February 21, 2020
SPX has multiple aggressive sell signals. I call them aggressive because we still see a pretty hefty number of new highs in the NYSE Hi-Lo. That means that the decline may be choppy until it either breaks down beneath the lower trendline and 50-day Moving Average or the Hi-Lo closes lower…or both. The reason is that some of the money flowing out of the FAAMG stocks may simply be rotating to small cap stocks, junk bonds (??) and value stocks.
SPX futures declined to 3345.12 and has bounced. This puts us on alert for a possible bounce back to 3375.00-3380.00, where the Ending Diagonal trendline lies. There are two other possibilities. The first is that the daily Cycle Top resistance at 3363.50 may hold, sending the SPX lower. The second is that SPX may make a new high closer to 3400.00 in a Broadening formation, which appears to have 4 of the possible 5 points. We should know at the open which direction it may take.
Today is day 263 of the Master Cycle. 92% of all Master Cycles end within 4.3 days of the average 258 days. The prior top was on day 254.
ZeroHedge remarks, “Are investors finally starting to grasp that a world paralyzed by a deadly global viral pandemic which has crippled consumer and producer sentiment, and may result in millions of deaths, can not be simply rebooted by central banks printing a few trillions dollars?
VIX futures hit a new Cycle high at 17.33 this morning. This would be normal even if the SPX makes a new high as the VIX is a leading indicator. The NYSE Hi-Lo Index is combined with the VIX to eliminate the false positives.
The NYSE Hi-Lo Index opened under the trendline, but closed bullishly despite yesterday’s losses. Yesterday’s reading may not be the final number due to double counting (ETFs) in the NYSE. Wednesday’s number was revised downward from 253 to 193. We are looking for a close beneath the mid-Cycle support/trendline to get a sell signal.
USD futures are lower on day 253 of the Master Cycle. While this may be the top, the structure still appears incomplete. It may take another week to sort out whether the Cycle is done or not.
Japanese Yen futures may have bottomed yesterday at 89.11 on day 274 of its Master Cycle. This Cycle is overdue for a turn and it may be quite dramatic. This may also be the receiving end of investors fleeing stocks for a safe haven. It appears that the Broadening formation is still in play.
TNX hit a new Master Cycle low at 14.76 this Morning. This Cycle is also overdue for a turn.
ZeroHedge remarks, “As stocks hover back near record highs, entirely shrugging off virus fears, the rest of the world’s financial markets seem anything bit convinced this is a temporary shock – as The Fed’s Jim Bullard proclaimed this morning on CNBC.
The 30Y yield is back at record lows…
The yield curve has collapsed…
February 20, 2020
A close-up view shows the SPX making a 55% retracement of its decline. The SPX daily Cycle Top is now at 3363.33 so a decline beneath that level may confirm the reversal pattern. This was the original hour that I had targeted for a reversal. The top of a Wave 2 is even better. A whole bunch of call options went worthless today.
Dana Lyon’s Tumblr comments, “A historically high percentage of stock option trades are betting on higher prices.
Whatever “wall of worry” that has served as a tailwind for stock prices of late has been completely demolished. At least, according to data from the options market. And unlike the UM survey that we highlighted last week wherein consumers were merely their voicing their optimism, this data shows that traders are actually putting money where their bullish mouths are.
To refresh, options traders use calls to bet on market gains and use puts as protection against declines. When a disproportionate amount of volume is going into calls relative to puts, it generally means traders are very bullish — and potentially too complacent about risk. We are seeing indications of that from multiple exchanges, e.g., the ISE and the CBOE.”
TNX did go down below 15.12 after all. Today’s low is made on day 258 of the current Master Cycle, but the decline may be extended another day or two.
Forbes observes, “Even with global stocks reaching new record highs almost daily, the money flowing into global bond markets and falling yields has been the more surprising fact this year. As global Central Banks cut rates in the face of the coronavirus, or flood markets with liquidity, much of the cash is finding its way into bonds all around the world, despite low yields and robust economic growth.
NDX has reversed quite violently off its top on no news.
ZeroHedge reports, “While the catalyst for this sudden move is unclear, the fact is a notable regime shift is underway today in factors as the long-momo-short-value trade is reversing fast as Treasury yields tumble.
ZeroHedge comments, “In the past few weeks, there has been much investor speculation whether the recent record crowding in factor investing would have an adverse impact on the broader market. As a reminder, just yesterday, JPM’s Marko Kolanovic called the low-vol (i.e., “tech”) factor a “bubble” which he compared to events during the dot com bubble to get a sense of the prevailing market exuberance:
For instance, the ratio of the S&P 500 technology to energy sector is now the same as during the tech bubble.”
As suggested earlier, the VIX has now broken out of the massive Ending Diagonal at 16.50. This gives us additional confirmation for the sell signal in the SPX. There is no news yet. What is interesting is that options expiration tomorrow may be chaotic, to say the least.
Update 2: SPX has not only broken the trendline but also declined beneath the daily Cycle Top support at 3362.94. I have found two more Fib relationships showing max resistance at 3400.00.
Update 1: Wave 5 has rallied for 12 market days and 17.2 calendar days as of yesterday. Today it is testing the lower trendline of an Ending Diagonal formation at 3370.00. This can give us an aggressive sell signal, should it be broken. Additional confirmation may be given beneath the Cycle Top support at 3362.78. Once started, things may move quickly.
SPX futures rose overnight to 3397.38, then declined to a morning low of 3376.62. The Cycles Model suggests that today may be a final day of strength in this rally, so the probability is high of a test of 3400.00 today.
ZeroHedge reports, “S&P futures slipped, Asian stocks eased and European markets were a sea of red even as the relentless dollar juggernaut continued on Thursday, as virus cases rose in South Korea and Japan even as China added more stimulus via a rate cut to support its economy.
US equity futures first pushed higher reaching just shy of 3,400 before turning lower after Japan reported two deaths from passengers holed up on the formerly quarantined Diamond Princess viral cruise ship, with South Korea confirming its first fatality from the disease shortly after. China reported a large drop in new cases which was due to yet another change in the definition of “infection”, but that came together with a jump in infections in South Korea, two apparent deaths in Japan and researchers finding that the virus spreads more easily than previously believed.”
VIX futures rallied to 15.00 overnight, just short of the mid-Cycle resistance at 15.02. We are finally seeing some analysis suggesting that VIX may go higher. The Cycles Model suggests a possible breakout today. A close above 16.50 may set a flash rally in motion.
TNX made a new retracement low of 15.24 this morning. Minute Wave (c) equals Minute Wave (a) at 15.17, a probable target. The Cycles Model does not show a deeper low beneath 15.12.
USD futures continue their inexorable rise to the weekly Cycle Top at 101.85. This morning they reached a new high at 99.91. Today is day 252in the current Master Cycle, giving it another possible week of rally.
Gold futures hit a new high at 1621.85 this morning. It has challenged the Cycle Top at 1620.63. This has all the earmarks of an exhaustion rally, so a reversal beneath the Cycle Top may mean a potential flash crash in the making. A decline beneath Intermediate-term support at 1566.88 and the 50-day at 1538.72 may confirm the potential outcome.
February 19, 2020
SPX may have completed its extension of Wave 5 at 33936.52 this afternoon. Today is day 261 of the Master Cycle. A negative close beneath 3367.76 would be a simple reversal while a tall order of a close beneath 3355.61 would be a Key Reversal. Sometimes reversal days are like a flick of the switch, where everything suddenly turns upside down. I am just setting the bar.
ZeroHedge observes, “Since The Fed’s statement on January 29th, the severity of the Covid-19 virus has escalated exponentially, economic data has disappointed (even before the virus’ impact), companies have issued widespread warnings about their outlooks (due to China-driven consumption slumps and supply-chain disruptions)… and the Nasdaq is up over 6.5%!!!
SPX futures bounced off the daily Cycle Top support at 3353.38 yesterday and appears to be making a retracement thus far to 3381.88. The Cycle Top is the first level that defines a possible reversal from the high. It appears that SPX may remain in limbo through options expiration this Friday. The Cycles Model shows a possible final burst of strength tomorrow. The Gamma hedging may keep the index high through the rest of the week.
ZeroHedge reports, “Global stocks reversed Tuesday’s losses and rose on Wednesday after fresh “hope and optimism”TM emerged that China is getting closer to containing the coronavirus epidemic and that Beijing may be planning further measures to support its economy reeling from the virus-induced crash. The yen weakened and the USDJPY hit the highest level since May 2019.”
VIX futures are lower and may be revisiting the 50-day Moving Average at 14.10 today. Today is options and futures expiration for the VIX (not the ETFs). The Cycles Model suggests a possible surge in strength as early as tomorrow in the VIX.
USD futures are still climbing with a new Cycle high this morning at 99.58. There appears to be yet another week of strength in the USD. The weekly USD chart shows the Cycle Top at 101.85 as a probable high.
DailyFX reports, “Dollar bulls have come back to work after the holiday weekend in the United States, pushing the currency up to yet another fresh four-month-high. As looked at last week, the US Dollar is trading at its most overbought levels (via Daily RSI) since August of 2018. This week’s economic docket is rather light on US drivers, with the primary highlights coming from tomorrow afternoon’s meeting minutes.”
TNX has resumed its climb from its retracement low. The Cycles Model is neutral for the balance of the week, but gaining strength afterwards.
CNBC reports, “Treasury yields turned higher on Wednesday after data showed inflation rose more than expected last month.
ZeroHedge reports, “Foreign central banks have sold US Treasuries for the last 16 months (the last inflow was Aug 2018)
Gold futures reached a new high at 1614.25, but not confirmed by internals nor by the Cycles. Fifth Waves may “sneak in” but quickly fade after the deed is done. We may be looking for a sharp reversal that may undo this rally in the next two weeks. A Master Cycle low appears to be due by mid-March.
February 18, 2020
SPX futures have declined after reaching a high of 3392.38 yesterday morning, but still above the daily Cycle Top at 3348.88. That is where the likelihood of a reversal is confirmed on the chart. We will be monitoring the other indicators for a confirmation after the open.
ZeroHedge observes, “Two weeks ago, when looking at the supply-chain crippling consequences of the Coronavirus epidemic, we asked “Is Tech About To Suffer A “Dot Com” Bubble Collapse?” and concluded that “It’s now all in China’s hands” noting that “…while the market leaders did not disappoint in the last quarter of 2019 when stocks exploded higher with the blessing of the Fed’s QE4, what about the current quarter and the future? What happens to revenues and demand, to established supply chains, to profit margins, if the Coronavirus epidemic keep spreading and tens of millions of Chinese remain under quarantine? What happens to Apple’s iPhone sales in China if the Cupertino company is unable to reopen its store for a month, or two, or three?”
VIX futures ramped up to 15.44 in the overnight session, confirming the buy signal. The point of no return would be a breakout above the Cycle Top and prior high at 19.99.
Bloomberg observes, “More than three weeks after the shock from the coronavirus outbreak resulted in an across-the-board sell-off in U.S. stocks and other risk assets, several indexes are back at record levels. This sharp V pattern repeats the experience of two other unanticipated shocks in the last six months: the September attack on Saudi Arabian oil production that took out half of daily output and the January U.S. missile attack that killed a senior Iranian general. It is a pattern that illustrates the now deeply ingrained investor conditioning of “buy the dip” in the fear of missing out on yet another profitable opportunity.
This “V” pattern has been mirrored in the VIX, the volatility index that is often referred to as a gauge of market fear. It spiked to 18.5 and again 19.5 before declining steadily to close at less than 14 on Friday. The pattern has been less pronounced, however, when it comes to the behavior of yields on U.S. Treasuries and is almost absent for many segments of the commodities markets. This sheds light on the influence of central banks on both the price behavior and underlying investor conditioning in the markets.”
TNX may have completed its corrective phase this morning and appears ready to go higher. It appears that it is due for an inverted Master Cycle due to end in mid-March, according to the Cycles Model.
Bloomberg reports, “Investors overseeing trillions of dollars are plowing money into U.S. government debt like never before, in a wave that’s only gaining strength as the spreading coronavirus casts doubt on the global growth outlook.
USD futures have made a new Primary Wave  high at 99.37 and extended its Master Cycle high to day 250 of the current Master Cycle, which explains the resilience in treasuries and stocks. The rally in the USD could last another week. The spread of the Covid-19 virus and the financial crisis in Europe appears to be driving liquidity toward the USD.
February 17, 2020
SPX futures hit an all-time new high at 3392.38 at 1:15 this morning. Since then it has been easing back, as the cash market is closed today. This may be the final thrust with a reversal tomorrow morning. How it opens on Tuesday is my chief concern. The Daily Cycle Top is at 3348.88.
ZeroHedge reports, “European stocks rose on Monday, Chinese shares surged, recovering all their post-coronavirus losses and S&P and Nasdaq futures jumped to new all time highs as investors took encouragement from the Asian country’s monetary (if not fiscal) pledges to support the world’s second-biggest economy in the face of the coronavirus outbreak. The yen and gold both slipped.
The Shanghai Composite shows the result of a massive liquidity pump by the PBOC. Today’s session challenged the 50-day Moving Average at 2974.79. The Cycles Model shows probable strength through options expirations on Friday.
ZeroHedge observes, “One of the top reasons why stocks have continued to hit new all time highs despite the ongoing economic shock that has crippled China’s economy, which according to Goldman will push its GDP to zero (or lower)…
VIX futures are not open this morning. The Fed’s liquidity pump and overeager VIX short sellers are keeping the VIX subdued.
February 14, 2020
Good Morning and Happy Valentines Day! I will be out for the entirety of the day.
SPX futures continue their inexorable march higher. Futures hit an overnight high of 3388.12. The pattern allows another probe higher through an extension of Wave 5. 3400.00 is a distinct possibility. This market is so extended that, not only would I not be long over the weekend, but looking for a short entry before the close today.
ZeroHedge remarks, “And just like that, “Coronahope“, i.e., the market’s entirely unfounded and groundless optimism that the coronavirus pandemic is contained, is back, and pushing stocks to fresh record highs.
February 13, 2020
SPX came within 4 ticks of yesterday’s high. This is so close I have to admit that 3400.00 may be the target. Remember, last week I reported that there are two Fib targets precisely at 3400.00. The advance is relentless, but something’s gotta give. The Hi-Lo is at 278.00, too high to see a reversal yet. The VIX is near its low at the 50-day Moving Average at 14.08. It is what it is.
Fed Injects $79BN In Liquidity: Term Repo Most Oversubscribed Since Repo Crisis
ZeroHedge reports, “The repo market was supposed to be fixed in September; then the year-end liquidity flood was supposed to definitely fix the repo market. But it is now mid-February and moments ago the Fed just reported it conducted the fourth oversubscribed term-repo operation as the liquidity shortage among dealers appears to persist.
SPX futures made a low of 3348.62 on its way to a lower level. It is not certain whether SPX may decline beneath support at 3317.77. Nonetheless, it is likely to bounce after the open. Aggressive short positions may be taken at the bounce as discussed yesterday.
ZeroHedge reports, “For weeks we had been warning that China was misrepresenting, obfuscating and otherwise lying, either directly or simply by changing the definition of an “infected case” or even “death”, about the true extent of the corona pandemic, a conclusion that was obvious by simply looking (here and here) at the underlying “official” data. This morning, the quants and algos got a huge shock when China was finally overwhelmed with the level of lies – and cremated bodies – since the breakout of the covid pandemic, and was forced to “adjust” the number of new cases higher by a whopping 15,000. Think of it as GAAP virus accounting vs non-GAAP, which excludes the inconvenient “one-time” cases.
VIX futures have risen to a high of 15.44 and is now above its mid-Cycle resistance at 15.05. This confirms the buy signal for the VIX. We will be observing the Hi-Lo Index after the open, since it closed at 415.00.
TNX pulled back to 15.68 in the overnight session, but has bounced back to 16.00. It is unclear whether the correction is finished yet, but once accomplished, we should see TNX rising for the next month. The rally may be a slingshot move, where a very strong advance may target a high in excess of 30.00.
USD futures pulled back to 98.75 this morning, Suggesting an early end to the Master Cycle on day 244. This may be a setup for a possible slingshot move where another, deeper Master Cycle low may be made in the next three weeks.
February 12, 2020
SPX may have had a truncated 5th Wave which topped at 3377.41 and fallen to the bottom of its 4th Wave at 3369.72. Watch for a bounce here to see if it can regain its high. If not, the Cycle Top support is at 3368.00. To go short would be an aggressive play here, but the rally is very extended and may reverse to lower lows very quickly. The daily Cycle Top is at 3337.40, which may provide confirmation until we have a signal from the VIX and Hi-Lo.
Stocks are being panic bid this morning on day 254 of the Master Cycle with a possible high near 3382.00. This may be the final thrust as Wave (v) of [v] of 5 is nearing completion. I don’t see anything beyond that, other than a brief extension toward 3400.00 before the reversal. That final extension, if it happens, may lock in traders who have no exit plan.
ZeroHedge comments, “Traders are doing their best to pretend they have a serious handle on how the coronavirus tragedy will play out. They’re racing back and forth anticipating the effects on the global economy, asset prices and central bank policy. It makes for active trading. But at this point, if anyone is making longer-term investing decisions based on the narrative of the day, they are flipping a coin. Even though they would beg to differ.”
SPX futures are up in the overnight, but not to a new high. This is a cliff-hanger, since it could go either way at the open.
ZeroHedge reports, “Another drop in the number of new coronavirus cases and Powell’s cheerful view of the economy (with the backstop of more easing should the coronavirus epidemic turn out worse than expected) boosted global stocks for a third day on Wednesday and sparked a 2% rally in oil prices, on hopes the epidemic’s effects would be contained.”
VIX futures dipped to a new retracement low of 14.01, just above the 50-day Moving Average. It takes a relatively small amount of capital to suppress the VIX, as opposed to buying SPX futures. It appears to be a favored method for encouraging risk taking, since the VIX appears benign.
SchaeffersResearch observes, ““More volatility could be ahead, with the VIX closing the week (and the month) above the 18 area …. VIX technical pattern that stands out to me at present is similar to the early May through first half of July 2019 action – seen in the chart immediately below, in which a trendline connecting lower highs (similar to August-January) was taken out and retested before the VIX doubled in a matter of days. A repeat of this pattern in terms of the VIX doubling from the retest level of the August-January trendline would target a VIX move to the 30 area, or a round 150% above the floor at 12. If there is higher volatility ahead, bulls hope that the VIX peak is contained around 20.67, which is 50% above its December 2019 close.”
– Monday Morning Outlook, February 3, 2020″
TNX is solidly higher this morning and beginning to threaten liquidity. This will have a direct affect on banks, mortgages and lending capacity.
Bloomberg reports, “Federal Reserve Chairman Jerome Powell came close to acknowledging that the central bank may not have the to fight the next recession and called on Congress to get ready to help.
The current low level of interest rates “means that it would be important for fiscal policy to support the economy if it weakens,” he told the House Financial Services Committee on Tuesday.
The remark, which came in opening testimony that Powell is due to repeat to a Senate panel on Wednesday, was an unusual appeal by the head of a politically independent institution that is used to combating economic contractions on its own.”
USD futures rallied, but remained beneath yesteday’s Master Cycle high exactly 258 days from its May 23, 2019 peak. This is called a slingshot move, since there may be a significant Master Cycle low near 92.50 within the next three weeks.
The FinancialTimes posted an article enumerating the risks of a rising dollar.
February 11, 2020
ZeroHedge reports, “It may come as a surprise to some that despite a dramatic drop in the amount of announced buybacks which as we noted recently have slumped to the lowest level in more than two years…
NDX boinked at its trendline at 9600.00 and has pulled back. This may be a big order, but a Key Reversal may be made should the NDX decline beneath 9373.20. The 2-hour Cycle Top is at 9506.11.
ZeroHedge reports, “The Federal Trade Commission has just announced that it will issue special orders to Alphabet, Amazon, Apple, Facebook, and Microsoft in order to probe the purpose of acquisitions they made between January 2010 and December 31, 2019.
That has sent all of the so-called MAGA tech stocks sliding but also Facebook is worst for now…”
SPX hit an all-time high at 3375.63. If this is the top, the day is young enough to see a Key Reversal, where the SPX declines beneath the prior day’s low at 3317.77. We may use the bounce from the Key Reversal to go short.
ZeroHedge comments, “Looking up?
At present, one could have a headline screaming “Killer asteroid to hit earth!” on Monday morning, and by lunch-time the equity market would be saying “Think of all the rebuilding!”
Bond markets are not much more gloomy than they already were, however, which is still pretty damn gloomy. Indeed, it’s FX markets, with a strong/risk-off USD, where we have been seeing most of the virus impact so far, with USD/CNY in particular only holding around 7 due to what I am sure is frenetic intervention on the part of state banks to save the PBOC the effort of doing it itself.
“When Everyone Agrees…” – Correction Risk Remains High Amid Extreme Positioning
Lance Roberts at RealInvestmentAdvice observes, “As discussed in this past weekend’s newsletter, the market remains overly extended as the recent correction sharply reversed on expectations for more Fed liquidity. However, with the market extremely deviated from the long-term moving average, a correction is once again a high probability event.
“Previously, we discussed that we had taken profits out of portfolios as we were expecting between a 3-5% correction to allow for a better entry point to add equity exposure. While the “virus correction” did encompass a correction of 3%, it was too shallow to reverse the rather extreme extension of the market. The rally this past week has reversed the corrective process, and returned the markets to 3-standard deviations above the 200-dma. Furthermore, all daily, weekly, and monthly conditions have returned to more extreme overbought levels as well.”
But it isn’t just the more extreme advance of the market over the past 5-weeks which has us a bit concerned in the short-term, but a series of other indications which typically suggest short- to intermediate-terms corrections in the market.”
SPX futures have hit a new morning high of 3364.62. My comments after the close yesterday are in line with what is happening this morning. We may see the Wave Equality target at 3371.53 being hit by 1:00 pm today, should the short-term Cycle be on target. Should this Wave elect, it may go higher.
The alternate to Wave Equality is for Wave 5 to be a Fibonacci derivative of Wave 1. For example, Wave 5 may be 1.5 times the length of Wave 1 at 3398.41.
ZeroHedge reports, “Global stocks resumed their ascent to all time highs on Tuesday amid fresh coronavirus “hopes” after China’s top medical advisor said the Chinese epidemic may peak over the next few weeks. Momentum came from the US, where the S&P 500 closed at a fresh all-time high on Monday, and takeover target Sprint soared more than 60% in the pre-market after T-Mobile US was said to be poised to win court approval for its $26.5 billion takeover. The dollar nudged lower versus a basket of its major peers.
US equity futures climbed alongside stocks in Europe and Asia following news that a judge is set to approve a merger between Sprint and T-mobile will be approved, and investors pushed benchmarks to record highs before congressional comments from Fed Chairman Jerome Powell. Oil rose and Treasuries slipped.”
VIX futures hit a new retracement low at 14.62 this morning. It may target the 50-day Moving Average today as it completes its corrective phase. Pundits are so confident that they are telling us to sell/sell short the VIX. Strong reversals are made on the overconfidence of traders.
SeekingAlpha opines, “With its price falling by over 5% today, the VelocityShares VIX Short-Term ETN (VIIX) has capped off a long term trend of very poor performance as can be seen in the following momentum table from Seeking Alpha.
In this article, I will dissect the driver of these almost constant losses as well as detail why I believe that now is an excellent time to short VIIX.”
USD futures made a marginal new high at 98.81, but have backed away from its high. The Cycles Model suggests the reversal may be underway to a Master Cycle low by the end of the month.
FXStreet observes, “The US Dollar Index (DXY), which gauges the greenback vs. a basket of its main competitors, keeps the march north unabated and is approaching the key barrier at 99.00 the figure, or new YTD highs, on Tuesday.
US Dollar Index now looks to Powell
The dollar stays firm and is lifting the index to fresh yearly lows near the 99.00 mark, up for the seventh session in a row on the back of the broad-based offered bias in its peers, namely the euro, the sterling and the yen.”
TNX bounced off its retracement low this morning. It is likely that the rally in yields may resume. Rising yields are what puts the brakes on the economy and the market. At some point it also becomes clear that the Fed has lost its power to dictate both long and short-term yields.
ZeroHedge reports, “The repo market was supposed to be fixed in September; then the year-end liquidity flood was supposed to definitely fix the repo market. Well, it is now mid-February and moments ago the Fed just reported it conducted the third oversubscribed term-repo operation as the liquidity shortage among dealers appears to persist!
CNBC reports, “Treasury yields fell on Monday as investors remain cautious about the deadly coronavirus.
The yield on the benchmark 10-year Treasury note, which moves inversely to price, dipped three basis points to around 1.543%, while the yield on the 30-year Treasury bond was also lower at around 2.015%.
February 10, 2020
All Cyclical trends end in five waves. Today began Minute Wave [v] of Minor Wave 5 of Intermediate Wave (C) of Primary Wave  of Cycle Wave c of Super Cycle Wave (b). Today is day 252 of the current Master Cycle, which means there is a strong likelihood that the pattern may end within the next week. You may recall last week I illustrated a monthly chart of the SPX showing two major Fibonacci targets agreeing that 3400.00 may be the target. Finally, using Wave equality as a targeting device, Minute Wave [v] equals Minute Wave [I] at 3371.50. Knowing how the market opens in the morning, we could see that target being met as early as mid-day tomorrow.
Wave equality may be considered a minimum, so Wave [v] of 5 could go to 3400.00. However, my trigger finger will be twitching above 3371.50. This opens the markets for a 60-day decline into early April.
See you in the morning.
For Markets Just One Thing Matters: Did China Go Back To Work Today Or Not?
ZeroHedge observes, ““Hi-Ho!” Or “Uh-Hh!
SPX futures are flat lined, looking for direction. It is hovering just beneath the Cycle Top resistance at 3331.10, favoring a bearish outcome. However, it would have to pierce Intermediate-term support at 3276.77 for an aggressive sell signal and the lower Broadening Wedge trendline at 3230.88 to give a confirmed sell signal on the chart itself. The alternative would be the combination VIX and Hi-Lo signal.
ZeroHedge reports, “Global shares dropped on Monday as the weekend death toll from a coronavirus outbreak even according to Chinese official numbers exceeded the SARS epidemic of two decades ago, though Chinese shares rose as authorities lifted some work and travel curbs, helping businesses to resume operations, and futures rebounded from a steep selloff early in the session following a Reuters report that Apple’s main iPhone supplier Foxconn would resume operations at its biggest Zhengzhou plant, although a subsequent report from Nikkei refuted the original Reuters report without any impact on futures. As a result US equity futures have hugged the flatline after Friday’s drop as fears that China is failing to contain the coronavirus sent risk sharply lower.”
VIX futures made a new high of 16.32 this morning after a 60% retracement of last week’s rally. We should see the VIX rise back above the trendline at 16.50 to confirm the short-term bullish outcome. Should it break out, we may see the VIX rise to its December 2018 high at 36.20. The Cycles Model suggest VIX may go into a period of strength to February 19-20. The key to this event is the trendline at 16.50 and further confirmation at the breakout/Cycle Top at 19.99.
TNX dipped to 15.58 this morning, a 70% retracement. The Cycles Model suggests the retracement may be over, or nearly so. We may see the rally resume as the largest buyers of treasuries redirect their liquidity against coronavirus mitigation. Meanwhile, investors continue to view treasuries as a safe haven.
PhiladelphiaInquirer states, “The coronavirus didn’t stop Wall Street from rallying to new records last week. And the pandemic had an unintended effect — driving down borrowing costs for corporate America while lowering Treasury bond yields for investors.
USD futures edged higher, to 98.66 in the morning session. The Cycles Model now suggests the USD is due for a decline to its Master Cycle low at the end of the month.
February 7, 2020
NDX made anew all-time high yesterday, but few realize just how narrow the participation in the new high has become.
The NASDAQ Hi-Lo Index shows only 19 companies making new 52-week highs. In fact, it is on a sell signal, being below the mid-Cycle support/resistance at 30.63. I may attempt to check back this afternoon to determine whether it stays below 30 by the close.
This latest rally has produced another warning signal and that is the leadership in $NDX is narrowing dramatically. Narrowing leadership has spelled trouble for $NDX in the past, especially as it is building tightening and steep price channels and/or wedge patterns.
Now we can observe this again, specifically in new highs versus new lows:”
ZeroHedge reports, “For once the ADP report was not massively off.
SPX futures dipped beneath the trendline, then appears to have retested it on a bounce. BLS announces its January Employment Survey at 8:30 am and while the current numbers look acceptable, there appears to be a huge downward revision to the 2019 numbers.
ZeroHedge reports, “Following a torrid 3% rally on “hopes” that the coronavirus epidemic is contained after last Friday’s plunge, coupled with even more “hopes” that trade relations with China are on the mend after Beijing slashed its duties on some US goods by up to 50%, overnight renewed coronavirus worries took a hit at world markets on Friday ahead of today’s payroll report (which will include major downward revisions), although the modest drop sparked by fears of a mini epidemic on board a Japanese cruise ship wasn’t going to stand in the way of the best week for stocks since June and the strongest for the dollar since August.”
ZeroHedge reports, “Following a blockbuster ADP private payrolls print of 291K, the highest in nearly 5 years, analysts expect the pace of official, BLS payroll growth to pick up (160k expected, up from 145K in January), though remain beneath recent trend rates; yet despite the ADP strength, which in the past has been a loud contrarian indicator, analysts offer the usual caveats: business surveys continue to point to payrolls growth, though the pace of growth cooled in the non-manufacturing survey. Weekly jobless claims data has stabilized near lows. Meanwhile, consumer confidence surveys bode well, with consumers expecting to see more jobs in the months ahead, though their view on wage gains pared very slightly.
VIX futures popped back above the 50-day Moving Average at 15.09, making a new high at 15.73. It’s still too early to tell, but it may be poised for more bad news. .
USD futures made a new morning high at 98.52. Today appears to be the final day of strength in the Cycles Model. The next Master Cycle low is due at the end of the month, so there may be at least three weeks of decline to follow.
FXEmpire observes, “The US dollar has rallied significantly during the trading session on Wednesday as more of a “risk on” attitude has come back into play, spurred on by the ADP numbers coming out better than anticipated.
The US dollar has rallied significantly against the Japanese yen during trading on Wednesday, reaching towards the ¥110 level, an area that has been a significant barrier as of late. The explosive move higher was exacerbated by the ADP numbers coming out much better than anticipated, signaling that perhaps the Non-Farm payroll number could come out better than anticipated as well. The United States continues to lead the world in economic growth, so it does make sense that it would continue to see more money flowing into it.”
February 6, 2020
SPX has made the minimum price for a Wave 5 and has reached an overbought condition. It is 50% the size of Wave 3, the next smallest Wave. It is at a juncture where it may go either:
- Higher to 3400.00 in the next 8.6 days, or
- Plunge as much as 1000 points in an 8.6 day debacle.
I cannot decide which may happen. The market will have to decide.
Sometimes when the near-term chaos overwhelms, you have to step back and take the longer view. In the monthly chart you can see that the SPX has been in and Ending Diagonal since March 9, 2009. My calculations show a double Fibonacci target at 3400.00. At this point, the next Master Cycle ending on or near February 17 is likely to be inverted. I’ll show the daily chart later today.
ZeroHedge reports, “And just like that, US equity futures hit an all time high of 3,357.75 overnight on a combination of trade and virus optimism.
Contracts on all main US equity indexes pointed to record highs and a fourth day of gains after China said it will lower levies on $75 billion of U.S. goods next week, likely satisfying part of the interim trade deal. And not just the US: stock markets across the world gained on Thursday, with MSCI’s world equity index rising 0.5%, boosted by the unexpected announcement by China to cut tariffs on some U.S. goods by as much as half (even as Beijing plans to invoke the emergency clause in the Tariff 1 deal to limit its purchases of US goods), amid renewed “coronavirus is contained” optimism (even as China reports numbers that look increasingly manipulated) as investors press their bets that the global economy would avoid long-term damage from the coronavirus (even as Goldman cuts Q1 GDP growth by 2% and Fitch says if the epidemic is not contained into Q2, China’s GDP growth in Q1 could be closer to 3%).”
VIX futures dipped to 14.88 in the overnight session, but eased back to the mid-Cycle support/resistance at 15.09.
ZeroHedge observes, “According to Nomura we can add a new, and decidedly bullish, market positioning dynamic which is already impacting the systematic “Vol Control”/Risk Parity community and their deployment of leverage across multiple asset exposures and their Dollar allocation—particularly within equities.
TNX continues its inexorable march higher. The Cycles Model suggests strength to last until the weekend with a probable pullback next week.
ZeroHedge observes, “Two days after dealers unexpectedly flooded the first reduced term-repo (from $35BN previously to $30BN) offered by the Fed, the liquidity shortage in the repo market – which was supposed to be temporary and few if any strategists said would continue beyond year-end – persists, and today the Fed announced that in its latest 2-week term repo (maturing Feb 20), it was $57.25BN in submissions ($35.75BN in TSYs, $21.5BN in MBS) for a maximum $30BN in available reserves.
This means that for the second time in three days, the term repo operation saw a massive oversubscription, which at 1.9x was the 4th highest ever since the Fed restarted term-repos in late September, and just shy of the 2.0x submitted-to-accepted ratio recorded on Monday.”
USD futures are hitting new highs at 98.23 this morning. This is part of an inversion that has two more weeks to go. The stronger dollar is also helping the stock market vis a vis the international markets.
Bloomberg video: “Saed Abukarsh, partner at Ark Capital Management, discusses U.S. equity markets and his outlook for currencies. He speaks on “Bloomberg Daybreak: Middle East.” (Source: Bloomberg)”
February 5, 2020
Did China’s Tencent Accidentally Leak The True Terrifying Coronavirus Statistics
ZeroHedge reports, “Ten days ago, shortly after China first started reporting the cases and deaths associated with the coronavirus epidemic, a UK researcher predicted that over 250,000 Chinese would be infected with the virus by February 4. And while according to official Chinese data, the number of infections has indeed soared in the past two weeks, at just under 25,000 (and roughly 500 deaths), it is a far cry from this dismal prediction, about ten times below that predicted by the epidemiologists.
SPX futures have reached a high of 3331.12 before pulling back. The basis for the rally appears to be an unconfirmed report of a drug breakthrough on the coronavirus at 3:00 am. The futures immediately went higher.
Just prior to 7:00 am a ZeroHedge reported that a spokesman for the WHO reportedly replied that there are ‘no known effective therapeutics’ for the virus after being asked about possible cures.” This report sent the SPX futures to 3320.88, but investors came in to buy the dip.
ZeroHedge reports, “As Bloomberg’s Richard Breslow writes this morning in a note lamenting that there is “little obvious” about this market, “some days it’s best just to let things play out for a little while. Economic numbers that came out overnight haven’t hurt. Very dovish comments by a senior Bank of Japan official. Upbeat comments by the governor of the Reserve Bank of Australia. And then the big one, hopeful comments concerning potential progress in dealing with the virus outbreak. And the market has taken off.”
VIX futures retreated to a new retracement low at 15.41. It remains on a buy signal above mid-Cycle support at 15.12.
USD futures are approaching a breakout point, reaching 97.97 in the overnight session. The Cycles Model suggests that strength may last another week before turning down into the next master Cycle low near the end of the month.
TNX surged higher this morning as yields take aim for the 50-day Moving Average at 17.85. It is likely that little may be said about the rally until it reaches that barrier. The Cycles Model suggests that strength may continue through this week, then redouble in early March. The Wall Street Journal calls this move “stabilization.”
February 4, 2020
SPX came within a point of reaching its Cycle Top at 3306.63 around 12:30 pm, making a reversal pattern. This, rather than the round number was what it was reaching for. We have reached the moment in the daily Cycle that the market decides which way it will go. Should it decline as I expect we will have our sell signal. Plan accordingly.
TNX is giving us the reason why Liquidity is drying up rather quickly. The Fed has now lost control of interest rates. This is the beginning of one of the most powerful rallies in yields that the market will see. It will be recognized by the banks first. As yields climb credit will dry up. There will be heavy losses in the banking sector.
The Liquidity Cycle may have just given its last best shot at a recovery. While BKX could go higher, the Cycles Model suggests a probable decline to the week of February 17. The alternative is that the Federal Reserve really floods the market with liquidity, causing a Master Cycle inversion. The rally in BKX shows the reason why fewer and fewer stocks participate in the rally.
NDX made a new all-time high, primarily on the backs of the FAANGS + TSLA. All it took was to goose the large caps to make the market look good. Unfortunately, we should be singing, “Hotel California” to those unwary speculators.
ZeroHedge observes, “Update (1035ET): While TSLA remains up over 10%, its notably off its highs as Citron Research unleashes its latest short on the carmaker:
“Limited sources of further appreciation in the next 12 months. .. We see 2020 playing out fine, but it is largely expected, and we see some risks on the stock: end of the short squeeze, 1Q20 miss on gross margins”
SPX has reached a natural resistance at 3300.00 for multiple reasons. It could go higher, but Wave equality and round number resistance kicks in here. In addition, the retracement has reached a Fibonacci 66%. It has taken a little longer than I expected, but appears complete, or nearly so.
ZeroHedge reports, “Equities are having quite a nice rally today. And it’s a global phenomenon. My guess is the majority of traders took one look at their screens this morning and did a double take. And then began scouring the news to learn the reason.
Today I am confident enough to label the Elliott Wave structure of the SPX. The choppiness of the decline has almost led me to believe it doesn’t exist, except for the Cycles, which confirmed the turn within 3 days of my turn date (January 20). This pattern is known as a Leading Diagonal, which consists of five Waves of 3s (or a-b-c) Waves. In this case it gives solace to the bulls, since it appears corrective (choppy) and appears to be poised for a positive breakout, especially after this morning’s surge.
SPX futures reached a high of 3284.62, approaching both Short-term resistance and the trendline at 3289.56. The Cycles Model suggests either a top by 10:00 am or no later than early afternoon.
ZeroHedge reports, “It was scary for a few moments: after the PBOC expanded its massive liquidity bazooka on Tuesday with another gargantuan injection of 400 billion yuan net with reverse repos, marking the largest single-day addition since January 2019, Chinese stocks initially tumbled as much as 3%, but then the cavalry, or rather China’s “National Team” stepped in, and the Shanghai Composite bounced hard…
… halting its selloff and ultimately closing at session highs, up 1.3%, while the blue-chip CSI300 rebounded 2.6% after a near 8% slide on Monday. Hong Kong’s Hang Seng advanced 1.2% even as Hong Kong reported the second foreign Coronavirus death outside of the mainland, after a 39-year old man died.”
VIX futures reached a low of 16.15 this morning. They could go as low as the mid-Cycle support at 15.12, a near 60% retracement. Wave [I] in the VIX is also a Leading diagonal.
USD futures are higher, reaching 97.81. This rally appears to be an Ending Diagonal, matching the choppiness of the SPX, but in reverse order. The USD has yet another zigzag probe higher before reversing lower.
February 3, 2020
SPX made a 75% retracement of Friday’s rout, then retreated under the 2-hour mid-Cycle resistance at 3257.67. It appears that resistance is hardening and the last hour of the day where the market can be made or broken is arrived. By the way the RSI and Slow Stochastics were both at 50 when the market broke down on Friday. The NYSE Hi-Lo Index is at 41.00, which is firmly in the “sell” camp. More comments beneath the Hi-Lo chart.
ZeroHedge observes, “When commenting on the crash in Chinese stocks late on Sunday night, we pointed out that US equity futures had managed to buck the liquidation trend seen across Asia, rebounding from Friday’s rout lows, rising into the mid-3200s, a level which was critical because as we had pointed out previously on Friday, this is roughly where the critical gamma “flip” level was, below which gamma transforms from a risk dampener into a risk accelerator.
… with dealer now back in a short gamma position for the first time since the start of the October meltup. In fact, it now appears that the gamma “flip” level is 3,254, which explains why market makers who hope to preserve the bullish benefits of positive gamma are fighting so hard to keep the S&P at this level. Not surprisingly, at last check, the S&P was trading right on top of this level.”
SPX expanded its bounce, negating a smaller Head & Shoulders formation, but leaving a much larger one in its place. It appears to be projecting a 200-point decline once it crosses the 50-day Moving Average at 3211.60. This retracement is not the result of eager buy-the-dippers. This move was meant to inflict maximum pain on those who dared to go short the SPX. (see below)
The NYSE Hi-Lo Index made a new opening low and remains subdued. That suggests only a few large cap stocks are in play to make the market look healthier than it truly is.
TSLA is a case in point. ZeroHedge reports, “TSLA shares are exploding higher once again today as it appears another hedge fund pukes its shorts into this exponential run.”
As reported last night, the Chinese stock market is in the news with this report from Bloomberg, “China’s stock market opened to the most savage wave of selling in years, with thousands of shares falling by the daily limit after just minutes of trading.
SPX futures reached a retracement high of 3250.38 at 9:00 pm and have drifted lower since then. It is likely that the retracement may be over allowing the SPX to resume its decline. There appears to be two more weeks of decline in the current Master Cycle, so the damage has just begun.
ZeroHedge reports, “While Beijing’s emergency intervention in Chinese markets which included a short sale ban, a dramatic liquidity injection and a cut in reverse repo rates, failed to prevent a rout, it certainly helped stabilize stocks in Europe and US equity futures, which have staged a modest rebound after plunging on Friday in their worst drop since August.
VIX futures made a low of 17.84, but remain above the trendline in what may be an irregular (and shallow) retracement. Normally we would see the VIX decline to the mid-Cycle support at 15.12. Should the trendline now hold, it would signal a powerful rally whose target would be a multiple of the first spike off the bottom.
Bloomberg reports, “The options player known as “50 Cent” — or someone using a similar trading strategy — has profited from a flurry of bullish volatility bets over the last two weeks, according to Wells Fargo & Co.
USD futures bounced back to challenge the mid-Cycle resistance at 97.49, reaching a high at 97.55. The Cycles Model shows a bit of strength lasting trough the week, which isn’t surprising considering the state of the world markets at this time.
TNX jumped off Friday’s low as indicated in the Elliott Wave Structure. This may provide a starting point for a missing Cycle in TNX.
February 2, 2020
That didn’t take long… China’s Shanghai Composite opened down 260 points and is hovering near the low despite the ban on short selling. It didn’t ban selling outright, however. Perhaps it was an oversight…
SPX futures are being pumped but it is doubtful investors are buying the dip. We’ll know whether this effort will isolate the losses to the Chinese market or not by morning.