March 2020

March 31, 2020

12:08 pm

SPX has reached its “point 6” of the Orthodox Broadening Top at 2252.72 last week.  The Broadening Top Formula calls for a 30-40% rally from that low.  It appears that the Fibonacci 38.2% retracement value is 2651.80 and the rally will have taken 43 hours by 1:00 pm or shortly thereafter.  The trap door may be opened at any time.  Quarter-end pension rebalancing is now over.

ZeroHedge reports, “says this is not the bottom and the impressive move of the past week is just another bear market rally), which reversed the fastest ever bear market, and pushed the S&P into a bull market…

… traders have attributed a big part of the move to what we first said more than a week ago would be forced buying by pension funds who were mandated to buy as much as $850BN in stock for quarter end to offset the underperformance of stocks vs bonds.

To be sure, some doubt emerged whether that is indeed the case yesterday when P&I magazine reported that at least one California pension fund, the Los Angeles City Employees’ Retirement System, had temporarily modified its asset allocation and rebalancing policies, which includes allowing the staff to defer rebalancing its asset allocation, a move which many if not all other pension funds are expected to adopt.”

 

9:40 am

“Too Early & Still Too High” – Goldman Sees A Bear Bounce, Not A Market Turn

ZeroHedge reports, “This bear market has been unusual to say the least, not because of the scale of the decline, but rather because of the speed and the volatility.

The average bear market (at least based on US history) experiences a decline of around 35% – very similar to the falls that were seen at the recent low in most markets in the current bear market.

But, as Goldman Sachs’ Peter Oppenheimer notes, the speed of the declines is what stands out as being exceptional; it is hard to believe that the US equity market was trading at a record high just five weeks ago. Its fall into bear market territory (the first 20% decline) took place in record time, just 16 trading days, compared with 44 in 1929, the previous fastest fall. Meanwhile, volatility has been at record levels.

After three consecutive days of moves of +/- 9% (the first such series since 1929), last week posted an 18% three-day rally in the US, and similar moves in many other markets. This was the strongest comparable return in the US since 1933 and in Europe on record.”

8:00 am

 

Good Morning!

Although the Cycle had ended at the close on Thursday, there was enough quarter-end funding to make a strong retracement.  We may have seen Waves A and B of Wave [A] of III.  The panic decline begins.

SPX futures are already down after another roller coaster ride in the overnight session.  Wave III may decline over 1000 points over the next week.

ZeroHedge reports, “The torrid quarter-end rally which many attributed to a flood of forced pension fund buying as part of aggressive rebalancing, reversed overnight as US index futures reversed all overnight gains even as European stocks headed for a fifth increase in six sessions amid ongoing debate whether the market meltdown has ended despite the accelerating spread of the coronavirus (spoiler alert: no), while treasury yields dipped below 0.7% while the disconcerting dollar rally is back front and center.

S&P 500 futures rose as high as 2,640 before sliding back under 2,600 as politicians were said to contemplate a fourth round of stimulus, but they struggled to stay in the green as speculation the pension fund bid had faded. Oil producers Exxon Mobil Corp. and Occidental Petroleum Corp. jumped in the premarket thanks to a rebound in oil prices from 18-year lows after the United States and Russia agreed to discuss stabilizing energy markets.

 

VIX futures rallied as high as 58.75 in the overnight session.  A breakout above the previous high at 69.10 may be in order.  Today is day 270 in an extended Master Cycle.  here is a strong likelihood of a top by Friday.

Bloomberg reports, “Investors are using the stock rally to reset hedges rather than chase upside, signaling little conviction in the rebound, according to Credit Suisse Group AG.

The S&P 500 Index is up 17% from its March 23 close, after gaining in four of the last five days. But it’s been a turbulent time for stocks — and indeed, all asset classes — as market gurus and economists struggle to assess the impact of the global coronavirus pandemic. The Cboe Volatility Index, or VIX, ended at 57.08 on Monday and hasn’t closed below 40 since March 5. Compare that with its lifetime average of about 19.2.”

 

TNX has moved significantly higher in the overnight session.  The higher rates are confounding traders used to seeing the 10-year rates fall in tandem with the SPX.  UST is no longer a safe haven.

ZeroHedge remarks, “Last Friday, to bipartisan cheers – and one sole, rational dissenter who was promptly silenced after asking “if $6 trillion is fine, why not $350 trillion” – Trump signed into law a $2.2 trillion corporate, hedge fund and bank bailout fiscal spending package, which quickly became the main topic of the current new cycle. What was not at all discussed, purposefully so due to the complexity of the underlying math, is that in parallel to the Treasury’s 2 trillion package, the Fed received a green light to lend up to $4.5 trillion in new credit (which is where Kudlow’s misconstrued “$6 trillion stimulus” comment came from).

And as usually happens with matters Fed related, the fact that the Fed received permission from the Treasury to “stimulate” by more than twice the full amount of the CARES act, flew right over America’s head. Which, if to be expected, is lamentable, because by giving the Fed a green light to inject money at will, the US government officially launched helicopter money.

Or rather, “helicopter credit” as Wrightson ICAP chief economist Lou Crandall put it, and as Bloomberg further refined it, “a Multitrillion Dollar Helicopter Credit Drop.”

 

Gold futures confirmed the sell signal made yesterday as gold closed beneath the Cycle Top support at 1644.68.  This may be a very large decline as the Cycles Model suggests 6-7 weeks of decline ahead.

Bloomberg reports, “Russia spent more than $40 billion building a war chest of bullion over the past five years. Now, it’s calling it quits.

The central bank announced on Monday that it would stop buying gold starting April 1, but didn’t explain the move. Analysts say Russia already has a lot of gold stashed in reserves and likely doesn’t need more.”

 

Crude oil bounced back above 20.00 yesterday and this morning futures rose to a high of 21.88.  However, the Cycles Model posits that crude may continue its decline through the week of April 20.

Investing reports, “Is it crazy if you are a major oil producer to create a situation where the price of your product would have the worst quarter in history? A time where oil demand destruction is at the highest level in the history of the globe. The answer is yes!

President Trump told Fox and Friends on the Fox News Channel that both Russia and Saudi Arabia “both went crazy” in their oil-price war and that “I never thought I’d be saying that maybe we have to have an oil (price) increase, because we do.” “The price is so low now they’re fighting like crazy over, over distribution and over how many barrels to let go.”

 

 

 

 

March 30, 2020

3:45 pm

The NYSE Hi-Lo Index has not been able to close above the mid-Cycle resistance at -8.00 for the past week.  No buy signal here.

ZeroHedge remarks, “Shortly before the close on Monday, the New York Fed issued a surprise announcement according to which it pushed forward the start time of tomorrow’s month and quarter-end Overnight Reverse Repo operation to 12:30 PM ET from 12:45 PM ET, while keeping the end time of the operation at 1:15 PM ET, effectively increasing the operation time from 30 minutes to 45 minutes.

Why? The Fed explains:

This change has been made to ensure the Desk has sufficient time to obtain all bids from eligible counterparties on quarter end in light of remote working arrangements of eligible counterparties.

Yeah right, because those 15 minutes will “make or break” the quarter end repo.”

 

3:42 pm

Month/quarter-end rebalancing continues, but much weaker than last week.

ZeroHedge observes, “Last week, with stocks at 2016 lows, without a buyer in sight, with stock buybacks dead and buried, we first reported that according to JPMorgan calculations, some “$850 Billion In Stock Buying Is About To Be Unleashed” largely due to pension fund quarter-end rebalancing, which promptly served as the straw clutched by bulls everywhere who were hoping that with at least one set of investors forced to buy, the S&P500 may have hit a bottom, if only for the time being.”

 

8:30 am

Good Morning!

I wanted to start the week showing where we have been and how accurately this move was predicted over a year ago.  The only thing I didn’t account for was the speed of this decline.  I can assure you that the next four days will be even more intense than anything you have seen thus far.  The Cycles Model tells us the next pivot appears to be on Thursday, giving us a potential 4.3 day decline from Thursday’s high.  The Monthly chart shows the Cycle Bottom at 1416.15.  That may very well be the next target for this decline.

SPX futures are struggling to reach Friday’s close after a roller coaster ride over the weekend.  We may anticipate a turn down by mid-morning.

ZeroHedge reports, “Global markets started off the new week wobbly, with stocks around the world trying desperately to find firm footing even as the global coronavirus cases rose above 732,000 on Monday morning and are set to hit 1 million by the end of the week.

U.S. stock index futures see-sawed on Monday after a strong recovery last week, swinging between losses and gains after President Trump abruptly abandoned his ambition to return American life to normal by Easter raising fears of a larger economic hit from the slump in business activity. After opening more than 4% lower on Sunday, futures have stince staged a rebound, and were trading slightly above Friday’s close when stocks sold off after the Fed announced it would taper its Unlimited QE from $75BN to $60BN. Abbott Labs was a standout, jumping in early trading after unveiling a five-minute coronavirus test.”

 

VIX futures have receded over the weekend after trading inside Friday’s range over the weekend.  I don’t foresee VIX falling beneath Friday’s low at 61.80, however.

VIX needs to make another probe higher and it may be very fast.  I put the Fibonacci calculation that may provide us a reasonable target.

CNBC reports, “The Cboe Volatility Index (VIX), has become one of the most widely watched indicators of market sentiment in the world.

In theory, it works on a simple principle: It is a measure of the stock market’s expectation of volatility over the following 30 days based on near-term S&P 500 index options, both puts and calls.  The higher the number, the greater the expectation that market volatility will be higher over the next 30 days.

This week, despite a massive rally that saw the S&P rise nearly 20% from its Monday low to its Thursday high, the VIX remained stubbornly high, in the 60s, all week. These are levels that have been rarely since its inception in 1993.”

 

TNX has made a 72% retracement of its rally from the bottom.  It appears that the retracement may be over or nearly so.  The resumption of the sell-off in bonds alongside the decline in stocks will have many analysts trapped, since they have no where to go.

 

NDX futures turned positive this morning but not to new highs.  I put this chart up to show that the NDX hasn’t yet broken its long-term trendline.  The target for the next decline may be beneath 5000.00.

 

 

 

 

 

March 27, 2020

7:30 am

Good Morning!

I have a favor to ask.  I am considering re-opening my subscription service and charging for my daily blog again.  I had stopped charging for this part of my website due to other commitments that required me to be away for days at a time and the inability to give 100% might detract from its value.  Since then there are people telling me they have just found this (currently free) website and  the word seems to be spreading.

Is this a time to require people to subscribe again?  The viability of this website as a commercial enterprise is of secondary importance to getting the word out about what is happening.  Please email me at tonycherniawski@gmail.com to tell me your views.  Please, no phone calls.

 

SPX futures are down to a low of 2539.50 and appear to be in active decline into the open.  My Cycles Model suggests a potential decline of nearly 1000 points may be in the offing.  The amazing thing is that it could be accomplished in as little as 4.3 days!

You can see that the Head & Shoulders target and Point 6 of the Orthodox Broadening Top have been met.  Yesterday the SPX rose to point 7.  Point 8 of the Orthodox Broadening Top is likely to go well beyond the target listed in the chart.

ZeroHedge remarks, “The market moves are coming fast and furious now, and after plunging 36% from its all time highs about a month ago, stocks staged a furious rebound, rising 20% in just the past four days and entering a new bull market, with the return in just the past 3 days a stunning 18%. The last time stocks were up so much, so fast? In 1931… the depths of the great depression.”

 

VIX futures appear to be rising to new heights as projected in the chart.  The Cycles Model suggests the final peak of Wave [5] may take only a few days before subsiding, but may make a new all-time high in the process.

 

TNX may be concluding a correction of its initial probe higher, having already made a 78.6% Fib correction at 7.50.  Should it decline beneath 7.5, then 7.00 may be its target.  The rally may resume shortly.

CNBC reports, “The coronavirus crisis has brought another first to U.S. financial markets — negative yields on government debt.

Yields on both the 1-month and 3-month Treasury bills dipped below zero Wednesday, a week and a half after the Federal Reserve cuts its benchmark rate to near zero and as investors have flocked to the safety of fixed income amid general market turmoil.

It was the first time that happened in 4½ years, when both bills briefly flashed red and yields fell to minus-0.002% each. The readings Wednesday were well below those. The one-month traded at minus-0.053% while the three-month was at minus-0.033% around 2:35 p.m. ET.

 

USD futures continue their descent toward the lows.  The Cycles Model suggests a significant low may be made by mid-April.

 

WTIC futures have declined to a low of 21.52 as it begins its final decline over the next three weeks.  The final target appears to be in the single digits.  After having taken downside profits last week, it may be time to go short again.

 

Gold futures declined beneath the Cycle Top at 1641.17, putting it on a sell signal.  Gold may continue its decline through mid-May.  Be aware, gold is not a currency, it is a commodity that will be sold with all others as liquidity becomes scarcer.

 

 

March 26, 2020

9:20 pm

Here is the alternate Wave count that is now my primary view of the Elliott Wave structure thus far.  The decline of Cycle Wave I was 35.5% with a 37% (near-Fibonacci) retracement in Wave II.  The 17.2-day Cycle that I had been discussing ended at the close today and we are about to embark on another 17.2-day Cycle of a magnitude never seen before in history.

When completed, Cycle Wave III may cut off up to a Fibonacci 50% off today’s top  tick.  I currently estimate that this move may take place in less than one-half the 17.2 days left.

 

3:21 pm

BKX is on the rebound from a near-perfect 50% loss from its February 12 high.  You would think there’s not much downside left.  However, you would be wrong.  BKX Wave (5) target may be as low as 15.00.  Think about it.   The “Lehman Moment” hasn’t arrived yet, but may be waiting in the wings.  It’s got the same profile as the SPX Waves and Cycles.

ZeroHedge observes, “Something odd happened late last week: with the Fed unleashing an unprecedented bazooka of liquidity in the market, cutting rates to zero, and backstopping virtually every security, one of the most closely watched credit market indicators did the opposite of what it was expected to do.

We are, of course, talking about 3 month USD Libor which for better or worse (and at this point its replacement with SOFR in 2021 seems like a complete pipe dream) remains the reference rate for some $300 trillion in fixed income securities, and which instead of continuing to decline alongside other 3 month tenor securities (such as T-Bills) inexplicably proceeded to rise, and rise… and rise some more.”

By the way, this indicates that money market funds may break the buck.  Be alert.

 

12:04 pm

Here’s another view of the SPX with overhead resistance at 2620.00 in the Cycle Bottom and 8.6-year trendline.  I am developing an alternate view of the Waves that will account for the massive decline ahead.  More on this later.

I cannot urge you strongly enough not to be long in any of the traditional investment media.  What follows may be too devastating to consider.  I will be putting out some “safe haven” ideas later, but consider cash to be the safest of all.

 

10:34 am

SPX inverted on its 17.2-day Cycle, creating Wave (4).  If you thought that things would get bad at 2000, wait until you get this.  Should it follow the classic Cycle patterns, Wave (5) may take another 17.2 days!  I have been debating two target dates, April 10 and April 20.  Up until now I have been leaning toward the earlier one, because it seemed more “reasonable.”  After all, the standard target for Wave (5) would be equality with Wave (1) in time and distance.

However, any further declines will only heighten the panic of this bear market.   Therefore, I expect to see Wave (5) to be a multiple of Wave (1), especially if the decline extends the full 17.2 days.

 

9:00 am

A Record 3.3 Million Americans Just Filed For Unemployment Benefits

ZeroHedge reports, “The pace at which Americans are losing their jobs is absolutely breathtaking.  According to the Wall Street Journal, the largest number of new claims for unemployment benefits ever recorded in a single week prior to this year was 695,000 during the week that ended October 2nd, 1982.

So that means that what we are now witnessing is completely unprecedented, as The US Department of Labor reports a stunning increase of 3.283 million people sought initial jobless claims last week amid the virus lockdowns (almost double the expectation of a 1.7million increase).”

8:00 am

 

Good Morning!

SPX futures have already declined to a low of 2412.12, more than 6% from yesterday’s high.  However the “limit down” from yesterday’s close is at 2351.78 and the first circuit breaker kicks in at 2302.27, once the market opens.  There is over an hour left to the open as I write.

ZeroHedge observes, “Buy the rumor of the “Largest Rescue Package in American History”, one which will explode both the US deficit and US debt and unleash helicopter money by the Fed… and sell the news.

That’s what happened overnight, when after Senate passed the biggest 2-day rally since the Great Depression (the middle of the Great Depression, not the end of it mind you) just before midnight, U.S. equity futures slumped with European stocks and most Asian shares on Thursday as investors started to look past stimulus packages to the mounting human impact of the coronavirus outbreak. At the same time, the dollar slumped, government bonds and the yen advanced.”

 

VIX futures jumped to 67.06 thus far this morning.  This may be a reiteration of a prior analysis; the VIX appears to be targeting a potential high near 94.00.  Today is day 265 in the current Master Cycle.  The prior high at 85.47 occurred on day 250.  Should we see a new high today or tomorrow, it will get the nod for the Master Cycle completion.

Mark Hulbert at TheStreet comments, “The bear market will bottom on June 1. I write this with tongue partially in cheek, of course. No one can confidently predict the exact day anything will happen in the market.

Nevertheless, with sensible assumptions based on the VIX’s recent trading behavior, we can make a reasonable estimate that the bear market only has a couple of more months to live.

 

TNX appears to be consolidating after yesterday’s rise in rates.  The Cycles Model suggests rising rates may continue through the week of April 20, playing havoc with asset allocators.

Bloomberg comments, “In normal times, U.S. Treasuries are the ultimate safe haven. They are highly liquid and guaranteed to pay out. So when people want to hide out during periods of economic and financial market volatility, you can typically count on there being a strong bid for them. But in the last couple of weeks, the volatility has been so extreme, and the flight-to-cash so severe, that the market stopped behaving as normal. And popular trades involving arbing Treasuries and Treasury bond futures started to fail. On today’s episode, we speak with Josh Younger, a managing director at JPMorgan, who explains how and why it started to fall apart.”

 

USD futures are in decline, nearly “breaking the buck” this morning.   This puts the USD on a confirmed sell signal.  The Cycles Model suggests a possible new Master Cycle low on or near April 15.

CNBC reports, “The dollar weakened against a basket of currencies on Wednesday as a $2 trillion stimulus bill helped boost risk appetite, and reduced demand for the safe haven currency.

Stocks surged for a second day as U.S. senators were due to vote on a bipartisan package of legislation to alleviate the devastating economic impact of the coronavirus pandemic, hoping it will become law quickly.

Investors are also likely reducing dollar exposure ahead of Thursday’s jobless claims data, which is expected to show a surge in Americans filing for benefits as businesses close across the country in an attempt to curb the spread of the virus.

 

 

March 25, 2020 – Feast of the Annunciation

6:00 pm

2.5 Million Initial Jobless Claims Tomorrow?

Today the SPX turned down from its afternoon high at 2571.42, leaving what I thought may be an incomplete 17.2-day Cycle (minus a day).  My original target for Wave (3) was to be 2000.00, so that was also incomplete with one more day to go.  I resigned myself to being wrong about the Wave count and the timing until I read the following article.

ZeroHedge reports, “Last week’s initial claims print, which surged to 281K from a recent baseline of about 220K, while bad was nowhere near the apocalyptic prints some strategists had predicted in light of the massive closures of restaurants, retailers, lodgings, and virtually all other service establishments which have shuttered for the duration of the coronavirus pandemic.

Indeed, many now think that last week’s print was “low” only because the real hit was deferred to tomorrow due to processing delays and other logistical issues (countless labor department websites are only sporadically online amid the surge in traffic).

And while looking at tomorrow’s initial claims report reveals a historic surge in Wall Street expectations, with consensus now expecting up to 750K newly laid-off workers seeking benefits, according to Southbay, historically one of the most accurate labor market forecasters, tomorrow’s print will be a whopper at no less than 2.5 million!”

…It suddenly hit me that tomorrow would likely open with no bid.  We could easily go through the first two circuit breakers at 2391.42 and 2237.14.  Could the news be bad enough to go down 20% at least to 2057.14 in one day?  If so, the SPX now has a high probability of hitting the 50% retracement of the 11-year rally at 2030.00.  How?  Usually Wave 5 is either equal to Wave 1, or some Fibonacci multiple.  Wave 1 (402 points) times 1.382 equals 555.56, putting the proposed target at 2015.86.

If so, multiple things may happen.  First and foremost, a widely recognized Fib level will have been reached, with many concluding the decline to be over.  But that is only the end of Wave (3) of [1].

The Second is that Congress will finally pass the rescue bill, warts and all.  The third is that the Fed will go all-out again with the liquidity hoses tomorrow night and, finally, asset allocators and pension funds may finish their quarterly rebalancing before the end of the month…Wave (4) finally begins on time.

1:22 pm

The NYSE Hi-Lo opened at the mid-Cycle resistance at -4.00 this morning and has been persistently lower since then.  This has been a wild session, seemingly hanging on the cliff edge.  We should see the next decline begin in the next 24 hours.

 

1:13 pm – Make or break time

SPX has two possible outcomes (a third outcome may become apparent with more time).  The first is to make an 8.6-hour decline to complete Wave (3) in the 17.2-day Cycle.  Or it can invert within the next 8.6 hours…or at any time, completing the Cycle early.  The final decline in Wave (5) will take at least 8.6 days.  We may monitor it for an extension.  It is no coincidence that Wave (5) may be equal to Wave (1) which is 538 points in length.  In addition, the 50% Fibonacci retracement of the entire rally from March 9, 2009 to its February 19 peak lies at 2030.00.

ZeroHedge reports, “Earlier today we reported that one of the reasons why futures slumped after rising as high as 2,500 in the overnight session following the announcement that a fiscal stimulus deal had been reached between the White House and Congress, is that according to CHuck Schumer, the bill would “ban stock buybacks for the term of the government assistance plus 1 year on any company receiving a government loan from the bill.”

This spooked investors, who were afraid that the buyback backlash would affect more companies than just those on “government assistance.”

 

10:28 am

The brief rally at the open is gone, replaced by losses.

ZeroHedge writes, “Despite getting help from Boeing’s gains, The Dow has now crashed over 1000 points twice from the post-“we have a deal” highs… and is back in the red for the day…

This all has the stench of some major gamma pukes with VIX flying around right at the open…”

 

Good Morning!

SPX futures are negative this morning, in anticipation of a probable 2-day panic decline to 2000.00, or possibly lower.  One reason for yesterday’s massive rally is pension and allocation fund rebalancing.   The question is, have they shot their load, or is there more to come?

See the ZeroHedge article.  My guess is that a few brave managers have tentatively started to buy, with more to come.  But first, there may be two more days left in this decline (see the chart).  While the time may be cut short, the Elliott Wave structure remains unfinished and the 17.2-day time for this Cycle ends tomorrow afternoon.

Because I believe that rebalancing is not finished, there may be an opportunity to go long for up to 4.3 days at the end of this decline.

One clue that the decline may not be over is this Bloomberg article.

ZeroHedge remarks, “The event everyone was waiting for and knew was just a matter of time, resulting in Tuesday’s biggest one-day rally since 1933 – namely the Congressional taxpayer daylight robbery coronavirus bailout deal which started at $850BN and has since grown to $2 trillion (with an additional $4 trillion in Fed purchasing power) – was finally reached just after midnight on Tuesday and in the early minutes of Wednesday.  A vote in the Senate, as well as House approval are still pending.

The result was initial euphoria as the S&P jumped to 2,499 – the exact same high hit last on quad-witching Friday last week… before it rolled over as the news was sold…

… while Treasuries did the mirror image and rebounded with yields sliding to 0.81% as investors waited for details on government rescue packages to counter the hit from the coronavirus.”

 

VIX futures have elevated to a high of 68.86 this morning.  None of the media is touching this topic with a 10-foot pole.  I don’t blame them.  However, my Model still calls for a new high in the next few days.  Yesterday’s downstroke in the VIX may have been pension funds going back to the short volatility trade along with buying stocks.

 

Yesterday’s USD action has caused me to re-evaluate the Elliott Wave…and the Cycles Model.  It barely cleared the December 27, 2016 high at 103.82, so this high could not be the top of a Wave [2], but a Wave [5].  This breakout also indicates that the Cycle may go much higher.  Since it exceeded the daily and weekly Cycle Tops, I looked at the monthly chart, where the Cycle Top is currently at 106.33.  The Cycles Model proposes a Master Cycle (inversion) high on or near April 15.  In turn, this may prolong the SPX Master Cycle to that date, as well.

 

TNX is rising again, with the Cycle Top being the probable target.  This rally may be self-reinforcing as the Master Cycle may not end until the week of April 20.

Bloomberg reports, “U.S. loan applications for buying and refinancing homes plunged last week by the most since the global financial crisis, amid coronavirus shutdowns and related financial turmoil that pushed borrowing costs higher.

The Mortgage Bankers Association’s index of applications fell 29.4% in the week ended March 20, the biggest decline since early 2009. Home-purchase applications dropped by 14.6% while refinancing applications plummeted 33.8%.”

 

 

 

 

March 24, 2020

4:00 pm

Update:  VIX rose more than 25 points out of its 4th Wave low to close in the green today.  There may be nearly two full days of rally ahead for the VIX.

3:15 pm:  VIX has been giving us a wild ride, but it’s not over yet.  Today is day 263 of the Master Cycle.  The Cycles are allowed to expand and contract, depending on other indexes’ influence.  The final surge may be very quick and strong.  I’m using the SPX as guidance for the VIX.

2:55 pm

While the NYSE Hi-Lo is getting edgy, it is still in the bear camp beneath the mid-Cycle resistance.

ZeroHedge reports, “While the words all sound like he cares about “we, the people,” we can’t help but feel like President Trump’s true driver in his anti-virus efforts are focused on the only thing that matters – the stock market.

Having pushed the narrative all morning that he would like to see the economy re-open soon, CNBC’s Kayla Tausche reports that President Trump and VP Pence held an investor call this morning with Wall Street heavyweights to discuss the markets, the Federal Reserve, and economic reopening.”

While people question his motives, I believe that Trump is on the right track.

 

2:27 pm

Today’s action forced another look at the Waves/Cycles to verify my original thoughts.  Trendline analysis dictates that Wave 4 will touch the upper trendline after a long absence during Wave 3.  Contrary to my earlier calculations, this actually gives us nearly 2 more days of decline after today, not just one.  If Wave 5 is equal to Wave 1, we should see a Wave 5 of (3) low near 2000.00.  One modification is, it can go lower.

In terms of Cycles, Wave (3) will be 17.2 days in length.  Remember I observed that Waves (1) & (2) were 8.6 days in length.  An abrupt rally to 2710.89 threw me off, since it was short of the next 8.6 days.  That is why I concluded that, though the decline might last until Thursday morning, it might not be long enough to react.  The new calculation suggests that the Wave (3) bottom may not occur until Thursday afternoon, giving us plenty of time to exit our trades.

 

8:00 am

Good Morning!

You may have noticed the sparse commentary from me yesterday.  I had come down with a fever and a bad cough.  It was probably not the coronavirus, but my wife became worried as my temperature spiked to 102f briefly.  She was ready to pack me up and take me to the emergency room when my son, the nurse, told me, “Dad, if you go, be prepared to stay at least two weeks in isolation and the chances are you will get the coronavirus in the hospital.”

I thought the better of it and decided to wait it out.  An hour later my temperature dropped to 99.5f.  Crisis passed.  I am feeling much better this morning.  The amazing thing is how my family rallied around me and my wife with their support and prayers.  I have not felt so loved in a long time.

 

SPX futures went limit up overnight, but considering the 11% decline in the past two days, it was barely a 50% retracement.  Structurally, the SPX needs two more panic declines to complete Wave 5.  Each of them may be 10% or more.  The reason is, while there are 5 waves in the decline from the top of Wave 4, the middle Wave is the smallest.  There is one hard and fast Elliott Wave rule: Wave 3 (at any degree) cannot be the shortest/smallest Wave.  We are left with a complex, 9-Wave 5.   We have just completed Wave (iii) of [iii] of 5 with (iv)-(v), [iv]-[v] to go.

While the SPX may temporarily dip beneath 2000.00, I expect that level may hold this week.  Be prepared to take profits on Wednesday afternoon, in any event.  While the decline may last overnight until Thursday morning, it may be a trap for the unwary and exiting shorts with a profit may be difficult for the average investor in a chaotic open.

While this is only the bottom of Wave (3), there may be a short but nasty reprieve where the SPX rallies back to the trendline at 2600.00.   While the decline is not finished in total, a 30% rally can either be daunting for the shorts or profitable for a quick long play until the end of the month.  Your choice.

ZeroHedge reports, “With the market losing all gains since the Trump election on Monday, on Tuesday – assuming this rally holds – we may again see Dow 20,000 again… for the first time since the start of 2017.

One day after futures hit limit down to start the Monday session, when traders freaked out after Senate failed to pass the virus bailout bill, something it also failed to do on Tuesday, S&P futures have soared on Tuesday in a global relief rally following a delayed reaction from the Fed’s unlimited QE, and rising limit up to 2,333.5.”

 

VIX futures are lower this morning as they have declined a full 35% from last week’s high.  Structurally, the VIX is in need of another rally, so today and tomorrow are make-or-break days to complete the structure to its new high.  I am glad that I advised taking partial profits on VIX longs last week, although knowing what I now know, I would have advised closing out the trade completely.  Should the SPX make another two 10% down days, I suspect that VIX may at least approach the high if not exceed it this week.

Bloomberg reports, “The stock market and volatility are in the midst of an unprecedented synchronized swoon.

The S&P 500 Index has fallen more than 7% over the past two sessions while the Cboe Volatility Index, a measure of how much that benchmark gauge is expected to move over the next 30 days, tumbled by more than 10 points. Before this, there had never been a combination of a two-day equity drop of at least 5% and a VIX retreat of at least 5 points.

The dual declines could be a function of a market normalizing after high-profile blowups of short volatility bets, less demand to roll hedges after a major option expiry, or simple exhaustion. Record-setting levels of market fear aren’t easily sustained, and the drop in volatility expectations signals the most frenzied days of selling may be behind us.”

 

TNX is rising again after a 63.5% retracement of its rally.  This next rally will be capable of reaching the Cycle Top, if not higher.  This will put a serious crimp on government spending.  If not, it will hasten the collapse of governments around the world.

I suggest you read MartinArmstrong’s view on what congress is attempting.  I hope that Trump has the guts to stand up to them.

 

USD futures have pulled back after consolidating beneath the trendline yesterday.  This appears to be the completion of a slingshot move from the bottom.  The Cycles Model suggests a decline may follow through mid-April.

 

 

 

March 23, 2020

Good Morning!

SPX futures went limit down (2172.12) at yesterday’s open and has not been able to launch a meaningful bounce from the low.  Today may bring another 10% down day with further “limits down” on Tuesday and Wednesday possible.  Have you noticed that the Fed’s “unlimited QE” only brought the futures back to Friday’s close?

ZeroHedge, “Update: ignore all of the below, because moments ago, with futures near limit down, the Fed announced it would pursue an unprecedented open-ended QE, which helped push futures sharply higher and are now green on the session.

Bonds are bid across the board…

 

VIX futures rose this morning to 76.46.  Should the current Wave structure be correct, one may anticipate the VIX rising above 86.47, its previous high.  Wave (4) appears to be an expanded flat, suggesting that Wave B of (4) is higher than Wave 5 of (3).  There is no alternate view of this structure until further notice.

 

 

 

 

March 22, 2020

6:15 pm

SPX futures went limit down at he open this evening.  It has reopened at 9:30 pm and has bounced.

ZeroHedge reports, “Amid the usual last minute negotiations in Washington, spread markets suggested an ugly open for futures but FX trading in Asia was relatively subdued for once.

But, for now, no Congress agreement on stimulus means a lack of bids, so the US equity futures contract are limit-down 5%.

S&P Futs trade limit-down at 2,174 (when Cash opens: 7% 2128, 13% 1989.50, 20% 1828.50)…

 

4:00 pm

How thing have changed in the past month!  I am house-bound, but not anxious to venture out yet.  All of my conferences (not on the market) that I have scheduled through April 20 have been cancelled, but I may do either a video or possibly even do a live television program on the last conference in April.  I will keep you posted.  In the meantime, I will continue my daily blog as long as my health holds out.

Speaking of health, my second son has a masters degree in nursing and he has just signed a contract with a major regional hospital to run their hazardous duty team for the next 13 weeks, starting Monday.  My youngest daughter is also a nurse and she is assigned  to a surgical specialties unit, which may also be at risk.  I covet your prayers for them.

You may recall the report I did in January with the Fibonacci calculations.  What is amazing about this is both Fib calculations agreed.  I’ll keep this in mind for future reference.  Then again, it may never happen again.

The decline has challenged the monthly mid-Cycle support at 2299.29.  With four weeks behind us and three weeks of potential decline ahead of us it may easily hit the monthly Cycle Bottom at 1414.78 by mid-April.  This week alone could easily take the SPX to the February 2016 low at 1810.00.  Although I am happy to have taken partial profits last week, I am also eager to see what transpires this week.  My wife, on the other hand, is much less nervous about our account.

A word of warning.  VIX is due to make its top this week.  Don’t wait around for the next rally..it will already have been played out in spades.  The SPX may also rally hard for a few days after the decline ends (possibly on Wednesday), to the end of the Month.  It may be wise to take partial profits from the SPX short positions, as well.  Your profit was already made when you went short in February, then again on March 3.  It is comforting to have cash on the sidelines while the market is going against you in this volatile time, even if it is temporary.

 

March 20, 2020 – The Eye of the Storm

4:00  The Last Line of Defense is Shattered.

A few analysts were cognizant of the 8.6-year trendline at 2600.00 and the ramifications of crossing it last week.  However, this week, it was the Christmas 2018 low that everyone recognized as the last line of defense.  It was broken today, signaling there was more downside to come.  In fact, the worst may be just ahead.

ZeroHedge observes, “This has been the sharpest market selloff in history…

This was the worst week since Lehman (and worst 4 weeks since Nov 1929) for The Dow Jones Industrial Average…(Dow was down 18% during the Lehman week and 17.35% this week)”

 

11:12 am

The half-Cycle has either completed at 11:oo am, or is due to complete imminently.  Last week, as I mapped out the potential Cycles from  the high, I concluded that the Current decline could not make a bottom on options expiration.  However, I was not certain how the Cycle might be impacted today.   At 11:00 am, the SPX completed its corrective rally and may be ready for a severe decline over the next 4.3 days.

ZeroHedge reports, “Back in December we predicted that at the rate “Not QE” (RIP) was going, the Fed balance sheet would surpass it all time high by late April. It turns out that we were overly optimistic: with the Fed relaunching QE over the weekend as part of what is now global helicopter money, it announced plans to purchase $700BN in Treasury securities and expanding it to MBS earlier this week. However, that was not enough, and in the past week the Fed scrambled to stabilize the Treasury market buying TSYs feverishly hands over fist in addition to soaking up as much securities as Dealers had in its repo facilities, and as of this moment the Fed’s balance sheet has soared to a new all time high of $4.668 trillion.”

8:00 am

 

Good Morning!

SPX futures rallied hard in the overnight market to limit up at 2498.75, the 78.6% retracement of the decline from Tuesday’s high.  As of March 13, equities had completed two 8.6 day Cycles.  As of this morning, it will have completed a 4.3-day half Cycle.  The rest may be all downhill from here.  The fact that equities closed positive for the first time in weeks was noteworthy.

However, it is a false hope.  The Dealers and the Fed were only doing damage control for options expiration in the indexes, where the largest institutions invest.  The index options mature this morning, giving equities a possible 1-3 hours of respite.  FYI, the worst part of a crash is the last 4.3 days of a Cycle.  The irony is, there may be yet another down-Cycle following this one.

Bloomberg comments, “It was an unusual day on Wall Street Thursday. Futures on the S&P 500 avoided triggering any volatility halts, the whole market didn’t need to be shut off at any point, and a 15-month-old support line on price charts buttressed the bulls.

“A moment of relative calm,” said Gary Bradshaw, a portfolio manager at Hodges Capital Management. “Things just can’t keep on falling 8% a day.”

It probably won’t last, but for the first time in what felt like forever, stocks managed to trade without setting off any market-wide circuit breakers for the full 6 1/2 hours. Shutdowns like those, kicking in when losses reach 7%, happened twice before during the week, and twice last week. Overnight, limit-up and limit-down boundaries that put a stop to rallies and routs in index futures have gone off seven times since two Sundays ago. Not today.”

 

NDX futures soared to 7634.50, but have backed down by 100 points from the peak.  That suggests a 1-2 series of Waves may be complete, or nearly so at the half-Cycle.  The most probable outcome is an extended Waves 3-4-5 of Wave (3) in the next 4.3 day (crash Cycle).

ZeroHedge reports, “After a week of vomit-inducing limit up, limit down market moves, the week is set to end with another rollercoaster bang, as the notorious gamma-slashing quadruple witching – the expiration of options and futures contacts – coincides with the ongoing market volatility.

Having started off the overnight session on the backfoot, Emini futures then surged on Friday along with stocks and bonds globally in a day of solace for risk parity funds, as investors relished the unprecedented government measures to shield jobs and economies from the accelerating coronavirus pandemic, while the dollar slumped after a record-breaking eight-day rally. U.S. stock index futures firmed over 4%, with Nasdaq futs briefly hitting limit up at the end of another torrid week for financial markets that have been battered by growing evidence of the economic damage from the coronavirus pandemic.”

 

VIX futures touched the trendline near 65.00 this morning.  I had speculated  that the VIX may extend another day or so and now it appears that it may do so over the next 4.3 days, as another rally is due.  The upper trendline is near 95.00, but there is likely to be a throw-over in the event of a market crash.  Those of you who held their VIX longs may be in for a bonus.

 

USD futures have fallen to the trendline/Cycle Top support at 101.06 this morning, then bounced.  They have not reached the high of January 3, 2017, leaving the Wave structure intact.

What this may be telling us is that something is about to go horribly wrong with the USD, possibly confirming the Orthodox Broadening Top and its potential target listed in the chart.  The Cycles Model infers a probable 17.2 (market) day decline to mid-April.

Bloomberg reports, “The U.S. dollar tumbled from a record high, suffering its worst fall in more than four years, after a California stay-in-place order curbed greenback buying amid fears the world’s largest economy is headed for a recession.

The Bloomberg Dollar Spot Index slipped as much as 1.8%, pushed lower by California Governor Gavin Newsom ordering all of the state’s 40 million residents to go into home isolation starting Thursday evening. That marked the most stringent U.S. effort yet to curb the spread of the coronavirus, raising the likelihood of an economic shutdown akin to those seen in Asia and Europe.

It comes on the back of repeated efforts by global policy makers to stem the previously rampant dollar’s advance, with options pricing still indicating bullish sentiment among traders for the currency. The Federal Reserve established temporary liquidity-swap lines with nine additional central banks, including Australia’s and South Korea’s, to ease the dash for dollars.”

 

TNX futures fell to a low of 9.77 in the overnight market.  At the open it was already on the comeback.  The Cycles Model suggests a spurt of strength going into the weekend.   After that, the Model is unclear with the caveat that yields will be generally rising through late April.  Also understood is that, should TNX remain above the Cycle Bottom at 10.99, the April target may be the Cycle Top at 22.77.  The damage to the Treasury bond market may be enormous.

 

 

 

 

March 19, 2020

12:35 pm

BKX continues to make new lows as Wave (3) also needs a further decline to be complete.  Wave (3) may not be finished until next week.  Liquidity is at a premium, despite the Fed’s boost of the daily QE amount to $75 billion!

ZeroHedge remarks, “Overnight saw the addition of yet another four-letter-acronym bailout fund from The Fed but signals from the market suggest that they are once again losing control of the dollar-shortage-driven liquidity crisis as the FRA-OIS spread has started to rise sharply once again…

So, what does The Fed decide to do?

Simple – increase its daily QE buying of bonds by 66%, buying a record $75 billion of US Treasury bonds each of today and tomorrow.

 

12:11 pm

Yesterday’s investors in the Yen long took a small hit.  However, this makes it even more of a bargain.  While it may still decline to the Cycle Bottom at 90.00, the Yen appears ready for a rocket shot above 100.00, especially if someone yells, “FIRE!” in the crowd,

ZeroHedge writes, “Last week, following a series of unprecedented, shocking market moves, we explained that a big reason behind the decorrelated cross-asset rollercoaster was due to an unprecedented, the biggest ever VaR shock, that forced risk parity funds, which until 2 months ago were the most levered ever, to engage in an unprecedented liquidation and delever to levels that were more suitable for the current, well, market crash.

We thought there was no way this market-dislocating move could ever be repeated. We were wrong, because as we showed yesterday, on Wednesday markets just suffered the biggest balanced portfolio drop in history, surpassing both the insanity of last week and the global financial crisis.

This morning, in a detail postmortem of just this move, Nomura’s Charlie McElligott writes that the move shown above in the model “60/40” balanced portfolio may have marked the peak “sell everything” moment, with a record 15.5% drawdown in 18 days, which represents an 8-sigma move, and is the largest on record.”

It’s not over yet, Charlie McElligott explains, “But before the “all clear” sign is given, markets still need to clear the index and ETF “short Gamma” dynamic, which remains considerable due to the enormous S&P “Put Wing” flows. They also need to get through Friday’s “Quad Witch” expiry where Nomura calculates there is now the potential “for nearly 47% of the $Gamma to drop-off.”

What happens then?

Well, if a large part of the gamma drop-off were to materialize, Nomura expects that this “large decline in the gamma post-expiration” should allow markets to pivot back to a much more “neutral”/less extreme hedging stance for Dealers, “meaning incrementally less sensitivity to changes in underlying Delta and thus, forced hedging “momentum” (selling into selloffs, buying into rallies)—and could even ultimately move us closer to a place where “rich vol” may in-fact be sold again to Dealers, which could then mean a partial return to standard “long Gamma” insulating flows (hedging flows which buy dips, sell strength)—although CLEARLY still, all of this is subject to the progression of the Virus and the impact it will have on global growth and risk-sentiment.”

Thus, the sell-off may easily last through Tuesday morning.

 

11:52 am

SPX has retraced 62% of the decline that started on Friday at 2553.93 and has overlapped the decline from 2710.00.  This is not the start of a V-shaped rally out of the bottom.  Indications are that this may turn into the largest decline yet (at least in percentage terms).  The Wave count appears to be [i]-[ii], (i)-(ii) of 5 with the upcoming decline [Wave (iii)] estimated at over 400 points…and that may be conservative!

Yesterday, ZeroHedge observed, “It’s definitely a ‘deer in headlights’ day…

Stocks down, Bonds down, credit down, gold down, oil down, copper down, crypto down, global systemically important banks down, and liquidity down

Today was the worst day for a combined equity/bond portfolio… ever…”

 

 

10:17 am

While yesterday’s NYSE Hi-Lo Index (-2254.00) didn’t exceed last week’s low, this morning’s action proposes another attempt at a new low is possible.  Today is day 258 in the Hi-Lo Master Cycle, the same as the VIX.  While I left the indicator on last Thursday’s low, it may have been too early.  Today/tomorrow will tell us the outcome, despite the SPX attempt to go positive this morning.

8:00 am

 

Good Morning!

SPX futures went on another rollercoaster ride in the overnight market.  While not limiting down in the futures, the SPX shows extreme volatility that may erupt into another record panic down day.

ZeroHedge observes, “First the good news: for the first time in a week, there were no overnight limit up/down trigger halt in the S&P500 future.

Now, the not so good news: the global dollar margin call/short squeeze escalated even more overnight, resulting in total chaos in Asia, as multiple regional indices hit circuit breakers, the Korean Kospi was halted after falling more than 8%, Indonesian stocks triggering limit down at 5% and the Philippines market reopened only to drop 24% on the open triggering a circuit breaker. The panic dollar scramble also led to a flash crash in the Aussie, Kiwi and various other EM currencies as reported overnight.

Worse, this happened even as the Fed stepped in with yet another Lehman-era facility, a Money Market backstop (MMLF), which however did nothing to convince panic-stricken equity markets that a coronavirus-driven global recession could be averted, or to ease the record $12 trillion dollar funding squeeze, as measured by the surge in the FRA/OIS…”

 

VIX opened over 80 today as it may complete its Master Cycle on day 258.  However, it would not surprise me to see the Master Cycle to extend yet another day due to options expiration tomorrow.  Either way, today may be a good day to take profits on any long volatility products.  VIX is a leading indicator and usually tops out at the Wave (3) high in the SPX.

There are two possible outcomes.  The first is that VIX may top out today near 90.00, as prognosticated last week.  The second is, should VIX rise over 90.00, we may see it go to 100.00 or more.

Bloomberg reports, “The breakneck speed of the equity rout is its most terrifying feature. Now, volatility markets show that fears are shifting to how long the frenzied trading will last.

The VIX futures curve now resembles conditions that prevailed during the worst of the 2008 and 2011 market downturns, periods of persistently elevated swings in the S&P 500 Index.

VIX futures are tied to the Cboe Volatility Index, which tracks the 30-day implied volatility of the benchmark U.S. equity futures via out-of-the-money options prices.

The front of the VIX futures curve — the April contract — has risen furiously as markets cratered. That’s to be expected. But what’s different this time is how much longer-dated contracts are joining in on the move even though Wednesday’s selloff isn’t the most severe of this nascent bear market. This is a signal that investors are bracing for a prolonged stretch of massive price swings.”

 

TNX has backed down to test the Cycle bottom support at 11.11.  The correction may not last, as TNX may have a huge spurt higher through the weekend, according to the Cycles Model.

ZeroHedge remarks, “Amid relentless calls for a massive fiscal stimulus, the market apparently forgot that the stimulus will have to be funded somehow, and that moment came moments ago when Bloomberg reported that the White House is revisiting an idea to issue ultra-long bonds, including 50-year and 25-year bonds, as the source of funding.

According to the report Trump advisors are trying to come up with the lowest cost option to taxpayers, and that reportedly include the same ultra-long bonds which Mnuchin just two months ago said there was not market interest for.”

 

USD futures rose to 102.92 this morning as panic demand for the dollar continues.  It has surpassed the weekly Cycle Top and may be headed for the monthly Cycle Top at 106.31.  This will not be an all-time high as reported by ZeroHedge.  The all-time high was made at 121.21 in July 2002.  This appears to be a Super Cycle Wave (II) that has unprecedented ramifications when complete.

ZeroHedge observes, “As we reported yesterday, one of the recommendations proposed by repo “god” Zoltan Pozsar to restore dollar liquidity and eliminate funding and market stress, was for the Fed to effectively become banker to the entire world in the form of unlimited, 24/7 swap lines with every central bank, not just the current G7, to wit:

The Fed needs to broaden access to the swap lines to other jurisdictions as dollar funding needs are large in Scandinavia, Southeast Asia, Australia and South America, not just in the G-7.

Well, after an overnight session that saw currencies flash crash across Asia, notably the Aussie…”

 

 

March 18, 2020

1:07 pm

SPX has triggered the first circuit breaker with a 7% decline today.

ZeroHedge reports, “The dollar is screaming higher as stocks crash, triggering a Level 1 circuit breaker and a market-wide trading halt…”

 

11:50 am

As we wind down one set of trades. another set appears.  The Japanese Yen has pulled back from its initial rocket launch by 68.6% and may do a Wave 3 rally to 110.00 by mid-April.  ETFs are FXY and YCL.

 

10:20 am

VIX opened late and came down to challenge the upper 2-hour trendline. While the VIX is likely to extend, the Cycles Model calls for a top tomorrow.  If Wave 3 of (5) is equal to Wave 1, the target for Wave 3 appears to be near 97.00.  Should that happen, Wave 5 may exceed 100, something that has never been anticipated nor seen before.

 

9:45 am

Dow Drops Below 20k, Circuit-Breakers Imminent

ZeroHedge remarks, “After yesterday’s hope-filled day of gains on massive monetary and fiscal largesse, futures traded limit-down overnight and ETFs signaled a 6.5-7% loss in the pre-market but bounced to the futures-limit-down level at the open…

The Dow traded back below 20k…”

 

8:00 am

 

Good morning!

SPX futures went limit down during the overnight session, which may cause another halt at the open of the cash market.  The circuit breakers are at 7% (2351.00), 13% (2199.00)  and 20% (2022.00).

ZeroHedge reports, “After surging 6% yesterday, with the Dow briefly rising more than 1,000 point, traders once again got a reminder of what record high VIX means when overnight futures crashed again – despite the Fed’s launch of two Lehman-era crisis facilities, the PDCF and the CPFF – this time the selloff sparked by Mnuchin’s dire warning that the unemployment rate could hit a depression-era 20% in the absence of government intervention – and again plunged limit down with the SPY ETF currently hinting at a -6% open.”

 

VIX futures haven’t opened yet, but rest assured it is likely to open over 80.00.  Anyone owning VIX futures or VIX ETFs may wish to take profits near 90.00, since the inferred target appears to be 94.00.  Don’t attempt a top-tick as the VIX will be moving very quickly.  Better to sell as the VIX is still moving in the right direction.  Let the next buyer take all the risks.  If a panic really takes hold, VIX may approach or surpass 100.00.  However, please note that the Master Cycle is due to make its top on Thursday.  Anything after that has a risk factor far beyond the potential for gains.

VIX is a leading indicator.  It Bottomed at 11.71 on December 16, more than a month before the NYSE topped on January 20.  Therefore, it follows that VIX is already in Wave (5) while the SPX is still in Wave (3).  Be aware that VIX may remain high into April, but the top is likely to have already occurred by the end of this week.

ZeroHedge remarks, “Summary: The current VIX level indicates significantly negative returns ahead for S&P 500 and four times the normal volatility on a daily basis. In addition the VIX futures term structure suggests that traders are rewarded for being long and that VIX is expected to be very high even in May. Speculative positions in VIX options and futures suggest that short volatility positions have been cut aggressively but that 15% of open interest is still short.

* * *

Equity option markets provide investors with valuable information about expectations for volatility and the time value embedded. The VIX Index closed at 82.69 which was a new record close surpassing closing VIX prices during the Great Financial Crisis in 2008. However, the absolute intraday peak of 89.53 in 2008 has not been surpassed yet. Historical analysis of the VIX Index suggest that VIX at these levels puts the market into a state with significant negative return expectations and realized volatility more than four times the normal level combined with extreme large kurtosis. In other words, equities are biased towards more declines from current levels.”

 

TNX resumed it rally yesterday after a brief pullback.  This reiterates that the Fed is fighting a losing battle against higher rates.  However, there is resistance at the Cycle Bottom at 11.15 which may temporarily halt the progress of Wave 1.

Bloomberg reports, “European sovereign bonds led a global rout, with markets bracing for the kind of supply surge not seen for years, after nations unveiled spending plans of more than $1 trillion to fight the coronavirus crisis.

Dramatic jumps in yields amounted to a wide and deep re-pricing of the market, with investors selling debt across the board. Italian 10-year yields jumped as much as 64 basis points, before easing marginally on speculation the European Central Bank is buying the nation’s debt.

Rates on German 30-year debt surged to pop back above 0%, and those on 10-year U.S. Treasuries extended their advance during London trading after clocking up the biggest jump since 1982 on Tuesday.”

 

USD futures continue their rally over 100.00 this morning.  The Cycles Model suggests the energy portrayed in this rally may be due to run out by this weekend.  The Weekly Cycle Top is at 100.87 and may prove to be resistance against the rally.

MartinArmstrong comments, “The moves by the Fed on the weekend were really stupid. The market plunged for 2 days since their emergency measures and this is what undermines confidence. When capital begins to witness the failed measures by central banks as we have warned, this sets the stage for the slingshot which requires the sudden shock of the incompetence of central banks to manage the economy. This is the gist of the Central Bank Crisis. Reuters reported: Markets crater as coronavirus fears overwhelm central bank emergency measures.”

 

Gold futures slipped beneath the mid-Cycle support at 1510.87.  It may see a short-term low by the weekend or early next week.  The decline in gold may continue with gusto should it decline beneath the Broadening Wedge trendline at 1400.00.  The next 4.3 days may put gold into a panic decline, according to the Cycles Model.

Crude oil futures declined overnight to 24.22, a low not seen in 17 years.  There is no indication of a bounce in the Cycles Model, although there may be a brief rally at the end of the quarter.

Bloomberg reports, “Oil prices plunged below $25 a barrel for the first time in almost 18 years after Saudi Arabia made another shock-and-awe attack in its price war with Russia, vowing to keep production at a record high “over the coming months.”

Futures in New York fell as much as 9.1% to $24.49 a barrel, the lowest since June 2002. The last time crude traded near that level was when severe acute respiratory syndrome, or SARS, hit Asia. The price war between key producers continued to deepen as Saudi Arabia said it would pump about 12.3 million barrels a day for the coming months.”

 

 

 

 

March 17, 2020

4:00 pm

ZeroHedge observes, “Despite The Fed’s CPFF, banking system liquidity worsened…

Source: Bloomberg

AND…

‘Helicopter Money’ sent the the 10Y Yield soaring back above 1.00% today as yields exploded 30bps higher…”

 

3:30 pm

TNX illustrates the problem with the Fed as the 10-year yield has hit a new high.  No amount of money or jawboning is going to change this.  The new risk in Treasuries is the perceived creditworthiness of the US Government.  The 10-year Treasury yield has gone above 1.00 in the after-hour futures.

ZeroHedge reports, “Update (1420ET): Mnuchin is discussing a $1 trillion $1.2 trillion stimulus plan according to CNN‘s Manu Raju, who tweeted on Tuesday “White House, Mnuchin now discussing stimulus plan worth $1 trillion, per source familiar,” adding “Initial estimates of $850B increased after budget crunchers looked at numbers. Would include about $250B worth of checks for Americans.”

3:22 pm

The NYSE Hi-Lo Index is still in decline, though not as deep as last Thursday.  Tomorrow may be much lower as SPX experiences another Wave [iii] in Wave 5 of 3.

ZeroHedge reminds us, “Two weeks ago, on March 3, before a liquidity panic had gripped capital markets, corporations and global banks, Credit Suisse repo icon and former NY Fed staffer, Zoltan Pozsar issued a recommendation to halt the funding crisis early in its tracks, writing that the Fed should “combine rate cuts with open liquidity lines that include a pledge to use the swap lines, an uncapped repo facility and QE if necessary.” Unfortunately, since then the coronavirus supply chain (and payments) crisis has been joined by the oil price war, which has crippled the petrodollar exchange system by sending the price of oil sharply lower and exacerbating the global dollar funding shock.

And even though the Fed belatedly followed through with all of Pozsar’s March 3 policy recommendations, going so far as throwing a commercial paper bailout facility which was also recommended by BofA’s Marc Cabana (another former NY Fed staffer), the market remains unconvinced that any of this is enough, especially with JPMorgan warning  that the world is facing an unprecedented dollar margin call, as a result of the $12 trillion synthetic dollar short, some 60% of US GDP.”

 

3:00 pm

VIX made a new high at 84.83 this morning before pulling back to 70.37.  While this appears to be Wave 1 of (5) VIX may go quite a bit further.  This morning’s first probe in Wave (5) equals 1.78 times the length of Wave (1).  A reasonable target for Wave (5) may be 2X Wave (1) at 94.00.   Please remember, we haven’t been here in a very long time.  It could go even higher.

I took partial profits at 84.00 this morning since I had entered long just beneath 12.00.  Volatility is very “sticky” right now through options expiration.  The current Master Cycle in the VIX peaks on Thursday (day 258), the day after the VIX index options and futures expire, due to the unwinding of the gamma hedges.  However, it may extend over the weekend due to the retail investors and VIX ETF options expiring on Friday.  I suggest taking profits on the majority of your long VIX products on Thursday.  Let the late comers deal with the chaotic mess that is sure to happen on Friday.

ZeroHedge reports, “It’s ‘quad witch’ week, which historically has meant a collapse in vol and surge in stocks – no matter what the news. But, this week (and last) has been different, to say the least.

However, as Nomura’s Charlie McElligott explains below, this Friday’s option expiration may stall that chaotic volatility… at least to some extent.”

 

2:50 pm

Good Afternoon!

This website had server problems for the better part of the day.  I’m glad I wrote my piece last night which hopefully left you somewhat prepared for what has transpired.  The oversold condition has been relieved and the SPX appears ready for the next downward installment.

ZeroHedge observes, “The stock market is rallying, VIX is falling, and bond yields are rising modestly following The Fed’s decision to reinstate its Commercial Paper bailout facility (CPFF).

As Bloomberg notes, the spread of Libor to overnight index swaps should tighten as the Federal Reserve ramps up the reinstated Commercial Paper Funding Facility (CPFF).

Though we think the Fed and the Treasury are generally concerned about liquidity, a freezing of the CP market for industrial companies is a larger risk than for financial firms during the current crisis, in our view.

In 2007-09, asset-backed CP was the major risk, but today that’s less of a worry.

Industrial companies have few options other than CP for short-term financing, unlike financials, which can tap the discount window and other liquidity sources.”

 

 

March 16, 2020

11:20 pm

SPX futures went limit up from today’s closing low to 2498.75.  Tomorrow’s anticipated decline may achieve “point 6” of the massive Orthodox Broadening Top at 2252.00, declining beneath the December 2018 low at 2346.58.  It may not be another 10% down day in the cash market, but may still be as much as 10% down from the overnight high in the futures.

However, the decline may not be over, as this decline appears to be Wave [iii] of 5 of (3)…of [1]!  Wave [v] of 5 is still in the works and may not be complete until Thursday, at the soonest.  It may also do a repeat of the 1987 crash where it bottoms next Tuesday after a hellish options expiration.

Thus far we have seen 2  8.6-day Cycles from top-to-top, ending last Friday.  The Final Cycle will be from top to bottom.  If it lasts 8.6 days (60.2 hours), the bottom may be on Thursday morning, March 26.  At 6.14 days (43 hours), it may end on Tuesday Morning, March 24.  I cannot imagine it lasting only 4.3 days (30.1 hours), since that implies the market shuttering mid-day on Friday, in the middle of options expiration.  With massive shorts piling on today, the need for gamma hedging to pay those puts, short ETFs and short futures may be too much to stop the decline on Friday.

There will be more short squeezes as investors are finally recognizing the change in trend.  Just as they were too late in going long late last year and at the beginning of the year, they may find themselves too late in going short, with massive losses.  It may be wise to start taking profits by the end of the week to save yourselves the headache of picking a good time to cover while the short squeezes become more vicious.  With the market already down nearly 30%, we can soon afford to sit on the sidelines and let others do battle.

 

11:12 am

The NYSE Hi-Lo index is beginning to tell us that today may be a lot like Thursday…only worse.

A market closure may not help to stem the decline, only postpone it.

10:33 am

VIX is up 30% this morning, but not at a new high.  Friday morning’s high at 77.57 still stands, waiting the outcome of today’s decline in equities.  Should SPX decline beneath 2400.00, then we may consider Wave 5 in VIX to be underway.  However, if we see the decline in SPX pause, then we may see another corrective decline in the VIX.  There may be an effort to suppress the VIX going into Options expiration on Wednesday.  However, this appears improbable, as VIX is due for a Master Cycle low on Thursday/Friday.

 

10.12 am

SPX has another 10% down day…at the open, as warned, with a second circuit breaker at risk this morning at a 13% loss.  What is worse it that Friday’s low at 2478.00 has been taken out on a stretcher.

The situation remains fluid, even though both of the lesser formation targets on the chart have been met.  Should the decline stop at or near 2350.00-2380.00 we may see the last of Wave 5 of (3).  However, the Head & Shoulders on the Daily chart shows a minimum target of 2318.00 while point 6 remains at 2252.00 or lower.  Both targets are within the profile of a Wave (3) decline.

ZeroHedge observes, “US equity markets are opening down extremely hard this morning after futures traded limit-down from shortly after last night’s open.

@GreekFire23 summed up the stock market today best so far:

  • 9:30am : Ding Ding Ding! Trading open!
  • 9:30:00001am: Halted

The 10% surge in stocks to end Friday and provide hope into the weekend has been decimated…”

9:00 am

 

Good Morning!

I have had all future road trips cancelled until further notice, so I will be able to monitor this blog on a daily basis for the rest of this month.

SPX futures went “limit down” at the open yesterday.  The cash markets are likely to hit the circuit breakers at the open with a potential closure of the market for more than the stipulated 15 minutes.  This will increase the feeling of panic among investors as they may be trapped in an illiquid environment.  Wave 5 is likely to have a minimum downstroke of 400 points, as Wave 1 was 402 points in length.  In addition, we are approaching options expiration on Friday, which may increase the chaos, should this decline repeat the pattern of 43 hours (6.14 days) of decline.  This reminds me of the 1987 crash which dropped through options expiration as well.

ZeroHedge reports, “The Fed’s quarantative easing has failed.

After last week’s miserable Monday moves, we are running out “black Monday” designations, so we’ll keep today’s Ides of March action simple, especially since it is likely to recur for many weeks to come: just call it the Ides Of March Mondays Massacre.

With S&P futures promptly plunging 5% limit down at the Sunday reopen of electronic trading after the Fed quite literally “blew” its largest emergency intervention ever, which instead of calming markets only exacerbated the sense of panic and dread, this morning the SPY ETF shows what to expect, and it’s a disaster, as the S&P is indicated to open about 10% lower, which will be sufficient for at least one 15 minute trading halt when markets reopen at 930am.  The fact that Nike and Apple announced mass store closings, did not help, neither did Chairman Powell’s warning that US growth next quarter will be weak.”

 

VIX futures remain closed, but rest assured, VIX is likely to be making new highs at the cash open.  The Cycles Model suggests that the VIX may peak by the end of the week.  VIX is a leading indicator and is off-Cycle with the SPX.  Therefore we can assume that VIX may peak at or near the bottom of Wave (3) in the SPX.

ZeroHedge tells us, “VIX, Wall Street’s fear index, which has been nearing record highs in recent days, has failed to open this morning.

A notice on Cboe’s website said the opening for S&P 500 and VIX products has been delayed.

As indicated in a previous notice, due to a limit down state on the E-mini S&P 500 future the Cboe Options Exchange Global Trading Hours (“GTH”) session opening for SPX and VIX products has been delayed under Cboe Rule 5.20.

Cboe will send an update when the limit down state has been resolved and a resumption time has been determined.

VIX futures signal an open around 56 for spot VIX…”

 

TNX declined 20% at the open.  Traders must be pulling their hair out, what’s left of it.

Bloomberg reports, “Treasuries rallied and riskier bonds slumped with stocks after the Federal Reserve’s slashing of interest rates to near zero did little to placate markets.

The surprise policy move by the Fed led an effort by global central banks to provide liquidity for stressed markets. Yet in Europe, Germany’s haven bunds failed to gain traction, while Italian and Spanish bonds slid. The region’s equity markets slumped to their lowest in more than seven years, adding to a sense of panic among investors trying to gauge to scale of the economic impact of the coronavirus.”

ZeroHedge observes, “The Federal Reserve just moved us toward a world where central banks hold so much of government bond markets that nothing else matters. That’s a world where yields will stay lower forever not just for longer.

The Fed pledged to add $700 billion of bond buying after cutting rates back to the zero bound, and market reaction that followed hinted toward QE ad-infinitum.

The ECB will likely have to continue with its re-energized balance-sheet expansion and the BOJ at the very least is stuck with gradually adding to an already impressive pile of JGBs.”

 

USD futures have come down to the 50-day Moving Average and mid-Cycle support at 98.64 this morning.  Below that is the possibility of a panic down market in the USD.  The current Master Cycle is not due for a low until mid-April.

 

 

 

March 14, 2020

Here’s a brief course in pattern recognition.  In an impulsive market such as this, the Cycles work in distinct units of 4.3 hours/days weeks.  Wave (1) was 43 hours, while Wave (2) was 17.2 hours, Making a top-to-top Cycle of 60.2 hours.  Wave (3) was 47.3 hours while Wave (4) was 12.9 hours, making the second top-to-top Cycle 60.2 hours.

This leaves Wave (5) to go, which may be a barn-burner of at least 43 hours, or 6.14 days to the low, since the last Cycle ends at the bottom of Wave (5).  It may go as far as 60 hours or 8.6 days.   However, please note that it only needs to go 56 hours to complete a 25.8 day Cycle.  This compares with a 17.2-day Cycle that was seen in April 2000 and October 1987.

This decline (and bounce) has already completed nearly 17.2 market days.  That suggests a possible completion of the corrective rally off the bottom within a couple hours, if not already complete.  In addition, this decline may go straight through options expiration, which may be chaotic, to say the least.

Prepare yourself.  This week’s decline may be a monster.  Friday’s rally may have been due to the few short sellers taking profits along with the Fed’s liquidity injection.  However, the number of short sellers are still near an all-time low.  It is only now that short sellers will enter en masse.

ZeroHedge observes, “On the first day of this week, which would soon mutate into the worst week for capital markets since the 2008 financial crisis, we warned that markets are about to go full tilt for the simple reason that “there is no liquidity“, something we first highlighted at the start of the month when we pointed out “Two More Problems For The Bulls: Market Liquidity And Short Interest Are At All Time Lows.

ZeroHedge comments, “While many post-mortems will be written on what, despite Friday’s torrid 9% rebound, has been a historic, unforgettable week which saw the US stock market plunge the most since the worst days of the global financial crisis, one of the more detailed and impactful was that of Nomura’s quant Masanari Takada who put the week’s events in simple, easy to understand context: “In little more than the blink of an eye, the situation has come to look like the 2008 Lehman Brothers crisis all over again.”

Below we repost some of the key points from his note as we brace for another historic week, especially since something tells us – perhaps the Fed’s failure to normalize the funding situation – that the events from next week will be even more memorable.”

 

March 13, 2020

2:00 pm

It appears that my view of the Wave pattern was incorrect.  Equities are now completing Wave C of (4) and may soon be heading much lower.  The last installment of the POMO has been made with little effect beyond this morning’s surge.  The NYSE Hi-Lo is at -592.00 and still dropping.

ZeroHedge reports, “The result of the Fed’s first emergency POMO is out.

Less than half an hour after the NY Fed announced it would conduct six emergency POMOs staggered across the entire day on Friday, and amounting to a total of $37 billion in securities across the curve from 0 to 30 years, as per the following schedule:

  • 20 to 30 year sector at 10:30 – 10:45 am and 2:15 to 2:45 pm for around $4 billion each
  • 7 to 20 year sector at 11:15 – 11:30 am  for around $5 billion
  • 4.5 to 7 year sector at 12:00 – 12:15 pm for around $8 billion
  • 2.25 to 4.5 year sector at 12:45 – 1:00 pm for around $8 billion
  • 0 to 2.25 year sector at 1:30 – 1:45 pm for around $8 billion

… moments ago we got the result of the first POMO which targeted TSY bonds in the 20-30 year sector, and which not surprisingly was oversubscribed with $5.384BN in securities submitted for sale to the Fed, of which the maximum, or $3.999 billion was accepted.”

 

10:30 am

BKX also appears to be preparing for its final push down in this series.  It has already surpassed the Orthodox Broadening Top target, but it appears to be a Wave (3) target.  A possible target is the Wave [4] bottom at 55.99.

Good luck and good trading!

ZeroHedge reports, “We found it quite odd when, in the last week of February, JPMorgan – which just a few months earlier received a repo and “NOT QE” bailout for breaking the repo market  unexpectedly said it wanted to use the discount window again in hopes of breaching the stigma associated with the Fed’s liquidity facility that is best associated with the global financial crisis. Jennifer Piepszak, JPM’s CFO and the woman who certainly was involved in the bank’s decision to drain repo markets and eventually force the Fed to inject hundreds of billions in repo and QE4 funds thus ensuring JPM’s most profitable year on record, said the bank would borrow from the discount window from time to time this year and had discussed the plan with regulators. “We think this is an important step for us to take to break the stigma here.”

Two weeks later, we now know the reason behind JPM’s bizarre push to thaw use of the discount window: speaking to CNBC on Friday morning in an attempt to boost investor spirits and lift America’s confidence, Treasury secretary Steven Mnuchin urged banks to use the discount window, while noting that markets are working orderly and will stay open, while promising that markets and 401(k)s will be up a year from now and that “for long-term investors, this will be a great investment opportunity”.

 

10:34

The NYSE Hi-Lo Index appears to have washed out yesterday, but there may still be another exhaustion washout on Monday that may be deeper still.  Thus far we have seen all the margin accounts washed out.  However, when investors see the market losing ground again, there may be yet another panic episode early next week.

9:35 am

 

Good Morning!  My wife sent me to the store to get some “essentials” this morning.  Many of the shelves were empty.  Thankfully I followed some stockers around and got most of what she asked for.  The lines were 10-12 deep at the checkout.  This ordeal took two hours.  I came home to find three grandkids at our place as their school closed.  Later I heard on the radio that all Michigan schools are closed until April 5, by order of the governor. Interesting times.

SPX futures have rocketed to challenge the 8.5-year trendline again at 2600.00.  It appears to be Wave C of (4) with last night’s nosedive being a Wave B.  If correct, the retracement may already be over.  That gives us another day or two of panic selling to complete this Intermediate Cycle.  The rally is already back beneath the trendline.  This time we may see the broadest selling of the decline as sellers exhaust themselves with no bid on the other side.

ZeroHedge reports, “he stomach-churning market rollercoaster continues, although this time Friday the 13th may prove lucky for crushed  traders.

After collapsing to fresh cycle lows overnight, sliding below 2,400, or down a remarkable 1,000 points in just over three weeks, S&P futures have staged an even more amazing comeback and one day after a historic crash, the Emini is now trading limit up, stuck at 2,582  (or up 5%)…

… with the unhalted SPY (S&P 500 ETF) indicating buying pressure continues.”

 

VIX has pulled back in a Wave (4) that appears pretty shallow.  If correct on the SPX, the VIX may continue to the October 2008 high of 89.53, or possibly higher.  However, it may be over very quickly. Despite the limit up market this morning, the media calls for a recovery are a bit premature.  The reason is that panic down days come in clusters of 2 or more.

Bloomberg says, “The historic pummeling in stocks on Thursday sent volatility skyrocketing in a way that has always preceded stock rebounds.

The Cboe Volatility Index, also known as the VIX, closed at the fourth-highest level ever recorded. The gauge has never hit such an extreme point without the S&P 500 “immediately and sharply” bouncing by more than 10% over the next day or two, according to Nicholas Colas, co-founder of DataTrek Research.

“That needs to happen either Friday or Monday, or we are truly in uncharted waters,” Colas wrote in a note.”

 

TNX keeps doggedly rising despite the sell-off in stocks.  This co-ordinated decline in stocks and bonds is what I have been suggesting for over a month.  It appears that yields will continue to rise until mid-April, according to the Cycles Model.

MarketWatch says, “Amid frenzied trading over the past week, the $18 trillion U.S. Treasury market showed cracks that raised eyebrows across Wall Street, and finally led the Fed to funnel trillions into funding markets and tweak this month’s bond purchases.

Market participants say the cost to trade Treasurys with virtually identical terms but which differ in maturities by a few months has diverged sharply as traders struggle to buy and sell bonds in a hurry. This worrisome phenomenon underlines how volatility across Wall Street has seen trading volumes for older Treasurys slump even in the U.S. bond-market which is advertised as the deepest and most liquid safe-haven asset in the world.

“I have never seen moves like this in 35 years of trading. I’ve never seen anything like it. At this point, the market will get absolutely exhausted,” said Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities.”

 

USD futures bounced on the mid-Cycle support at 97.61 in overnight trading. However, it appears that the bounce may be over.  If so, the Broadening Wedge target may be in play.  The Cycles Model suggests the decline may last through mid-April.

 

Gold continues its decline beneath the 50-day Moving Average at 1587.50.  The decline may last longer than expected by many as the Cycle Model suggests it may not find a bottom until mid-May.

 

 

 

 

 

 

March 12, 2020

10:00 pm

The Dow Jones Industrials had their 10% panic down day today, as mentioned in the past two weeks.  It appears that it may meet the target for the smaller Orthodox Broadening Top in the next day or two, leaving the possibility of yet another panic down day.  This time everyone will be selling into a climax, creating an exhaustion series of days where everyone “dumps” their shares.  19000.00 would be easily reachable.

Perhaps the target for the larger Broadening Top may also come into play, although I suspect that it may wait until April.  Interestingly, Good Friday may usher in the low for this Cycle.

ZeroHedge remarks, “Last June, when stocks were merrily grinding higher without a care in the world, and certainly oblivious of the crash that was about to slam global markets half a year later, we explained why South Korea’s massive autocallable issuance could be “ground zero” of the next vol catastrophe.

In retrospect it wasn’t: the proverbial “black swan” of the next crisis turned out to be a Chinese black bat, but that doesn’t mean that the world is now safe from what could be a potential volatility tsunami, triggered in South Korea and which sends global markets far lower than where they are now.”

 

1:42 pm

While the TNX has declined, it has been nowhere near the bottom on day 253 of the Master Cycle.  From this action I must conclude that Monday may have indeed been the Master Cycle low at day 250.  We now have a bitter struggle between the Fed, who wants to keep rates low to save the stock market and bond investors who have a rising fear of default by the US government.

ZeroHedge reports, “Maybe there is a reason why the Fed announced its massive, $1 trillion repo expansion and QE 5 moments before today’s 30Y auction: perhaps the NY Fed was worried that without it, the auction would (not) have failed due to the total collapse in bond market liquidity (as discussed earlier).

In any case, with the Fed firing its bazooka, at 1pm the US Treasury announced the result of today’s $16BN 30Y auction, which despite coming in at the lowest yield ever of 1.320%, down from 2.061% just one month ago, was a whopping 4bps tail to the When Issued 1.28%, which according to our files, may have been the biggest tail on record, and confirmation that absent the Fed’s Bazooka the auction may indeed have failed, starting the collapse of the US as we know it.

That said, the internals were surprisingly strong, with the Bid to Cover sliding from 2.428% to 2.358%, if on top of the 6 auction average, while Indirect buyers took down 69.5%, the second highest after Jan 2018, even as Directs tumbled from 19.4% to 8.9% leaving Dealers holding 21.6%, up from 19.1%.

Overall, a passable 30Y auction, if one whose whopping tail confirmed that it may have been this close from failing had the Fed not stepped in moments earlier with QE5.

Earlier, ZeroHedge commented, “When we looked at the bizarre move in Treasury futures last night, which culminated with an unprecedented dislocation between bonds and stocks, as the ultra bond future tumbled alongside stocks and which prompted BofA today to point out that the Treasury market is on the verge of breaking, we asked if “a big macro fund got carried out”, especially after the unprecedented divergences observed between cash TSYs and the TLT ETF as well as the Treasury cash/future basis.

Incidentally, this confirms our observations from last week when we noted “Rumors Of Macro Fund Failure Amid Ultra Long Bond Explosion“, however back then we said that “the good news was that there was no blow out in the cash/futures basis yet”, although we noted that it’s “only a matter of time before the cracks do emerge, at which point the only question will be who it is that just blew up.”

MartinArmstrong responds to a reader, “Yes. We will most likely come to another credit crunch at the end of the quarter. This time we have a confrontation between real interest rates, which are rising due to credit risks that is part of the Repo Crisis, and the artificial lowering of rates under Keynesian economics to stimulate demand irrespective of credit risk. We are facing a true clash of the free market v the fake market.”

 

1:20 pm

SPX did a quick rebound, challenging the 8.5-year trendline at 2600.00 by ramping to 2660.95.  However, it could not maintain elevation and is now beneath the trendline again.  This was a monster 160-point spike, indicating a large player either bottom fishing or attempting a rescue of another player.  It appears that the low will be tested by the end of the day.

ZeroHedge observes, “After increases in its repo facility twice already this week, from $100billion to $150billion to $175billion per day, and adding added a new 1-month term repo facility, the New York Fed just fired its biggest bazooka since Lehman, by announcing a total of $1 trillion in 3-month repo over two days, while expanding not-QE to QE4 as the Fed officially starts purchasing coupon Treasuries as part of its POMO operations.

For some context of how that compares to what they have been doing…

The selling may not be over.  ZeroHedge comments, “We detailed last night the surprising collapse in both stock and bond prices in yesterday’s markets, suggesting strongly that a Risk-Parity fund must have blown up, being forced to delever.

As Morgan Stanley notes, there are signs of a breakdown in stock-bond correlation, with stocks underperforming 10-year yields by nearly 5 standard deviations yesterday.  This puts stress on all multi-asset portfolios, but Risk Parity funds in particular are likely struggling, having the worst 3 day period on record…

As a reminder, Risk Parity funds are the class of the systematic strategies that are likely still running high leverage – 50th %ile since 2012 and 70th %ile since 2005 on QDS’s model.”

10:10 am

The NYSE Hi-Lo Index has just crashed below 2000 net new lows in the NYSE out of 3200 issues.  Today is day 251 of the Master Cycle, so there is still room to decline further.

ZeroHedge observes, “In a stunning report published this morning by BofA’s Marc Cabana, the rates strategist warns that the US Treasury market is no longer functioning properly, and will “likely requires a rapid & large near-term policy response from the US Treasury or Federal Reserve” to get back to normal.

Prompting BoA’s stunning admission that the world’s most liquid market appears broken, was the unexpected plunge in Treasury futures which we discussed yesterday

… with Cabana perplex by the 11bps surge in 30Y bond yield even as the S&P declined 5%: “In a risk off environment it would be expected to see UST yields decline; yields appear to have been overwhelmed by liquidity concerns yesterday.

 

10:03 am

SPX resumed its decline after the first circuit breaker stopped trading for 15 minutes, hitting a low of 2508.93.  It is now retesting the 8.5-year trendline at 2600.00 (now shown on the daily chart)that defined the lows for the last 8.4 years.  The projected April low will be just shy of 8.6 years from the October 4, 2011 low.

ZeroHedge reports, “Update (0950ET): US Cash markets have reopened after the 15min halt and S&P is extending losses notably…

Meanwhile, in Europe, the Stoxx 600 just crashed 10%! Its biggest daily drop ever…”

 

9:45 am

There is no safe haven here.  Gold futures are down to the 50-day Moving average at 1586.04 and on a sell signal.   It made its Master Cycle high on Monday at 1704.30 and is racing for the bottom.  Its projected low may be near 800.00 or below.

ZeroHedge observes, “This is liquidation – system-wide…

Gold has been dumped back below $1600 on the back of almost 100,000 contracts

That is $16 billion notional sold through the paper markets.”

 

9:37 am

SPX is down over 7% within minutes of the open.  The market has shut down for 15 minutes as the circuit breakers kick in.

ZeroHedge reports, “It’s a Monday morning replay. S&P cash markets have opened down 6.7%, triggering the first system-wide circuit-breaker, causing markets to halt trading for 15 minutes.”

 

9:20 am

Fed Injects $198 Billion Via Repos To Unfreeze Paralyzed Funding Markets

ZeroHedge reports, “Update: shortly after the Fed injected $95BN in liquidity via two term reports (a 2-week and the first 1-month op), it also announced $103.1BN injected via the overnight operation, which means that the Fed has injected a combined $198BN in liquidity as funding markets freeze.

* * *

Forget equities: the far more important funding markets are locking up.”

8:00 am

 

Good Morning!

SPX futures dropped 5% overnight, bouncing on the 8.55-year trendline that defined the lows for this rally.  A decline beneath 2600 breaks the uptrend.  In the meantime, stocks are now in a bear market, having declined 23% from the top.

ZeroHedge reports, “At 9pm on Wednesday evening, president Trump took the emergency step of addressing the nation to describe how the US will defend itself from the spreading pandemic and to calm America’s fears over the coronavirus. It did not work out as expected, because moments after Trump announced a 30-day travel ban for European flights to the US, global stocks plunged into a bear market, oil crashed, airline stocks and treasury yields plunged, and US equity futures eventually tumbled limit down.

With the pandemic wreaking havoc on the daily life of millions, investors were disappointed by the lack of broad measures in Trump’s plan to fight the pathogen, prompting traders to bet on further aggressive easing by the Federal Reserve.

“He (Trump) did not announce any new concrete measures such as a large-scale payroll tax cut to buffer the economy against the impending coronavirus slowdown,” said Jeffrey Halley, senior market analyst at OANDA. “That has probably disappointed markets more than anything.”

As a result, S&P 500 futures once again hit their lower trading limit a day after the Dow Jones Industrial Average formally entered a bear market, ending the longest bull-run in history for American shares.”

 

VIX futures reached a new high at 62.99 this morning.  However, the rally in VIX is not over yet.  Today is day 251 in the Master Cycle, suggesting there is more upside to come.

 

USD futures reached an overnight high of 96.96, suggesting the bounce is not yet over.  However, the period of strength may be finished, allowing the USD to resume its decline later today.

ZeroHedge reports, “The surging demand for repo liquidity – and massively expanded bailout facility size by the New York Fed – suggests there is a major global scramble for USD funding, and today’s price action in the archaic money markets exposes it has now reached extremely alarming levels.

Surging cross-currency basis swaps (measuring how much investors are willing to pay to swap their currencies for dollars for 3m) signal something has snapped…

Remember, this global ‘basis’ is what The BIS describes as better-than-VIX for signaling global fear (or greed).”

 

TNX futures are back down to a low of 6.77 this morning.  Today is day 253 of the Master Cycle, allowing yet one more probe lower.  We may not know the outcome until early next week.

 

BKX is already down 37.5% from its high.  It appears to be consolidating and may continue its decline.  It appears that the liquidity crisis may worsen through options expiration, with the final low due in mid-April.

ZeroHedge reports, “Earlier today, we reported that Boeing shocked the investing community when it announced that due to “market turmoil”, it would immediately draw down on its full $13.825 revolving credit facility, an unprecedented move for a company Boeing’s size and valuation, and one which was some took as an indication of how frail Boeing’s liquidity state was, ostensibly confirmed by Boeing’s surging default odds measured by its 5Y CDS.

We disagreed: after all, why would Boeing rush to draw attention to its own funding challenges by fully drawing on its revolver when it knew full well that it had access to the money, safe and sound, located at its syndicate banks…  unless of course Boeing was in fact worried about the viability of said banks. AS a result, we said that the real reason Boeing did what it did was simple, especially to those who recall what happened in 2008 all too well: Boeing is worried that banks will pull their committed funding, which in turn means that Boeing appears to be worried that a 2008-style financial crisis is imminent, and is shoring up all the liquidity it can, so as not to remain at the mercy of its banks which may refuse to extend it credit at any one moment if their own liquidity is threatened.

Which is why we also concluded that now that Boeing, “one of America’s most valuable companies, has shown which way the wind blows, expect thousands of less creditworthy companies to follow suit as they scramble to cash in on every dollar in available revolver funding before the banks pull it.

 

The NYSE Hi-Lo Index shows the deepest low so far on Monday.   However, this morning may change that.  In addition, the Master Cycle doesn’t seem to end until March 19, the day before options expiration.  This reinforces the possibility that the next low in the SPX may occur after options expiration, not before.  The Hi-Lo usually is the slowest to indicate a bear market, but is quick on the recovery.  If a recovery occurs early next week, we will go with that.  However, it appears that options expiration may be truly chaotic.

 

 

 

 

 

March 11, 2020

12:28 pm

On Monday we saw the NYSE Hi-Lo Index hit its lowest since October 2008.  However that was only day 248 of the Master Cycle.  In other words, we could see a low near or even below the 2008 record of -2891.00.  There are about 3200 issues listed on the NYSE, so we may see a complete wipeout in the next few days.

 

12:20 pm

Liquidity Getting Worse By The Day: Fed Injects Record $132 Billion With Overnight Repo

ZeroHedge reports, “Mot much new to report this morning regarding the daily Fed’ repo operations that we didn’t already cover extensively yesterday in “Funding Freeze Getting Worse: Dealers Demand Record $216BN In Liquidity From Fed Repo“, except to note that while we wait for tomorrow’s upsized term repo operation, today’s overnight repo, which as a reminder was recently upsized from $100BN to $150BN…

… saw the highest amount of both bids and accepted securities since the central bank resumed the offerings in September as the liquidity crisis is clearly getting worse by the day. Specifically, dealers submitted $132.375BN of bids at 1.10% vs a maximum of $150b, which was not only up from Tuesday’s total bids of $124BN, but also the highest in overnight repo history!”

8:00 am

Destruction

NorthmanTrader observes, “I  sense there is a tendency right now to say that this correction is just similar to the Q4 2018 correction. And it’s true on the surface you can make that argument. 20% decline on $SPX, oversold readings similar on several indicators and all that could make the case for business as usual.

After all the Fed has cut and will cut some more and stimulus bazookas will get launched all over the place. I get it.

But I want to add some nuance to all this and that is to state clearly: This is not anything like the Q4 2018 correction. It’s worse, much worse and it’s left utter destruction in its wake and I want to highlight some of this so everyone can get get an appreciation for what just happened and why we may not expect a magic recovery similar following December 2018.”

 

Good Morning!

It’s good to be back.

SPX partially retraced its first of a series of panic down days to challenge the Head & Shoulders neckline at 2855.64.  It was stopped by the 43-week Moving Average (not shown) which was about 20 points higher, instead.  It fell short of the 38.2% retracement, only retracing 36.8%.  This market takes a lot of patience because one would expect to take short profits after an 8% down day.  However, there are more to come and positioning for he next downdraft is tricky.  One is better off staying short until the decline is complete, especially if one is tempted to go long at the bottom.  A lot of bottom fishers are already ruing their mistake.

SPX futures are back down well beneath the neckline and have begun what may end as another panic down move.  The first decline took exactly 30 hours from top to bottom.  Should this next decline take the same amount of time, we may not see the next low until Tuesday morning, completing Wave (3).  The Head & Shoulders target is now in play.

Bloomberg reports, “Wednesday brought another day of reversals in many major markets, with U.S. stock futures dropping, the dollar weakening and Treasury yields falling after surging a day earlier.

Contracts on the S&P 500 Index declined more than 2% after the U.S. administration failed to offer details on what President Donald Trump said would be “major” measures to combat the economic impact of the coronavirus. The Stoxx Europe 600 gained as the European Central Bank indicated it may act as soon as this week and the Bank of England cut rates. But the benchmark trimmed the advance as travel and leisure shares dropped and Adidas SA slumped after warning the coronavirus would cut profit.”

ZeroHedge reports, “First the good news: after S&P futures crashed limit down on Monday, then rebounded limit up on Tuesday, on Wednesday the market volatility has been more contained and futures have so far failed to drop or surge by the 5% limit. Now the bad news: after yesterday’s tremendous surge after Trump promised late on Monday that he would unveil a “major” stimulus package on Tuesday, only to be a no-show yesterday and failing to outline any tangible steps, the futures rollercoaster is back, with the Emini down sharply overnight, sliding by over 2.6% and cutting yesterday’s gains in half.

“Despite the hopes for fiscal stimulus everywhere, we see significant downside risks,” said Guillaume Tresca, a strategist at Credit Agricole SA in Paris. “As long as uncertainties remain on the number of cases, and central banks’ actions and fiscal stimulus plans are not lifted, we see few reasons for a protracted and long-term rebound.”

 

VIX futures are now back above 50.00 again as hedging become the predominant play.  The Cycles Model suggests the VIX may peak early next week, so this is in line with the SPX model making its next low.  The next low may feel mor like a bottom, but the model indicates the decline may resume through early April.

Bloomberg reports, “The Cboe Volatility Index surged to the highest since 2008 on Monday as a plunge in oil prices frazzled traders already on edge over the coronavirus.

The VIX, which measures the 30-day implied volatility of the S&P 500 based on out-of-the-money options prices, jumped as high as 62, its highest level since December 2008 on an intraday basis.”

 

TNX is consolidating after yesterday’s bounce.  Today is day 252 of the Master Cycle.  It is due to make its low on March 17, so we may see yet another panic decline in yields in that time period.

ZeroHedge reports, “Mortgage applications in the US exploded by 55.4% last week as rates collapsed to record lows amid global growth fears and monetary policy response expectations.

Source: Bloomberg

The massive spike in applications was dominated by refinancings, which jumped a stunning 78.6% WoW, new home mortgage apps rose 5.6% WoW.”

 

USD futures have come down to the 95-handle, beneath the Broadening Wedge trendline.  The target shown on the chart is now in play.  The Cycles Model suggests the decline in the USD may continue through mid-April.

 

While there are 5 Waves evident in the BKX, the Cycles Model suggests a way to go yet before the decline is over.  The Weekly chart contains a much larger Orthodox Broadening Top in which the target for the smaller Broadening formation shown here would only be point 6.  Given that, we may infer that the new decline starting today may be Wave [iii] of 3 of (1).  The ultimate target in April when the Master Cycle is expected to bottom, may be at or below 60.00.

 

 

 

 

 

March 5, 2020

Good Morning!

I am taking a few minutes before leaving for a conference in St. Louis.  SPX has declined beneath mid-Cycle support at 3069.90 and testing the 200-day at 3051.45.  The neckline lies 200 points below, which opens up the probability of at least one panic down day of 10% or more.

ZeroHedge reports, “Yesterday, when discussing the most oversubscribed overnight term repo operation yet, in which dealers scrambled to obtain $111.5BN in liquidity from the Fed’s $100BN overnight repo operation, we said that it was “the second day in a row the overnight funding repo operation was oversubscribed (and it is virtually certain that tomorrow’s downsized term-repo will be oversubscribed as well).

We were right, because moments ago not only did the Fed announce that the latest 14-day term repo was indeed oversubscribed, but it was in fact the most oversubscribed term-repo on record, surpassing even the funding needs indicated at the start of the repo crisis last September.

While the Fed tapered the size of the term-repo operation from $25BN to $20BN as we entered March, the demand for the liquidity it unlocks has not only refused to go down, but has in fact soared, and rose to an all time high of $72.6BN consisting of $45.25BN in Treasurys, $2.5BN in Agency and $24.8BN in MBS tendered to the Fed.”

 

 

 

March 4, 2020

2:20 pm

Crash Alarm Flashing Red As Cross-Asset Correlation Soars

ZeroHedge notes, “On Sunday, just hours before a torrid, desperation-inspired wave of buying sent the Dow Jones nearly 1,300 points higher, its biggest one day gain ever, we warned that the market is on a precipice, with both short interest…

… and overall futures liquidity…

 

1:48 pm

SPX feels like an arcade game with the ball bouncing off the walls, so its good to know where support and resistance is.  In this case, the SPX rallied back to the Orthodox Broadening Top trendline at 3100.00 and has since pulled back.  No new high was made, but it’s helpful to know where support and resistance is.  The Head & Shoulders neckline should be taken out in the next day or so.

I will be leaving for St. Louis tomorrow morning and won’t return until Tuesday evening.

I have been asked by several readers who have found this blog about subscribing.  For the time being, there is no charge due to an irregular schedule.  However, I may re-post the subscription information and go back to a private blog in April.

ZeroHedge remarks, “…some might say Biden trumps Powell…

The Dow, S&P, and Small Caps have erased all of yesterday’s losses…

But bond yields continue to tumble…”

 

8:55 am

This Wasn’t Supposed To Happen: One Day After Fed Rate Cut, Repos Signal Record Liquidity Shortage

ZeroHedge reports, “Yesterday morning, when we discussed the sudden spike in liquidity shortage that resulted in both a (record) oversubscribed term repo and the first oversubscribed overnight repo since the start of the repo crisis, we said that “if going solely by the amount of securities submitted between the term and overnight repo, the overall liquidity shortage today was nearly $180BN, the highest since the start of the repo crisis, and a clear signal to the Fed that it needs to do something to further ease interbank lending conditions.

Less than an hour later the Fed cut rates by 50bps in its first emergency intermeeting action since the financial crisis.

So with its emergency action now in the rearview mirror, did the Fed manage to stem the funding panic that has gripped repo markets following last week’s market bloodbath? The answer, if based on the latest overnight repo results, is a resounding no.

Moments ago, the Fed announced that its latest repo operation was once again oversubscribed, with the full $100 million amount of repo accepted.”

8:00 am

 

Good Morning!

SPX futures have made a 62% retracement of yesterday’s decline from 3136.72.  It  challenged the mid-Cycle resistance at 3067.65 and appears to be reversing.  Yesterday’s high appears to have completed an 8.6-day high-to-high Cycle, making Waves (1) and (2).  Wave (3) may be a 1.62 multiple of Wave (1), approximately 862 points.  It may also happen in 8.6 market days.  So, if you think the last decline was fast, this one may be faster and deeper.

ZeroHedge remarks, “Futures have staged a miraculous recovery after yesterday’s historic drop – the biggest ever on a day when the Fed cut rates, and are up some 70 points from yesterday’s close…

… and Dow futures were up a delightfully appropriate 666 points…

 … as investors decided to forget all about the Fed’s panicked emergency rate cut and instead took solace from the surprising “Biden Bounce” during Super Tuesday which saw Bernie’s odds for re-election crash, shelving risks of a socialist America, while expectations of an even more forceful global policy responses to the coronavirus kept hopes alive that central banks are just getting started.”

 

VIX futures declined to a low of 31.80 in the overnight session.  This was within yesterday’s trading range, so no new lows were made.  However, traders are piling back into the short volatility trade like there’s no tomorrow.  This is actually indicative that sentiment hasn’t changed, which may fuel the oncoming rally in VIX.

Bloomberg observes, “Just before the Federal Reserve’s move to shore up confidence with an emergency rate cut, one of the bull market’s hottest stock trades was already staging a spirited comeback.

By one metric, investors are shorting volatility with a fervor not seen for years, in the wake of an equity sell-off that sent an implied measure of fear soaring to the highest since August 2015.

After the swiftest market correction in history, the U.S. central bank delivered a half-percentage point interest rate reduction Tuesday to forestall the economic fallout spurred by the virus.

That could be just the ticket for the growing cohort of volatility shorts on Wall Street — if the monetary medicine revives the bull market.”

 

TNX is consolidating near 10.00 after making its Master Cycle low yesterday.  If correct, we may see a slingshot move that may go considerably higher than most can imagine.  The slingshot may go to the Cycle Top at 21.89 in just a matter of a few weeks.  This may force the Fed’s hand to create a two-tier system to keep pumping liquidity to the banks.

Bloomberg reports, “As market volatility goes through the roof, investors are ducking for cover in exchange-traded funds tracking short-term bonds.

BlackRock Inc.’s $18 billion iShares 1-3 Year Treasury Bond ETF, ticker SHY, attracted nearly $660 million on Monday, the fund’s biggest one-day inflow since 2015, according to data compiled by Bloomberg. Roughly $6.8 billion has flowed into short-dated debt ETFs — which feature bonds maturing in three years or less — so far in 2020, while longer-term funds have drawn in $4 billion during the same period.

The demand is two-fold: A still-insatiable appetite for haven assets, while investors also try to shield their portfolios from unprecedented interest-rate risk. Anxiety over the coronavirus outbreak’s economic impact sent 10- and 30-year Treasury yields to record lows. That drop has pushed duration — a measure of sensitivity to rate changes — to a record.”

 

USD futures are consolidating within yesterday’s trading range.  The Cycles Model suggests the next week offers opportunities for very large moves to the downside.  These moves may exacerbate the problem for foreign stock and bond investors who may see a double erosion of market value coupled with a currency decline.

(Reuters) – The U.S. dollar fell across the board on Tuesday after the U.S. Federal Reserve cut interest rates in an emergency move designed to shield the world’s largest economy from the impact of the coronavirus.

Though Fed Chair Jerome Powell reiterated his view that the U.S. economy remains strong, he acknowledged that the spread of the virus had caused a material change in the U.S. central bank’s outlook for growth.

“The virus and the measures that are being taken to contain it will surely weigh on economic activity, both here and abroad, for some time,” Powell said in a news conference shortly after the central bank said it was cutting rates by a half percentage point to a target range of 1.00% to 1.25%.”

 

 

March 3, 2020

2:39 pm (revised)

SPX is back beneath the 200-day Moving Average at 3049.07 and beneath 3000.00.  The decline cannot help but accelerate after the Fed overdid the rate cut, to no avail.

The Wave structure comes together very well.  The Head & Shoulders formation gives us the target for Wave (3), possibly due on March 20 and the Broadening Wedge, which matches or exceeds the December 2018 bottom.  The Orthodox Broadening Top target meets or exceeds the February 10, 2016 bottom, possibly due on or around April 10.  There will be a few twists and turns along the way.  Hopefully we will be able to avoid the major land mines with the Cycles Model.

 

11.57 am

TNX has hit an important milestone where (C) = 50% of (A) at 10.62.  The 10-year yields are very oversold and due for a terrific reversal.  However, the Fed cut may take the 10-year to 8.47 where (C) = 61.2% of (A).

ZeroHedge remarks, “Did The Fed just swing from omnipotence to impotence?

Ramp Capital@RampCapitalLLC

The Fed cut rates and the market dropped.

Time for the Fed to go full Costanza and raise rates.

 

9:55 am

The decline may have begun right at the open.  The 200-day Moving Average lies at 3049.25.  Beneath that is very bearish.

 

9:10 am

Liquidity Panic Is Back: Fed’s Repos Massively Oversubscribed Amid Market Turmoil

ZeroHedge reports, “Update: Just in case we needed another confirmation that there was a sudden, unexpected liquidity clog in the interbank market, Dealers submitted a record $108.6BN in overnight repo, resulting in the first oversubscribed overnight repo operation since October (recall the total size of the overnight repo was reduced from $125BN to $100BN).

This means that, if going solely by the amount of securities submitted between the term and overnight repo, the overall liquidity shortage today was nearly $180BN, the highest since the start of the repo crisis, and a clear signal to the Fed that it needs to do something to further ease interbank lending conditions.”

 

8:00 am

Good Morning!

SPX futures rose precisely to the Orthodox Broadening Top trendline at 3100.00 in the overnight session.  Since then, it has backed away.  The dead cat bounce appears to be over.  However, there may be a few hours left of an attempt to go higher.

Yesterday’s move was so large that only the weekly chart can show it with appropriate supports and resistance.  The bottom occurred within a very short distance of the weekly mid-Cycle support at 2868.73.

ZeroHedge remarks, “Buy the rumor of a global coordinated bailout; sell the lack of facts.

Less than 40 minutes after the G7 call of finance ministers and central bankers stated, the G7 issued a statement, which as Reuters warned, was a disappointment because while it vowed to use “all appropriate policy tools including fiscal measures where appropriate”, but stopped short of promising interest rate cuts or other immediate rescue measures.”

 

VIX futures did not make a new overnight low and are trending higher in the premarket.  It appears that the next probe higher may surpass the February 2018 high at 50.30.  The 2015 high at 53.29 may also be surpassed.  The next Master Cycle high is due in two weeks, during options expiration.

CNBC reports, “ETF efficiency.

That became a notable theme during last week’s blistering sell-off, according to industry leaders. The action marked the U.S. stock market’s worst week of performance since the depths of the 2008 financial crisis, fueled by fears around the global spread of the coronavirus.

“There’s 2,400 ETFs,” Chris Hempstead, director of institutional business development at IndexIQ, told CNBC’s“ETF Edge”on Monday. “They all held up remarkably well. … Everything really held up well in this market, and the verbiage that was being communicated to me by liquidity providers was ‘orderly,’ and that’s important.”

USD futures have bounced up to the mid-Cycle resistance at 97.62 in the overnight session.  The Cycles Model suggests a brief period of strength today, followed by new lows in the next week.

 

TNX has bounced this morning, signaling the potential end of the decline and termination of the downtrend, as well.  The Cycles Model suggests a potential inversion during options week.  The sentiment to the downside is so overwhelming that no one is prepared for a barn-burner rally.

FXStreet reports, “Bond-investing giant Western Asset Management Co. thinks the US treasury bonds have reached a top following last week’s panicked buying in reaction to the global spread of the coronavirus.

The rally seen last week has set Treasuries up for a fall, Michael Buchanan, the firm’s deputy chief investment officer, said Friday, according to Wall Street Journal. ”

 

 

 

 

 

March 2, 2020

12:00 noon

This chart goes to prove you need to watch all the degrees of trend.  The daily chart shows a new potential Head & Shoulders formation at Friday’s low.  Currently the SPX is back-testing the 200-day Moving Average at 3048.10.    However, it could go as high as the mid-Cycle resistance at 3066.66.  The new Head & Shoulders gives a nod to Point 6 which has been posted for about a year.

ZeroHedge observes, “Will jawboning alone do it?

The market is now pricing in a 50bps cut in March (was 75bps earlier today)

And for now the algos are panic-buying pavlovian-styel, with the Dow up 1000 points off the overnight lows…”

 

10:50 am

The next downswing (panic) may begin in the next hour.  It should last 8.6 hours with the Broadening Wedge target as a minimum.

8:00 am

 

Good Morning!

SPX futures were on a proverbial rollercoaster over the weekend.  Based on the Wave Structure and the Cycles, there may be two potential days of panic (10% down days) to ensue.  The reason I say that is because 8.6 market days of decline will be complete by mid-day tomorrow.  I am using the weekly chart to illustrate what must happen in those two days.  The absolute minimum target is the Broadening Wedge target of 2572.00 as shown on the 2-hour charts.  This will break the trendline from October 4, 2011, at or near 2600.00.  It may go as far as Point 6 at 2252.72, or at some point between.

ZeroHedge observes, “A lot has happened since Friday’s cash close, which itself was a furious 600-Dow point squeeze on expectations of a coordinated central bank intervention… that never came.

On Sunday night, US equity futures initially tumbled after Powell failed to satisfy rumors that he would make an emergency rate cut announcement ahead of the 6pm trading open; however, subsequent jawboning attempts by the BOJ and BOE that they are ready to stabilize markets helped futures surge above 3,000.

“The market is coming back because there is perception that there will be a coordinated G7 policy response,” said BlueBay Asset Management’s head of credit strategy David Riley. “We have Fed and ECB meetings coming up in the next couple of weeks. The Fed is the key one and it will be very hard for them to hold off (from rate cuts) if we are in a situation where the economic downsides are becoming more prevalent.”

Alas, it wasn’t meant to last because once Europe opened, futures tumbled as much as 100 points in just over under three hours as traders felt compelled to make their case for 2 rate cuts to the Fed’s front door.”

 

VIX futures are also on a rollercoaster with a high at 43.77 and a low at 34.54.  This kind of volatility cannot last and must be resolved.  Unfortunately it may end badly, since the decline hasn’t been long enough for a majority of traders to “switch gears.”  As a result, there isn’t enough short interest to take profits and sustain a rally at  the bottom.

MarketWatch reports, “Did the VIX just flash a contrarian buy signal? I’m referring, of course, to the CBOE’s well-known volatility index. VIX, +1.65%   Considered by many to be the U.S. stock market’s “fear index,” the VIX is widely interpreted in a contrarian way: High levels indicate widespread fear, and therefore thought to be a positive sign — while low levels indicate widespread complacency, which is negative.

That’s why contrarians began to take notice in late February when, in the wake of the stock market’s plunge, the VIX soared to near 50. That’s the highest it’s been since 2011, and higher than almost 99% of all daily readings over the past three decades. (These historical comparisons are based on the VIX’s closing, rather than intraday levels.)”

The NYSE Hi-Lo Index closed at a new low on Friday.  The market has suffered too much internal damage with only limited short interest.  This is not a good sign.

ZeroHedge reports, “While on any other occasion last week’s selloff, which as we detailed extensively on Saturday included the puking by virtually every investor class which until recently was “all-in” risk assets, and has pushed the market to record oversold with the Put/Call ratio surging to a level that traditionally suggests a near-term bottom has arrived…

… this time it may be a more difficult for the oversold bounce to emerge, for two main reasons.

First, as the following chart from Deutsche Bank shows, overall liquidity for S&P500 futures has fallen to all time lows even though the S&P was trading near all time highs as recently as a week ago. As such, the recent melt up levitation was nothing more than a mirage, propelled mostly by stock buybacks among the Top 5 tech stocks and fickle retail investors, and once these were removed, the market entered the proverbial “trapdoor opening” formation. The problem is that virtually no liquidity, extreme moves to the downside are now very likely which in turn creates a reflexive relationship with risk sentiment, as the lower the liquidity and greater the selloff, the higher volatility surges leading to even lower liquidity, even more selling and so on. In short: absent central bank intervention, it will be virtually impossible for any major player to arrest the market’s collapse.”

 

TNX futures made a weekend low of 10.30.

ZeroHedge reports, “It was just Friday that Goldman finally gave up on its bizarrely optimistic global outlook that it had adopted in late 2019, and instead of seeing no rate cuts – or hikes – in 2020, the bank’s chief economist Jan Hatzius capitulated, and said that the Fed will likely cut at least three times in the first half to offset the global economic slowdown due to the coronavirus, late on Sunday, just 48 hours after its first rate forecast revision, Goldman has officially thrown in the towel on even a trace of optimism for the foreseeable future, and now expects not only the Fed to cut 4 times by the end of Q2, but also cautions of a a high risk that the easing it expects over the next several weeks could occur “in coordinated fashion, perhaps as early as the coming week“, which of course is disappointing for all those who were hoping the Fed would step in as soon as Sunday afternoon/evening.

In justifying the implosion of its outlook, Haztius writes that “on Friday morning, we downgraded our baseline view of global GDP growth in 2020 from just over 3% to around 2% on the back of developments related to the coronavirus, with weakness concentrated in the first half of the year. We also changed our Fed call to project 75bp of rate cuts by June, starting with a 25bp cut on March 18.

 

USD futures continue their descent to a new low at 97.31, crossing the mid-Cycle and 200-day Moving Averages at 97.61.  The declining USD is not making stocks or bonds attractive to overseas investors.

 

Gold futures bounced from the 50-day Moving Average at 1560.63 over the weekend to retest the Cycle Top resistance.  It, too, is making wide swings that warn of a severe breakdown.

MarketWatch observes, “Gold prices have been acting a bit strange lately, with the haven metal plunging in the face of a dive in global stock markets hit by the spread of COVID-19 and its impact on the economy in China and around the world.

The precious metal usually finds support as a drop in the stock market tends to lift the haven appeal of gold, with benchmark stock indexes in the U.S., Europe, Asia, Canada, the Middle East and Latin America suffering losses for the week.

This time around, however, given the steep stock-market declines, gold has become the asset of choice among investors to generate cash. “Investors are selling anything with a bid and running for cover, and that includes typical hedges like gold,” said Brien Lundin, editor of Gold Newsletter.”