January 31, 2020
While the Shanghai Composite Index remains frozen due the Chinese Lunar New Year, CAF, the mutual fund trading A shares in the futures market shows nearly a 7% decline this week. The Shanghai Composite may limit down at the open on Sunday evening/Monday morning. What happens after that is anyone’s guess, but it’s likely not to be pretty. All of this will happen overnight prior to the NYSE opening on Monday, so be prepared for a potential flash crash.
ZeroHedge reports, “Mainland Chinese stock markets are poised to open on February 3rd following its annual Lunar New Year holiday – which was extended on account of the coronavirus outbreak, and in an attempt to slow down the spread of the pathogen.
The Selling has just begun. SPX has bounced off the 50-day Moving Average at 3210.22. The bounce could go as high as the neckline at 3244.00, however, the next phase may be even more brutal. It appears that the NYSE Hi-Lo Index may be closing near 73, beneath the trendline at 90.01.
ZeroHedge observes, “Whether it was today’s abysmal Chicago PMI print, or algos finally googling “pandemic” and realizing that what is going on in China could have catastrophic consequences for the global economy (as explained in “Coronavirus Has The Potential Coronavirus Has The Potential To Trigger A Global DepressionTo Trigger A Global Depression“), today’s sharp market drop, which pushed the Dow Jones back in the red for the year, is having adverse consequences for market positioning.
The NYSE Hi-Lo Index rallied to 87.00, beneath the mid-Cycle resistance at 94.04, then backed away. This indicates that the buy-the-dip mentality is still there, but being overcome by the sellers.
ZeroHedge reports, “Well that escalated quickly…
The SPX Bullish Percents have made a significant decline this morning beneath the 50-day Moving Average. This confirms the sell signal by the percentage of SPX stocks in rally or decline.
SPX just crossed a potential Head & Shoulders formation with an immediate target below the 50-day Moving Average at 3209.08. The actual decline may be much deeper, as the Head & Shoulders offers a minimum target.
And 30Y Yields are testing a 1 handle for the first time since October”
SPX futures are down, but leave us with one of two possible outcomes. The first is a resumption of the decline. However, the algos are surging higher on bad news, so there may be a worst case scenario needed to force that outcome. The second is a small decline at the open, followed by a possible 20+ point rally through the day. This may leave the SPX closing near 3300.00. Although the Fed minimizes the importance of the equities market, that is exactly where their actions are pointed.
ZeroHedge comments, “Yesterday, shortly after the WHO managed to unleash a torrid stock rally that sent the Dow over 350 points higher when it declared the coronavirus outbreak and international health emergency and a “global pandemic” yet underscored its faith that China will be able to contain the spread of the disease, we predicted that “Stocks are amping on WHO promoting tourism to China, before reversing after China announces over 10,000 cases at 6pm”
That’s precisely what happened, with futures spiking to just shy of 3,300 as algos were enthused by the WHO’s optimism, only to slide as China reported that nearly 10,000 people are now infected and 100,000 are under observation.
VIX futures are higher after a low of 14.94 (56% retracement) on Wednesday. There is room for a 61.8% retracement at 14.50 today. This may allay traders’ fears of an equity rout going into the weekend.
USD futures are down, but not yet on a sell signal. The Elliott Wave structure allows yet another probe higher, even though today would be day 280 in the Master Cycle.
BKX may be in need of another probe higher to complete its correction. Whether it hits the 50-day Moving Average at 110.73 may be in doubt, but it must relieve its oversold condition.
European financials are also in correction mode through the weekend. The 50-day Moving Average at 18.96 is likely to be exceeded while Intermediate-term resistance at 19.21 ( a 57% retracement) may provide a turning point.
Bloomberg reveals how desperate the European banks are , “German banks are stuffing vaults with money to help offset the mounting cost of negative interest rates, and some of them are running out of space.
The physical cash holdings of German banks rose to a record 43.4 billion euros () in December, according to Bundesbank data published on Friday. That’s almost triple the amount at the end of May 2014, the month before the European Central Bank started charging for deposits and raising the pressure on Germany’s already beleaguered banks.”
TNX appears to be in the final phase of its decline with one more probe lower. The probable target is near 15.10, completing an extended flat correction. This has lent solace to the UST longs and agony for the shorts, but it is a trap to catch the most traders off guard. Imagine their surprise next week when they see both stocks and bonds in free fall.
January 30, 2020
Those of you who are searching for something to go long beside the Yen, it appears that DBA may be having its Master Cycle low today (day 262) or tomorrow. Today it registered a 41.5% retracement in four weeks, suggesting the longer term rally may have strength once it is underway. The Cycles Model suggests a period of strength begins this weekend and extends through mid-February.
ReliefWeb reports, “Swarms of locusts that are sweeping across Ethiopia, Kenya and Somalia could grow 500 times bigger by June and invade Uganda and South Sudan unless they are immediately brought under control, says Oxfam.
BKX made a new 2020 low, but has bounced back, suggesting there may be some strength going into the weekend. However, there is also a possibility of a “running correction” where the final bounce in the correction may be weak.
ZeroHedge observes, “With spreads so tight – despite credit risks (leverage) at or near record highs – it would appear the bankers have returned to what they know best to be able to keep demand for new issues high and at the same offload their exposures in case of crisis – “baffle ’em with bullshit.”
Thanks in large part to the incessant and heavy hand of The ECB on the bid for European corporate debt, credit spreads are at their tightest since 2007, and that, according to IFRE, has sparked several European banks into action.
European financials are on a similar Cycle to the BKX. EUFN is also headed for a prospective Master Cycle low during the week of February 17. Since there are approximately 12,9 days left in the Cycle, it suggests a decline well beyond the mid-Cycle support at 17.92…the Cycle Bottom may easily be the ultimate target.
ZeroHedge indicates the weakness of the largest European bank,
“Look on the bright side: At least you still have a job.
The NYSE Hi-Lo Index dropped to a new low nots seen since December 3. Those concerned about the rise above the trendline may stop holding your breath. The problem with early signals is a bit of whiplash, but the Cycles reassure us that the trend is now down.
ZeroHedge comments, “According to Bloomberg’s latest survey, confidence among Americans climbed to a 20-year high amid record optimism about personal finances and the buying climate.
SPX futures declined to an overnight low of 3240.12 after failing to fill the gap at3295.47 left by Monday’s decline. Unfilled gaps may be commonplace for the rest of this liquidity starved decline. The next target is the 50-day Moving Average at 3204.46. However, the next significant bounce may not occur until SPX reaches the bottom of Wave 4 at 3070.33.
ZeroHedge reports, “If yesterday, algos, millennial traders and generally markets acted as if the coronavirus epidemic was contained, all of that reversed overnight when global stocks and US equity futures across the world tumbled on Thursday as the death toll from the coronavirus epidemic reached 170 with nearly 8000 people now sick…
VIX futures vaulted back up to an overnight high of 18.14 at 3:00 am and remained above the trendline since then. This counts as a breakout above the December 3 high and may trigger the CTAs and other formula-driven algos to sell the SPX. Next week the VIX gets a double dose of Cyclical strength. In my estimation, that should target 36.00 while a final dose of strength on the week of February 17 may target the February 2018 high at 50.30. Media commentary appears to be soothing rather than warning.
Bloomberg reports, “An uncommon phenomenon in volatility markets is signaling that the U.S. equity rout may almost be over.
TNX continues its decline as weakness prevails through the weekend. While most speculators are now long the UST, the decline in yields may not exceed the September 3 low at 14.29. The turn, which may happen early next week, may be brutal and powerful, trapping may bond bulls expecting a resumption of the decline in Treasury yields.
Last week Bloomberg commented, “Treasury bond bulls are ascendant yet again, amid a burst of concern over the global growth outlook fueled by a viral outbreak that’s disrupting travel and business across China.
USD futures may be consolidating under yesterday’s very stretched Master Cycle high at 278 days. The Dollar is set to decline through the end of February as both stocks and bonds sell off in tandem.
On the opposite end of the globe, the Japanese Yen has just made a buy signal. The Cycles Model suggests a continued rally through early March with particular strength in the third week of February. The Yen may not have its rally recognized by speculators and traders until it breaks above the December high at 92.73.
WTI futures declined to a low of 51.94 in the overnight session. The highly leveraged oil business is most sensitive to liquidity issues and peaked on January 8. It is due to decline to a low near 47.00 by the week of February 17, the same low that the SPX and Liquidity Cycle are due for, as well.
Investing observes, “Last week, the coronavirus’s impact on markets was mostly conjecture.
January 29, 2020
TNX futures continue to decline after the bond market close. Wave [v] equals Wave [I] near 14.50. The Cycles Model suggests a continuation of the decline until the weekend.
ZeroHedge comments, “Somebody do something!? Stock markets are down (maybe 1 or 2% from record highs) and while bond yields, commodities, and foreign stocks all signaling anxiety over global growth due to the coronavirus, it seems US traders remain convinced that The Fed can tamp down any global pandemic fears with its liquidity spigot…
SPX may have made its corrective high shortly after 2:00 pm, 39 hours (38.7) after the all-time peak at 3337.77 on the 22nd. The decline was irregular and it may be said that the peak made at the open on the 24th may have been a truncated Wave 5, in agreement with the NDX peak. Rather than complicate matters, let it be said that the decline and correction (Waves 1 & 2) were messy.
ZeroHedge observes, “While the Fed’s January statement was a snoozer, with the only difference from the December statement being the downgrade in the pace of household spending rising at a “moderate” vs “strong” pace, there were far more notable changes in the latest monetary policy implementation note, which – as many expected – saw the rate which the Fed is paying on excess reserves (IOER) hiked by 5bps to 1.6% , or “10 basis points above the bottom of the target range for the federal funds rate” which currently is at 1.50%.
SPX futures have risen to an overnight high of 3291.88, near short-term resistance and the 60% retracement level, both at 3295.00. The next Cyclical interval lies near the time of the FOMC decision and press conference.
The MotleyFool has this commentary, ‘The Federal Open Market Committee, or FOMC, is set to meet on Tuesday and Wednesday, January 28 and 29, to decide whether to cut interest rates, raise them, or leave rates alone for now. While the policy-making arm of the Federal Reserve isn’t expected to make any major policy changes, the meeting’s outcome is far from certain at this point.
With that in mind, here’s what investors can expect from the January 2020 FOMC meeting — and what could be in store going forward.”
VIX futures made a deeper low at 15.25, still above the mid-Cycle support and 200-day Moving Average. The 61.8% retracement level is at 14.66, so the mid-Cycle support may be challenged. However, the sudden shift in sentiment may make it difficult to dive much deeper than it already has.
Since the BKX is so keyed in to liquidity, it makes sense that it would halt its decline to wait the outcome of the Fed. The Cycles Model suggests some strength through the weekend after making a late Master Cycle low (Day 272) yesterday.
ZeroHedge observes, “Traders looked past the latest surge in coronavirus cases, which overnight brought the total number of global infections above 6,000, and accelerated Tuesday’s rally resulting in a sea of green across global markets, buoyed by strong results from Apple and McDonalds, while hoping that today the Fed’s Powell would provide some monetary vaccine to the Chinese viral pandemic even as 10Y yield tumbled as low as 1.61%.”
TNX futures have eased back down this morning. While the Cycles Model appears uncertain in the short term, the Elliott Wave structure begs another brief decline, possibly to match the Wave A low at 15.10 (Expanded Flat correction).
ZeroHedge reports, “Following two tailing coupon auctions, which saw both the 2Y and 5Y note sales tail the When Issued as a result of this week’s sharp drop in yields across the curve, today was no exception and moments ago the Treasury concluded the week’s accelerated bond issuance calendar when it sold $31BN in 7 Year notes at the lowest yield in six months.
The bold lettering is mine. That means the dealers will be offering $7.25 billion in newly issued notes to the next QE.
January 28, 2020
SPX made an inversion this morning which is nearing completion. I had assumed the trendline would hold, which it did not. However, this creates an even greater problem for the longs. It is likely to cause a greater decline than originally forecast. In other words, the dip buyers have it wrong.
It is more likely that the decline may resume this afternoon. In addition, It is also likely that tomorrow may see a gap down beneath the 50-day, trapping the longs in a liquidity-starved decline.
ZeroHedge observes, “Back in late December, when the market was melting up every single day with zero regard for economic data or newsflow, we pointed out something ominous: the world’s most liquid stock market, the S&P500, was now as (il)liquid as it was during the 2008 financial crisis.
The SPX Bullish Percent Index is hovering just above its 50-day Moving Average at 76.17. A drop below that level gives us further confirmation of the change in trend.
The NYSE Hi-Lo Index opened in the sell zone after closing at 80.00 beneath the trendline. This confirms the sell signal. The erosion of internals is continuing, but we are looking for a larger drop in the Hi-Lo.
SPX futures probed deeper after the close, but has bounced at 3239.12. It is testing the trendline at 3263.62 for possibly a final time before running down to the 50-day Moving Average at 3197.03. The Cycles Model suggests a larger bounce from the 50-day by mid-day, but still being resisted at the trendline. Many advisors suggest staying long as long as the 50-day is not violated.
ZeroHedge reports, “After yesterday’s global stock selloff, the worst since early October, US index futures and European stocks staged a comeback and edged higher as investors digested the latest international efforts to contain the Coronavirus like virus from spreading, including curbs on travel between China and Hong Kong.
VIX futures were sold down to the gap at 16.80 but it remains unfilled. The target for the next move higher appears to be the Cycle Top at 20.15 to complete the first impulse off the bottom. A breakout above the Cycle Top may give the rally legs to go much higher. At the same time, a pullback may leave the gap unfilled.
January 27, 2020
The trendline/gap holds the bounce and the next step may be a test of the 50-day Moving Average at 3195.48. There seems to be little enthusiasm for risk after this morning’s gap down. The longs may launch an effort to defend the 50-day Moving Average, however.
In a short explanation of the reversal in Cycles, ZeroHedge writes, “Everything Just Changed.”
West Texas Intermediate Crude Oil futures have declined beneath the Broadening Wedge trendline near 54.00 and is approaching its Cycle Bottom at 51.28. While a short-term bounce may be expected at the Cycle Bottom, it still has until the week of February 17 to find a Master Cycle bottom.
The NYSE Hi-Lo Index opened at 19.00, the lowest since December 3. It is now on a conditional sell signal provided it closes beneath the mid-Cycle level and trendline at 90.65.
VIX has now broken out of its Edge formation. The Buy signal is doubly confirmed. It may pull back beneath the trendline near 17.50 but is not likely to close the gap at 17.42.
SPX futures slipped through the Cycle Top support and fell, testing Intermediate-term support at 3233.29. It is currently bouncing, but it may not last as investors wake up to find more than a percentage shaved off their asset value. Some technicians use the Intermediate-term support (34-day Moving Average) as their sell signal, so there will be many investors with their finger on the trigger should it be broken. The 50-day Moving Average at 3195.76 is the most recognized selling interval.
VIX futures reached a new Cycle high at 18.76, crossing the trendline in place since December 2018. The buy signal is confirmed. The next target is the December 2018 high at 36.20, with a high probability of reaching the January 2018 high at 50.30.
TNX is dropping toward its Cycle Bottom at 14.09. If this Elliott Wave numbering is correct, it may stop somewhere above its September 3 low at 14.29. The Weekly Cycle Bottom is currently at 14.89.
January 24, 2020
VIX shot above its 200-day and mid-Cycle resistance, confirming the VIX buy (SPX sell) signal.
SPX just broke below 3300.00, less than 10 points above the trendline at 3291.60. This should be considered an aggressive sell with confirmation beneath the trendline.
SPX futures hit an overnight high of 3336.88, which is lower than the January 22 high at 3337.38, but not by much. Should it make a new high, it may be a strong one, since the Cycles predict strength into the weekend.
ZeroHedge reports, “One day after global stocks slumped amid fears that China is losing the fight to contain the coronavirus epidemic, European shares and US Equity futures on Friday once again shrugged off worries over the viral outbreak after the World Health Organisation designated it an emergency for China but not yet for the rest of the world.
VIX futures have pulled back beneath the 50-day Moving Average at 13.10 after completing an impulsive probe higher. The 61.8 retracement level is 12.65. Speculator net short position in the VIX futures have climbed to an all-time high, lending fuel to a likely rally. However, futures and options positions that will mature today may be suppressing the VIX until expiration.
TNX is hovering above yesterday’s potential reversal low. The trend is “up” above the Wave (2) low at 16.93. As mentioned earlier, TNX is due for at least two weeks of strength within a 2-month rally.
USD futures are running higher (97.90) within a period of strength that may end over the weekend. A reversal of this corrective pattern may see the USD decline through the end of February.
West Texas Intermediate Crude is due for a bounce that may not last beyond the weekend. It may provide a pullback that a selling/shorting opportunity. A Master Cycle low is due in about three weeks.
WolfStreet writes, “Following the sharp re-drop in oil and natural gas prices in late 2018, bankruptcy filings in the US by already weakened exploration and production companies , oilfield services companies, and “midstream” companies (they gather, transport, process, or store oil and natural gas) jumped by 51% in 2019, to 65 filings, according to data compiled by law firm Haynes and Boone. This brought the total of the Great American Shale Oil & Gas Bust since 2015 in these three sectors to 402 bankruptcy filings.
Gold is easing back, but may provide a selling/shorting opportunity over the weekend. There is a possible 6-week decline to follow that may be outstanding, given the Broadening Wedge formation.
January 23, 2020
SPX has gapped down and bounced just above the 3300.00 level. The decline may continue to Short-term support and the trendline at 3283.75 prior to a larger bounce. A continued decline beneath that level may be an automatic sell signal. However, it is likely to be subject to whiplash. If the pattern allows, we may have a good short entry at the top of the larger bounce scheduled for tomorrow afternoon (near 3315.00). Use your better judgement, since this appears to be a confirmation of the Cyclical turn on day 267.
The VIX indeed made its aggressive sell signal and appears to be coming down to test the 50-day Moving Average. It is due to go higher and may challenge the mid-Cycle and 200-day Moving Average at 15.11. A rally above that level is a confirmed buy (SPX sell) in my book.
The NYSE Hi-Lo opened well beneath the trendline and appears to be testing its 50-day Moving Average at 130.62. This is the final component of the sell system. It may not close beneath the trendline today. However, we’ll stay alert to any changes it makes today.
SPX futures have been trending in a narrow range between 3312.00 and 3321.38. This morning will be exactly 12.9 months from the December 26, 2018 low. As I re-examined the structure of that past 12.9 months, the pattern emerged that explained the entire move as an (A), Triangle (B), (C) Wave that had me and other practitioners fooled since Minor Wave B was longer than Wave A in the Triangle. Rogue Wave Bs are common and may cause many misdiagnoses. This one had the appearance of an impulse and didn’t appear to belong to Triangle Wave (B). However, Wave A doesn’t have to be the longest Wave in a Triangle. The complex finally becomes simple with the integration of the Cycles with the Wave structure.
ZeroHedge reports, “Yesterday’s optimism that China’s coronavirus epidemic is contained (supposedly because Beijing was “transparent” with the fiasco and Trump was convinced by Xi) which sent S&P futures to an all time high of 3,333 has mutated into pessimism that it isn’t…
VIX futures made an overnight high of 13.34, punching through the 50-day Moving Average at 13.10 and creating a buy signal.
SchaeffersResearch observes, “For months, we have been on a heightened volatility spike alert, with historically wrong-way positioned large speculators that play volatility futures in an extreme short position, and multiple tests of the 12 area — which is one-half the 2019 closing high, and an obvious floor — since early 2019. But sharp VIX advances that usually coincide with equity declines haven’t materialized.
USD futures are hovering beneath the 50-day Moving Average where it made a sell signal yesterday after a Master Cycle high on Friday. There is strength in the Cycle until the weekend, but the upside may be limited by the 50-day.
West Texas Intermediate Crude continues its slide this morning, hitting a low of 55.59. The slide may turn into a crash as WTI has yet another three weeks of decline ahead, per the Cycles Model. A bear market (defined as a 20% loss) is imminent. A 50% loss is likely.
TNX appears to be in the final stage of its decline. It should not decline beyond the Wave (2) low at 16.93. The reappearance of strength is imminent and may last two weeks or longer. At the same time, analysts are still projecting rates going to zero.
Bloomberg opines, “With their best intentions in mind, central banks and governments have instituted rules to ensure that financial institutions have enough liquidity to withstand another crisis. But liquidity coverage ratios, high quality liquid assets rules, Basel 3 compliance, global systemically important bank charges, and the soon-to-be-implemented net stable funding ratios have made supplying the all-important repo market’s needs so byzantine that no one really knows what exactly is required, least of all the Federal Reserve.
Flying under everyone’s radar is the BKX, which hasn’t seen its last high since December 13. It is currently probing the Master Cycle low with today at day 268. The Cycles Model suggests a brief surge of strength over the weekend before resuming its decline. This tells us that liquidity has been waning. The most apparent place to look for clues are the European financial stocks that are suffering from negative interest rates. ECB bureaucrats refuse to address the problem until it blows up in their faces.
ZeroHedge remarks, “Having kept rates unchanged and done nothing to signal a slowdown in money-printing malarkey, most investors eyes and ears will be glued to ECB President Lagarde’s ‘strategic review’ and how her new-found focus on virtue-signaling climate change management will affect the European Central Bank’s mandate.”
January 22, 2020
VIX has not gone lower since last Friday’s Master Cycle low. It is now due for a breakout rally that may peak during the week of February 10.
ZeroHedge observes, “Despite the fact that the bond market refuses to sell-off (as it should in a well-behaved market sending stocks to record-er and record-er highs each and every day), the levered long crowd has never been more “all-in” than they are right now.
However, there are some notable anomalies in the VIX term structure that could become problematic in the next few days. As contracts expire, so the very steep term structure (fueling lots of short-vol-tilted carry trades) will flatten…
SPX made its peak at 3337.77 at 11:00 am and has been easing back down. It would only need to decline beneath yesterday’s low of 3316.61 to make a Key Reversal, since the rally has been shallow. This may be an indication that the large participants are “all in.”
ZeroHedge observes, “When it comes to investor positioning and flows, we have been quite clear over the past two weeks: with stocks hitting all time highs on a daily basis, we first reported on Jan 11 that “Institutions, Retail And Algos Are Now All-In“ and then again one week later, “Never Before Seen Market Complacency, As Everyone Goes Even More “All In“.”
The Bullish Percent Index closed at 83.00 on Friday, the highest since a reading of 83.40 on January 8, 2018. The current pullback is not necessarily a sell signal, since the percentages of stocks trading bullishly is so high. However, a cross below the 50-day Moving Average at 75.44 may do the trick.
The NYSE Hi-Lo Index is showing a loss of momentum, but must close beneath the trendline at 90.68 to create a sell signal.
SPX futures have reached a new all-time high of 3336.38 on day 266 of the Master Cycle. The Cycles are stretched by all measure imaginable.
NorthmanTrader observes, “According to the current market action there is no risk. None. Risk doesn’t exist. Whatever wobbles there may be on occasion it’s all priced in within a few minutes and markets proceed toward their daily ascent to new all time highs.
Permanent asset price inflation. The driving force remains the same. QE by the Fed and liquidity operations via repo:
But there are lurking risks currently ignored. Risks are just that until they actually trigger. Some risks go away on their own and don’t manifest themselves in a market reaction, some hit out of the blue because they are not taken seriously until they hit. Some risks are unforeseen as they can hit out of the blue.
NDX futures hit a new all-time high of 9240.00 in the overnight session. It’s been almost straight up since the December 3 Master Cycle low.
ZeroHedge comments, “Just yesterday we predicted that it is only a matter of time before we get a headline like “stocks surge on optimism China epidemic is contained”
And sure enough, less than 24 hours later, in an attempt to explain the return of overnight market euphoria Reuters writes that “world stock markets looked to be getting back to full strength on Wednesday, as updates from China about the spread of a new flu-like coronavirus raised hopes the outbreak would be contained” and Bloomberg doubled-down that “U.S. equity-index futures gained on Wednesday as China took steps to contain the spread of a deadly virus”, which is ironic since just moments ago China’s CCTV reported that there are now 473 confirmed Coronavirus cases in China, with many cases now observed internationally, and most recently, a Coronavirus case were confirmed in Hong Kong as the epidemic spreads. And yet, after dropping by 9 points yesterday, S&P futures have more than made up those losses and are up 14 points as of Wednesday morning.”
VIX futures have slumped, but no new low. VIX has been the punching bag that allows liquidity to find its way into equities. As long as it is suppressed, money flows have a green light to pour into the stock market.
TheStreet observes, “With the VIX right at the bottom of its two-range and the spikes getting progressively lower, volatility levels could be reaching an inflection point.
The market has returned to an uncharacteristically calm state, which has been a good thing for stock prices overall. So far in the first half of 2020, the VIX is back down to 12 and the S&P 500 is already up 2.7%.
But the real action is in the longer-term chart.
Since the volatility product blowup from February 2018 that saw the VIX briefly touch the 50 level, it’s been a series of progressively lower spikes all the way to present day.
It’s been a nearly perfect straight line down and could be signaling that the next big spike in volatility could be imminent.
TNX is finally on the rise after matching the January 6 Master Cycle low yesterday. In this case it completes the Minute Wave [ii] correction. This move is keeping traders long in Treasuries.
MoneyRates observes, “When the Federal Open Market Committee (FOMC) of the Federal Reserve meets on January 28 and 29, it is unlikely to announce a change in their federal-funds-rate target.
Even so, interest rates remain very much on the move, and consumers face a choice between acting in response or losing out.
Fed announcements are not the only thing that move interest rates, by the way. From loans to savings accounts, the rates offered to consumers are affected by economic factors that change every day. However, despite there being no change in its rate target since October, the FOMC is taking more behind-the-scenes steps to try to reduce interest rates.”
USD futures have fallen to 97.25, beneath the 50-day Moving Average at 97.38. On Friday it tested the mid-Cycle resistance at 97.49, but could not break through. The Cycles Model suggests that the USD may linger near the high through the weekend before undergoing a month-long decline. It may be considered on a sell signal should it close beneath 97.38.
January 21, 2020
SPX futures are down this morning as a result of news that the new coronavirus is spreading. It was not thought to be contagious prior to this. The overnight low was 3307.38 which has tested round number support at 3300.00. Short-term support at a preliminary trendline lie at 3267.10, so there is a way to go for a sell signal. My earliest work showed the turn occurring over the weekend , no later than January 20, irrespective of MLK day. We will be scrutinizing the VIX and Hi-Lo Index for confirmation.
It appears that the Master Cycles may all fall in line with this turn (258 + 4.3 days). The next Master Cycle projects a low on February 17-19.
VIX futures have challenged the 50-day Moving Average at 13.10 in the overnight session, reaching a high of 13.33. This may give us an aggressive buy (SPX sell) signal should it close above that level. The Fed has either directly or indirectly suppressing the VIX as a control mechanism to allow equities to rally higher. It appears to have had a Master Cycle low on Friday, but there may be yet another attempt at suppression, since today is day 257 of its Master Cycle. Both Elliott Wave and the Cycles allow a deeper low, so the Master Cycle may not be complete. Don’t put it past the Fed and the dealer banks to try to prevent the rally in the VIX, before it gets out of hand.
The NYSE Hi-Lo did something unusual on Friday, by opening at the high and closing lower. The trendline and mid-Cycle support both appear at 88.22, which is our trigger for a sell signal.
RealInvestmentAdvice comments, “The good news is that with the market closed yesterday, the extreme extensions of the market did not get any more extreme. Also, it doesn’t change our analysis much from this past weekend’s missive either:
“This week, the market pushed those deviations even further as the S&P 500 has now pushed into 3-standard deviation territory above the 200-WEEK moving average.”
“There have only been a few points over the last 25-years where such deviations from the long-term mean were prevalent. In every case, the extensions were met by a decline, sometimes mild, sometimes much more extreme.”
TNX was beaten back down to the trendline by a kneejerk reaction of funds flowing out of equities and into treasuries. The trendline is being challenged, but may hold as the correction may have run its course. The Cycles Model shows strength dominating the Cycle for the next two weeks or more.
MartinArmstrong explains, “The first was the inverted yield curve which led many to think we were heading into a recession last summer. Then the Repo Crisis hit and despite being touted as just a fluke due to taxes, after more than three months the Fed cannot get out of providing liquidity without stepping back and allowing the free markets to raise short-term rates.”
USD futures are in decline and appear to have broken through the 200-day Moving Average at 97.44, giving a sell signal. The decline may stretch through the month of February, so a lot of damage may be done. The final crossing of the Broadening Wedge trendline at 96.50 “locks in” the target for that formation.
DailyFX reports, “Investors have continued to reduce their exposure to the US Dollar, cutting net longs by a sizeable $2.5bln against G10 currencies to $6.66bln, which in turn has seen GBP and CAD remain in demand.
Across the safe-haven currencies, the Japanese Yen was out of favour with speculators taking up fresh shorts within the currency, which saw bearish bets rise sharply by $2.1bln. Positioning in the Swiss Franc is flat after net shorts were reduced by $550mln.”
The Japanese Yen appears to have made its Master Cycle low on Thursday (day 267). You can see that multiple Master Cycles have been conforming to the change in Martin Armstrong’s Economic Confidence Model. The DailyFX article (above) reports that the shorts have been piling on to the Yen, only to provide fuel for a period of strength accompanying the new rally out of the bottom. The Market seeks to prove the majority of investors wrong, even after extreme suppression by the Central Banks.
In this case, the Bank of Japan has publicly stated that it will buy all its government securities to prevent interest rates from rising.
IG reports, “The first Bank of Japan (BoJ) meeting of the year saw monetary policy kept unchanged as expected, while the outlook report reflected a more moderated view on inflation, hinting at interest rates being on hold for longer.
In line with the market consensus, the BoJ kept monetary policy unchanged whereby the short-term deposit rate remains resting at -0.1% while its long-term interest rate under the yield curve control regime continues to see 10-year JGBs kept at around zero percent.”
January 17, 2020
SPX is giving up its gains. A Key Reversal would be nice.
SPX stopped its rally at exactly 81.7 market days (4.3 days short of 86) and 120.4 calendar days from its September 19 high at 3326.44. I cannot guarantee that it is finished, but three attempts to rally higher were frustrated this afternoon. Monday is a holiday, so if you have the same conviction I have, you may wish to take appropriate action. You won’t get any help from the VIX or the NYSE Hi-Lo today. They have been pummeled in the wrong direction.
ZeroHedge remarks, “With the S&P hitting daily record highs, the financial media has been flooded with analogies to January 2018 which was the last time that the market saw a similar “blow-off top” meltup, one which ended in tears in the first week of February when the negative gamma complex imploded as a result of massive vol selling and inverse VIX ETFs blew up overnight, sending the S&P lower by 10% in days. Perversely, that VIXtermination event removed what was traditionally a handbrake to market meltups and without a market manifestation of the retail “short vol” trade, it is quite possible that the current meltup will continue indefinitely.
Enjoy the extended weekend!
SPX futures have reached an all-time high of 3326.88 in the overnight session. Today is options expiration, so there is a likelihood of a letdown at the open after the dealers and institutions have taken their profits. This afternoon’s session depends on how involved they are in what is normally a retail market. Today is day 261 of the Master Cycle and is in the normal range of extensions (up to 17.2 days) from the average pivot point. Considering that the other indices are also at or have made their turns, it is likely that the reversal in the SPX may be sooner than later.
ZeroHedge observes, “With the Fed flooding the market with hundreds of billions of excess liquidity, it’s hardly a surprise that every single day is a new all time high. In fact, writing these daily updates is getting downright boring.
One day after the US stock market exploded higher in the last hour of trading, melting up before our eyes on no news, world shares followed apace rising to record highs on Friday, with markets across the globe a sea of green…
…supported by Chinese data that showed GDP slumping to just 6.1%, a fresh 29 year low, suggested the world’s second-biggest economy was stabilizing. As reported last night, China’s economy grew 6% between October and December last year. Anemic domestic demand and the trade war with the United States led to growth of 6.1% in 2019, the slowest in 29 years. However, the data also reinforced recent signs of an improvement in Chinese business confidence as trade tensions eased after Beijing and Washington signed an initial deal on Wednesday to defuse their tariff war.”
VIX futures made a low of 12.06 this morning, not challenging yesterday’s Wave [ii] low which came on day 253 of its Master Cycle. The Volatility Short trade is crowded to the extreme, even though the December 26 low at 11.72 has not been taken out.
The fly in the ointment is that the NYSE Hi-Lo made a new high not seen in 3 years. It has been known to make abrupt changes in trend, but we should see a diminished Hi-Lo today before seeing a sell signal next week.
USD futures appear to have rallied to mid-Cycle resistance at 97.50 this morning, extending its Master Cycle today 266. Usually its the weekends and holidays that give us the smaller bumps in the Cycle. However, existing trends can be altered or lengthened by options expiration. The profit motive is very strong here, so this extension should be anticipated.
TNX has risen to a high of 18.30 in the overnight session. A break of the 50-day Moving Average at 18.46 gives us our buy signal.
ZeroHedge remarks, “After more than three years of careful consideration whether to issue 50 or 100 year bonds to take advantage of record low yields and an unprecedented scramble for duration, late on Thursday the Treasury announced the outcome of that process when it unveiled plans to issue… 20 year bonds.
January 16, 2020
ZeroHedge observes, “Well the cat’s out of the bag…
SPX did not decline enough yesterday to make a Key Reversal. Perhaps today it may make another attempt. The SPX opened with a challenge of the upper trendline of the Broadening Formation. A decline to Short-term support at 3255.59 may fill the bill for a Key Reversal.
An interesting note…each daily peak seems to be happening exactly 7 hours after the previous one, giving us a precise day count from the October 3 low. Today is market day 81. It appears that you can set your clock to the liquidity injections. What if something happens out of sync with the Fed’s clock?
ZeroHedge remarks, “Bwuahahaha….
Dow up 200 points (over 29,200)…
…and S&P over 3,300.”
The NYSE Hi-Lo Index is still trending strongly after a higher close yesterday. We will need a close beneath the mid-Cycle support at 88.76 to entertain a sell signal.
SPX futures rose this morning to a high of 3307.38 on day 260 of the Master Cycle. It is not unusual to see a Cycle extend. However, there are multiple Cycles that are all poised for a reversal. Martin Armstrong’s Economic Confidence Model has a major turn on January 19. The major theme of this turn will be the loss of confidence in government(s). On that note, the impeachment trial in the Senate begins today with great fanfare. What a circus!
VIX futures made a low of 11.79 in the overnight session, just 7 ticks away from the prior MC low at 11.72. It remains beneath yesterday’s close. VIX is clearly not on anyone’s radar. A closer examination of the Cycles show another potential Master Cycle low this weekend. This may explain why the VIX is hovering at the lows instead of moving higher as yet.
TNX appears to be lifting from its trendline at 17.80. The Cycles Model shows a potential 2-month rally ahead. It may be relentless, as yields may surpass the 2018 high at 32.48. The effect may be a bank freeze as losses pile up. The media forecasts calm markets as they extend the recent activity into the future.
Bloomberg opines, “Bond managers are starting to contemplate the prospect of another decade without a Federal Reserve interest-rate hike.
USD futures appear to be hovering near the lows. The Cycles Model suggests that, once underway, a decline may continue through late February.
West Texas intermediate Crude appears to have bounced off mid-Cycle support at 57.30 after a 12% decline from its Master Cycle high. It may be experience a week-long period of strength that may retest the 50-day at 58.87 or Intermediate-term resistance at 59.70 during that time.
January 15, 2020
It appears that SPX has accomplished its mission to complete the Broadening Formation. Now we await the Key Reversal where SPX declines (and closes) beneath 3277.00. As of 11:00 am it has rallied for exactly 80 days from the October 3 low. It can be implied that today’s burst of strength may be followed by exhaustion…and a change in trend. No signals are evident, yet, although the VIX is beginning to rise. As mentioned before, everyone is “all in” which means the exits will be bottlenecked when recognition hits.
Today is day 259 of the Maser Cycle. While yesterday’s probe to 3294.25 fulfilled all the requirements for meeting the target, there are two items that I must mention. First, I had mentioned on Monday that Tuesday and Wednesday were indicated as days of strength in the Cycles Model. The second is that there is a minute Broadening formation within the larger Broadening Wedge that may allow the SPX the ability to reach 3300.00 today, or at least make the attempt.
SPX futures are huddled at the lower end of yesterday’s trading range, but no new low has been made. A fresh burst of liquidity may propel the SPX to a new high, but may be over by noon. Today we have reached the 80th market day from the October 3 low.
ZeroHedge reports, “US equity futures dipped and world stocks eased off record highs on Wednesday with US and German bond yields slipping as euphoria over the US-China trade deal set to be announced today fizzled after Steven Mnuchin said tariffs on billions of dollars of Chinese goods coming into the U.S. are likely to stay in place until after the U.S. presidential election.
Today’s main event will be the phase one trade deal signing. As DB’s Jim Reid writes, the closely guarded text still remains a bit of a mystery and as such the devil will be in the detail. All will be revealed later though with a reminder that the signing is expected to take place at the White House at 11.30am EST. It’s said to be an 86 page document but for those of us used to 550 plus page Brexit agreements that were eventually voted down this is a walk in the park. “
VIX futures are mildly positive this morning while trading inside yesterday’s range. VIX appears to be controlled within an Ending Diagonal formation. Complacency will disappear when it breaks through the upper trendline near 18.00. However, our signal may have us prepared in advance to that event.
USD futures appear to be flat this morning, but may have already started the decline after a Master Cycle high at 97.31 yesterday. The new Cycle may decline through the end of February. The Cycle high denotes a probable “slingshot move” in which the decline may be a multiple of what might be expected. The Broadening Wedge gives some guidance.
TNX has tested the trendline at 17.85 this morning, attesting to the Fed’s attempts to control interest rates. However, a bounce off the trendline may develop into a period of strength that could last up to 3 weeks.
January 14, 2020
VIX jumped to 13.82 just before 2:00 pm, then settled back beneath the 50-day Moving Average at 13.12. This activity suggests the VIX may close above the 50-day today. This would be a good indication that an aggressive buy signal may be appropriate.
The NYSE Hi-Lo Index is still at its high of 442.00 at this time. A Key Reversal is likely to lower that number, but may not give a sell before the close.
SPX made a new all-time high at 3294.25 just prior to 1:40 pm. It appears that institutional investors have jumped back into the fray and started selling with a subsequent drop to 3283.64 in just a matter of minutes. This opens the door to a Key Reversal, should the SPX decline beneath 3260.86 in the next two hours. The dealers and institutions usually trade most actively in the opening hour and closing hour of the day. This seems a bit early, but not surprising, since many have hair triggers on the sell switch. It’s time to be very observant and take appropriate action when necessary.
ZeroHedge remarks, “Well that spoiled the party… however briefly.
Nothing to see here…The NYSE Hi-Lo recovered and is now at 305.00…it could have been a mistake.
The NYSE Hi-Lo Index has done a sudden about-face this morning after reaching a high of 232.00. As of 10:30 it suddenly dropped to 186.00. Whether this is a glitch in the data feed system or a real reversal it to be determined, but a mid-day reversal may tell us of a weakening of the internals. We must keep an eye on it, since a further deterioration may tell us that smart money is leaving…in a hurry.
One of the hardest things to do is for large pockets of money to exit without disturbing the market. While retail investors continue to pour money in, the flows become trickles as smart money tries to cover their tracks. This may be evidence that smart money is quietly exiting. As more people try to exit, the positive flows turn negative and leave their mark in the number of new 52-week highs.
SPX futures made an all-time high at 7:15 pm at 3296.62, then started pulling back. Currently, the futures are negative, which is ominous.
There is reason to believe that it may have been the peak for multiple reasons. First, the Fibonacci target of 3290.00 had been reached, Second, Wave [v] equals Wave [I] at 3293.06. Third, the final (a)-(b)-(c) of an ending Diagonal appears to be complete. Finally, today is day 258 of the Master Cycle. We may see several attempts at a new high over the next 24-48 hours, but both time and price targets may have already been met.
The 2-hour chart shows a potential sell signal at 3245.00 while the daily chart shows the Cycle Top at 3232.57. The Cycles Model suggests a potential decline to mid-February which is more than adequate time to reach point 6 of the Orthodox Broadening Top at 2250.00.
ZeroHedge reports, “US equity futures and European bourses were struck by a rare bout of weakness on Tuesday, as traders cashed in on recent record highs and waited for the details from the long-awaited U.S.-China Phase One trade deal and the official start of Wall Street earnings season.
After hitting a new all time high on Monday in a tech-led meltup, the main US equity benchmarks traded modestly lower with the S&P hitting session lows around the time Europe opened, then fading a modest rebound.”
VIX futures rose to 12.99 in the overnight session, then fell bac, but remained positive. An aggressive buy signal may be had above the 50-day Moving Average at 13.14. A rally above the Ending Diagonal trendline may compel the VIX to completely retrace that formation to 36.20, or higher. The current Master Cycle implies a rally to mid-February.
Yesterday appears to have been the first Master Cycle low in 5 months on day 258 of the Master Cycle. It is due for a bounce to retest the trendline near 113.00, giving a good short entry point.
ZeroHedge reports, “Q4 earnings season has officially begun, and once again it has done so on the right foot, with JPMorgan – which as a reminder is the bank that started QE4 in October by triggering the repo market crisis in September – reporting quarterly earnings that as has been traditionally the case for the past year, beat on the top and bottom line.
ZeroHedge comments, “If JPMorgan was the posted child for how one should frontrun the Fed’s QE4 (which JPMorgan triggered thanks to the repo market crisis it itself created by pulling liquidity from the market and investing it in risk assets) and report blowout Q4 earnings, Wells Fargo was the polar opposite.
TNX opened flat, but may retest the 50-day Moving Average at 18.37 before moving higher.
USD futures surged higher this morning as it challenges the mid-Cycle resistance at 97.49. Today is day 263 in the Master Cycle so it is overdue for a reversal after making its inverted high. The Cycles Model calls for today to be the final day of strength in the Cycle.
Gold futures made a new low at 1536.35 this morning as the decline takes hold. According to the Cycles Model, we may not see any bounce with strength until the final week of January. Unfortunately, gold has rallied with the rest of the liquidity-driven markets which diminishes its value as a safe haven.
KitcoNews reports, “Save-haven gold and silver prices are lower again in early U.S. futures trading Tuesday. Upbeat trader and investor attitudes, as evidenced by rallying global stock markets, including the U.S. stock indexes hitting record highs overnight, continue to work against the competing asset class of precious metals markets. February gold futures were last down $6.90 an ounce at 1,543.70. March Comex silver prices were last down $0.231 at $17.765 an ounce.
Asian and European stock markets were mixed to weaker overnight. U.S. stock indexes are pointed toward slightly lower openings when the New York day session begins. Mild corrective pullbacks are in order on this “turnaround Tuesday,” following recent gains that put U.S. stock indexes at record highs overnight. The geopolitical scene has quieted down markedly the past few days.”
January 13, 2020
NorthmanTrader observes, “Now that we have an open admission from the Fed that their balance sheet expansion is exacerbating asset prices and creating excess and imbalances (see Ghosts of 2000) the term bubble can no longer be dismissed as some fringe rantings by cranks like me, but rather a recognition for what any bubble is: An overpricing of asset prices far above where they should be based on earnings, fundamentals or the growth basis of the economy.
The question on everybody’s mind of course: When does the rally end, when will the bubble get popped? You know it’s bad when even bulls call for corrections but can’t get any. In December what seemed an aggressive call for 3,333 $SPX by March 3rd by BAML already looks overly conservative as $SPX got within a stone’s throw of 3,300 on January 10.”
SPX futures traded within Friday’s range over the weekend, ending on a positive note this morning. Today is day 257 of the current Master Cycle. Tuesday and Wednesday appear to be days of potential strength, but the upside is limited. Last week I calculated the next Fibonacci resistance to be 3290.00, coupled with round number resistance at 3300.00. Considering the lateness of the Cycle, it appears the rally in the SPX may finish in that vicinity.
ZeroHedge reports, “With the Fed’s liquidity deluge ongoing, stocks predictably are up on Monday and back to all time highs and since traders always need a “narrative” what better time to use the old standby “U.S. Stock-Index Futures Gain Amid Trade Optimism” (which is how Bloomberg “explained” the market action) especially since the signing of a Phase 1 China-U.S. trade deal is set for this Wednesday, even though markets have yet to see details of the agreement.
With December’s disappointing nonfarm payrolls report largely forgotten, half the Friday drop was erased overnight in very thin volume, and the S&P e-mini stock futures rose 0.31% to 3,274.8, just 10 points shy from reclaiming its all time high.”
VIX futures have been trading above Friday’s closing price and remains positive this morning. This week is options expiration with VIX futures and options expiring on Wednesday, while ETFs expire on Friday. There is reason to believe that VIX may remain suppressed until expiration, but the Cycle is vulnerable to a turn at any time.
USD futures appear to have made a new high at the 200-day Moving Average at 97.53 this morning. Today is day 262 of the current Master Cycle, so we are waiting for a top to appear.
TNX appears to have surpassed the 50-day Moving Average at 18.36. A rally above that level puts TNX on a buy signal. It appears to have made its Master Cycle low on January 6 and may be headed for a triply-indicated period of strength by the end of the month. This breakout is our signal that the Fed has lost control, not only of long-term rates, but short-term as well.
Martin Armstrong comments on the repo crisis.
Gold futures are testing Friday’s low at 1546.70 this morning. It appears to have had an early Master Cycle high on day 251 last Wednesday. While nowhere near the 50-day Moving Average, this may still be a good time for an aggressive short position. The next master Cycle low is not due until early March.
BKX appears to have had an early Master Cycle high on December 13. The European financials (EUFN) had their Master Cycle high on January 2. Both are now on a sell signal beneath their respective Cycle Tops and beneath Intermediate-term support at 111.57 in the BKX. Today is day 258 in the current Master Cycle. I suspect that an announcement of a major bank failure in Europe may highlight the week.
January 10, 2020
SPX futures climbed to a high of 3286.88 this morning, approaching the Fibonacci target of 3290.00 and round number resistance at 3300.00. Today is day 254 of the current Master Cycle. In two more market days the Cycle will have matured. Upside risk is minimal, while downside risk very large.
ZeroHedge observes, “Not even in his wildest dreams did BofA’s chief investment strategist Michael Hartnett expect the meltup to push the S&P500 to 3,333 before March 3. At the rate we are going, that bogey will be hit next week. World stocks set new record highs on Friday, with the world’s most valuable stock Apple leading the furious, euphoria meltup, while safe-haven assets such as gold and TSY dipped again as investors cheered – for a second day – an apparent de-escalation in U.S.-Iran tensions and looked instead to prospects of improved global growth.
Markets reversed the sharp falls seen at the start of the week after the United States killed Iran’s most senior general, believing it would not lead to a full-scale military confrontation that would rock investor confidence. S&P futures are up more than 100 points since then, and the Dow is set to rise above 29,000 for the first time ever.”
NDX futures surpassed 9000.00 this morning, reaching 9055.00 at its high. Super Cycle Wave (b) is equal to 2X Super Cycle Wave (a) at 9061.06. Again, the upside potential is fast approaching -0- while the downside ris is growing exponentially.
NorthmanTrader comments, “Some quick takes here on events of the day:
The lunatics are running the asylum and they pretend to be the sane ones.
The Fed is not letting up on their liquidity machine and be clear: Every single outlook they’ve issued since inception of the program has been false. First it was temporary, then it got bigger, then it was there to meet year end requirements, and now already they’re moving the ball again.
And so here we get to see the Fed two step in one set of headlines:
“Fed’s Clarida says economy in good place, does see inflation rising to 2%. Clarida says Fed’s repo operations could continue at least through April.”
VIX futures declined to a new low at 12.34 in the overnight session, but is now positive. Say alert. The turn may come as a surprise.
I will be out of town during the market day. I may comment later after the close.
January 9, 2020
ZeroHedge observes, “This is a market looking through fundamental data, looking through corporate guidance and data points, looking through Fed guidance itself,” Lisa Shalett, the chief investment officer at Morgan Stanley Wealth Management, told Bloomberg Television.
“It is a market that wants to go up in the short term. That is what makes it so profoundly dangerous.”
SPX futures made a new all-time high at 3273.38 this morning on day 253 of the Master Cycle.
ZeroHedge reports, “So much for the risk of a Iran-US conflict spilling over into World War 3, at least according to markets which soared yesterday after Trump refused to re-escalate the armed conflict with Tehran, and have continued to surge since.
“Iran appears to be standing down, which is a good thing for all parties concerned and a very good thing for the world,” Trump said. He announced economic sanctions on Iran without giving details. Meanwhile, Iranian Foreign Minister Mohammad Javad Zarif had earlier said the strikes “concluded” Tehran’s response to the killing of its general, Qassem Soleimani.”
See the monthly chart below:
This morning’s futures are already approaching its next major Fibonacci multiple, combined with a 9-year trendline and round number resistance at 3300.00. We are looking at a highly irregular expanded, corrective Wave pattern. To complete this pattern, Super Cycle Wave (c) must decline to the lower trendline near 500.00. This would constitute an 85% decline from here over the next 2.15 to 4.3 years.
VIX futures declined to 12.76 this morning, beneath the 50-day Moving Average at 13.18. The Wave structure is still valid and gives yet another opportunity to hedge against the decline via VIX futures and options.
Bloomberg reports, “The volatility buyer dubbed “50 Cent” appears to have resurfaced, buying up market hedges as calm returned in the aftermath of a flare-up in Mideast tensions.
The NYSE Hi-Lo Index is nearing its next Master Cycle high on day 253 of the current Cycle. It appears that today’s reading may be even higher. We must see the internals fall apart before the reversal. However, in this case it may be a panic situation developing as the trap springs shut. It appears as if the Fed injections are going directly into equities as it appears to be the only option to make money. I am finding it difficult to talk even with my friends about the dangers of this latest development. I trust that my readers are in cash if not (painfully) short.
TNX continues its climb as it approaches mid-Cycle resistance at 19.29. While this may cause some concern, a challenge of the widely recognized 200-day Moving Average at 19.75 may cause an outright panic. It is certain that there will be push back against the rising rates. However, the Fed is now trapped
ZeroHedge reports, “Two days after we reported that a disturbance may be brewing below the surface of the repo market again, after the first oversubscribed term repo in over three weeks, when on Jan 7 the Fed received $41.1BN in submissions for its $35BN two week repo, we got another indication just how strong the market’s addition to the Fed’s easy repo money has become, when moments ago the Fed announced that its latest 2-week term repo operation was also almost oversubscribed, as $34.3BN in securities ($23.3BN in TSYs, $11BN in MBS) were submitted for today’s $35 billion operation, as dealers continue to scramble to the Fed for liquidity which they are no longer using for merely “regulatory” year-end purposes (since it is no longer year-end obviously), but are instead using it to pump markets directly.”
Today’s operation, which was just shy of the maximum $35BN allowed, was the second highest term repo since Dec 16, and suggests that as repos are now maturing at a rapid burst (as we noted last week in “Mark Your Calendar: Next Week The Fed’s Liquidity Drain Begins“), dealers remain as desperate as ever to roll this liquidity into newer term operations.
And just in case there was any doubt that the liquidity shortage isn’t getting better, moments later the Fed announced that in its daily Overnight repo operation, it also accepted $48.825BN in securities ($24.2BN TSYs, $24.625BN in MBS), for a total liquidity injection of just over $83 billion!”
USD futures appear to be lower, suggesting the correction may be losing steam. However, the Cycles Model suggests a final probe to one of the overhead resistances at 97.25 to 97.49. Once accomplished, a slingshot move may be in order with a possible 2-month decline.
January 8, 2020
West Texas Crude had its Master Cycle high (day 258) on Monday and it now in serious decline, having hit an intraday low of 59.16 (amended at 2:04 pm) today. This is our early warning that the rest of the market is on tenderhooks. It is easy to conclude that this final rally to its secondary high was liquidity driven since the low occurred on October 3. Oil is also one of the most manipulated commodities being traded and this gave Wall Street its chance to exit the corporate loan business in the oil patch, among other things. A 30% decline right out of the gate is possible.
TNX has broken above its 50-day Moving Average at 18.33 and is on a buy signal. The march higher has begun. Most analysts are not expecting a breakout above the previous highs, since they interpret the formation since September as a Bearish Flag. A breakout may extinguish that notion rather quickly.
ZeroHedge observes, “After a poorly accepted 3Y auction to start the new decade’s issuance of coupon paper, moments ago the US Treasury sold $24BN in 10Y notes (CUSIP YS3) which was a tailing clunker which priced at a high yield of 1.869%, the highest since July 2019, up from December’s 1.842%, and tailing the When Issued 1.853% by 1.6bps, the biggest tail since August.
SPX futures made a wide-ranging decline to test Intermediate-term support at 3171.21 in the overnight session. However, it has recovered back into positive territory. This probe lower appears to be corrective which may allow yet another new high. Today is day 252 in the current Master Cycle, suggesting that new highs are still possible. In fact, days 258 and 259 (next Tuesday and Wednesday) appear to be days of strength, suggesting a blow-off high is possible.
Although I have not seen this since 2008, these two days can also be brutal declines if the 8.6-year Cycle has turned by then. To set the stage for this to happen, we may look for a peak by mid-afternoon tomorrow.
ZeroHedge reports, “S&P500 index futures erased their earlier crash, after tumbling more than 50 points following news Iran launched ballistic missiles at US airbases in Iraq, as investors turned optimistic and looked past the missile strikes focusing instead on Iran’s comments that the country isn’t “seeking escalation or war” and Trump’s tweet that “all is well.” As a result, S&P 500 e-mini futures up around 0.1%, after earlier sliding as much as 1.7%, with global markets broadly in the green too.
Following the targeted strikes, both Iran and U.S. President Donald Trump left the door open for lowering tensions: Iran’s Foreign minister Javad Zarif said the country had “concluded proportionate measures” and didn’t seek war, while Trump tweeted “All is well!” and plans to make a statement later Wednesday.”
VIX futures surged to 15.24 overnight, but since have calmed a bit. The outward appearance of calm is deceptive as a close above mid-Cycle resistance may bring the breakout above 18.00 closer to reality.
TNX appears to be hovering just beneath the 50-day resistance at 18.33. A breakout here may be dramatic, as the immediate effect on liquidity is likely to be seen. Not only would the mid-Cycle resistance at 19.33 be challenged, but also the 200-day Moving Average at 19.77. Losses may be severe enough to curtail bank lending indefinitely. This may immediately become apparent in the repo market.
However, the source of the contagion appears to be the European Banks and financial institutions. It is likely that we may hear of a major bank failure in Europe that may then cross over to our domestic banks.
Read Martin Armstrong’s comments on the subject.
BKX has already closed beneath its Intermediate-term support at 111.28 and is on an aggressive sell signal. A short position here may be a bumpy ride, but there is a distinct possibility of a flash crash in the next week. If so, the SPX high may already be in.
It is no surprise that the Fed has been assisting the European Banks with the repo injections. It had a Master Cycle high on January 2. As healthy as this rally appears, it is corrective and subject to a complete retracement. In fact, it appears to be due for at least a 50% decline.
USD made an overnight high of 96.95 on day 257 of its Master Cycle. Its target is near 97.00, so it may have already been achieved. A reversal back beneath the trendline at 96.50 will tell us the Cycle is done. The Cycles Model suggests a decline through the end of February may be in order.
January 7, 2020
ZeroHedge reports, “And just like that, the repo market is on the fritz once again.
SPX futures have bounced to 3254.38 in the overnight market, but have lost most of the gains. Today is day 251 in the current Master Cycle. This suggests the SPX may maintain elevation for at least the duration of the week in an inverted Master Cycle. The first line of defense for the rally is the Cycle Top at 3206.73. A decline beneath that level and things start to get interesting.
ZeroHedge reports, “After putting fears about World War III aside on Monday, when stocks opened sharply lower only to close at session highs and the S&P on the verge of a new record, overnight concerns about the impending middle east conflict returned when shortly after 2am ET, Ali Shamkhani, the head of Iran’s national security council, roiled markets when he said that Iran is evaluating 13 possible retaliations on the U.S. for killing a Solemani, adding that “even if the weakest of these scenarios gains a consensus, its implementation can be a historic nightmare for the Americans.” The menacing comments from Shamkhani briefly roiled markets, and established a ceiling for the Emini.
Following the Iranian threat, S&P 500 futures gave up all of the morning’s advance before steadying. Despite the wobble in S&P futures, world shares steadied in delayed response to Monday’s US rally, while oil and gold pulled back from multi-month/year highs on Tuesday after dramatic post-new year moves, as investors judged that prospects of an all-out conflict between the United States and Iran had eased.”
VIX futures made a low of 13.61 in the overnight session. It appears to have made its Master Cycle low on December 26 and may be under suppression until the SPX Cycle breaks down. The two key levels are a close above the mid-Cycle and 200-day Moving average at 15.10 and a breakout above the Diagonal trendline at 18.00.
NorthmanTrader observes, “A brief follow up to the $VIX discussion in this weekend’s 2020 Vision market update: US markets experienced two major volatility events with $VIX running above 40 twice during the past 4 years: 2015 and 2018. In both cases the $VIX spiked into the high 40’s. Charts suggest another volatility event of such magnitude may be coming in 2020.
Let’s walk through the evidence.
Firstly, note the obvious: Volatility events of this magnitude are rare these days. Indeed volatility is again very much contained as it always is when central banks are intervening. And ever since the Fed went from tightening to flip flopping and then outright cutting and balance sheet expansion the $VIX has been engaged in a pattern of lower highs since the December 2018 lows:
USD futures linger at the trendline as it counts down the final days of its Master Cycle. Today is day 256 of the current Master Cycle. The probability of a much deeper low is diminishing.
TNX futures are hovering near their Master Cycle low at 17.66 made yesterday (day 266). You may observe that multiple Cycles are poised for a reversal in the coming week. Today is possibly the first day of the great unwinding of the repo market as today’s maturing repo is not scheduled to be renewed. Focus remains on the Middle East while the realization of the end of a Cycle of lower rates is overlooked.
CNBC reports, “Treasury yields cut losses and turned higher on Monday despite the escalating geopolitical tensions in the Middle East.
The yield on the benchmark 10-year Treasury note, which moves inversely to price, was up slightly at around 1.79%. The benchmark yield was lower at 1.77% at one point Monday. The yield on the 30-year Treasury bond rose one basis point to 2.26%.
Yesterday Gold hit its 61.8% retracement level at 1588.19 with an intraday high of 1590.90 on day 249 of the Master Cycle. It may linger at this level for another week. It would be no surprise to see gold test the Cycle Top at 1611.34 as Wave (5) equals Wave (1), a common Wave relationship, at 1628.90. While a crash in the SPX is discussed widely, there is no such banter regarding gold. The long term outlook for gold is a decline to the mid-700s.
SovereignMan opines, “The price of gold is up nearly $100 since Christmas, reaching around $1,575 per troy ounce as I write this letter.
January 6, 2020
The VIX did not remain above the mid-Cycle support at 15.10, but remains above the 50-day Moving Average at 13.20, maintaining an aggressive buy signal. This is a good “buy the dip” entry for the VIX, but we need to see the SPX decline beneath its Cycle Top support at 3201.84 for a proper sell signal.
Today is day 250 for the SPX Master Cycle. While we indeed may have seen the top, the pattern suggest a new high may still be made. We cannot rule out a fakeout new high at the time that liquidity begins to drain out on the non-renewal of the repo starting tomorrow.
The NYSE Hi-Lo rose to 169.00 this afternoon, negating any signal that might be derived from a decline. However, while it did not make a new low this morning, the pattern is bearish.
While SPX is challenging Short-term support at 3220.00, the Hi-Lo Index opened above Friday’s low at 35.00 and is moving higher. It appears to be challenging the mid-Cycle resistance at 80.77, so there is no signal yet. It would be best to see it decline beneath the mid-Cycle support/resistance line and, better yet, beneath the trendline at 70.00. I am erring on the side of caution, but will be checking this indicator later in the day for a potential reversal. Thus far, the dip appears to be bought.
Charles High Smith opines, “Parabolic moves end when the confidence that the parabolic move can’t end becomes the consensus.
I owe you an apology for not adding my blog to the front page menu on the website. I have corrected that error this morning.
SPX futures are testing the Cycle Top support at 3201.84. This morning’s low was 3208.88. While the odds are high that it may break through that support, there are several more supports beneath it. I may have to rely on the NYSE Hi-Lo Index to confirm the reversal.
ZeroHedge reports, “Global markets slumped, and US equity futures tumbled on Monday, wiping out gains for 2020 as tensions in the Middle East soared amid fears of escalation in the Middle East as investors pushed safe-haven gold to a seven-year high, and oil jumped to its highest since September.
VIX futures vaulted above the mid-Cycle and 200-day Moving Average at 15.09 this morning, hitting a new Cycle high at 16.39. It also confirms the December 26 low at 11.72 as the Master Cycle low. This gives the VIX “permission” to continue its upswing for at least a couple more weeks. A breakout above 18.00 may trigger an avalanche of sell signals in the SPX. The VIX is on a buy signal. We already see a buildup of hedging as knowledgeable investors with inside information front-run the crowd.
Bloomberg comments, “Volatility markets didn’t know a U.S. airstrike that roiled the Middle East was coming. But they were prepared for a jolt to an American equity market that could seemingly do no wrong.
We will be watching the NYSE Hi-Lo Index today, as it may give a confirmation of the decline before the SPX reaches the 50-day Moving Average, where most technicians would invoke a sell signal. The 50-day Moving Average in the Hi-Lo is at 105.56, but the more important line is the mid-Cycle level at 80.77. We should see a close beneath one or preferably both levels to confirm the sell signal from the Hi-Lo.
TNX has extended its Master Cycle low to this morning (day 264). The first layer of repos may begin to expire without renewal on Tuesday, draining liquidity out of the market, with rising rates resuming. The Fed appears clueless about what they are doing, treating the liquidity crisis as a short-term (end of quarter) phenomenon, not recognizing the rising rates in mid-September are what caused the bank liquidity to freeze up.
Please read “RepoCrisis” by Martin Armstrong.
USD made a new low on December 31, but it may not be the last. This morning low in the USD futures was 96.23 and the scheduled Master Cycle low may not happen until Friday. The Broadening Wedge formation appears to have been triggered, so I am bearish the USD at this point.
Gold futures made a new secondary high at 1588.65 this morning. this prompted me to do a long-term study of the Gold Cycles. Gold had its all-time high at 1923.70 on September 6, 2011. 4.3 years later, on December 17, 2017 it made a 50% retracement off the high at 1045.40 and has been climbing since then. Today it has reached a 61.8% retracement of its decline. Today is day 249 of the current Master Cycle, so we may see gold prices stay elevated through this week.
However, this rally appears to be a Cycle Wave b, which often doesn’t follow the Fibonacci rules. Going back to the Cycles Model, the high could be delayed until its 4.3-year interval on April 12, 2020 . If so, we may see a partial retracement back to 1400.00 before a final blow-off with a projected high of 1700.00.
January 3, 2020
SPX futures made a low of 3207.12, testing the Cycle Top support at 3197.21. A break beneath that level may give us an aggressive sell signal, pending confirmation from the VIX and NYSE Hi-Lo Index.
ZeroHedge reports, “It has been a turbulent start to 2020 with markets soaring on the first day of trading of the new year and decade, only to tumble overnight after a U.S. air strike in Iraq killed a top Iranian commander, sharply escalating geopolitical tensions in the Middle East and denting risk appetite, sending world markets sharply lower and US equity futures down more than 1% overnight…
…. while safe havens such as gold jumped..
… and oil soared $3 a barrel with safe havens such as Treasurys and the yen jumping.”
VIX futures jumped to an overnight high of 16.20 before settling just beneath the mid-Cycle and 200-day Moving Average at 15.09. This breakout is a new confirmation of the VIX buy signal. The next level of confirmation is the breakout above the December 3 high at 17.99 which also has the VIX emerging above its Wedge formation.
TNX extended its Master Cycle low this morning with a new low of 17.95, with probable support at the trendline. It is currently hovering just beneath the 50-day Moving Average at 18.31.
USD futures continue to rise momentarily, but may resume its decline for another week, according to the Cycles Model. The Broadening Wedge formation appears to have been triggered and a likely outcome may be a serious stumble, if not a flash crash.
Gold futures appear to have extended its Master Cycle high to 1553.95 this morning. It may have already suffered a reversal and may begin its descent as liquidity is pulled from the market.
Crude oil futures tested the Cycle Tp at 64.44 by making an overnight high of 64.08. It may have reversed as well. Today is day 255 of the Cycle. We will know more on Monday.
January 2, 2020
TNX appears to have made its Master Cycle low this morning at 18.51 and may be ready to begin its breakout. The Fed has been monetizing the Dealers portion of the Treasury auctions on T-bills in order to keep interest rates down. Many technicians are looking at the formation in the chart above as a bearish flag. However, the Cycles say that yields are going higher.
ZeroHedge reports, “The Fed’s charter prohibits its from directly purchasing bonds or bills issued by the US Treasury: that process is also known as monetization and various Fed chairs have repeatedly testified under oath to Congress that the Fed does not do it. Of course, the alternative is what is known as “Helicopter Money”, when the central bank directly purchases bonds issued by the Treasury and forms the backbone of the MMT monetary cult.
Good Morning and Happy New Year!
SPX opened at a new high at 3250.04. An immediate (key) reversal may set the pace for a decline to the anticipated Cycle low on January 20. Tops are very hard to call and this is no exception. However, this morning is the last day for a 12.9 day decline to the January 20 Cycle Bottom. Otherwise, we may end up with an inverted Master Cycle, which I doe not anticipate at this time. .
ZeroHedge remarks, “The first trading day of 2020 has started where 2019 left off: with global markets blasting off in a continuation of the powerful meltup that sent US equity futures up 18 points to 3,250 on Thursday, just shy of all time highs.
Contracts for US equity futures all rose in the wake of the best year for American stocks since 2013, and the Stoxx Europe 600 Index advanced for the first session in three as every sector traded in the green.”
VIX futures were beaten down to 12.63 during the holiday session. That’s no surprise during this manipulated market. However, after the open, the VIX immediately crossed above the 50-day Moving Average at 13.22.
TNX made a lower low on day 260 of its Master Cycle. While it may go a bit lower, this low coincides with today’s SPX high. A reversal in the TNX may begin to remove liquidity from the market, regardless of the Fed’s actions.