February 2020

February 28, 2020

12:00 noon

I will be out for the rest of the weekend.  I wish to thank those who sent unsolicited subscription checks.  Apparently my work still has value.  However, I will be taking extended leaves during March and April, so my reporting and observations may get spotty.

11:45 am

The dead cat bounces are getting bigger, but that is because the declines are larger.  This is a result of a combination of liquidity injections coupled with short covering.  The problem is, there aren’t enough shorts to make a difference yet.  There is no bid under this market.  The reason I say this is because the Hi-Lo Index has fallen to a new low at -690.00.  VIX options are still trading at a huge discount.  The expectation is that the Fed will rescue the market.

I have made a preliminary label of the Elliott Wave.  I suspect that Wave 3 isn’t deep enough yet,  at 327 points.  We should be seeing a decline on the magnitude of 500 points or more.  In fact, Wave 3 should extend to the Broadening Wedge target.

ZeroHedge remarks, “In a somewhat shocking sounding move, given administration officials’ ongoing effort to calm the public fears over the spread of Covid-19, The New York Stock Exchange has announced it will commence disaster-recovery testing in its Cermak Data Center on March 7 amid coronavirus concern, Fox Business reports in a tweet, citing the exchange.

During this test, NYSE will facilitate electronic Core Open and Closing Auctions as if the 11 Wall Street trading floor were unavailable,” Fox says.

To reiterate, the disaster recovery plan is to check the process that would occur if Covid-19 ‘public distancing’ proposals come into effect and effectively shut the trading floor?!

The test is reported to occur March 7 between 8:30 am-11 am.”

 

8:00 am

SPX futures declined to 2879.62 (nearly 100 points) before the market was hosed with a high pressure liquidity pump to bring it back to 2951.38 at 7:30 am.  Earlier this week I questioned whether the Fed has enough firepower to overcome the selling pressure.  It doesn’t look good.  However, there are still some investors willing to take the plunge for a bottom, so we may see a faint recovery today.

We may be coming to a point where these bottom pickers just give up and a no-bid situation ensues.  It’s been a long time coming, but markets like these actually end with sheer panic as the indexes may suffer multiple 10% down days before the crash ends in utter exhaustion.

ZeroHedge reports, “Friday’s market performance has traditionally been the weakest, even during the meltup phase ahead of the recent coronacrash, and as such it will probably not come as a surprise that today’s overnight rout which followed the biggest 6-day correction from a peak for the S&P on record…

… has accelerated only this time without even a casual attempt to buy the dip, with the S&P plunge accelerating, and briefly dipping below 2,800. As shown in the chart below, the S&P is now down over 13% from its Friday high, and the selloff shows no signs of abating as both man and machine is now openly dumping risk as the coronavirus epidemic gets worse by the day.

 

The NYSE Hi-Lo index opened beneath the prior day’s close and didn’t look back.  At this rate, it may take days just to get back to the Bollinger bands.

Bloomberg reports, “Six days. That’s all the time it took for the S&P 500 to fall more than 10% from a record into a correction.

That’s the quickest turnaround of the sort ever, according to data from Deutsche Bank Global Research. The S&P 500 fell 4.4% Thursday, the worst day since 2011, bringing its total decline from a Feb. 19 high to 12%.”

 

VIX futures ramped to 47.15 before easing back under 40.00.  It doesn’t seem likely that it will stay beneath it for long.

Bloomberg reports, “The Cboe Volatility Index closed at nearly 40 on Thursday, and some market watchers are saying high levels might stick around a bit longer than in past VIX spikes.

When Wall Street’s “fear gauge” spiked in the volatility-induced meltdown of early 2018, it closed at 37.32 on Feb. 5 but was back down to 15.80 by Feb. 26. By March 9, it closed below 15. But at that time, a number of volatility-linked products exacerbated the swings — and once they were out of the picture, markets were able to calm down relatively quickly.”

 

USD futures declined to a new low at 98.02 in the overnight session.  With the advent of the declining dollar, foreign investors are thinking twice about parking their cash in US equities.

(Reuters) – The U.S. dollar index weakened on Tuesday as expectations grew that the Federal Reserve would cut interest rates this year to relieve pressure on the economy caused by China’s coronavirus outbreak.

The dollar rose last week to its highest level in years as the virus spread further around the world, with investors regarding all U.S. assets as safe havens. But the index has fallen this week as other safe havens have risen because money managers now think the Fed may be more inclined to cut rates since it has the most room to do so.

Rate cuts are inflationary, lowering the value of the dollar.”

 

TNX made an overnight low of 11.55 before staging a comeback.  It appears that TNX may be setting up for a “slingshot move” as it climbs back into positive territory.  The outcome will be clear in the next 2-3 weeks.  The Fed is trapped.  They cannot lower rates without further damaging the markets.

Bloomberg reports, “Treasuries rallied, driving two- and five-year yields to the lowest levels since 2016, as investors increasingly bet the Federal Reserve will cut interest rates to cope with the economic impact of the coronavirus outbreak.

Rate futures now signal that the Fed will ease policy three times this year, with the first move coming as early as March, while benchmark U.S. yields stumbled to a new record low Friday amid a stock-market rout. In Europe, Germany’s bonds rallied, driving 10-year yields to the lowest since September while riskier Italian debt slid.”

 

Gold futures slipped to 1619.50, beneath the Cycle Top and now on a confirmed sell signal.  The surge to 1691.70 was as much liquidity driven as it was fear driven.  Now that investors are fully invested, liquidity is drying up.  Dealers are sensing that demand is drying up and putting weasel clauses in their forecasts.

KitcoNews comments, “Bank of America is holding steady with its call for gold prices to end the year at $1,700 an ounce, but there is a growing bullish case for the precious metal.

In a report published Thursday, Michael Widmer, precious metals analyst at BoA Securities, said that safe-haven demand and falling bond yields will continue to support prices. He added that if the coronavirus does turn into a global pandemic, then he could see gold prices pushing to $2,000 an ounce.

The comments come as gold prices have been unable to hold critical initial support at $1,650 an ounce. April gold futures last traded at $1,641.40 an ounce, relatively unchanged on the day.”

 

West Texas Intermediate Crude cracked the 44-handle in overnight trading.  The Broadening Wedge target doesn’t seem so far away now.

MotleyFool remarks, “Since last Thursday, Feb. 20, major global crude oil benchmarks have given up more than 13% of their value. Brent, which sets the price for more of the world than any other benchmark, has fallen 13.4%, while West Texas Intermediate futures, a major index for U.S. crude, have fallen 12.4% from Feb. 20 to Feb. 27.

At the close of trading today, Brent was at $52.18 per barrel while West Texas crude was at $46.82, both down 26% from the 2020 peak in early January.

This marks the biggest continuous drop for crude prices so far this year. While both Brent and West Texas crude have experienced other week-long dips, neither had seen a double-digit decrease in prices before seeing at least one trading day when prices went up.”

 

 

February 27, 2020

3:22 pm

SPX has declined from the trendline at 3100.00.  Should it not decline beneath 3000, we may see an overnight rally to recapture some of the losses.  As mentioned earlier, it appears that the trendline may be the stopper.  I know its tough to hang on with these wild moves, but the selling may resume in the morning, if not overnight.

ZeroHedge remarks, “Stocks typically take the escalator up and elevator down. However, over the past three months, it seemed the most popular retail stocks were taking the express elevator to the top floor (in part thanks to a record surge in call buying among a certain group of reddit “investors”).

As a result, just this weekend we observed that in this “bizarro market”, retail investors had managed to outperform hedge funds YTD, a divergence which we said we “doubt divergence will last long”.

We didn’t have long to wait, and with stocks now skipping the elevator altogether and going the gravitational freefall route and crashing back to earth with the Dow entering the fastest correction from an all time high since just months before the Great Depression…

 

1:00 pm

A back-test of the massive Orthodox Broadening Top trendline was accomplished at 3097.07 and a new decline is on its way.  Should the decline not go past 3007.06, there may be yet another bounce to cut the losses for the month of February.  These corrections are fast movers and hard to position for.  However, the decline is far from over.  The form of this decline has been a Leading Diagonal, which is choppy and hard to follow.  The Cycles Model suggests a corrective top may be in over the next day or so.

3100 may still be the stopper for the rally, which is a 24% retracement.  However, should it rise above 3100.00, the next stopper appears to be the Head & Shoulders neckline at 3214.00.

 

11:00 am

SPX bounced off round number support at 3000.00, having  exceeded the Head & Shoulders target.  As mentioned earlier, the mid-Cycle support/resistance at 3065.96 has more significance than the 200-day.  The open gap starts at 3068.21, so there is evidence that the bounce may be short-lived.

ED.  The bounced topped out at 3069.82, a bit more than a 2% bounce.  A 50% correction of this morning’s decline.

The NYSE Hi-Lo is at -515 and falling…

 

10:45 am

The Last Time This Happened Was Days Before The Great Depression

ZeroHedge observes, “The US equity market is suffering its worst start to a year since 2009…

In the space of just six days, we went from record high to a ‘correction’ (over 3,000 Dow points and down over 10.5%)…

What is most ominous is the fact that, as NatAlliance Securities reports “This would be only the second time in history that this has happened. The other? 1928.”

Ed. The correct year should be 1929.

9:58 am

The NYSE Hi-Lo Index opened beneath yesterday’s revised (downward) close and is racing toward its December 2018 low.  The amazing part is that the next Master Cycle low is not due until March 20.  This indicates that the March options expiration may be overwhelmingly bearish.

 

9:55 am

…and VIX soars.

ZeroHedge remarks, “VIX has exploded above 32 for the first time since the Dec 2018 collapse and all the US major equity indices are crashing to critical technical thresholds…

VIX has woken up… and its’ not reverting as fast as usual…

The Dow and Russell 2000 are now well below their 200DMA, S&P is testing down to its 200DMA, and Nasdaq has broken below the 100DMA…”

 

9:48 am

SPX made a precise hit on the 200-day and bounced, but was stymied by the mid-Cycle support/resistance at 3065.96.  It has now broken through the 200-day at 3046.98 and has no solid ground to hold it.  The trap door is open.

ZeroHedge remarks, “Yesterday, we asked “are men or machines behind the selling panic?”

This morning we are starting to get a clearer picture as men AND machines are ‘flipping’. As Nomura’s Charlie McElligott points out in a note this morning, the CTA trend model for S&P futures “triggers” on the break below 3,139

“Flipping Short” and creating mechanical selling thereafter as the overall S&P position across all time-signals deleverages from +100% to just +15%…”

 

8:00 am

Good Morning!

SPX futures bounced from mid-Cycle support at 3063.90 this morning but have resumed their descent to break that support.  The 200-day Moving Average is just beneath it at 3047.74.  There may be a pause at the 200-day but the mid-Cycle has more significance.  Selling may redouble today, despite the horribly oversold condition.  This is the most dangerous part of the decline, where no one knows where the bottom may be.  The Head & Shoulders formation is likely to be exceeded.  The Broadening Wedge may dictate the next target.  But that may only be the end of Wave 3.

Bloomberg reports, “The worldwide stock sell-off extended on Thursday, putting a global benchmark on course for the lowest close since October as investors continue to fret the spread of the coronavirus. Most government bonds added to gains, sending yields to unprecedented lows.

Futures on the S&P 500 dropped as much as 1.6% but recovered to trade around 1% lower. The MSCI All-Country World Index fell for a sixth straight day, with Japan’s Topix and the Stoxx Europe 600 leading declines among major indexes. Anheuser-Busch InBev NV was among the worst performers in Europe after a dismal forecast. Several large companies on the benchmark, including HSBC Holdings Plc, are today trading without the right to dividends, potentially exacerbating declines.”

ZeroHedge comments, “After three days of tentative attempts to BTFD in the overnight session, on Thursday for the first time the puke in futures and global markets was so widespread that “pajama traders” did not pass go and proceeded to sell without prejudice…

… as S&P 500 futures dropped as much as 1.6% and threatened to slide below 3,000 today, while Dow Jones futs were down more than 375 points lower, sending the broad index into correction territory, down 3000 points from its last week highs.”

 

VIX futures are making new highs this morning.  Some analysts are already calling for a top in the VIX.

SeekingAlpha comments, “If you were fortunate enough to be holding the VelocityShares Daily 2x VIX Short-Term ETN (TVIX) over the past few trading sessions, then you’re happily sitting on nearly a 40% gain, as the VIX has spiked following a fresh wave of contagion concerns. In this article, I make the case that even though the recent gains have been strong, there is a very high probability that the pop is nearing apex and TVIX will likely fall from here.”

Bloomberg informs us, “The options market has a message for equity traders: Get used to the mayhem.

Volatility has surged to levels not seen in more than a year as investors try to gauge the risks to global growth from the coronavirus’s spread. The VIX Index, which tracks the implied volatility of the S&P 500 over the next month based on out-of-the-money options prices, peaked above 30 on Tuesday during the broadest two-day sell-off in this decade-long bull market.”

 

USD futures made a new low of 98.58 after consolidating under the Cycle Top resistance.  USD is on a confirmed sell signal that may last into mid-April.

CNBC reports, “The dollar fell on Thursday as Treasury yields continued to plumb new lows and investors bet the Federal Reserve would cut interest rates to offset the impact of a spreading coronavirus, while the euro bounced half a percent higher.

Money markets are now fully pricing in a 25 basis point cut in the Fed’s rate by April and three by March next year.”

 

West Texas Intermediate Crude futures are making new lows as the Cycle renews its downtrend.  The Cycles Model suggests the decline may last through mid-April.

CNBC reports, “Even if OPEC cuts production by 600,000 barrels a day, oil prices could remain weak until April, according to a senior analyst at S&P Global Platts.

That’s because inventories are rising amid lower oil demand due to the coronavirus outbreak, Kang Wu, Asia’s head of analytics, told CNBC’s “Capital Connection” on Thursday.”

 

TNX has gapped down this morning as the Master Cycle extends to its 264th day.  We may see a bottom by this weekend with a strong inversion into a Master Cycle high due in mid-March.

TheStreet observes, “Ten year U.S. Treasury bond yields hit a record low Tuesday, while stocks extended their biggest decline in more than two years, as world health officials warned that the coronavirus could escalate into a global pandemic.

Benchmark 10-year not yields touched 1.31%, just below the all-time closing low of 1.325% and a move that extends their one-week slide to around 25 basis points. The previous all-time intra-day low for the notes is 1.318%, which it hit in July of 2016 in the days after Britain voted to leave the European Union.

The move also further inverted the yield between 10-year notes and 3-month Treasury bills, which now sits at 21.5 basis points, the steepest since March of last year. Benchmark 30-year Treasury bonds also hit an all-time low of 1.788% Tuesday.

 

 

 

 

 

February 26, 2020

4:30 pm

Here’s what stopped the SPX decline.  It may give the market a chance to bounce into the month-end.  Then again, it may not.  We should know by tomorrow morning, since the CTA’s sell signal has been hit.  Will the Fed be able to fight off another $150 billion of  concentrated selling?  I don’t seriously think they are aware of what they are up against.

A decline inside the Orthodox Broadening Top brings the formation back into play.

 

2:19 pm

You will notice that the NYSE Hi-Lo Index was revised downward from this morning’s report. After opening above the Cycle Bottom, it turned back down and may exceed yesterday’s low.

 

2:10 pm

Gartman Was Right – BTFD Fails As Stocks Slump Into Red

ZeroHedge observes, “After trading up over 500 points, the Dow is back in the red as BTFDers have failed once again.

All the majors are in the red!”

2:00 pm

SPX failed to retrace to the neckline

SPX failed to retrace to the neckline and is now making new lows.  I am going to have to get used to these short bonces.  The new target appears to be near 2600.00.  The 200-day Moving Average at 3043.75 (not shown in the 2-hour chart) may provide a temporary bounce, but if Wave 3 follows the pattern of Wave [iii], it should be near 550 points long.  The trendline extending from October 4, 2011 is at 2600.00.  This defines the lows from the 2016 low and the 2018 low.  Should that be broken, the market is in a heap of trouble.

ZeroHedge reports, “Nomura’s Charlie McElligott sees the chances of a meaningful bounce in US stocks (on month-end pension rebalancing flows as well as some sentiment-shifters overnight), but warns that should we fall just a little lower, CTAs will be triggered to “delever” and markets will flush 10-15% lower from here…”

8:00 am

 

Good Morning!

SPX futures hit a high of 3158.25, Where [a] = [c] in a corrective bounce.  Since then it has hit a new overnight low of 3091.38.  It appears that the SPX may gap down again at the open.  I had mentioned that the decline would hit 4.3 days near the open this morning and suggested this may be a time for short-term downside profits.  However, circumstances suggest that SPX may actually go to 3000.00 today.  So, the parameters are; Below 3128.00 is bearish, above 3158.00 may be bullish.

ZeroHedge reported late yesterday, “Up until this point, the pressure from systematic investors was modest, with Morgan Stanley suggesting that between $20 and $60BN in systematic outflows and deleveraging may hit today.

That changed moments ago, when as Nomura’s Charlie McElligott writes in:

CTA levels for the SPX fut 3128.5 is the level to sell, basically would be pretty big $ selling, the 3m window flips today and we have a weighting of 42.6% in our model for that time window.”

As such, the Nomura quant concludes that the signal would go from legacy +100% down to just +15%, resulting in susbtantial deleveraging and implicit selling.

VIX futures have been having an “inside” session, trading between 26.11 and 29.57.

Bloomberg reports, “The Cboe Volatility Index surged to its highest in more than a year Monday as renewed fears about the coronavirus outbreak battered risk assets.

The VIX, also known as Wall Street’s “fear gauge,” rose 8 points to close above 25 — its biggest jump since the February 2018 “Volmageddon” meltdown. It was the third straight day of gains for the index and, in percentage terms, its seventh-biggest move ever.”

 

The NYSE Hi-Lo Index closed at a new low not seen since December 2018.  The tripwire for taking short positions off the table is the Cycle Bottom resistance at -78.20.

ZeroHedge reports, “With little other data to guide risk sentiment, traders remained in thrall to the barrage of coronavirus headlines with last week’s bizarre complacency now completely shattered as volatility soars.

As a result, with the global pandemic now getting worse by the day,  world stocks tumbled for the fifth straight day on Wednesday, while safe-haven gold rose back towards seven-year highs and U.S. bond yields held near record lows after governments and health authorities warned of a possible coronavirus pandemic.”

 

USD futures are bouncing, but not strongly.  Should SPX turn down, so will the USD, as the money flow from foreign investors may start to leave.

 

The Bank Index is showing stress it plunges into territory not seen since September.  The Cycles Model suggests continued decline through mid-April.

ZeroHedge reports, “Back in 2013, JPMorgan’s billionaire CEO reminded the general public why it hates bankers so much when in response to a simple question from bank analyst Mike Mayo, he answered that’s why I’m richer than you.” Dimon’s arrange aside, nothing in that exchange explained why Dimon is richer not only than Mayo, but 99.9999999% of the US population; the real reason why Dimon was richer than most is that every few years, JPMorgan, now America’s biggest bank, gets a generous taxpayer or Fed bailout even as Dimon claims he never needed that bailout and would have been perfectly ok if unlike his failing peers, he was left to his own devices. He did that in 2008, and he did it again today.”

 

TNX has bounced from its Master Cycle low yesterday on day 263.  We will have confirmation once the yields have risen above the Cycle Bottom at 14.15.

CNBC reports, “The 10-year Treasury yield fell to a record low on Tuesday as coronavirus fears raised concerns about global economic growth and sent investors scrambling into the safety of U.S. government bonds.

The yield on the benchmark 10-year Treasury note fell about more than 6 basis points to 1.312% during morning trading, below its previous record low of 1.325% set on July 6, 2016 in the aftermath of the United Kingdom’s Brexit vote.”

 

Gold has pulled back from Monday’s Master Cycle high (day 244).  It remains unmarked, since day 258 is still 2 weeks away.  What we are looing at is a sudden loss of liquidity which may propel gold back below 1000.00.

Bloomberg reports, “Global investors are stashing more and more assets into gold as the coronavirus outbreak spreads and appetite for risk takes a hit.

The global tally of bullion in exchange-traded funds swelled by the most in more than a month on Tuesday as equities sank. That was the 25th consecutive day of inflows, a record. At 2,624.7 tons, the holdings are the largest ever.”

 

 

February 25, 2020

2:28 pm

SPX may be approaching a bounce zone at the mid-Cycle support at 3061.98.  It appears that there may be no circuit breaker this time,  The bounce appears to be a Wave 4 with a final plunge at tomorrow’s open.  Tomorrow may be chaotic, but it appears that the H&S target may be met or exceeded.  You can take your chances of a 8-9% profit this afternoon or possibly more tomorrow.  This is a very fast decline, taking only 4.3 days as of 10:00 tomorrow.  A rally back to the trendline would be an approximate 54% retracement.  It may be weaker than that, as investors may be eager to exit their longs on the bounce.

 

11:35 am

NDX has slipped beneath its Head & Shoulders neckline at 9028.87 and appears to be headed much lower.  There is no circuit breaker for the NDX.  Should it track the SPX, the 7% shut-off would occur near 8525.62.  You can see we have s high probability of a market closure later today.  NDX has much less “gamma protection” than SPX.

ZeroHedge reports, “When we commented on the dramatic reversal in market positioning as a result of yesterday’s market plunge, we said that in addition to the sudden lack of dealer gamma, much of which vaporized after Friday’s, OpEx, and which had provided a buffer to any substantial selloff pressure…

… the next big catalyst was whether or not systematic investors (vol targeters, risk-parity funds and CTAs) would join the liquidation frenzy. To do this we cited Morgan Stanley’s QDS director Chris Metli,  who calculated that the systematic liquidation notional amount could soar to $60BN which would “generate a self-fulfilling downward move in QDS’ view” if the S&P closes on Monday below 3,235.”

 

10:45 am

The NYSE Hi-Lo Index rallied above the Cycle Bottom support at 74.25, then fell back beneath it.  This is our signal that the trend is unmistakably down.

 

10:33 am

SPX could not rally above yesterday’s late afternoon high and is now beneath the Head & Shoulders neckline.  Market circuit breakers kick in at 3000.08 which may happen today, since the H&S formation may place it there.

ZeroHedge reports, “US equity markets just took out yesterday’s lows and Treasury yields are also extending to fresh lows…

Dow has puked back below 28k and is down almost 500 points from overnight highs…

So much for Turnaround-Tuesday!”

8:00 am

 

Good Morning!

SPX futures rose to a high of 3259.38 before easing back down to 3219.25, a 25% retracement.   It is caught in the middle and at the moment is directionless.  The two immediate options are to either probe to the trendline at 3270 or break down.  The Cycles Model suggests the trend may be down until mid-April.

ZeroHedge reports, “After the Monday Market Mayhem which saw the Dow drop more than 1,000 points, the VIX surge more than 8 points to close above 25 – its biggest jump since the February 2018 VIXtermination event – and prompted a panicked respond from both Trump and Kudlow urging Americans to ‘buy the dip‘, S&P futures jumped in early trading, rising as much as 40 points to 3,260 higher even after Shanghai Composite fell as much as 1.7% and China’s Nasdaq ChiNext tumbled as much as 4.1%.

Some dealers cited a WSJ report on a possible vaccine as helping sentiment, though human tests of the drug are not due until the end of April and results not until July or August. Whatever the cause, E-Mini futures for the S&P 500 bounced 0.7% to pare some of the steep 3.35% loss the cash index suffered overnight. However the initial dip buying euphoria did not last as even more cases were repoted, now in Spain and Austria, and futures faded most gains as fresh concerns about an out of control pandemic hit risk assets.”

 

VIX futures made a low of 22.20 before bouncing back.  It appears that the correction may be over.

I had to step back and re-examine the structure of the VIX since I know from the Cycles Model that it is going much higher.  The weekly chart finally revealed that the VIX had broken out of a 2-year Triangle formation.  The target for this formation appears to be 51.55.  Like the February 2018 rally, it may be a relatively fast one.

The Cycles Model suggests that it may peak on March 20, options expiration.  However, there may be additional strength extending into the early part of the next week.  This makes sense, since there will be gamma hedging through expiration that will need to be unwound the following week.

Bloomberg reports, “The Cboe Volatility Index surged to its highest in more than a year Monday as renewed fears about the coronavirus outbreak battered risk assets.

The VIX, also known as Wall Street’s “fear gauge,” rose 8 points to close above 25 — its biggest jump since the February 2018 “Volmageddon” meltdown. It was the third straight day of gains for the index and, in percentage terms, its seventh-biggest move ever.”

 

TNX made an overnight low of 13.47, but eased back at the open.  The Cycles Model calls for a Master Cycle low here, but we haven’t seen a clean reversal yet.  While the 30-year bond may have made its all-time low, the 10-year bond is still hovering above it.

Bloomberg reports, “A rally in Treasuries that’s driven 10-year yields close to record lows may really get going if mortgage-bond investors are forced to adjust their hedging because of the global shift in interest rates.

The abrupt slide in yields, which came as the coronavirus outbreak spurred a flight to haven assets, may deepen if the market witnesses a resurgence of so-called convexity hedging that helped weigh on rates last year. Such hedging stems from mortgage-debt holders having to adjust their exposure to interest-rate risk as lower borrowing costs spur refinancing. And while that dynamic hasn’t been a significant force in the latest bond-market rally, it may be just over the horizon if yields keep tumbling.”

 

USD futures have dropped beneath the Cycle Top support/resistance at 99.22 this morning.  It appears that liquidity may be coming out of the USD.

CNBC reports, “The U.S. dollar weakened on Tuesday as expectations grew that the Federal Reserve would cut interest rates this year to relieve pressure on the economy caused by China’s coronavirus outbreak.

The dollar rose last week to its highest in years as the virus spread further around the world, with investors regarding all U.S. assets as safe havens. But money managers now think the Fed will be more inclined to cut rates, since it has the most room to do so.”

 

 

 

 

 

 

February 24, 2020

3:22 pm

SPX went lower to a near perfect match of the Wave 4 low before bouncing back toward the Broadening Wedge trendline.  It slightly modified the minimum target for the Head & Shoulders which implies a challenge of the 200-day Moving Average in the next two days.  Should it happen in 1 day, it would automatically trigger the market circuit breakers (a 7% decline).  This is no time to try buying the bottom or taking profits.  We may wake up to another breakdown tomorrow morning.

NorthmanTrader gives his analysis, “It’s not different this time. It’s worse.

For weeks the bull machine was relentless, ignoring everything on the heels of massive central bank intervention. The warning signs kept mounting in charts getting extended, a narrowing of the rally, volatility building bullish patterns, divergences galore and investors recklessly going full retard as I called it.

Nothing matters until it does. Suddenly it does and all the building technical structures suddenly mattered and we see large reversals and technical reversals across the board.”

 

11:30 am

Note: The Head & Shoulders neckline at 3231.52 makes the statement below a self-fulfilling prophecy.

Morgan Stanley: If We Close Below 3,235, Systematic Selling Will Become “Self-Fulfilling”

ZeroHedge observes, “Earlier today we noted that according to Nomura’s Charlie McElligott, the biggest risk facing the market was a “shock down” as dealer gamma bias had evaporated following Friday’s Op-Ex (especially in the Qs)…

… which meant that instead of providing a natural buffer to any selling (“buy weakness/sell strength”), dealers are now procyclically positioned, and any accelerated selling would only lead to more selling, resulting in even lower gamma, even more selling, and so on, in a typical gamma feedback loop. A separate, and just as tangible risk according to McElligott, was the record positioning (100%ile) across asset managers, whose net long exposure across SPX futures hit a record $190BN.”

 

10:08 am

SPX has declined to nearly the same level as the Wave 4 low, creating a potential Head & Shoulders formation with a probable target near 3000.00.  It appears that the bounce may be stymied by either the lower trendline of the Broadening Wedge or the 50-day Moving Average.  The Cycles Model suggests that the rally may end as early as noon today.  The lack of market liquidity is fast coming to the forefront.

ZeroHedge comments, “One week ago, when stocks were hitting all time highs as traders were blissfully ignoring all the same news that are sending markets crashing today, we reported that online brokerage Fidelity was true to its name and, well, broke, showing zero balances on countless accounts.  At the time we said that “while we assume this pesky “glitch” will be resolved promptly, we should point out that if the market were to ever again suffer a down day and should investors wish to sell some/all of their holdings, this would be a convenient way to quickly and efficiently prevent that from ever happening.

 

9:47 am

After stubbornly closing above the trendline for weeks, the NYHL has plummeted to the Cycle Bottom at -74.05.  This is the final confirmation of all the sell signals.  Traders should be 100% short for the duration of this decline, which may last as long as seven weeks.

8:00 am

 

Good Morning!

SPX futures fell over the weekend to a low of 3242.12 at 5:00 am and have bounced to 3265.88,just under the trendline and 50-day Moving Average at 3272.77.  There is likely to be more to come as the former supports have become resistance.  The Cycles Model indicates strength in the decline that may last through March 20 which is the next options expiration.  The new Master Cycle does not mature until April 10.  It may all be down from here.

ZeroHedge observes, “The overnight bloodbath in U.S. futures picked up steam about 3AM Eastern Time, despite China’s A Share market ending the session down just 1.31% and the SZSE Component finishing its session actually higher by 1.23%.

And despite Trump touting an Indian trade deal and hilarious headlines that hit around 5AM EST that the U.S. “doesn’t expect any Phase I trade deal impact from the virus”, Dow futures fell more than 700 points and gold is now just about 10% from its all time highs. “

ZeroHedge remarks, “When commenting on the market’s surprising resilience on Friday, and remarkable index “pins” at the key numbers of 29,000 for the Dow and 3,333 for the S&P, we said that much if not all of this had to do with the build up of dealer gamma, most of which however was set to fade away after Friday’s opex.

Sure enough, while it may be a coincidence, the Monday mauling observed so far is taking place not only as a result of the dismal coronavirus news over the weekend but as much of the massive dealer gamma buffer has vaporized.”

 

VIX futures vaulted to 23.90 this morning with more to come.  The current Master Cycle in the VIX is due for an inversion high on or near March 19.  March options and futures expire on the 18th.  Smart money is likely to own March and April calls.  A google search indicates an overwhelmingly bearish view on the VIX up to this weekend.

 

USD futures bounced to 99.64 this morning after a strong reversal on Thursday, day 252 of the Master Cycle.  Today is day 256, so we must be alert for a possible probe higher to complete this move.

 

Yen futures are higher, having made an overnight high of 90.02.  The Master Cycle low appeared on Thursday and this looks like a V-bottom due to the fact that the turn was on day 274.  Late Cycles may cause compression which may hasten the rebound.  This an alternate refuge for investors having an aversion or inability to go short the SPX or NDX.

 

TNX made a new low of 13.65 and may threaten the existing low of 13.36, made in July 2016.  The 30-year yield (TYX) did make a new all-time low at 18.17.

 

Gold futures have hit a new retracement high of 1691.55 before easing down from there.  The Cycles Model says that this may be the last day of strength with a sharp reversal and a three-week decline from here.  Be prepared for this likely event.

 

West Texas Crude futures hit a low of 50.73 and may embark on a 4-week decline to the intended low offered by the Broadening Wedge formation.  Last week’s rally above the Broadening Wedge trendline and reversal beneath it is often referred to as the “kiss of death” by traders.  Be prepared for a lot of bankruptcies in the oil patch.

 

 

 

February 21, 2020

11:50 am

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.

8:00 am

 

Good Morning!

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?

The answer has yet to emerge but for the second day in a row shares across the world and US equity futures fell – set for their worst week in four – as investors dumped riskier assets for the safety of bonds and gold, with coronavirus cases in China rebounding and soaring in South Korea.”

 

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…

To its most inverted in four months…”

 

February 20, 2020

2:15 pm

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.”

 

 

12:10 pm

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.

Watching decisions of certain large participants provides some clues to what might be going on.”

 

11:45 am

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.

Is this the start of a September-like reversal?”

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.”

 

11:34 am

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.

 

11:40 am

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.

8:00 am

 

Good Morning!

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

3:07 pm

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%!!!

Clearly the market sees Powell as some omnipotent hero capable of printing anti-virals and making the world right again.

Powell to market: “hold my beer”.”

 

8:00 am

Good Morning!

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.

The yield the benchmark 10-year Treasury note, which moves inversely to price, climbed two basis points to 1.5806%, while the yield on the 30-year Treasury bond was also higher at around 2.0325%.”

ZeroHedge reports, “Foreign central banks have sold US Treasuries for the last 16 months (the last inflow was Aug 2018)

In fact, foreign central banks have only bought Treasurys in 6 in 63 months since Sept 2014.

China was December’s biggest seller, followed by Brazil,  Luxembourg, and Canada.”

 

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

Good Morning!

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.

Evidence of the insatiable demand can be found across the fixed-income universe. Pensions, which have been ramping up bond allocations for more than a decade after a change in regulations, now hold a record amount of longer-dated Treasuries. Bond mutual funds saw a historic inflow of money last year, with no sign of a slowdown. Even hedge funds have piled in.”

 

USD futures have made a new Primary Wave [2] 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

Good Morning!

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)…

… and frayed global supply chains, is the investing public’s absolute certainty that China will unleash an unprecedented fiscal stimulus to offset the collapse in economic output (which to those who mistakenly claim that this is “contrarian view” we urge you to carefully review the definition of contrarian when everyone is convinced it will happen).”

 

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.

Until two days ago, the roughly 5,000 increase in official new Chinese infected cases would have been the biggest one day increase on record. However, since just a day earlier we had a 15,000 increase due to a revised “definition” of what infected means (which in addition to genetic tests also includes a CAT scan of those terminal patients who now have openly visible lung lesions), the sharp “drop” has sparked a fresh burst in hope that the infection is now slowing.

The irony is that markets are rallying on what is now openly fabricated Chinese data, because at the same time as China announced the sharp drop in new cases, it also reported that 108 of the 242 deaths “observed” the day before, had not actually been “observed”, and were mistakenly double-counted, without offering any explanation how one can double count a death, and instead is proof that Beijing is now openly making up numbers on the fly.”

 

VIX futures are lower, but not to new lows.  The retracement appears complete at 13.73.  It has made a 78% correction.  .786 is a derivative of .618, a Fibonacci relationship.

 

 

 

 

 

February 13, 2020

12:20 pm

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.

 

9:45 am

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.

This means, that at a submitted to accepted ratio just shy of 2.0x, this was tied for the most oversusbcribed term repo operation since the September repo crisis as there clearly remains a big hole in dealer liquidity.”

8:00 am

 

Good Morning!

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.

The result has been a sharp drop in US equity futures and global stock prices, as it raised fresh questions about the scale of the crisis and more importantly, how long it will take China to truly contain the pandemic, even as markets had taken comfort from the World Health Organization’s emergency program head describing the apparent slowdown in the epidemic’s spread as “very reassuring”. Oops.”

 

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.

CNBC  reports, “Treasury yields fell on Thursday, following a sharp rise in the reported number of new coronavirus deaths.

The yield on the benchmark 10-year Treasury note, which moves inversely to price, was lower at around 1.5763%, while the yield on the 30-year Treasury bond was also lower at around 2.0449%.

 

 

 

 

February 12, 2020

1:25 pm

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.

Good luck!

 

10:15 am

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.”

9:00

 

Good Morning!

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 firepower 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

3:20 pm

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…

… the notional amount of executed buybacks – those which have been announced previously but had yet to be effected – actually continued to surge and just a little over a month into 2020 is already almost a third higher than the comparable period a year ago.

That’s the observation from one of the largest buyback execution desks in the US: that of Bank of America, which today reports that “buybacks by corporate clients accelerated and year-to-date are tracking 27% above last year’s levels at this time.” One can see the relentless grind higher in buybacks since late 2017 when Trump’s tax law allowed companies to repatriate trillions in funds previously held offshore and use them to buyback stock.

 

12.12 pm

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…”

 

11:05 am

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?

That’s certainly how equity markets are trading the virus – again. No surprises there, really.

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.

8:00 am

 

“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!

Dealers submitted $40.4BN in Treasurys (at a 1.58% stop out) and $13.25BN in MBS (at a 1.60% stop out) for a total of $53.65 of which $30BN was accepted.

This means that for the third consecutive operation, demand for the Fed’s repo was oversubscribed at a rate not seen since the start of the repo crisis.”

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%.

Part of the so-called yield curve inverted again on Monday, with the 10-year yield falling below the three-month Treasury rate of 1.558%, sending a recession signal.”

 

 

 

 

February 10, 2020

4:20 pm

All Cyclical trends end in five waves.  Today began Minute Wave [v] of Minor Wave 5 of Intermediate Wave (C) of Primary Wave [5] 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.

 

9:20 am

For Markets Just One Thing Matters: Did China Go Back To Work Today Or Not?

ZeroHedge observes, ““Hi-Ho!” Or “Uh-Hh!

So, Monday morning. February 10. And rather than worrying about Valentine’s Day plans, most people are still focused on coronavirus. (With the exception of those in America who are talking about the fact that the aptly-named ‘Parasite’ from South Korea won the coveted Best Picture Oscar. And, no, it doesn’t deal with viruses, rather the vast inequality in South Korean society.) Anyway, back to the virus, where the death total is now 910 vs. 3,352 recovered, so still one in four on that measure, which is fortunately going down slowly, albeit too high for comfort and now 40,536 cases.

Of course, for markets what matters most is one thing: did China go back to work today or not? Commodity markets, where force majeure is being called to cancel Chinese copper trades; bond markets, where we are still close to a Maginot Line of 1.50% in 10-year US Treasuries; equities, where we are obviously still close to (silly) record highs; and FX markets, will all be watching closely.”

8:00 am

 

Good Morning!

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.

“Fearful investors are driving down long-term rates, such as the 10-year Treasury,” said Dev Kantesaria, managing partner of Valley Forge Capital, a $615 million long-only equity hedge fund based in Wayne.”

 

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

11:05 am

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.

NorthmanTrader warns, “New highs again for tech as $NDX keeps relentlessly crawling higher, now 16.2% extended above its 200MA. As outlined yesterday’s it’s a key warning signal.

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:”

9:00 am

ZeroHedge reports, “For once the ADP report was not massively off.

With Wall Street expecting a 165K print in this morning payrolls report, and with ADP coming in at almost 300K, the whisper number was obviously well above the official consensus, and the BLS did not disappoint, because just as Trump hinted a few days ago with his “jobs, jobs, jobs” tweet, in January the US created a whopping 225K jobs, smashing expectations, and well above last month’s upward revised 142K print.

 

Good Morning!

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.

8:00 am

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.

7:00 am

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.

Also of note, tomorrow’s report will be accompanied by the annual benchmark revision to the establishment survey, as well as the annual introduction of new population controls in the household survey. The BLS’s preliminary estimate of the establishment survey revision suggested a large downward adjustment of 501k to the level of March 2019 employment. “

 

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

11:08 am

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:

  1.  Higher to 3400.00 in the next 8.6 days, or
  2.  Plunge as much as 1000 points in an 8.6 day debacle.

I cannot decide which may happen.  The market will have to decide.

9:00 am

 

Good Morning!

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.

As the Bank’s cross-asset strategist Charlie McElligott writes, over the past few days and certainly as of today, we have seen the infamous Feb 5th 2018 VIXtermination “vol event” – which in minute destroyed the universe of retail-darling inverse VIX ETF – drop-OUT of the 2-Year lookback window time-series utilized by the Nomura QIS Risk Parity model, which in the period since Feb 2018 has, according to McElligott, “dictated a slow-moving, mechanical de-leveraging across our estimated Risk Parity “gross” allocations, particularly in the Equities space.”

As of today, this event is no longer a consideration for the systematic community.”

 

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

9:15 am

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.

Is this discrepancy possible? Is the epidemic truly far less serious than conventional epidemiological models predicted? Or is China merely hiding the full extent of the problem?

After all, it the WSJ itself reported in late January , China was explicitly manipulating the casualty number by listing pneumonia as the cause of death instead of coronavirus. Subsequent reports that Wuhan officials were rushing to cremate coronavirus casualties before they could be counted did not add to the credibility of the official data.

But the biggest hit to the narrative and China’s officially reported epidemic numbers came overnight, when a slip up in China’s TenCent may have revealed the true extent of the coronavirus epidemic on the mainland. And it is nothing short than terrifying.”

8:00 am

 

Good morning!

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.

Indeed, at roughly 3:40am ET, futures surged as much as 30 points, rising to 3,335 and surging just shy of the Jan 22 all time high of 3,337.50, after the following Reuters headline hit:

  • CHINESE TV: RESEARCH TEAM AT ZHEJIANG UNIVERSITY HAS FOUND AN EFFECTIVE DRUG TO TREAT PEOPLE WITH THE NEW CORONA VIRUS”

 

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

1:54 pm

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.

 

11:35 am

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.

11:15 am

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.

 

10:58 am

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:

On a morning when one of Tesla’s biggest bulls, New Street’s Ferragu downgrades the stock, saying:

“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”

It is up almost 15% in the pre-market – topping $900 for the first time ever…”

 

10:52 am

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.

Some of the explanations are quite plausible. Some a bit of a stretch. But buying the dip has, for the moment, paid off once again. Now it will be all about the follow-through. And the air is a lot thinner at this altitude.”

8:00 am

 

Good Morning!

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

2:55 pm

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.

On Monday morning, Nomura’s cross-asset strategist and quant, Charlie McElligott, picked up on this key point again, one which he has been covering for years, and writing that indeed, should stocks fail to rebound from their Friday open, it could get messy as consolidated option positioning shows both dealer gamma and delta is now negative…

… 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.”

 

10:15 am

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.”

8:00 am

Good Morning!

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.

Though investors turned on computers hours early to tee up their sell orders, many of them couldn’t exit the market fast enough. All but 162 of the almost 4,000 stocks in Shanghai and Shenzhen recorded losses, with about 90% dropping the maximum allowed by the country’s exchanges. Health-care shares comprised most of Monday’s gainers on speculation they will benefit from the virus outbreak.

“The sell-off was so quick and intense,” said Li Changmin, managing director at Snowball Wealth in Guangzhou. “We’ll be busy dealing with risk controls and even liquidation pressure if stocks keep falling.”

 

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.

Since mid-January, there has been an increase in purchases of bullish call options on the Cboe Volatility Index for around 50 cents each. That’s a trade reminiscent of the original “50 Cent” strategy in 2017 — so called as a play on the stage name of rapper Curtis J. Jackson III — although this time the buyer has already taken profits on the trade, according to Wells Fargo’s Pravit Chintawongvanich.”

 

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…

ZeroHedge observes, “As previewed on Friday  and again earlier today when we noted the latest trades in China’s A50 futures…

… China’s reopening from the long Lunar New Year holiday was set to be ugly, and sure enough with Chinese stocks resuming trade at 9am on Monday, a wave of selling was unleashed culminating in nothing short of a bloodbath with the Shanghai Composite crashing 9% at the open, down by the most since the bursting of China’s 2015 stock bubble, and wiping out 12 months worth of gains in a corona moment.”

SPX futures are being pumped but it is doubtful investors are buying the dip.  We’ll know whether this effort will isolate the , just under losses to the Chinese market or not by morning.