October 19, 2020
The NYSE Hi-Lo Index rose to its mid-Cycle resistance at 574.00. Further resistance is the 50-day Moving Average at 62.50. This is selling territory, provided we don’t see it rise above the 50-day by day’s end. That, plus the VIX rising above 28.00 puts the SPX on a sell signal again. This may give us some whipsaw, but that’s the price of being early. Most traders won’t sell/go short until the SPX declines beneath the 50-day Moving Average at 3403.60. The top of the Master Cycle occurred on October 12. The end of a Master Cycle gives us a minimum of 3 weeks in the opposite direction.
SPX declined to support at 3475.00. Beneath this may be an appropriate sell trigger with confirmation at or below 3403.60. It appears that Friday’s Gamma run was used to protect options positions at 3500.00. With options expiration behind us, there may be little incentive to maintain that level.
ZeroHedge reports, “US equity markets have very quickly erased their overnight gains on no obvious news-driven catalyst this morning.
Nasdaq Shorts Crushed By Second Biggest Short-Squeeze In History
ZeroHedge reports, “At the end of September, we observed that the sharp if brief selloff in tech stocks last month has resulted in the second-highest ever pileup of shorts in the Nasdaq, and warned that a short squeeze was imminent:
Amusingly, none other than SoftBank tried to give the squeeze some juice, when it reverted to its notorious massive call spread buying strategy in early October that defined the epic meltup of August when it emerged that Masa Son’s conglomerate had bought tens of billions in call premia in an attempt to ramp up its recently purchased stocks for its tech portfllio.”
SPX futures are on a runaway Gamma train, as SPX calls are purchased, provoking dealers to buy the underlying asset in a repetitive loop. The use of leverage makes this doubly dangerous, as massive numbers of shares may be dumped when the reversal occurs. What started as a “rescue” of the options market from Thursday’s drop has now gained a life of its own…for now.
ZeroHedge reports, “Bulls will breathe a sigh of relief that on the 33-year-anniversary of Black Monday (when the Dow dropped 22.6% on this day in 1987) futures are sharply higher, at least for now.
Emini futures rebounded from Friday’s drop, undoing most of the late Friday swoon, climbing alongside shares in Europe and most of Asia, on the back of what the media called “renewed optimism” about the progress of fiscal stimulus talks when what really happened is that on Sunday, Nancy Pelosi set a Tuesday ultimatum for more progress with the White House after lengthy discussions at the weekend with Treasury Secretary Steven Mnuchin. In other words, not only was there no progress, but after tomorrow, there may no longer be any “optimism” either until after the election. None of that mattered to algos, which pushed the S&P 0.8% higher, while TSY yields rose, and oil and the dollar declined.
NDX futures rose to a weekend high of 11947.50 before easing back. It had bounced off trendline support on Thursday near 11850.00. In fact, that may provide a sell signal once the trendline is breached.
Black Monday is on people’s minds on the 33rd anniversary (to the day).
ZeroHedge observes, “The following exchange took place between President Reagan and reporters after the market close on Black Monday, October 19, 1987. Leaving to visit the First Lady in the hospital, President Reagan spoke just after the market lost over 20 percent of its value on the day.
Q: What about the market? Tomorrow will it go down again?
President Reagan: I don’t know. You tell me.
Q: Is the market your fault?
President Reagan: Is it my fault? For what, taking cookies to my wife?
President Reagan: I just told you. Good Lord, we reduced the deficit over last year by $70 billion. And all the other things I’ve told you about the economy are as solid as I told you. So, no, I have no more knowledge of why it took place than you have.”
VIX futures are higher this morning, which may be an indication that all is not well. Yet the Master Cycle low on October 9 tells us that the rally off the trendline may continue through the election.
TNX rose higher this morning and may challenge mid-Cycle resistance at 7.94. As mentioned previously, TNX may have been on a secular uptrend since early August. A breakout may confirm that view with the rally potentially continuing until Thanksgiving week.
USD futures appear to have fallen beneath the 50-day Moving Average at 93.32 this morning. Should it persist below 93.00, the Cycles Model suggests a falling USD through election day.
October 16, 2020
The Wave pattern turned more complex. (What do you expect for options expiration?) The new probable target is near 3520.00, but the 78.6% retracement is at 3526.53. The retracement may be over by noon.
Robinhood Raises Margin Requirements On “Widely Held Stocks” As Election Volatility Nears
ZeroHedge: “Just hours after the Robinhood reported a massive hack, an email surfaced on Twitter showing the company warning users about an imminent increase in “margin maintenance requirements for several widely-held stocks” which was to be implemented before the market open on Friday.
The warning, titled “How margin is changing ahead of the 2020 election,” was tweeted by Packy McCormick, a millennial daytrader, around 22:00 ET Thursday.
“If you hold any of the affected stocks on margin, your buying power may decrease or your account may be in a deficit after these changes go into effect. If you end up in an account deficit and you don’t resolve it by the end of the trading day on Oct. 16, you will be issued a margin call. If you do not resolve the margin call, we may need to sell off some or all of your stock to cover the call,” the warning continued.”
SPX futures are mildly higher, with a potential final price near 3495.00. There is a possibility of maintaining price levels under 3500.00 for the rest of the day. But if it fails, the outcome may be a panic decline reminiscent of March. The declining wave is incomplete and requires at least one more push down to or below the 50-day Moving Average at 3394.82.
ZeroHedge reports, “US equity futures were modestly green in a quiet overnight session, as optimism about a fresh stimulus package collapsed, while investors assess the potential return of lockdowns in Europe as the region struggles to contain the virus spread. S&P 500 futures were little changed, while Nasdaq contracts rose 0.2%. Eminis were up 0.2% to 3,482 boosted by Boeing and Pfizer shares (see below) which helped push futures on the S&P 500 and Dow Jones Industrial Average into the green after they drifted most of the day. Treasuries held gains, while the dollar slipped with crude oil.
NDX futures were unable to close the gap at 11985.00 this morning. This is a good indicator that the sellers maintain the upper hand, despite the bounce.
Bill Blain offers these thoughts, ““Tell him I’ve just worked out a completely new strategy. It’s called running away.”
Not a lot to cheer in markets this week as politics and Covid dominate the stage. The slide in European stocks highlights increasing concerns for what look likely to become a double dip Virus hit. Rising US job claims suggest it’s also going to suffer a second pandemic knockback. On the other hand, companies are still making money, the global economy pootles along and investors will see dividends from sectors having a “good pandemic” remain strong. The world is divided into winner and losers: the Occident vs Orient, Tech and Services vs Hospitality, Property and Travel.
Interesting comment from Goldman which says it’s time to buy value stocks and sell some Tech. They say is due to some mumbo-jumbo about three-four month trading patterns they observed back in the last crisis regarding reversals into cyclical shorts, but to be honest life is literally too short to read analyst’s turgid prose. I suspect most bank research is written to please compliance officers, and approved by committees to make sure no one is offended.
But the thing is – I totally agree! Time to sell some Tech.”
VIX remains flat this morning. The risk to equities hasn’t appeared yet. However, the Cycles Model suggests a particularly strong finish to options expiration and lasting into next week. There is a remarkable similarity between the month of February and the current setup in the Cycles.
TNX is higher this morning. This may be a reaction to the strong bounce in equities yesterday and overnight. It is due for a Trading Cycle low early next week, so there may be an about-face and decline finishing off options week.
USD futures are down this morning, but may also resume their rise during or after options expiration.
October 15, 2020
Four hours ago I underestimated the market’s ability to keep rebounding. Despite nearly erasing nearly all the losses from this morning’s gap down, there appears to be at least one more decline in store. This is not the time to take our downside profits. Tomorrow may be a real mind bender.
SPX may be completing its bounce which puts the mid-Cycle support and 50-day Moving Average at 3395.21 in play. Things may get messy for the bulls beneath that level, especially with options expiration for indices, stocks and ETFs due tomorrow.
ZeroHedge discloses, “A double-whammy of ‘soft’ Mnuchin confirmation that a fiscal “deal” pre-election is unlikely and the reacceleration of COVID-19 restrictions and closures across Europe, sparked a significant ‘risk-off’ move overnight with Nasdaq almost erasing all its gains for the week…
you cannot overstate the Gamma impact on the overall market of those single-name mega-cap Tech options expiring tomorrow”
The NYSE Hi-Lo Index sank to -5.00 at the open, confirming the sell signal issued yesterday. Momentum has fallen off a cliff as dealers scramble with the gamma reversal.
ZeroHedge observes, “Amid the stock slide this morning, tech is getting hit especially hard, and one key driver for this is the overnight downgrade of the tech sector from Overweight to Neutral by Goldman Sachs, to wit:
We make four sector changes: we upgrade Banks and Autos to Overweight (bothfrom Neutral), and we downgrade Tech to Neutral and Food, Beverages & Tobaccoto UW (from Neutral). We also take off our long-held Long view on our Digital Economy basket(GSSBDIGI). We add a Long recommendation on our Recovery (GSSTRCOV)basket vs. SXXP. This joins our Fiscal Infrastructure spending basket (GSSTFISC),which we continue to recommend.”
SPX futures fell to 3433.88 in early trading, leaving a potential Island Reversal. This raises the certainty of the reversal turning into a panic decline. Today is day 258 in the Master Cycle. In reality, the top was made on Monday, day 255. The New Master Cycle appears to have 17.2 days until its terminus, the day after the election. Seat belts buckled?
ZeroHedge reports, “Just as “stimulus (and covid vaccine) optimism” was the go to “explanation” for the market’s ramp in the past few weeks, so “stimulus (and covid vaccine) pessimism” is being trotted out to “explain” when stocks unexpectedly don’t melt-up overnight. And sure enough, one day after stocks sank when Steven Mnuchin told the Milken Institute Global Conference yesterday that “getting something done” on stimulus before the election “would be difficult”, the selling accelerated overnight in S&P futures which dropped over 1%, as Europe’s biggest cities clamped down to curb the virus and hopes wilted for new stimulus from Washington.
Hopes for a U.S. package to boost the coronavirus-hit economy before the presidential election next month have also fizzled out after U.S. Treasury Secretary Steven Mnuchin said such a deal would be difficult.
NDX futures fell to an overnight low of 11737.75, leaving a potential Island Reversal in the NDX, as well. Going into options expiration, dealer gamma may have turned negative, forcing even more selling in a virtuous loop of even more selling. Heaven help those who are leveraged. They may be the next target.
ZeroHedge comments, “Two days ago we discussed Tuesday’s berserk, 4% meltup in the Nasdaq, which was the result of a double whammy as both dealer gamma (which was net short) and net spec NQ futures positioning (which was extremely short), were squeezed sending the tech index 4% higher.
VIX futures rose to an overnight high of 29.06, which may leave a gap at the open.
The NYSE Hi-Lo Index officially closed at 69.00, only 4 points above the 50-day Moving Average at 65.04. This reveals the declining bullish momentum in the NYSE. Below 65.00 is an aggressive sell signal. However, the preponderance of evidence tells us there may be nothing aggressive about it.
TNX appears to be challenging the Intermediate-term support at 6.97 this morning. The Cycles Model calls for a possible low early next week in a (minor) Trading Cycle. The potential target appears to be the 50-day Moving Average at 6.78.
USD futures made a new overnight high at 93.84 as the demand for cash as a safe haven rises. It now appears that some dealers are “selling their book” as they are caught wrong-sided on the USD.
KitcoNews proclaims, “Investors should look into selling the U.S. dollar and buying silver into the election, according to two new reports published by Goldman Sachs Group Inc.
There is a growing risk that the U.S. dollar will plunge to its 2018 lows as Democratic candidate Joe Biden continues to extend his lead in the polls prior to the election on November 3.”
Gold futures are struggling at round number support at 1900.00. Tuesday’s rejection at Intermediate-term resistance at 1926.79 is a probable sell signal. This sell signal may last until Thanksgiving week, almost 6 weeks away.
MarketWatch opines, “Gold futures resumed a slump for the week early Thursday as the U.S. dollar rose in the wake of new lockdowns in Europe to combat rising coronavirus cases, while equities worldwide slipped on fears of slowing economic growth.
Gold has moved in line with the dollar’s strength absent other catalysts of late but some longer-term investors believe that a resurgence of the pandemic and the belief that the viral outbreak may lead to further global fiscal stimulus has been considered a boon for bullion.
“Ultimately, gold will benefit as Europe unleashes more stimulus and as investors grow comfortable with a slight pause in aid from Washington DC,” wrote Edward Moya, senior market analyst at Oanda, in a note.”
BKX appears to be poised to break through the 50-day Moving Average at 76.28. confirming its sell signal. The current Master Cycle is due for completion at the end of October, as the Fed starts pumping liquidity again, going into the election. However, the damage may have already been done, as the Head & Shoulders neckline awaits this decline. Note all of the loan loss reserves “pulled” back as profits in the third quarter. Of course, this will affect bankers’ bonuses. Do they know something we don’t?
ZeroHedge reports, “Concluding a rather quick earnings season for financials which has seen mixed results from money-center banks, whose sharp revenue declines and tepid outlook on loss provisions – and outright misses in the case of Wells and BofA – sent their stocks lower, offset by strong performance by pure-play “hedge funds” such as Goldman, moments ago Morgan Stanley reported Q3 earnings which smashed expectations thanks to another quarter of stellar revenue from both equity and FICC sales and trading.
Morgan Stanley reported Q3 net revenues of $11.7 billion, up 16% from $10.0 billion a year ago, and solidly beating expectations of $10.6BN. Net income was $2.7 billion, or $1.66 per diluted share, up 25% from $2.2 billion, or $1.27 per share, a year ago, while adjusted EPS also jumped from $1.21 to $1.59, beating expectations of $1.28 (EPS was adjusted by tax benefits of $113 million which had an impact of $0.07 per diluted share; as a result, the effective tax rate was 21.1% vs. 18.2% y/y, below the expected 23.5%). As Bloomberg observes, it is “fascinating that some of these firms, including Morgan Stanley, were able to pull off better results than a year ago despite being in the middle of a pandemic.”
October 14, 2020
Mind the Gap. While the market is prone to whipsaw a shorting attempt, I am suggesting an aggressive short may be in order. The reason is that the gap appears to be filling with (at least) one more probe lower. With the Master Cycle at day 257, that may give us our aggressive sell signal, so I am calling it early.
NorthmanTrader comments, “As our see no risks market continues chugging along near all time highs again you may have noticed that many of the gains since the September lows are again coming via magic overnight gaps.
So what you say? If the market doesn’t mind it doesn’t matter. And it’s true as Art Cashin once said: “All gaps fill, if ever”. A cheeky hint that gaps can remain unfilled for a long time or never fill.
But if the entire rally construct is dependent on open overnight gaps one has to wonder.”
ZeroHedge comments, “If there is one constant during earnings season, it is that no matter what the other banks do, Wells Fargo will always shit the bed, and this time was no different, with the stock sliding after reporting that Q3 earnings missed again as its Net Interest Margin dropped to a fresh all time low, while issuing an ominous warning that customer payment deferrals in the wake of the pandemic may delay the recognition of net charge-offs and delinquencies.
Wells reported Q3 EPS of just $0.42, down more than 50% from the 0.92 a year ago, and missing expectations of $0.45 even as Revenue of $18.862BN beat estimates of $18.0BN, but plunged 14% from $22BN a year ago. The bank reported Q3 net income of $2 billion, which was up $4.4 billion from the previous quarter, but down 56% from $4.6BN a year ago, on “lower provision expense and higher non-interest income on broad-based growth including higher mortgage banking income, partially offset by lower net interest income and higher noninterest expense, which included restructuring charges.”
BKX slipped beneath the mid-Cycle support at 78.55 yesterday, putting it on a sell signal after Monday’s Master Cycle high at 80.75. So why are bank stocks declining after blow out earnings reports? Could it be that their bonuses are based on quarterly earnings? The fact is, insider selling is prohibited until after the quarterly earnings are reported. So, as (fake) earnings come out, selling begins at the top.
ZeroHedge reports, “Unlike JPM, BofA, Citi and Wells, Goldman Sachs is lucky that it remains a pure play trading operation (the joke that is Marcus notwithstanding), and perhaps that’s why Goldman provided a ray of hope for the battered banking sector after BofA’s dismal earnings report and yesterday’s lackluster results from JPM and Citi.
Unlike BofA’s disappointing sales and trading results, Goldman reported revenues and EPS which smashed expectations, with Q3 revenues of $10.78BN, up 30% Y/Y, and smashing exp. $9.40, resulting in Q3 EPS of $9.68, double the $4.79 reported a year ago, and also trouncing the estimate of $5.52.”
Again, ZeroHedge reports, “After yesterday’s results from JPMorgan and Citi which initially surprised with the plunge in their Q3 loss provisions (which however the banks explained was not due to some optimism over the economy but merely due to previous overprovisions), today this trend continued when Bank of America reported Q3 results which were generally in line however boosted largely by another far lower than expected provision for loan losses.
The bank reported that in Q3, revenues tumbled by 11% to $20.3BN, down from $22.8BN a year ago, pressured “by low interest rates”, and missing estimates of $20.8BN. This resulted in Net Income of $4.9BN and adjusted EPS of $0.51, also well below last year’s $5.8BN and $0.56, respectively, but slightly better than the $4.3BN and EPS $0.49 expected.”
SPX futures have tested the 3500.00 round number support this morning. However, it has bounced and remains near the closing price. Chart action gives us a sell signal under 3475.00, where the gap is closed. Otherwise the open gap may act as support for a final probe higher to Cycle Top resistance at 3560.78. Today is day 257 in the Master Cycle.
ZeroHedge observes, “US equity futures and world stocks were flat below recent record highs after several days of ramping higher driven by strength in tech, while Europe’s STOXX 600 slipped, reversing an earlier gain with markets in Frankfurt, London and Paris were down around 0.3% following moves to address rising coronavirus infection rates in Europe.
NDX futures remain in a consolidation pattern this morning. The nearest chart sell signal may be made by a decline beneath 11700.00. However, we will also be watching the VIX and Hi-Lo for signals, as well.
NorthmanTrader observes, “Amazing times all around. Most astounding perhaps the level of complacency building in markets into the US election and into year end.
Most of the market appears to have adopted a see no risk attitude. Hear of no risk, see no risk, speak of no risk.
No matter who wins the election it’s bullish, no matter what happens more stimulus is coming. And besides, if all else fails the Fed will just print more.”
VIX futures revisited its 50-day Moving Average at 25.50 this morning, but is now creeping back into positive territory. Today is options expiration for the VIX. Its behavior may be dependent on gamma chasing algos as the expiration approaches.
TNX continues its decline toward the 50-day at 6.76. A trading Cycle pivot awaits TNX early next week, so this correction may be short-lived.
USD futures have pulled back to the 50-day Moving Average at 93.31. This may be the final test of support prior to a possibly explosive move higher.
DBA is nearing the end of the current Master Cycle with a proposed target being the 50-day Moving Average at 14.54. The Cycles Model suggests a reversal may be due by Monday, if not sooner. Remember, this represents food prices at the producer level, not the consumer level.
ZeroHedge reports, “Following yesterday’s mixed bag for consumer prices (used cars soaring, rent/shelter slowing), producer prices were expected to shift back into very modest inflation YoY in September (and after 5 straight months of deflation), and across the board PPI printed hotter than expected.
PPI Final Demand rose 0.4% MoM (double the +0.2% exp) sending PPI up 0.4% YoY (against expectations of a 0.2% rise) – the first inflationary print since March…
MichaelSnyder comments, “There was a time when preppers were relentlessly mocked, but nobody is laughing now. Today, most Americans are thinking about stockpiling food, and this massive shift in our national mindset has been sparked by concern about what is going to happen in the months ahead. Many Americans believe that another wave of the coronavirus pandemic is coming, others believe that our ongoing economic depression will get even deeper, and yet others are convinced that the upcoming election could produce widespread violence. Of course there have always been people that have been deeply alarmed about future events, but we have never seen anything quite like this. In fact, a brand new survey has found that over half of all Americans are currently planning “to stockpile food and other essentials”…
Slightly more than half of Americans in a recent poll from Sports and Leisure Research Group say they already have or plan to stockpile food and other essentials. The chief reason: fears of a resurgent pandemic, which could lead to disruptions such as new restrictions on businesses. On Oct. 2, the number of COVID-19 cases in the USA was its highest in almost two months.People still remember the shortages that we witnessed earlier this year when the coronavirus pandemic first erupted in this country, and those that ended up being stuck at home without enough toilet paper would rather not repeat that experience.”
October 13, 2020
VIX is making new highs above its 50-day Moving Average. This would be considered an aggressive buy (SPX sell) signal until confirmed by the Hi-Lo (at 99.00/60.00 is the sell point) or a decline beneath the open gap in the SPX.
BKX is hovering over it’s mid-Cycle support at 78.55, beneath which it is on a sell signal. Confirmation of that signal comes at the crossing of the 50-day and Intermediate-term support at 76.96. The liquidity proxy is now losing ground and may have an effect on equities. Banks are becoming even more reluctant to lend as the following article explains.
ZeroHedge reports, “There was a remarkable disclosure in the latest JPMorgan earnings report: the company reported that in Q3, its average deposits rose by a whopping 30% Y/Y, and up 5% from Q2, to just over $2 trillion, even as the average amount of loans issued by the bank were virtually unchanged Y/Y at $991 billion, and down 4% from Q2.
Gold futures took a tumble beneath round number support at 1900.00 this morning, hitting a low of 1889.65. This appears to be the end of a corrective bounce from the low at 1851.00 on September 24, less than three weeks ago. The slump was so recent that the media hasn’t caught up, the majority still being bullish.
NDX suddenly “switched gears” at the open after making a new high in the futures, opening beneath that level and declining back to yesterday’s close. Should yesterday’s gap be filled on the downside at 11700.00, a potential sell signal may be generated. The would create a “Key Reversal” in the futures.
The NDX Hi-Lo opened at 19.00 and has since risen to 58.00, beneath the 50-day at 78.76, after hitting a Master Cycle high at 223.00 yesterday. This may not be a sell signal yet. We want to see where the Hi-Lo closes. Beneath the 50-day would be an aggressive sell. With the large caps dominating, we would want to see the Hi-Lo drop beneath 0.00. Still, this puts us on alert to the sudden loss of momentum in the NDX.
ZeroHedge reports, “Nasdaq was on a charge again overnight, incessantly bid from the open in Europe, after yesterday’s three-legged meltup – the biggest day in six months – on the heels of what appeared to be the re-emergence of ‘Nasdaq Whale’, which Softbank vehemently denied was them last night (thou doth protest too much?)…
…the same “gamma squeeze” dynamic we observed in mid/late August when Masa Son’s SoftBank ended up buying billions in call spreads, sparking a meltup in tech names is back and just like in August, liquidity is dismal which likely means that SoftBank is back for round three (after a failed attempt to squeeze the Nasdaq higher two weeks ago).”
SPX futures are nominally lower, but not a threat to the uptrend. Unfortunately, the uptrend isn’t threatened above 3396.10 by chart standards. However, this is where the VIX and Hi-Lo Index may be helpful. Both appear sensitive to a reversal near this level. The Cycles Model calls the shift in trend on Thursday, but the markets are stretched to an extreme that may not last until then.
ZeroHedge reports, “Global stocks and S&P futures struggled on Tuesday amid concerns over a Johnson & Johnson vaccine setback, which overshadowed Chinese trade data that pointed to a buoyant recovery, while yields dropped and the U.S. dollar edged away from a three-week low.
RealInvestmentAdvice observes, “As discussed in Hopes Of More Stimulus, the market has rebounded following the September decline. Unfortunately, the market has again gotten quite ahead of the fundamentals as money continues to chase performance. In the Q3-2020 review of the Commitment Of Traders report (COT,) we can see how positioning has moved back towards extremes. Once again, “everyone’s back in the pool.”
The market remains in a bullish trend from the March lows but has returned to more extreme o0verbought conditions on an intermediate-term basis. Despite valuations on a 2-year forward basis at more extreme levels, economic growth recessionary, and a significant risk of a failure to pass more stimulus, investors continue to chase markets.”
NDX futures rose even higher this morning to 12248.75 in a possible effort to reach the Cycle Top at 12391.75. Momentum speculators are pushing the envelop for all its worth to reach new heights. However, we are days, if not hours, away from the Master Cycle top. The race against time may fare badly for those rising this wave.
ZeroHedge observes, “Heading into the weekend, we observed that despite the recent drift higher in the Nasdaq last week after its September correction, institutional investors remained skeptical with a near-record number of non-commercial spec shorts in the Nasdaq 100 mini according to the latest CFTC Commitment of Traders report, and after spiking to a historic level just two weeks earlier, the negative bets on the Nasdaq stubbornly persisted…
… perhaps in response to the recent surprisingly bearish note from Morgan Stanley which warned that the tech plunge would accelerate, and which forced many institutions into bearish positions.”
VIX futures are hovering at the 50-day Moving Average at 25.50 as SPX futures lose momentum while NDX futures surge. It appears that VIX has an itchy trigger finger. A solid crossing above the 50-day gives us an SPX sell signal.
The NYSE Hi-Lo closed at a very high 176, but down from its intra-day high at 232.00. A decline in the Hi-Lo beneath mid-Cycle levels at 51.63 may trigger a sell signal.
TNX is now in a corrective mode that may last a week or more. The probabilities are that TNX may decline to its 50-day Moving Average at 6.72 or retest the trendline near 6.50. This represents a flight to safety from equities. However, it may not last since the declining Wedge formation has been broken to the upside, limiting the downside gains with a very strong support.
USD futures appear more buoyant on day 258 of the Master Cycle. The morning high was 93.27, not yet testing the Intermediate-term resistance at 93.37. A breakout above that level give the USD a buy signal with a possible target being the Broadening Wedge trendline and mid-Cycle resistance at 96.89.
CNBC reports, “Goldman Sachs has recommended short positions against the U.S. dollar, arguing that the risks arising from vaccine trials and the U.S. election are skewed to the downside for the greenback.
In a note to investors Friday, Goldman analysts said they saw “low odds” for the most dollar-positive outcome by the end of the year. They named this as an electoral victory for President Donald Trump, combined with a meaningful delay to vaccine progress.”
BKX took a stab at its 220-day Moving Average at 81.21 yesterday. Today is day 256 of its Master Cycle, so I would not position myself for a run above the 200-day. In fact, I am looking for an imminent reversal in BKX, despite its perceived “breakout” above its September high.
ZeroHedge reports, “One of the intended consequences of the Fed’s now relentless intervention in markets, has been the gradual eradication of all stock and ETF shorts, which as the following chart from Deutsche Bank shows, have collapsed to near all time lows (the Y-axis is inverted), thanks to the market’s relentless grind higher which has made shorting stocks an especially masochistic ordeal (and a source of recurring alpha for all those who take the opposite side).
October 12, 2020
SPX futures are rising on the morning of day 255 in the Master Cycle. Having reached the 61.8% Fibonacci retracement on Thursday, it may be targeting round Number resistance at 3500.00 or the 78.6% retracement level at 3507.08. SPX futures have clearly exceeded Friday’s high which occurred at a Cycle pivot point, but now doesn’t appear to be the turn we are looking for. The next scheduled turn may be late Thursday afternoon.
ZeroHedge reports, “As Mohamed El-Erian says, this is market that will just keep going up no matter what, and will goalseek whatever narrative it needs to “explain” the levitation catalyzed by $90 trillion in central bank liquidity. Today, that narrative is focusing on – what else – fresh optimism about fiscal stimulus despite there being virtually no hope of Congress reaching a deal before the elections, as well as “improving corporate earnings” with Q3 earnings season set to begin officially tomorrow when US banks start reporting.
All of that combined to push S&P futures 0.5% to fresh five week highs of 3,492 and less than 80 points away from the all time high of 3,568 hit on Sept 2, with the index rising in a straight line for 160 points from its Tuesday lows, while global stocks hit a five-week high led by China’s post-holiday surge as investors bet on a steady recovery for the world’s no. 2 economy, offsetting “worries” about rising COVID-19 cases in Europe and the United States. Oil fell, the dollar rose and Treasuries are closed for Columbus Day. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin are expected to talk more this week about an economic stimulus plan.
NDX futures failed to meet the 61.8% Fib retracement on Friday, but is making it up this morning by surging to 11927.75. The current Master Cycle has had 14 days of decline to September 23. As of Friday it completed 12 days of rally. One sign of a bear market is that the corrective rallies are shorter in time than the declines. We must stay alert for the possibility of the next decline beginning sooner than Thursday.
SPX futures are rising, which should give us pause. Futures challenged the 50-day Moving Average at 25.50, but pulled back. However, after the pullback on Friday, crossing the 50-day puts us on high alert for a change in direction in the market.
TNX opened above Friday’s closing price in its final day of strength before a possible week-long pullback. A rally above the mid-Cycle resistance at 8.20 may extend the rally, but for now the more likely event may be a pullback to the 50-day Moving Average at 6.68.
USD futures are hovering beneath the 50-day Moving Average at 93.31. Today is day 257 in the Master Cycle and we are now looking for a strong, sustained rally (up to 3 weeks) to begin in the next few days. It is likely for the rally to reach the mid-Cycle resistance at 96.91.
October 9, 2020
SPX futures are higher, as projected at the close yesterday. The overnight futures high was 3459.62, translating roughly to 3470.00 cash. This may have been the top, although we won’t know until the open. The Cycles Model suggests a significant turn may be made by noon today.
ZeroHedge reports, “ust two days after a Trump tweet “crushed” hopes for any more fiscal stimulus talks, optimism for not just a stimulus deal but for a “large-scale” deal is back front and center, after the White House reversed again late on Thursday after media reports that Trump was concerned by the market reaction to him walking away from stimulus discussions, and signaled that the administration is again leaning toward a large-scale stimulus bill after House Speaker Nancy Pelosi pushed back on the idea of individual measures for parts of the economy hit by the Covid-19 crisis. According to a Pelosi spokesman, Mnuchin told Pelosi in a 40-minute call that President Donald Trump wants agreement on a comprehensive stimulus package, which was enough to send futures blasting higher, and hitting 3460 overnight, a level last seen on Sept 4 just after the market slumped from its all-time highs. The MSCI world equity index was up 0.1% at a more than one month high; yields and the dollar dropped, while the Chinese yuan and gold surged.
NDX futures show an overnight high at 11601.12. It has since backed down, as well. It appears to have made a new high, whether it hits the trendline or not.
VIX futures revisited the 50-day Moving Average at 25.50 in the overnight session. It appears that the original Cup with Handle trendline at 24.84 may have been offering support during the pullbacks.
Quartz opines, “Wall Street traders think a contested US presidential election is becoming less likely, as polls suggest Democratic candidate Joe Biden is increasing his lead over president Donald Trump.
Derivatives linked to volatility had jumped in recent weeks, after Trump claimed mail-in ballots were subject to fraud and refused to commit to a peaceful transfer of power. These futures contracts are tied to the VIX volatility index, sometimes called the “fear gauge,” and they allow traders to speculate on whether stock market price swings will increase or decrease.”
TNX is moving higher this morning and may be aiming for mid-Cycle resistance at 8.26 and a possible breakout. However, should TNX not break above the June high at 9.57, it may, in fact, go dramatically lower into the Master Cycle ending the week of Thanksgiving.
ZeroHedge observes, “We previously showed that when it comes to Wall Street bets on what the Treasury yield curve does next, there has never been greater confidence in even more steepening: as the below chart of leveraged and speculator net positions in 30Y futures shows, traders have never been more short, with the latest CFTC data showing combined net shorts in long bonds both at records with a combined net short of over 620,000 contracts.
USD futures have been challenging the 50-day Moving Average at 93.30 in the overnight session. That potential loss of support may further the decline as agreement on the stimulus bill becomes the next catalyst for devaluing the USD.
FXStreet observes. “The second stimulus bill currently under negotiation may be the next catalyst for the decline in US Dollar. The negotiation between Democrat and Republican gained urgency last week as President Trump contracted the virus and required hospitalization. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin continues to negotiate a proposal to send second stimulus check and other aids to Americans. The Democrats offered a $2.2 trillion package whereas the White House administration offered $1.6 trillion. There is currently still a $600 billion gap between the two parties. However, both sides have come closer compared to weeks ago when negotiations broke down.”
BKX is in day 252 of its Master Cycle and may be approaching its 200-day Moving Average at 81.55. This has been a very ragged corrective pattern that appears to be nearing its end. BKX is a proxy for liquidity which has been on the rise. However, this re-liquification is based on the promise of more stimulus. Should that not occur, the bottom falls out.
Food prices have been rising, leading the Agriculture Fund to test its Head & Shoulder neckline. Should it break above 15.00, the Head & Shoulders target may become activated. However, DBA is within a week of its Master Cycle terminus. That suggests a possible breakdown to lower levels since the rally appears corrective thus far.
ZeroHedge reports, “Food prices continue rising during the coronavirus pandemic, jeopardizing food security for tens of millions worldwide.
On Thursday, the Food and Agriculture Organization (FAO) of the United Nations said world food prices rose for the fourth consecutive month in September, led by surging prices for cereals and vegetable oils, reported Reuters.
FAO’s food price index, which tracks the international prices of the top traded food commodities (cereals, oilseeds, dairy products, meat, and sugar), averaged 97.9 in September versus a downwardly revised 95.9 in August.
FAO’s cereal price index jumped 5.1% in September and is 13.6% above its value one year earlier. ”
October 8, 2020
SPX finally hit the 61.8% retracement of its September decline. In addition, it may be within hours of a major Cyclical turn. The upthrust still has room to rise to 3475.00 by Elliott Wave rules. By noon tomorrow the entire Cycle from September 2 (top-to-top) will have elapsed 25.8 days. Tomorrow is day 252 of the Current Master Cycle and could very well end as an inversion.
ZeroHedge reports, ““I’m quite concerned,” warned Goldman’s Abby Joseph Cohen (AJC) this morning during an interview with Bloomberg TV as the infamous permabull from The DotCom era has changed her tune dramatically on stocks and appears to disagree with her colleagues.”
SPX futures appear to have made a new retracement high this morning, at least in the futures. There has been a brief pullback beneath Tuesday’s high, but the damage may have been done. Interestingly enough, the Cycles require a minimum of 4.3 days for a crash. A high today would put the bottom of the decline precisely on next Thursday, day 258 of the current Master Cycle. Should the SPX not make its high today or overnight, then a more complex series of events may take place.
ZeroHedge reports, “”Explanations” for overnight market moves have drifted from the merely comical and veered into the surreal. Case in point, this morning Bloomberg writes that “futures contracts on U.S. equity indexes rose, suggesting gains on Wall Street will be extended to a second day on stimulus optimism” and Reuters chimes in that “futures rose for a second straight day on Thursday as bets of a piecemeal fiscal stimulus deal lifted sentiment” while just hours earlier the Financial Times led with this:
NDX futures appear to have broken above its recent trading range to a high to 11577.75 this morning. This puts the trendline resistance at 11750.00 back in sight. It may only be momentary, so hang on!
VIX futures are probing Tuesday’s low in morning trading. It has not violated the 50-day Moving Average at 25.47, but may test it later today.
The NYSE Hi-Lo Index extended its Master Cycle high to yesterday at a daytime high of 163.00. The next Master Cycle (low, I presume) is due on November 25. This tells me that we may not know the election results until the day before Thanksgiving.
TNX appears to be consolidating in place as the next move is contemplated. What follows may be serious indeed, since the current Master Cycle doesn’t end until Thanksgiving!
ZeroHedge writes, “Unlike yesterday’s record large 3Y auction, today’s auction of benchmark 10Y paper sold “only” $35BN in new paper, the same as last month and down from the all time high of $38BN in August.
USD futures are also consolidating, but may move lower for the next few days. It has a Master Cycle low due next Tuesday, after which USD may soar for more than a month. In other words, the Cycles are telling us the trend is up through Thanksgiving.
FXEmpire reports, “EUR/USD managed to stay above the key support level at 1.1750 and continues its attempts to gain additional upside momentum as the U.S. dollar is losing ground against a broad basket of currencies.
The U.S. Dollar Index is currently trying to settle below 93.50. If this attempt is successful, U.S. Dollar Index will have a chance to test the recent lows at 93.35. A move below this level will provide material support to EUR/USD.”
October 7, 2020
SPX gapped higher at the open to the 61.8% Fibonacci retracement at 3404.17 where it remains stalled. It appears very sensitive to the tweets of Donald Trump, but any news could trigger a strong reaction.
ZeroHedge remarks, “Futures initially pushed lower to 3330 overnight before recovering to 3375, squarely between the large 3350/3400 interest areas.
The overnight update to SpotGamma’s Gamma Index shows both SPX & NQ are sitting with very flat gamma positions. It appears Trump took to Twitter offering various “light stimulus” proposals which has helped stabilize things.
SPX futures have bounced from their evening low and appear to be hovering just above the 50-day Moving Average at 2268.65. The 38.2% Fibonacci retracement level is at 3384.35. The mid-Cycle resistance is at 3389.90, beneath the 50% retracement level at 3393.28. It’s too soon to tell how far the retracement bounce may go, but the bounce appears weak at this time.
Yesterday’s high was exactly 22 market days from the September 2 high. The current Cycle [Wave (3)] may take as little at 6 more days. The decline may also be incredibly strong, as the Cup with Handle formation suggests a low near 1872.20 in this phase of the decline.
ZeroHedge reports, “It’s been a rollercoaster 24 hours for markets, which initially surged on Tuesday on fresh fiscal stimulus hopes, only to see said hope crushed by Trump at exactly 2:47pm, when the president tweeted that had had “instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major Stimulus Bill that focuses on hardworking Americans and Small Business.” The tweet unleashed a furious selling spree, which saw S&P futures drop as low as 3,330 overnight after closing 1.4% lower, more than 90 point from their pre-Trump tweet highs.
The tweets sparked the worst session for the S&P 500 and the Dow in two weeks, while airlines sank 3% as the move appeared to scuttle $25 billion in new bailout for the industry. All this happened just hours after Fed Chair Jerome Powell called for more help for businesses and households to keep a nascent economic recovery from faltering.”
VIX futures eased to a low of 29.24 and remains beneath yesterday’s close. It has not broken above the mid-Cycle support, but remains on a buy signal above the 50-day Moving Average at 25.43.
SchaeffersResearch observes, “Last Thursday’s trading session stood out to me, as the S&P 500 Index (SPX – 3,348.44) gapped and closed higher in a choppy session. I noticed that the CBOE Market Volatility Index (VIX – 27.63), after trading below two key moving averages that I have monitored closely – specifically the 30-day and 252-day moving averages – closed the day above both trendlines. My immediate thought is that no matter what equities do in the month ahead, volatility due to election uncertainty will remain elevated.
I also thought that chances were pretty good that Friday’s opening could be weak, as the VIX had a chance to close below its 252-day moving average, but it did not, despite the market finishing the day fairly strong. It was overnight news that U.S. President Donald Trump and First Lady Melania Trump tested positive for COVID-19 that sealed the deal for a weak Friday opening, and calls for higher volatility amid more uncertainty.”
USD futures may have found support at the 50-day Moving Average at 93.34 and begun the final probe higher. This may be short in time but dramatic nonetheless, should equities fall out of bed. The target may be mid-Cycle resistance at 96.97, or possibly even higher. It is possible to rally to the Cycle Top resistance at 102.41.
DailyFX reports, “Haven inflows may fuel the US Dollar’s rebound higher in the coming days, as Federal Reserve Chairman Jerome Powell’s warnings of tragic economic consequences in the absence of additional fiscal aid went unheard by President Donald Trump.
Mr Trump decided to pull the plug on Congressional stimulus negotiations ahead of the US Presidential Elections on November 3, stating that “I have instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major Stimulus Bill that focuses on hardworking Americans and Small Businesses”.
This abrupt cessation in bipartisan talks may concern Chair Powell given his recent remarks stressed that “the expansion is still far from complete [and] too little support would lead to a weak recovery, creating unnecessary hardship”.
TNX ramped higher this morning as uncertainty about the stimulus rises while the Fed balance sheet shrinks. The Cycles Model suggests this may continue for another week.
ZeroHedge remarks, “After three consecutive record-large 3Y Treasury auctions, which also priced at progressively (record) lower yields, moments ago the Treasury sold another record amount of 3Y paper, when it auctioned off $52BN, up $2BN from $50BN a month ago, but in a notable reversal from the recent trend, the yield on today’s auction was 0.193%, which not only tailed the 0.191% When Issued by 0.2bps, but was the first 3Y auction since June that did not price at a new all time low yield, printing 2.3bps higher than the 0.17% in September.
October 6, 2020
SPX has declined from its peak at 3431.56 and has challenged the 50-day Moving Average at 3368.74. It may retreat to mid-Cycle resistance at 3390.04 before moving lower. The turning point came at 3:00 pm as suggested in this morning’s report. We now have an aggressive sell signal which becomes confirmed beneath the 50-day Moving Average.
ZeroHedge reports, “We have been warning for weeks that no stimulus deal would happen before the election, and moments ago none other than president Trump confirmed just that.
Trump, who has been in the White House less than a day since his return from Walter Reed, just crashed stocks, bond yields and sent the dollar soaring, when he tweeted that due to Nancy Pelosi’s “bad faith” negotiations, he has instructed representatives “to stop negotiating until after the election” and instead to focus on approving Amy Coney Barrett to the Supreme Court.”
NDX peaked on Thursday and appears to be leading the decline from the Wave (2) peak. A Wave (3) decline may prove to be powerful as the Cup with Handle portends. NDX has already declined beneath Intermediate-term support at 11453.22 and has given an aggressive sell signal which becomes a confirmed sell signal beneath the 50-day Moving Average at 11293.00.
The Cycles Model targets Thursday, October 15 as the strongest day of the decline. Whether the decline ends (even temporarily) there is yet to be determined. Friday, October 16, is options expiration. Keep in mind that we may see a repeat of Thursday, September 18, 2008, where we saw a low of 1133.50 only to see an overnight ramp to 1265.12 on Friday morning in time for options expiration. Thousands of put contracts were wiped out in that overnight raid. No one expects a panic decline in the next two weeks. However, Wall Street may need to protect itself against a negative gamma implosion going into options expiration.
I spent the entire day driving home and arrived late. I have only now caught up on my rest. thank you for your patience.
SPX futures have been challenging the 3400.00 area, but have retreated beneath it. The 50% retracement level of the September decline is at 3398.12, suggesting heavy resistance. The Cycles Model suggests the next turning point may be this afternoon. Re-crossing the 50-day Moving Average at 3360.08 tells us the new decline is underway.
However, now that the trading range has reset higher and the S&P is set to open around 3,400 what are the key “gamma” levels for the market? For the answer we go to the latest note out of our friends at SpotGamma who note this morning that not surprisingly, the largest interest area shifts from 3350 up to 3400.
As the derivative experts explain, if the market can sustain the rally up into 3500, “gamma notional levels increase which should add some stability to S&P prices” however, the tricky part for bulls here is that the modeled “Call Wall” did not roll up much overnight. That said, they see 3410 as the largest positive gamma strike “which indicates resistance and/or a tendency for markets to mean revert should this level be broken.”
In addition, ZeroHedge observes, “S&P futures drifted following yesterday’s surge to 3,400 following news that Trump was returning to the White House ahead of a 1040am ET speech by Fed Chair Powell in which expected to repeat that the Fed has done as much as it can and the recovery is now in the hands of lawmakers. Oil and treasurys climbed while the dollar was little changed as investors focused on President Trump’s health and awaited progress on an American virus relief package, where Politico reported that Nancy Pelosi said that stimulus negotiations with Steven Mnuchin were going “very slowly” during a Monday night conference call with Democratic leaders.
VIX futures are down to a low of 26.01 overnight, but still above the 50-day Moving Average at 25.37. A breakout above the mid-Cycle resistance at 31.08 gives us our first indication of a resumption of the rally in VIX.
SeekingAlpha comments, “Oil going negative. The Swiss Franc de-pegging from the US Dollar. The Dow losing 1000 points in 36 minutes in the flash crash. These were all outlier events there in plain sight, reported ad nauseum in the financial press. But the largest front month VIX index loss during a down month in the S&P 500 in the past 10 years, that’s not quite front-page news for the Wall Street Journal. And, to be honest, it was a bit of a non-event except in the small circle of traders and investors who utilize the negative correlation between the VIX and stock market to structure dynamic market hedges. But in that small circle, September was as crazy of a month as most of them can remember.”
TNX emerged from its Triangle formation last week and is now surging higher, roiling the shorts and giving the wrong “signal” to the other markets. The Cycles Model indicates a high level of strength over the next week or so, suggesting a breakout above the June high is possible.
The NYSE Hi-Lo Index opened beneath the 50-day Moving Average at 58.98, indicated overhead resistance. We’ll be watching that indicator as the day progresses.
USD appears to be completing its test of its 50-day Moving Average. The Cycles Model suggests a spike higher is in the works. The natural target appears to be the mid-Cycle resistance at 96.99 or the Broadening Wedge trendline just beneath it. The next Master Cycle turn appears to be next mid-week.