December 8 may be the top are growing by the day.  Short-term support is at 12302.83.

RealInvestmentAdvice proclaims, “As we start moving into the last two weeks of the trading year, investors everywhere are hopeful that “Santa Claus” will visit “Broad & Wall.” 

The actual Wall Street saying is that “If Santa Claus should fail to call, bears may come to Broad & Wall.” The Santa Claus Rally, also known as the December effect, is a term for more frequent than average stock market gains as the year winds down. However, as is always the case with data, average returns are sometimes different than reality.

Stock Trader’s Almanac explored why end-of-year trading has a directional tendency. The Santa Claus indicator is pretty simple. It looks at market performance over a seven day trading period – the last five trading days of the current trading year and the first two trading days of the New Year. The stats are compelling.

The stock market has risen 1.3% on average during the 7 trading days in question since both 1950 and 1969. Over the 7 trading days in question, stock prices have historically risen 76% of the time, which is far more than the average performance over a 7-day period.”

 

USD futures appear to be consolidating above yesterday’s low.  The current Master Cycle only has two weeks left.  While most would suppose that the decline may continue, Wave Structure suggests strong support at 89.00-90.00.  The FOMC meeting may inject some excitement into the prospects for the USD.

CNBC reports, “The dollar traded near 2 1/2-year lows against major peers on Tuesday as demand for the safest assets flagged amid progress toward agreeing U.S. fiscal stimulus and optimism for a Brexit deal.

The greenback was near its weakest since mid-2018 against the euro and UK pound with U.S. lawmakers scurrying to ready $1.4 trillion in spending.”

 

TNX opened above Intermediate-term support at 8.83 this morning.   Cycle Top resistance is at 9.24 and the neckline above 9.86.  A breakout is coming.  TNX is on a buy signal with the Head & Shoulders target in view.

CNBC reports, “U.S. Treasury yields rose slightly on Tuesday after lawmakers shared their latest proposal for stimulus spending, to help the country’s economy as it continues to deal with the spread of the coronavirus.

The yield on the benchmark 10-year Treasury note advanced to 0.901%, while the yield on the 30-year Treasury bond rose to 1.637%. Yields move inversely to prices.”

 

Gold futures bounced to a morning high at 1859.15, just beneath Intermediate-term resistance at 1862.02.  It is on a sell signal, having broken through mid-Cycle support at 1832.93 yesterday.  The Cycles Model suggests that gold may be considerably lower by the end of the year.

KitcoNews reports, “Capital Economics has released its outlook for next year, in which it sees gold trading at $1,900 an ounce with a risk of more selling.

Gold is up around 20% on the year, a stellar performance, but most of that price action took place in the spring and summer months. Since September, gold has been consolidating towards the $1,850 an ounce level. At the time of writing, February Comex gold futures were trading at $1,831.70, down 0.65% on the day.

Capital Economics describes its outlook as positive but highlights some key downside risks, including quicker-than-expected economic recovery.”

December 14, 2020

10:45 am

SPX continues consolidating at the 78.6% Fibonacci retracement level.  This is the upper limit of the Fibonacci range.  Should it go higher, the probability of a probe to 3750.00 becomes more likely.  A new high today would put the Master Cycle at day 266.  The upper limit in the Master Cycle Model is 275 days.

What we see happening is not rebalancing nor is it likely to be year-end window dressing.  It appears that this may be the final “buy the dip,” instead.  The Orthodox Broadening Top trendline is at or near 3695.00.  This may be the final tangle with overhead  resistance before the drop.

 

7:45 am

Good Morning!

SPX futures are challenging the 61.8 Fibonacci retracement level this morning.  As I write, the Wave pattern appears complete.  This suggests a key reversal in the making.  A decline beneath the Short-term support at 3641.19 may confirm there is more downside to go.  Dealers will be reluctant to support more call buying as the bullish gamma is fraught with dangers of a reversal going into year end.  The Electoral College votes today.

ZeroHedge reports, “US equity futures jumped alongside European markets on Monday amid optimism that a pared-down stimulus bill may be imminent, as well as the imminent deployment of the first vaccine in the U.S. Oil continued its ascent above $50, while the dollar dropped.

Dow e-minis were up 251 points, or 0.8%, S&P 500 e-minis were up 29 points, or 0.78%, and Nasdaq 100 e-minis were up 77 points, or 0.6%. Among individual movers, Alexion Pharmaceuticals surged 32.3% after British drugmaker AstraZeneca said it would buy the U.S. biotech firm for $39 billion in one of this year’s biggest mergers worldwide. AstraZeneca’s U.S.-listed shares fell 5.3%, dropping to an 8-month low.”

 

VIX futures are lower, but not dangerously so.  With the new Master Cycle already two weeks old, the chances of a new low beneath the November 27 reversal point are minimal.

 

NDX futures revisited the Orthodox Broadening Top trendline near 12450.00 this morning and has pulled back.  It has made a 50% retracement this morning. The Cycles Model appears to be lacking strength this week, suggesting a possible sideways drift through options week.  However, a decline beneath short-term support at 12271.59 may trigger early year-end selling/rebalancing.

 

TNX is challenging the Cycle Top resistance at 9.23.  Nothing to see here yet.  However, when the neckline is broken all hell breaks loose.

CNBC reports, “U.S. Treasury yields climbed on Monday as the Covid-19 vaccine rollout began while lawmakers continued stimulus bill negotiations.

The yield on the benchmark 10-year Treasury note rose 4 basis points to 0.93%, while the yield on the 30-year Treasury bond gained 5 basis points to 1.67%. Yields move inversely to prices.”

 

USD futures made a new low at 90.42 after a minimal retracement.  It appears that the slide in USD may continue through the year end.

December 11, 2020

7:30 am

Good Morning!

I will be away all day, so this is an early note to comment on what I can at this time.

SPX futures are down, making a new low at 3628.38.  This violates Short-term support at 3638.66 and may lead to hedge fund and CTA selling.  The open will be critical.  Below that level a panic selling episode may ensue.

ZeroHedge reports, “Global markets dropped on Friday as Brexit negotiations appeared on the verge of collapse, while delays over a new fiscal stimulus package and surging coronavirus infections  hit risk appetite pushing S&P futures and sterling lower as Treasurys rose and the dollar and the dollar jumped most in two weeks.

At 7am, Dow futures were down 213 points, or 0.7%, S&P 500 E-minis were down 28. points, or 0.8%, and Nasdaq 100 E-minis were down 92.75 points, or 0.7%. Global stock markets were also subdued, with the MSCI world equity index, sliding into the red after scaling record highs earlier this week as the UK became the first country in the world to begin a mass COVID-19 vaccination program. Cyclical stocks led declines in premarket trading on Friday, with energy, industrial and financial sectors all lower. Wells Fargo and JPMorgan slid more than 1%, while industrial bellwethers Boeing and 3M fell 1.6% and 0.9% respectively. Mastercard dropped 1.4% after the UK Supreme Court gave the green light for a $18.5 billion class action against the company for allegedly overcharging more than 46 million people in Britain over a 15-year period.”

 

NDX futures declined to a morning low of 12264.75.  Thus far it remains above Short-term support at 12252.11.  A probe lower that does not break through may lead to another bounce to test overhead resistance just above 12400.00.  Be aware that today is Friday and the powers that be may not wish to see a sell-off prior to the weekend.  It could be a volatile day.

 

VIX futures topped the 25.00 level, rising to 25.13.  This confirms the SPX probe beneath Short-term support and the SPX sell signal.  Investors may be 100% short beneath this level.  Seeking Alpha is telling us to sell the VIX pop.  Today’s action may bring a change of outlook for the VIX.

 

TNX futures are challenging, but pulled back beneath the Cycle Top at 9.20.   A breakout there is a buy signal for the Cycles Model.  Most investors won’t recognize it until TNX breaks out over 9.86.

CNBC reports, “U.S. Treasury yields were lower on Friday morning as Congress continued to haggle over pandemic relief funding.

The yield on the benchmark 10-year Treasury note dipped to 0.889%, while the yield on the 30-year Treasury bond fell to 1.614%. Yields move inversely to prices.”

 

USD futures are rising, but haven’t broken above its recent trading range at 91.21.  Should TNX break out, the preponderance of money flowing out of stocks will stay in cash.  This may spike the demand for USD and raise its price to its mid-Cycle resistance at 95.59.

 

December 10,2020

10:15 am

Tails Are Getting Crazy” – Nomura Warns Pullback-Risks Remain Due To ‘Sentiment & Positioning’ Overshoots

There are three main dynamics in the markets currently as we head into year-end (and more imminently, next week’s quad witch):

1) Technicals – increasingly illiquid markets and tight risk management impact on “tails

2) Near-term sentiment- and positioning- “overshoot” risks versus…

3) The ongoing tailwind flow- and narrative- driven risk-on catalysts into Year-End.

Nomura’s Charlie McElligott outlines all three below before suggesting a “muddle through” solution to asset allocation amid this chaos.

Market Technicals are “getting a bit weird” warns McElligott:

VVIX / tails got a bit crazy and seemingly “overreacting” relative to the sub-1% move in Eq Index, which likely captures two dynamics: Dealers being unable to be short vol in any meaningful size into year-end, complicated further by continued weakening liquidity into the year-end—which is of course a function of the first “risk management” point for both sell- and buy- side

SPX and QQQ 1m vols moved higher on the selloff and term structures flattened in recent reversal of trend for all, while again, “tails” went notably “bid” with VVIX +15 at one points, YIKES”

8.57 am

Good Morning!

SPX futures attempted a comeback in the overnight session but failed to thrive.  As a result, a new low has been made and SPX may open in the red.  It is on an aggressive sell with chart confirmation at 3235.08, its Short-term support.  Beneath that the algos start kicking in with their sell orders.

ZeroHedge advises, “Futures tried and failed to rebound from Wednesday’s rout as fears that the Brexit process was coming unhinged and growing pessimism for a fiscal deal in Congress offset optimism for a swift roll out of a COVID-19 vaccines while concerns about a double dip were set to grow after a report that shows another increase in weekly jobless claims. Not even the ECB’s imminent reveal of another €500 billion in QE helped push stocks higher.

VIX futures made a new daily high this morning at 23.05.  VIX may be in a position to challenge its 50-day Moving Average today, depending on how much of a jolt the investors are feeling.  Analysts are still under the assumption that the VIX has to go lower and that this is just a bump in the road.  However, the Cycles Model suggest a double dose of strength going into the weekend and reviving at options expiration.  This may spell big trouble for those who have piled into calls in anticipation of a blowout year-end.

 

NDX futures are down to a new low at 12239.38 this morning and it appears to be going lower as I write.  Not only has it declined beneath the Ending Diagonal trendline, but also the larger Orthodox Broadening top trendline at 12400.00.  Intermediate-term support lies at 11922.80 for yet another confirmation.  Below 12000.00 the algos may also kick in with their sell programs.

 

TNX challenged its Cycle Top support at 9.20 but bounced back above it.  Should it remain above it the probability of a neckline challenge rises.  TNX also has a double dose of strength going into the weekend so the odds are in its favor.

CNBC reports, “U.S. Treasury yields slumped on Thursday morning, as Congress continued to negotiate over a coronavirus stimulus package, with the House of Representatives passing a one-week extension to relief funding.

The yield on the benchmark 10-year Treasury note fell to 0.92%, while the yield on the 30-year Treasury bond dipped to 1.67%. Yields move inversely to prices.”

 

USD futures pulled back to 90.82 before bouncing.  The Cycles Model suggest a continued rally through the year-end.  The strength of the rally may rise through options expiration, which tells us that the USD may be the only haven during the stock/bond sell-off.

FXEmpire comments, “The greenback was relatively stable at the fourth trading session of the week. Currency traders and global investors are now staying tuned to macros coming from emerged markets, particularly the United States and the United Kingdom on the latest stimulus deal update and in the case of England, the Brexit discussions with the European Union (EU).

Although recent price action show, currency traders are slowly buying the U.S dollar, which is regarded among many has a safe haven currency amid concerns whether the U.S congress can reach a compromise over the latest stimulus deal in bailing out the fragile U.S economy presently in play.”

 

December 9, 2020

1:26 pm

TNX tested the head & Shoulders neckline today at 9.60, pulling back afterwards.  It has broken above the Cycle Top support/resistance at 9.20 and remains above it.  A breakout is just a matter of time.  The Cycles Model suggests a double dose of strength going into the weekend.  This may reinforce the sell signal in equities.

ZeroHedge reports, “After yesterday’s subpar 3Y auction, moments ago the Treasury sold $38 billion in 10Y notes, which was a modest decline from the record $42 billion offered last month.

Yet despite today’s broad risk off move, the 10Y auction was also disappointing, with the high yield printing at 0.951%, down from November’s 0.96% but 0.4bps higher than the 0.9417% When Issued.

The Bid to Cover was virtually unchanged from last month, at 2.33 vs 2.32, but below the 2.40 six auction average.”

 

12:52 pm

NDX broke through its Ending Diagonal trendline at 12500.00 this morning.  It is now on an aggressive sell signal along with SPX which also broke its trendline.    There may be a bounce back to test the trendline.  The Orthodox Broadening Top trendline appears to be near 12450.00, which implies a much more serious breakdown beneath that level.

 

11:11 am

SPX is now testing the Ending Diagonal trendline at 3680.00-3685.00.  A break beneath it may give us our aggressive sell signal.  Speculators may seize this as a “buy the dip” opportunity and cause some blowback.  However, algos may take over selling for hedge funds and CTAs beneath Short-term support at 3032.20, which may be the Cyclical “gamma neutral” point.  This is the most highly leveraged market since 2007.  There may be a whole lot of pain beneath that support.

 

10:45 am

10:04 am

VIX dropped to a new retracement low at 20.10 which raises the level of concern for another equities market ramp attempt.  What appears to be Cyclical strength in the VIX building at the end of the week may be subject to inversion instead.  This is due to the short volatility trade being one of the biggest trades in the options market.

Should the Master Cycle extend, today would be day 268.  It would be unusual, but not outside the realm of possibility that the Master Cycle may extend to Friday, day 270, which I discussed this morning regarding the SPX.  The collective psyche has no fear whatsoever.  A perfect time to be contrarian and patient.

ZeroHedge comments, “While the futures meltup continued overnight as described earlier, it was a fairly quiet overnight session with spoos holding just north of 3700.

Meanwhile, for those following technicals and “greeks”, our friends at SpotGamma writes that there was “a fairly large jump in positive gamma levels in the SPX, which when combined with the SPY nets around $2.5bn – the largest figure post-Covid”. You can see in this chart that this is a positive gamma “breakout” of sorts vs the last 30 days (orange dots).

Despite this positive gamma boost, SpotGamma’s Call Wall metric did not shift higher, however both 3725 and 3750 are within striking distance. Ultimately the model holds 3700 as a market top until/unless the Call Wall rolls to a higher strike. The other notable change is the Zero Gamma level which jumped up to 3620. This is a bit more in line with our thoughts that 3650 holds as critical “gamma flip” support.”

Read the entire article.

 

7:30 am

Good Morning!

SPX futures visited its probable target (3715.00) this morning by rising to 3713.88.  It has risen 28 market days from the November 30 low.  It is possible that it may extend to 30 market days to complete a natural 1/2 Trading Cycle, protracting the turn until Friday morning.  Keep in mind that Cycles are more organic than mechanical, reflecting a collective psyche.

ZeroHedge reports, “The market meltup just won’t let up, with futures and global stocks reaching new record highs on Wednesday as sentiment was stoked after Treasury Secretary Steven Mnuchin unveiled a surprise $916 billion pandemic-relief package proposal (which was quickly slammed by Pelosi and Schumer) coupled with now daily positive news on COVID-19 vaccines, overshadowing fears about resurgent coronavirus cases while sterling made gains as British and European leaders meet for talks on a Brexit trade deal. Treasuries dropped as did the dollar, while the Chinese yuan surged above 6.50 for the first time in 2 years.

MSCI’s index of world stocks rose to a record 635.65, up 0.23%. The index has been on a roll for weeks, gaining 15% since the beginning of last month. Global equities were “energized” after the White House’s surprise re-entry into pandemic-relief talks with a $916 billion proposal late on Tuesday that opened a potential new path to a year-end deal.”

 

VIX futures traded flat in the overnight market.  The November 27 Master Cycle low remains solid.  The Cycles Model calls for a pickup in strength through the end of the week.

YahooFinance observes, “Stock averages are roaring toward another hat-trick of records, with the S&P 500 (^GSPC), Nasdaq Composite (^IXIC) and Russell 2000 (^RUT) set to close at new highs. Looking for a window into market sentiment, and where stocks go from here? You might turn to the VIX, the so-called “fear index” — formally known as the CBOE Volatility Index (^VIX).

But a veteran options trader says you won’t find what you’re looking for.

“It is not now, nor has it ever been, the fear index. It was constructed to be the best estimate that we can come up with for 30-day volatility in the S&P 500,” Steve Sosnick, chief strategist at Interactive Brokers, told Yahoo Finance Live.”

 

NDX futures rose to 12671.50 after the close, but has been grinding down since then.  The top end of this rally may be near 12728.00.  However, a decline beneath 12500.00 may be a clear break of the Ending Diagonal trendline.

 

TNX appears to be on the rise again, after a 58% retracement of the rally off the Master Cycle low.  A breakout above 9.86 may be a surprise to traders who anticipate a declining yield during a stock sell-off.

CNBC reports, “U.S. Treasury yields rose on Wednesday as the latest developments around coronavirus relief funding negotiations as well as the Covid-19 vaccine lifted sentiment on Wall Street.

The yield on the benchmark 10-year Treasury note rose to 0.94% , while the yield on the 30-year Treasury bond climbed to 1.69%. Yields move inversely to prices.”

ZeroHedge observes, “Another month, another record big 3Y auction: just after 1pm the US Treasury sold another record-sized batch of 3Y notes, which at $56 billion was $2 billion more than the November auction and almost triple the average auction size for much of the 2016-2018 period.

 

USD futures eased down to 90.69 in the overnight session.   This appears to be a minute retracement rather than a probe to lower lows.  The Cycles Model maintains that a rally may occur through the end of the month.

December 8, 2020

2:35 pm

The complex must be simplified, so I went through all the permutations of Wave structure to eliminate all the different possibilities.  It appears to be narrowed down to an Ending Diagonal within a Minute Zigzag Wave  pattern.  Minute Wave [c] is on a final Wave that may take it as high as 3715.00, based on Wave relationship calculations.  Having reached an intra-day high at 3708.45, it is pressing hard.

The three-year Orthodox Broadening Top trendline (not shown here) lies just under 3700.00 and only rises about 1 point per day, so it is producing maximum resistance.  Having gone this high, I would like to see a reversal beneath 3700.00 before the close today.  This is getting extremely dangerous.  I personally have taken my positions and intend to hold them.  The next Master Cycle may be up to 60 market days long.  The February-March decline will be no comparison in length or strength at only 22 market days.

RealInvestmentAdvice offers this analysis, “During the past couple of weeks, I have discussed the rising levels of bullishness in the markets. We have pointed to indicators like extreme investor positioning, put/call ratios, etc. However, the current surge in margin debt also confirms market exuberance.

First, we have to step back a bit. We previously discussed why the 35% decline in March was only a “correction” and not a “bear market.” As noted in “March Was Only A Correction,” there is a significant difference.”

 

11:56 am

SPX ventured to within 2 ticks of its Friday all-time high.  This is the blowback that I had mentioned this morning.  However, the Waves/Cycles may already be complete.  If so, we may see the reversal begin in strength by the end of the week.  We must stay on high alert for the turn, if it has not already happened!

ZeroHedge reports, “The ongoing meltup in stock markets lifted global market caps above $100 trillion for the first time in history yesterday…

Source: Bloomberg

As so-called investors do away with any form of protection, seemingly reliant on a central bank or governmental response to every dip…

Source: Bloomberg

As Nomura’s Charlie McElligott warns that equities’ “weaponized short gamma” remains supportive

yesterday’s short-dated Call volumes in the RobinHood YOLO names were again just absolutely absurd, with TSLA seeing ~950k Calls trade, PLTR ~700k, NIO ~425k….while “lowly” SPX only saw 350k Calls traded…

…I’m telling you, this is a “real thing,” with the Retail hordes on Reddit/WSB intentionally creating negative convexity events for Dealers in short-dated out-of-the-money upside Calls in these single-name high-flyers.”

 

9:45 am

Good Morning!

SPX opened beneath the trendline near 3690.00 after a borderline close.  The fight to maintain the uptrend is ongoing and may need a catalyst to punch equities lower.  SPX is on an aggressive sell signal, which suggests that there may be some blowback.  However, the trendline violation is clear, so we await other indicators to confirm.

ZeroHedge remarks, “lobal markets dropped for a second day and US equity futures fell as optimism that a fiscal stimulus deal would quickly pass in Congress fizzled and as investor focused on a rise in coronavirus infections and ever tougher lockdowns threaten to shutdown year-end holidays. A $5 billion “at the market” equity offering announcement by TSLA pushed futures to session lows.

At 7:20 a.m. ET, Dow e-minis were down 148 points, or 0.5%, S&P 500 e-minis were down 19.50 points, or 0.52%, and Nasdaq 100 e-minis were down 45.5 points, or 0.38%. Among individual stocks,  Stitch Fix surged 36% pre-market after reporting fiscal first-quarter profit and revenue that beat analyst estimates for the heavily-shorted personal-styling company. Tesla fell 2.8% premarket after it unveiled plans to raise up to $5 billion in a Goldman-led stock offering, just days after Goldman upgraded the stock from Neutral to Buy.”

 

VIX is in consolidation, neither breaking out above nor below.  25.00 is the confirmation number, although the further (time and points) from the Master Cycle low, the more certain the directional change.

 

The NYSE Hi-Lo opened beneath the 50-day at 59.53, but didn’t stay there.  The Master Cycle high occurred on December 4, so it may take another few days to cut the elevation.

 

NDX is still above the trendline at 12400.00.  A drop beneath that level gives us an aggressive sell signal.

 

TNX is still in decline.    The retracement pattern may not be complete.  The Cycles Model suggests a low may occur on Friday or over the weekend.

CNBC reports, “U.S. Treasury yields dipped on Tuesday as investors eyed coronavirus stimulus developments in Congress.

The yield on the benchmark 10-year Treasury note fell to 0.901%, while the yield on the 30-year Treasury bond pulled back to 1.654%. Yields move inversely to prices.”

 

USD futures are edging higher after a potential Master Cycle low on Friday.  The Cycles Model suggests a sharp rally into the year-end for USD.  The target appears to be the mid-Cycle resistance at 95.77.

December 7, 2020

2:52 pm

SPX appears to be challenging the Ending Diagonal trendline currently at 3680.00 to 3685.00.  The trendline climbs at a rate of 15 points per day, so it is hard to track.  However, beneath 3680.00-3685.00 may be a solid break.  This would be an aggressive sell signal based on the trendline and the Cycles Model.  Today is day 259 of the current Master Cycle.

ZeroHedge reports, “While some had hoped for a ‘combo’ stimulus/government-funding bill, it appears that will not be the case – at least in the very short-term – as The Hill reports that The House is expected to vote Wednesday on a stopgap measure to avert a government shutdown after current funding expires this Friday.

While House Democratic leadership had expressed hope for an all-encompassing bill, Democratic aides confirmed Monday that the stopgap ‘continuing resolution’ is expected to last through Dec. 18, and implicitly recognizing the fact that any COVID Relief is not imminent.

On the bright side, if this CR is passed, it will give lawmakers one more week to come to some agreement over the stimulus (and for that matter the omnibus spending bill which remains rife with bigger picture disagreements) before they leave for the holiday break.

 

 

7:30 am

Good Morning!

SPX futures tested trendline support near 3660.00 early this morning after hitting an all-time high at 3704.88 in after hours on Friday.  Support as not been broken yet, but there is some evidence that the uptrend may be finished.  Yesterday was day 258 of the Master Cycle, so this behavior appears timely.  We just need some follow through in the form of a decline beneath the trendline.

ZeroHedge reports, “After opening at a new all time high on Sunday evening following Friday’s record close, S&P futures drifted lower as fresh Sino-U.S. tensions over Hong Kong dented sentiment and renewed last minute disagreements threatened to torpedo Brexit negotiations, while investors also awaited concrete signs of progress on a coronavirus relief bill. Oil fell while the dollar rose.

Shares of U.S. banks including Morgan Stanley, Wells Fargo & Co, JPMorgan & Chase, Citigroup and Goldman Sachs fell between 0.4% and 1% in premarket trading. Intel dropped on a report that Apple Inc. is planning a series of new Mac processors aimed at outperforming Intel’s fastest chips.”

 

VIX futures rose to 22.62 early this morning as traders awoke to the possibility of rising risk.  A tradable breakout occurs above 25.00.  The Cycles Model suggests strength over the next two weeks, so be on the alert for a buy signal.

 

TNX pulled away from the Head & Shoulders neckline at 9.75 and is venturing beneath the Cycle Top support/resistance at 9.40.  Should the Cycle Top not hold, then TNX may test Intermediate-term support at 8.67.  However, it may not last.  Cyclical strength is building for a strong breakout above the neckline.

CNBC reports, “U.S. Treasury yields slumped on Monday morning, as investors waited for a coronavirus stimulus package to be approved in Congress.

The yield on the benchmark 10-year Treasury note fell to 0.938% at 5:08 a.m. ET, while the yield on the 30-year Treasury bond dropped to 1.696%. Yields move inversely to prices.”

 

USD futures have stabilized after making a Master Cycle low (8.6 months) from the March 23 high.  It may now be due for a multi-month rally.

CNNBusiness reports, “he US dollar is on the back foot, and Wall Street doesn’t expect that to change any time soon.

What’s happening: The dollar has weakened by nearly 12% against a basket of top currencies since peaking in March. Last week, it hit its lowest level since April 2018. The last time the greenback was on the skids like this was 2017.”

 

Gold futures appear to be consolidating this morning.  Normal retracements may last up to three weeks.  However, the current retracement may have risen sufficiently to erase its oversold condition.  Should it remain beneath 1850.00, there is a rising probability that the decline may resume through the end of the year.

KitcoNews reports, “After rebounding last week gold is yet to trade above the $1848.84 resistance area but is trading 0.18% higher overnight. Silver on the other hand is not looking so positive and trades 0.18% in the red on the first trading day of the week. Overall risk sentiment has been very mixed. The Nikkei 225 is 0.73% lower, the Shanghai Composite is down just over half a percent but the ASX in Australia is trading 0.62% in the black. This all comes despite some positive news on the stimulus front as Trump and McConnel are expected to back the latest relief bill said to be worth around $908 billion.

In terms of news, the Asian session has been pretty quiet. The BoJ, however, has taken over the mantle as the worlds largest holder of stocks from the mammouth pension fund GPIF. The Japanese central bank now holds ¥44.8 trillion worth of company assets due to the QE to infinity policy it has adopted.”

 

December 4, 2020

3:38 pm

TNX just broke above the Head & Shoulder neckline at 9.75 this afternoon.  This will have an immediate effect on Monday with equities and the treasury market as selling begins.  There is no sell signal on SPX or NDX so use your judgement.    The Cycle runs out on Sunday (day 258).  We may wake up on Monday with a selling cascade already underway.

ZeroHedge observes, “We already discussed how the current market euphoria levels have surpassed dot com levels, but what’s going now, the asset bubble blown by central banks, is absolutely staggering… and it’s only getting crazier. Consider that in just the past 4 weeks there has been a record $115BN inflows into stocks, a record $25BN into EM stocks, a record $9BN outflows from gold past three weeks…

… and the 2nd largest inflow ever to TIPS this week at $2.0BN (although in the grand scheme of the past year inflows are still a fraction of the total outflows).”

 

7:35 am

SPX challenged its trendline, declining to 3657.17 yesterday.  In the after hours however, SPX futures bounced t 3679.88, not quite attaining yesterday’s intraday high of 3682.73.  Should the Cycle take the full complement of 34.4 days, it may finally turn during the 11th hour today, day 256 in the Master Cycle.  SPX closed right at the trendline, so we may use 3657.00-3666.00 for going short.

ZeroHedge observes, “After several months of blistering job growth, economists expect the rate of US jobs growth to cool sharply in November, with consensus looking for 478k nonfarm payrolls to be added to the economy (well below the 638k seen in October) due to the broad-based resurgence of the coronavirus and related business restrictions which are consistent with a deceleration in job growth; the jobless rate is seen declining by 0.1ppts to 6.8%, although analysts will be paying attention to the U6 gauge of underemployment as well as the participation rate.”

ZeroHedge remarks, “Another day, another record high in the S&P, with S&P futures rising as high as 3,680 and up 0.3% last, as investors await the November payrolls data which is expected to show a +470K print, a sharp slowdown from October’s +638K due to the spike in covid cases and the return of lockdowns (full preview here). The dollar continued to slide, hitting a fresh 2.5 year low, headed for its biggest weekly decline in five, while Treasury yields nudged higher; but the highlight of the session was the sudden short squeeze in oil just before 9pmET which sent Brent to nearly $50, a nine-month high after Thursday’s OPEC+ deal.

 

NDX futures also struggled to make a new high, but failed, reaching an overnight peak at 12520.38.  In this case, the Orthodox Broadening Top trendline is near 12400.00, giving us a clear focal point for a sell signal.

ZeroHedge reports, “As noted earlier in our preview, consensus expected a return to weakness in the labor market as surging Covid-19 case counts have led to to a return of lockdown measures, which explicitly means less hiring and sure enough moments ago the BLS reported that in November, a paltry 245K jobs were added, a huge miss to the 470K expectation and a sharp drop from the 610K revised October print. In fact, this was the lowest monthly addition since the April crash.

At 215K, this was the biggest miss to expectations since March.”

 

VIX futures remained range-bound overnight between 20.93 and 21.15.  Don’t let that fool you.  The Cycles Model suggests a burst of strength that may last the next two weeks before a year-end lull sets in.  Options expiration may be a disaster for the volatility shorts.

 

TNX may have completed its pullback already.  It appears to be ready for a burst of strength that may last the next two weeks.  The trendline at 9.75 may be the indicator that the period of strength has begun.

CNBC reports, “U.S. Treasury yields dipped on Thursday morning, as traders awaited news on congressional negotiations over a coronavirus stimulus package.

The yield on the benchmark 10-year Treasury note fell to 0.943%, while the yield on the 30-year Treasury bond dipped to 1.696%. Yields move inversely to prices.”

 

USD futures appear to be consolidating above yesterday’s low at 90.50.  That being day 256 in the Master Cycle form the March 23 panic high makes a near-perfect 8.6-month Cycle.

YahooFinance remarks, “ (Reuters) – The dollar was headed for its worst week in a month on Friday while the euro gained, as investors bet the U.S. currency has further to fall and that the worst of the COVID-19 pandemic may be over within months.

A flurry of positive vaccine news has helped drive a rally in riskier currencies, while actions taken by the Federal Reserve have weakened the dollar.

The dollar index dropped to a two-and-a-half-year low of 90.504 on Thursday and is on track for a more than 1% fall over the week. It edged down 0.1% on the day at 90.578.”

December 3, 2020

3:08 pm

TNX still has a bit of a pullback to go, but tomorrow may be the Trading Cycle low from which TNX may emerge with considerable strength.  The Head & Shoulders neckline is at 9.75, so that may be the trigger for the big breakout.

ZeroHedge observes, “One question that has emerged recently on trading desks is what will happen first: Bitcoin hits $20,000 or the 10Y rises above 1.0%. The answer may depend on what bond-trading CTAs do.

As Nomura quant Masanari Takada writes when commenting on yesterday’s spike in 10Y yield which rose as high as 0.96%, “CTAs have resumed preemptive exits from long positions in UST futures.” Noting that at the same time as momentum-chasing CTAs have been gradually adding to their exposure in DJIA and Russell 2000 futures …

… CTAs are being drawn back into exiting long positions in 10yr UST futures (TY). As 10yr yields bounced back up to around 0.95% this week, “CTAs, who had been waiting on the sidelines, have again been pressed into action” with the Nomura quant estimating that CTAs have already liquidated about 65% of the long TY positions they held at the peak in August, and with a key trigger line at around 1.02% on the near horizon, CTAs are looking increasingly likely to have to exit the entirety of their aggregate net long TY position.”

 

2:48 pm

SPX tested the trendline at 3665.13 but didn’t break through.  It now appears that the trendline may be broken between 3660.00 and 3665.00.  At this last hour of the day, the rally will have lasted 34 (34.4 is the Cyclical interval) market days.  That suggests the SPX may be within hours of a turn.  Keep in mind that the trendline is at 3665.00.

ZeroHedge reminds us, “As DB’s Jim Reid wrote in his Wednesday chart of the day, “one chart that I’ve used in various forms ever since I read “Irrational Exuberance” by Robert J. Shiller back in March 2000 is the S&P 500 CAPE ratio of the S&P 500. This is the cyclically adjusted P/E by looking at 10 years of earnings not the current. The chart is a regular in my chart book and with last night’s close, this CAPE ratio has now climbed to its highest ever level outside of the 2000 bubble period.”

While the CAPE ratio has yet to surpass the dot com bubble euphoria, Reid notes that we have gone above the level seen on the eve of the 1929 stock market crash and the recent peak in January 2018.

As the DB credit strategist further notes, “we have 1679 monthly observations back to 1881 and the CAPE was higher than current for 38 months between early 1998 to early 2001. Outside of this it’s never been higher than where it is today.”

 

 

8:15 am

Good Morning!

SPX futures have been hugging the flat line in the overnight session with a range of 3657.62 to 3674.12.  The waning momentum and apparent resistance at 3675.00 tell us that the hours of the rally may be numbered.   The trendline under the Ending Diagonal formation suggests an aggressive sell signal below 3650.00.

ZeroHedge reports, “That “gamma gravity” at 3,650 we have been discussing for the past three days continued to make its presence known overnight as futures tried another break above all time highs and failed, eventually fading back to unchanged and last trading at 3,665, two points the Wednesday close as European stocks erased an earlier loss, while the dollar selloff continued and 10Y yields were fractionally lower ahead of initial jobless claims data which are expected to show another 775K workers were laid off in the latest week.

S&P 500 futures stalled after the cash index closed at another record high. In notable moves, Splunk tumbled 21% in the pre-market after the data-software company’s revenue forecast missed estimates, while Micron gained after the chipmaker raised its guidance. Waddell & Reed jumped 46% after Australia’s Macquarie Group announced a deal to buy the wealth manager for $1.7 billion. Finally, Nasdaq 100 futures were up 19.5 points, or 0.16% as Tesla rose about 3% premarket after Goldman Sachs raised its rating to “buy” from “neutral” in the run up to the electric-car maker’s addition to the S&P 500.”

 

NDX futures struggled in the overnight session, reaching 12496.38.  It is apparent that 12500.00 carries strong resistance, while the trendline lies near 12400.00.  Today is day 255 in the Master Cycle.  As of Sunday/Monday, the stock indices will have achieved an 8.6 month low-to-high Cycle, suggesting a new trend to follow.

NorthmanTrader observes, “I got a mystery for you, cause who doesn’t love a good mystery.

Record inflows. Week after week, record tech inflows, all year long. Almost daily we get headlines about money coming in and buying equities, passively presumably as that is where most inflows are moving into these increasingly automated ETF driven markets.

Hence no wonder greed is back as we discussed yesterday.

 

VIX futures actually made a new high at 21.26 before being crunched down again in the overnight market. There may be an additional push lower due to Friday’s option expiration for ETFs.  Somehow permanency is attached to this “VIX collapse.”  However, the Cycles tell us otherwise.  The new Master Cycle stretches to the end of February.  A buy signal resides at 25.00.

 

TNX is staging a bit of a pullback near the Cycle Top support/resistance at 9.40.  A mild downturn is due on Friday with a Trading Cycle low.  However, the weeks that follow may come back with a show of strength as the current Master Cycle continues through early January.

CNBC reports, “U.S. Treasury yields dipped on Thursday morning, as traders awaited news on congressional negotiations over a coronavirus stimulus package.

The yield on the benchmark 10-year Treasury note fell to 0.943%, while the yield on the 30-year Treasury bond dipped to 1.696%. Yields move inversely to prices.”

 

USD futures made a new low at 90.69 in yet another index completing an 8.6-month high-to-low Master Cycle from the March 23 panic high.  This, too, will be complete over the weekend.  The idea that “cash is trash” has taken hold of investors who are jumping into stocks and Bitcoin with both feet.  They fail to recognize that stocks and cryptocurrencies are easier to transport over national borders than cash or gold because they are internet-based.  Investors are fleeing countries that are at the verge of economic collapse.

 

On Monday I warned that gold was overdue for a Master Cycle Bottom.  This is now evident as gold has reached a retracement high at 1847.25.  The Cycles Model now suggests a period of volatility and strength going into options expiration on December 18.  The upside target may be the 50-day Moving Average at 1885.17.

Investing teases, “Since peaking at $2,067 in August, gold is down by $250.

Does that mean its bull market is over, or is gold an extended Cyber Monday Deal?

In this correction, gold has already given back 15%, leading some to conclude that the gold bull market it finished.

After all, there are already three promising vaccines near approval. They will be rolled out over the next few weeks and months, and life will start getting back to normal.

Or will it?”

 

December 2, 2020

2:55 pm

TNX is now above its Cycle Top support/resistance level.  The Cycles Model suggests only a brief respite before charging higher in a show of strength.

ZeroHedge observes, “While one wouldn’t necessarily expect yields to spike on the day the labor market macro index hit its weakest level since February following the latest disappointing ADP print…

… that’s exactly what is going on this morning, with 10Y yields continuing their Tuesday surge, and last trading just above 0.95%, approaching the critical resistance level hit following the first Pfizer vaccine news on Nov 9.

 

 

 

2:32 pm

The Wave structure of an Ending Diagonal is becoming apparent.  If so, a decline beneath 3650.00 would trigger an aggressive sell signal.  The VIX still needs to rise above 25.00 and the Hi-Lo close beneath 72.00 for confirmation.  I usually find that a decline beneath Short-term support currently at 3598.31 will get confirmation from either or both indicators.  ZeroHedge remarks that the “put wall” is at 3630.00.

ZeroHedge expands on the risk levels, “Yesterday, when looking at the latest dealer “greek” books, we reported that with peak gamma at 3,650 in the S&P, it will be difficult for the index to break out (or slide) materially above this level.

And sure enough, overnight futures were quiet and continue to hold just above the 3650 level. Meanwhile, as SpotGamma writes this morning, the support zone at 3600 has started to shift to 3650, “which indicates that 3650 now needs to hold to cap a larger expansion in volatility.” That said, the data does not support a large drawdown immediately from these price levels, and 3700 remains the upside target.

And while key gamma levels are unchanged, SpotGamma notes that there are some things shaking under the hood, the most notable of which is the Put Wall, which jumped significantly. There wasn’t a particularly large trade at 3630 – just a net add of 8k contracts – yet what it does reflect “is that it only took a relatively small put position to register as the largest negative gamma strike on the board”.

 

 

 

 

9:00 am

Good Morning!

SPX futures mean reverted back to the most populated option zone at 3650.00 this morning.  That suggests major selling may begin should that support area not hold.  The Elliott Wave pattern appears complete, but that doesn’t stop a consolidation from keeping that level for a period of time.  Of course, a rally above 3675.00 may bring on more buyers.  But it appears that we are “all in.”

ZeroHedge reports, “US index futures dropped and European shares edged lower as investors struggled to find fresh catalysts to extend their buying of stocks after the market has fully priced in an improved health outlook on vaccine optimism, while waiting for the latest ADP private payrolls report. Treasury yields modestly faded Tuesday surge which was sparked by renewed fiscal stimulus optimism, while the dollar rebounded from a 2.5 year low. At 7:30 a.m. ET, Dow E-minis fell 111 points, or 0.36% and S&P 500 E-minis dropped 11.25 points, or 0.31%. Nasdaq 100 E-minis declined 29.50 points, or 0.24%.

NorthmanTrader chimes in, “As $SPX is trying for a new high here and $ES futures are retesting the highs from November 9th I thought I may chime in with a few thoughts here. Firstly, in general the bull price target outlined in October has barely been penetrated, but it may well be in the days ahead as again optimism on all fronts is permeating the landscape, vaccine optimism stimulus optimism, more central bank intervention optimism and of course December seasonality optimism.

After all only the years 2000 and 2018 have seen sizable downside in December and generally December is up.

But above all: Greed is back. On every front at a time of the highest market valuations in history with not a sign of fear or concern in sight and to my eye this continues to breed vast danger for markets.”

 

NDX futures pulled back from its new all-time high in the overnight market.  NDX made a zig-zag extension to achieve the inversion of the current Cycle to a new high.  In other words, this is not the normal structure.  Note that the market is in a massive Super Cycle Wave (b) that can take much more time than we might expect.

ZeroHedge warns, “Sometimes “greed” is not good.

The last time the market was this ‘extreme‘ in its greed did not end well, but as FOMO dominates any downside fears, Citigroup’s Panic-Euphoria indicator – which tracks metrics from margin debt to options trading and newsletter bullishness – has reached its highest since the August tumble and equaled its highest since the peak of the dotcom bubble…

“Our sense is that the idea of no alternatives to buying broad-based equities has led to an overshoot,” Tobias Levkovich, the bank’s chief U.S. equity strategist, said in a note.

“Current euphoric readings signal a 100% probability of losing money in the coming 12 months if we study historical patterns – indeed, we saw such levels back in early September as well right before a selloff in stocks.”

VIX futures continued their rise from the Master Cycle low.  The Cycles Model infers rising strength over the next three weeks with a possible lull over the Christmas/New Year holiday.  The new Master Cycle may last as far as mid-February, so buckle up for the ride.

 

TNX is challenging Cycle Top resistance at 9.40.  The Cycles Model suggests a massive show of strength next week that may trip up the equities market.  Normally rising rates go hand-in-hand with rising equities.  However, that Cycle has overplayed its hand as rising rates mean higher risk for stocks.

ZeroHedge reminds, “Over the last year, the US government had borrowed over $4.2 trillion. The national debt now stands well above $27 trillion. There is no end in sight to the borrowing and spending and that raises a significant question: who is going to buy all of the bonds necessary to finance the government spending machine?

Not too long ago, Uncle Sam could count on foreign investors to gobble up a big chunk of his IOUs, but times are changing. In 2008, foreign investors held more than half of the outstanding Treasury debt. Today, that amount has plunged to the lowest level since the turn of the century.”

 

 

December 1, 2020

8:00 am

Good Morning!

SPX futures climbed to 3664.38 this morning, nearly matching its November 9 high of 3668.00 as we enter day 253 of the current Master Cycle.  The ramp that started at 11:00 am yesterday continued unabated through the night.  While the SPX is nearing its end-of-Cycle, it has the probability of reaching or exceeding 3700.00 in the next week.  The alternative may be an early sell-off without gaining the new high.  Tomorrow’s FOMC announcement may not be what investors have hope for.

ZeroHedge reports, “S&P futures and global stocks started the last month of the year on a euphoric note, rallying to just below all time highs following a freak one-day selloff (perhaps on pension-rebalance selling) to close November after robust China data boosted expectations of a recovery from the COVID-19 downturn and as drugmakers seek fast approval for their vaccines and authorities look set to keep stimulus support.

E-mini futures jumped 1%, more than reversing all of Monday’s losses while the MSCI world equity index was up 0.4%. News that Tesla would be added to the S&P500 all in one move on Dec 21 propelled the stock to new record highs above $600 and boosted the broader Nasdaq. Meanwhile work from Home darling Zoom dropped despite reporting stellar results and guiding higher than forecast.”

 

NDX futures reached an overnight high at 12400.38, still shy of the all-time high made on September 3. The Broadening Top trendline is right at 12400.00, so there is technical resistance at that level.

 

VIX futures declined to 20.00 in the overnight session.  The Master Cycle low on November 27 remains intact.

TradeStation observes, “Anxiety is fading as the stock market enters the homestretch for 2020 with the wind at its back.

The S&P 500 rose 2.3 percent in the holiday-shortened period between Friday, November 20, and Friday, November 27. It was the third gain in the last four weeks and planted the index at new all-time closing high.

Perhaps more importantly, Cboe’s volatility index ($VIX.X) closed below 21 for the first time since the coronavirus pandemic slammed markets in late February. Safe havens like gold, bonds and the U.S. dollar also crumbled — another sign of fear abating.”

 

TNX is climbing again as the uptrend has been maintained by Intermediate-term support at 8.41.

CNBC reports, “U.S. Treasury yields rose on Tuesday despite rapidly rising coronavirus cases across the country and an uncertain economic outlook as a result.

The yield on the benchmark 10-year Treasury note climbed to 0.857%, while the yield on the 30-year Treasury bond rose to 1.591%. Yields move inversely to prices.”

USD appears to have made a mid-Cycle low at 91.49 yesterday beneath the September 1 low at 91.75.  The Cycles Model still holds that a rally may occur through the end of the year.

CNBC reports, “he euro was close to a three-month high on Tuesday as the U.S. dollar fell on expectations of more monetary stimulus from the United States and a strengthening recovery elsewhere pushed up riskier currencies.

One of the currencies to watch was the New Zealand dollar, which was on course to reach its highest since June 2018.

Bitcoin reached a record high of $19,918. Traders were watching for the next hurdle of $20,000 for the cryptocurrency.

Investors are short dollars as optimism about promising vaccine trials drives buying of riskier currencies and higher- yielding assets outside the United States.

 

Gold futures soared back to challenge its mid-Cycle resistance at 1816.76 after making a belated Master Cycle low at day 267.  We may expect a few more days of rally, but should gold not be able to climb appreciably higher, the decline may resume through the end of the year.

ZeroHedge reports, “After testing new record highs overnight, just shy of $20,000, Bitcoin has tumbled $2000 this morning…

Source: Bloomberg

The entire crypto space is also getting whacked…

And at the same time, gold has surged back above $1800, erasing last week’s sudden plunge…

Is the gold-to-bitcoin rotation unwinding?”