September 2020

Please Note:  I will be attending a conference from September 29 to October 5.  There may be no blogs during that period of time.

September 28, 2020

2:45 pm

NDX has not been able to surpass the 38.2% retracement all day.  The weakness at this level is profound compared to what the strength was a month ago.  I expect the NDX to lead the next installment of the decline.

 

2:35 pm

SPX is having trouble rising above the 38.2% retracement level at 3353.29.  In addition, the Cycle is running out of time.  I estimate that the rally may be over by noon tomorrow.  It is possible that we may see the SPX rise to the 50% retracement level at 3398.12.   Maybe 34oo.00.   The Cyclical standard is that it may retrace to the mid-Cycle resistance at 3392.08 by tomorrow morning.  By then the rally may be exhausted.  I am leaving for my conference early tomorrow morning and do not plan to return until next Monday evening.  By then the next leg down may be well on its way.

 

8:30 am

Good Morning!

SPX futures rose to a weekend high of 3336.88, nearing the 50-day Moving Average a 3345.94.  The 38.2% Fibonacci retracement is at 3352.29.  The 50% retracement level is at 3398.12.  The Cycles Model suggests the retracement may last another 24 hours or so.

ZeroHedge reports, “US stocks future indexes rose on Monday following Friday’s gains and tracking major gains in European and Asian markets amid optimism that the recent selloff in equity markets is overdone. The dollar weakened and Treasury yields rose. The pound strengthened on hopes that U.K. and European Union officials will be able to make progress as a key week of Brexit talks begins, while the Turkish lira crashed to a new all time low on fears the country would be dragged into the sudden breakout of war between Armenia and Azerbaijan.

Hopes of a global economic recovery were supported by data showing continued growth in China’s industrial profits, despite fresh concerns that China’s data is once again being manipulated for political purposes with profits diverging massively from PPPI.”

RealInvestmentAdvice comments, “An Orderly Sell-Off

Over the last couple of weeks, we have been discussing the ongoing market correction. As shown below, the sell-off has been orderly and not one of a “panic” induced decline.

The market did retrace from the top of the 2-standard deviation range to the bottom, which is part of a healthy correction process. As we noted last week, the correction also aligns with the historical weakness seen in September and October, particularly in years preceding an election.

Importantly, given there was no sharp rise in volatility, such also confirms this was a more orderly and healthy market retracement.”

 

NDX futures rose to a weekend high of 11365.25, hitting the 38.2% retracement at 11350.71 and approaching Intermediate-term resistance at 11402.79.  The target for this rally may be the trendline at 11750.00, as shorts are trapped and may need to cover during this rally.  The whipsaw in the NDX is extreme and may push investors out of the market altogether.

ZeroHedge reports, “On Friday we pointed out that one week after one of the biggest inflows into stock funds on record – when retail traders furiously BTFD in hopes the market’s upward momentum would accelerate – speculators hit a brick wall and reversed furiously as stocks slumped, with US equity funds and ETFs reporting $26.87BN of outflows, the largest weekly outflow since December 2018 and the third largest outflow ever! In other this was the fastest and biggest sentiment reversal on record.

This record sentiment reversal was driven by despair-driven capitulation outflows from high beta and momentum names, as tech-focused ETFs suffered $1.23 billion worth of outflows, the largest since December 2018, when global stock markets tanked. September was also the first month of outflows for the tech sector since the March crash.

But nowhere has the sentiment shift been as clear as in Nasdaq 100 Mini futures, where after more than a year of bullish sentiment with just one tiny dip into bearish territory in May, speculators finally puked, sending the net non-commercial NQ futs to -134,311 contracts, surpassing the peak bearish sentiment during and after the financial crisis…”

 

September 25, 2020

3:39 pm

SPX is finally revealing its Wave structure along with the Cycles.  The Waves suggest that Wave 3 of (3) may be next on the agenda, starting on Monday.

 

 

8:00 am

Good Morning!

SPX futures declined to a low of 3206.88, then bounced.  It is difficult to say at what degree the bounce is.  We may see the market open flat before resuming its decline.

ZeroHedge reports, “US equity futures and European stocks slumped as investor skepticism for a new American stimulus deal grew against a sharp uptick in global coronavirus cases. Both bonds and the dollar advanced amid the flight from risk. The Emini was down 0.5% last, set to retest Thursday’s lows.

Costco Wholesale Corp fell 2.5% as the warehouse chain recorded high coronavirus-related costs for the second straight quarter, overshadowing its better-than-expected results. The FAAMG tech mega-caps headed lower after leading gains on Wall Street in the previous session. Nikola fell another 5.2% in premarket trading, with the stock heading for the worst weekly performance on record, already being down 44% in a rout fueled by the resignation of its founder and executive chairman.

 

NDX futures declined to 10814.25, then bounced back to nearly flat from yesterday’s close.  There may be a retest of the Lip of the Cup with Handle formation near 11150.00 before resuming the decline.

 

VIX futures rose to 31.43 (inside yesterday’s range) before pulling back.  There appears to be some effort to quell the VIX, thereby encouraging buying in the SPX and NDX.

ZeroHedge reports, “Investors’ U.S. election playbooks should look different this year with a lengthy contested outcome an underpriced tail risk that can spike equity volatility through early 2021. Narrowing polls, a surge in mail-in ballots and amped up partisanship make a challenged U.S election outcome a risk not seen in nearly 150 years, but it’s yet to be captured in bets on S&P 500 volatility.

Widely traded CBOE VIX futures, which capture the market’s expected swings in the S&P 500 over 30 days, show investors bracing for uncertainty around the Nov. 3 vote. The spread between the front-month futures contract and spot VIX is near the highest since 2012, but it’s more muted further out the curve.

 

The NYSE Hi-Lo Index was revised down after the close (-45.00).  It is now beneath its Cycle Bottom support at -43.93, which indicates a potential panic decline may be at hand.

 

TNX is still consolidating within its Triangle formation.  The breakout may be imminent.

 

USD futures are consolidating inside yesterday’s range.  The current Master Cycle is due to mature in the next two weeks.  However, the Elliott Wave structure appears complete, barring an extension.

 

September 24, 2020

1:45 pm

SPX is testing the Lip of the Cup with Handle and the 61.8% Fibonacci retracement level at 3278.70.  The retracement appears complete and ready for the next phase of the decline.

 

12:15 pm

The NYSE Hi-Lo Index has declined to a -47.00, letting us know that the bounce is merely a dead cat.  Any bounces are to be sold as the Cycle is unfinished on the downside.

ZeroHedge remarks, “Having  ‘nailed it’ on the post-Quad-Witch tumble in stocks, noting that dealer delta and gamma positions suggested a lack of support after expiration…

“if selling persists and the $270 “trigger” in QQQs is taken out, that’s when “things could get sloppy to the downside into next week”

It is worth listening to Nomura’s Cross-Asset Strategy MD Charlie McElligott when he warns that he is seeing large market players de-risking while retail continues to desperately play their leveraged BTFD game.”

 

10:09 am

SPX has bounced off the 12-31 low at 3212.03 and is now testing its 38.2 Fibonacci retracement level at 3253.00.  It may go higher, as the trendline (Lip) is at 3275.00.  However, there may also be margin selling as investors ease their leverage before the banks do it forcefully.

ZeroHedge remarks, “But, but, but… fiscal stimulus… Powell Put… v-shaped recovery… vaccine…

Nasdaq is leading the tumble but the S&P 500 has just hit a 10% drop from its highs – entering correction…

And going red year-to-date…”

..but only briefly with a bounce.

 

8:00 am

Good Morning!

SPX futures have made a new low at 3201.62 (as of 8:43 am) this morning, suggesting an opening gap down.  A minor 4.3 day Cycle was complete yesterday morning, proposing the decline may now continue through Tuesday, at the least.  Another 4.3 days, at a minimum, may be anticipated in this decline.

ZeroHedge reports, “US equity futures were subdued and European stocks rebounded from an early selloff as markets tried to stem the Wednesday rout sparked after a range of Fed speakers urged further fiscal stimulus, even as investors braced for another staggering weekly jobless claims figure, the latest evidence of a slowing economic recovery from a pandemic-led recession.

The FAAMGs which led a Wall Street rally since April, again edged lower in premarket trading. A 2% slide put Tesla Inc on course for its third straight day of declines following an underwhelming “Battery Day” presentation by Chief Executive Officer Elon Musk. At the same time, big banks including Goldman Sachs, Wells Fargo and JPMorgan gained between 0.8% and 1.6%. Nikola which is set for one of its biggest weekly declines ever, tumbled another 7.8% as Wedbush downgraded the stock to “underperform”.”

 

NDX futures are breaking down to a new low at 10664.88 (as of 8:40 am).  The ultimate target over the next three weeks is beneath the lower trendline of the Orthodox Broadening Top.

ZeroHedge observes, “Retail investors giveth, and retail investors taketh away.

For much of the past 6 months, euphoric Robinhood daytraders and other retail investors have been cited among the key drivers for the market’s relentless meltup which culminated earlier this month, incidentally just as that retail darling momo stock TSLA peaked on news it would not be included in the S&P500. One problem: unlike institutional investors who have virtually unlimited access to funds thanks to their prime brokers (until they are margined out of course, often with catastrophic consequences), retail traders are at the mercy of their balance sheet, which in turn is in the hands of their brokerage account such as Robinhood and Interactive Brokers.

Which is why the overnight news that Interactive Brokers, one of the most popular platforms among retail investors, high net worth individuals and family offices was raising its initial and maintenance margins by a whopping 35% sent a ripple across markets: surely there were numerous retail investors who suddenly were facing margin calls, and they had a choice – either add more funds or liquidate positions. Judging by the market’s reaction, many have picked the latter.”

 

VIX futures are testing mid-Cycle resistance at 30.49 this morning.  The Cup with Handle formation awaits a breakout above 38.28 for a confirmation of its target.

 

The NYSE Hi-Lo Index closed at its lowest point since April 3.  The Cycle Bottom is at -51.81, signifying a selling panic may be at hand.

 

TNX declined to 6.61 this morning.  It did not break through the 50-day Moving Average at 6.42.   Under prior circumstances TNX would have already been in a deep decline.  The current action foretells a potential breakout in the opposite direction.  Panic begins when the dealers are stuck with unwanted treasuries during an auction.  This is because the dealers must absorb any unsold inventory.

ZeroHedge reports, “Yesterday when addressing the latest (relatively mediocre) 2Y Treasury auction, we titled it “Another Record Big 2Y Treasury Auction, Another Record Low Yield.” Well, not much has changed today, because moments ago the Treasury sold a record amount of 5Y Treasurys, or $53 billion up from $51 billion last month, which also priced at the lowest yield in 5Y auction history.

The yield on the paper dropped to 0.275% from last month’s 2.98%, stopping through the When Issued 0.285% by 1 basis point.

Just like yesterday, there was some weakness in the Bid to Cover – which dropped from 2.72 to 2.52 and just below the recent average of 2.53 – and the internals, where Indirects took down 61.9%, a drop from the 66.2% in August if above the 59.4%. And with Directs taking down 17.4%, the most since April, Dealers were left holding on to 20.7%, one of the lowest Dealers take down on record.”

 

USD futures made a new high at 94.59 this morning.  This may be due from the increasing demand for dollars in cash and money markets.  The Cycles Model suggests the USD may continue to rise through mid-October, at a minimum.

MarketWatch observes, “A previously beaten-down U.S. dollar is bouncing with a vengeance this week, appearing to kill demand for gold and weighing on other commodities. Investors are wondering how much further the currency can rise.

The ICE U.S. Dollar Index DXY, +0.07%, a measure of the currency against a basket of six major rivals, is up 1.4% so far this week and .32% month-to-date, trimming its 2020 decline to around 2.2%, according to FactSet.

The dollar has rallied as stocks have suffered a steep September pullback, perhaps showing the U.S. currency is still a haven during periods of rising financial market volatility, perhaps soothing concerns it was losing some of its shine amid questions over potential political instability and institutional decay ahead of this November’s presidential election.”

 

Gold futures declined w low at 1852.00 this morning.  The decline may be running out of steam as the current Master Cycle is imminently due for a low. Smart money may be noting the oversold condition and preparing for a rebound.

MarketWatch reports, “Gold prices on Thursday headed lower, putting the precious commodity on track for a fourth straight decline and its longest skid since late April, with strength in the dollar contributing mightily to the deterioration in bullion.

Bullion was deepening its slide toward its lowest price since late July as investors appeared to prefer the turn to the U.S. dollar amid rising concerns about the global economic outlook and increased cases of COVID-19.’

 

 

 

 

September 23, 2020

Good Morning!

SPX futures reached an overnight high of 3319.62, short of the 50-day Moving Average at 3347.12.  The Wave pattern is building up to an extended Wave structure that may continue the decline through October 15 or later.  This would allow the decline to last 30 market days, compared to the March decline which lasted 22 market days.

ZeroHedge reports, “S&P futures and global stocks rose on Wednesday for the second day as Tuesday’s global rebound extended after the recent correction, ahead of data that would throw light on the pace of an economic recovery from a coronavirus-driven recession. Investors also waited for a second speech from Fed Chair Jerome Powell who will appear before the House Select Subcommittee on the coronavirus to discuss the central bank’s response. The dollar extended its impressive Tuesday gains while 10Y yields were fractionally higher.

 

NDX futures soared to 111221.62 to challenge its 50-day at 11202.58.  However, it made an about-face at 6:00 am and has since fallen in the red.  At the current rate of decline, it may gap open beneath the Lip of the Cup with Handle near 11000.00.  The trendline called the “Lip” is considered to be permeable, which allows corrections to cross over.  Compare this with the Head & Shoulders neckline, which generally does not allow a significant retest above it.

 

VIX futures are staging a comeback from a new low at 25.19, challenging its 50-day this morning.  However, they are still in the red.

 

The NYSE Hi-Lo Index closed at 4.00 yesterday, possibly suggesting that only 4 of the 10 mega-tech stocks made new highs.  It remains solidly on its sell signal which causes us to refrain from trying to micro-manage the bounces.  The NDX Hi-Lo is at -20.00, also remaining on a sell signal.  Violent Bear Market swings can fool many traders into exiting their short positions too early, reducing short profits and making it more difficult to re-enter.

 

TNX rose to a morning high at 6.79 in a test of the upper trendline near 6.85.  Once above it, it may rally in strength through mid-October.

 

USD futures rose to a new retracement high at 94.25.  While near term it may retest the 50-day, USD is due to continue its upward trend through mid-October.

ZeroHedge reports, “The dollar continues to extend its recent gains, reaching near 2-month highs…

Source: Bloomberg

…and breaking above the key 50-day moving-average.

 

Gold futures made a new low at 1876.40, confirming its declining trend.  Gold is due for a Master Cycle low next week.  However, the damage to the price of gold may be extensive by then.  Note how the media is touting gold.

Bloomberg opines, “Gold could hit a record before the year-end, aided in part by the risks surrounding the U.S. presidential election, according to Citigroup Inc.

Uncertainty over the contest and delays about the outcome may “be under-appreciated by precious metals markets,” analysts including Aakash Doshi said in a quarterly commodities outlook. The bank’s forecast implies a surge of more than $200 for bullion futures from current levels.”

 

The banking index may be due for a bounce, but if so, may be short-lived.  The Cycles Model also has the banking index in a declining trend until mid-October.  Quite possibly the decline may last until election day.  This is showing a serious drain in liquidity, of which BKX is a proxy.

NYPost reveals, “Major banks’ stock prices sank Monday after news reports detailed how they allegedly moved huge sums of money for criminals around the world.

Shares in finance giants Deutsche Bank, JPMorgan Chase and HSBC tumbled after the revelations that they and others handled more than $2 trillion in sketchy transactions linked to drug dealers, terrorists, human traffickers and other illicit operations, according to secret documents obtained by BuzzFeed News.”

 

 

 

 

September 22, 2020

8:00 am

Good Morning!

SPX futures rose to 3289.38, just under the trendline at 3290.00 and has been repelled.  Futures are now negative and may resume the decline.  Should SPX trend lower, the next support is the daily mid-Cycle support at 3100.00.

ZeroHedge reports, “US equity futures bounced on Tuesday alongside European shares, with beaten-down shares of technology-related companies leading early gains, while Dow futures were subdued on uncertainty over more U.S. fiscal stimulus; Treasurys were flat and the dollar dropped before Fed Chair Powell and Treasury Secretary Steven Mnuchin speak later in the day at a Congressional panel.

Early premarket gainers on Tuesday included Microsoft, Apple, Amazon.com, Alphabet and Facebook all of which have dominated Wall Street’s rally since a coronavirus-driven crash in March. Amazon was upgraded to Outperform by Bernstein with a $3,670 price target, after analyst Mark Shmulik wrote that the pandemic “has pulled forward secular trends, from e-commerce to digital advertising and Cloud, with Amazon as a primary beneficiary across all three revenue pools” adding that e-commerce “has permanently inflected,” and that investments made by the company had positioned it well for the long term. AMZN shares are up 1.7% premarket.

 

NDX futures rose briefly to 11082.25 before falling back to 11000.00.  The Lip of the Cup with Handle is located there, so a decline back beneath it may incite a free fall scenario.  A bloodbath of margin calls was averted at 3:00 pm when stocks suddenly caught a bid into the close.

BusinessInsider reports, “Investors on Friday pulled $3.5 billion out of the popular Invesco QQQ Trust Series 1 ETF, which tracks the Nasdaq 100 index, according to Bloomberg data.

That marked the biggest single-day outflow since October 2000, amid the dot-com bubble.

The mass exit reflects the unease in the tech sector that’s sent the Nasdaq 100 tumbling into correction territory in recent weeks. On Monday, the gauge sat roughly 13% below its September 2 peak.

The Invesco QQQ ETF, the biggest technology exchange-traded fund available to investors, had more than $120 billion in assets as of Friday.”

 

VIX futures challenged yesterday’s low with a dip to 27.37 before recovering into the green.  Mid-Cycle resistance was challenged yesterday, suggesting that it maybe overcome with a new target at the Cycle Top at 58.47.  The Cup with Handle formation shown may also be interpreted as a Head & Shoulders with a target at 56.28 (minimum).

InvestorPlace comments, “We’re always looking for clues as to what might happen next on Wall Street.

Right now, traders are trying to determine whether the S&P 500 is going to:

1. Climb back up to its all-time high of 3,588.11

2. Consolidate for a while

3. Fall back down below 3,300

We think there are clues in the VIX.

That’s how our technical experts, John Jagerson and Wade Hansen, began their most recent Strategic Trader update.”

 

TNX appears to be consolidating within its Triangle formation.  It appears to have made a Master Cycle low on September 17 and may break out higher, also confirmed by the Declining Wedge formation.    The breakout point is near 6.90, so be on the alert for a fast reaction move (perhaps to Mnuchin’s speech to Congress).

 

USD futures have pulled back after challenging the 50-day Moving Average at 93.71 yesterday.  The Cycles Model suggests that the USD is strong and may break out higher today.  The USD may test the Broadening Wedge trendline near 96.70 by mid-October.

 

Gold appears to be testing the 50-day Moving Average at 1935.72 after breaking beneath it yesterday.  The sell signal is confirmed with the mid-Cycle support at 1736.94 as a likely target.  Failure to break above the 50-day may provide the impetus for a possible 2-month decline.

 

September 21, 2020

3:30 pm

The bounce in the SPX must contend with the Cycle Bottom resistance at 3272.00 and the Lip of the Cup with Handle at 3290.00 to make any meaningful progress.  The Wave structure suggests much more downside ahead.  Traders are already wondering when to exit their short positions due to perceived oversold conditions.  Despite the strength of any bounce, one may find re-entry on the short side difficult.

 

3:23 pm

The NYSE Hi-Lo Index is at its lowest ebb since May 15.  This is a clear sell signal despite the oversold condition in the SPX.  The threatened bounce may be limited by overhead resistance (50-day M.A. and trendline) and the open gaps being created by the decline.  The Hi-Lo stays on a sell signal until it crosses above mid-Cycle resistance, currently at 39.99.

 

7:30 am

Good Morning!

BKX is coming under pressure this morning and has likely broken down from its Triangle formation. The BKX is our Liquidity barometer and a falling value indicates a financial storm may be at hand.  Note the potential target for the massive Head & Shoulders formation.  It is possible that banks may be closed sometime between now and the election.  Remember, money on deposit at a bank is no longer “your money.”  It is an unsecured loan that may be liquidated only as long as the bank has free reserves at hand.

ZeroHedge reports, “Shares of the world’s biggest banks are tumbling in premarket trade Monday morning after Buzzfeed last night published a lengthy report based on a cache of thousands of leaked SARS – suspicious activity reports – filed by the world’s biggest banks, including JP Morgan, and Deutsche Bank, which were both prominently featured.

JP Morgan shares tumbled 3.5% to their lowest levels since July.

European banks bore the brunt of the selling on Monday, given that many European megabanks featured prominently in the reporting. Deutsche Bank tumbled 8.3% as the report relitigated parts of the Mueller probe and the bank’s involvement with the Trump family, and members of the Trump inner circle. Reports in the files revealed at least $1.3 trillion in suspicious transactions passed through the bank between the late 1990s and late 2010s.”

This follows an article by ZeroHedge this weekend.

 

SPX futures made a new low at 3247.88 this morning before making a small bounce.  The bounce may reach Cycle Bottom resistance at 3281.35 or the trendline at 3290.00.  However, the downtrend appears to be accelerating due to dealers being caught in a negative gamma cycle after options expiration.  Today the dealers have to cough up the cash/make payment on the options that expired during the weekend.

ZeroHedge comments, “We said that futures trading ahead of the Monday open would be “fun“, and sure enough they did not disappoint.

Global markets tumbled on Monday, as S&P futures slid below 3,300 after failing to hold 50DMA support on Friday, and with European stocks falling the most since July as investors worried about renewed covid lockdowns across European countries and a report detailing suspicious transactions at international banks, with a lack of U.S. stimulus and concerns about how the death of Ruth Bader Ginsburg would impact what are already set to be extremely contested elections also hit sentiment.

U.S. stock index futures dropped 1.8% on Monday hit by bank stocks following media reports that several global banks moved sums of allegedly illicit funds over nearly two decades. Shares in JPMorgan Chase and Bank of New York Mellon Corp fell 4% and 3.3%, respectively, after a after a report by the International Consortium of Investigative Journalists that said lenders “kept profiting from powerful and dangerous players” in the past two decades even after the U.S. imposed penalties. HSBC Holdings Plc fell to the lowest since 1995 and European bank shares slumped (more here).”

 

NDX futures have tested the 2-hour Cycle bottom at 10693.34 this morning.  Should support hold, there may be an attempted bounce to the 50-day Moving Average or higher.  However, should support give way, NDX may go into free-fall, as the Cup with Handle formation appears to have been triggered.  As of this morning, the NDX has fallen 14%.  Individual shares may have fallen as much as 30%, triggering margin calls in addition to the short gamma condition.

 

VIX futures made a new high at 30.64, surpassing the mid-Cycle resistance at 30.26.  VIX is on a buy (SPX sell) signal.  There is a new Cup with Handle formation which may also be construed as a potential Head & Shoulders formation with a target of 56.28.  Either formation suggests that the Cycle Top may be tested soon.

SeekingAlpha observes, “Many traders instinctively view current markets as very odd. COVID drove an incredibly steep dive in prices, followed by a surprisingly strong rebound. Now, fundamentals are terrible, but markets are exuberant. Yet that exuberance is very concentrated in a select group of favored symbols. Stocks and bonds have tended to move in sync, which is odd, and more strangely, stocks have climbed relentlessly while the VIX has remained elevated in the mid-twenties.

Looking deeper one must wonder how much of the increasing valuation across the entire financial complex is driven by Federal Reserve largesse, which raises the obvious question of how that might end badly. Then there is the Softbank influence where massive call buying drove both stocks and VIX higher. Anyone can rationalize the odd market behaviors but navigating them successfully is another story.”

 

TNX has declined toward the 50-day Moving Average at 6.39 in the final probe lower to complete the Triangle formation.  TNX may venture beneath that support due to money flows from equities.  However, it may not last, as a Master Cycle low is due.  Be aware of a potential bear trap here.

 

 

 

 

September 18, 2020

10:06 am

QQQ is beneath its 50-day Moving Average at 272.99.  It appears the 270.00 is being defended, but should it give way, the gamma storm may intensify, with accompanying margin calls to boot.  The Cup with Handle formation gives us a possible target.

ZeroHedge explains, “The relentless gamma meltup of late August, early September is now ancient history, and following today’s “quad witch” expiration, Nomura’s Charlie McElligott writes that the “Nasdaq is open to a MUCH larger trading range coming-out” following what he calls a “staggering collapse” in dealer gamma, with 63% running off and now totaling a negative -$564.5mm, which is not only the lowest since late 2018 when the market suffered its first mini bear market of the post crisis period, but is also just a 2.3 percentile since 2014…

… while dealer Delta is -$15.5B, just 2.8%ile since 2014…

(Ed)…and the devil take the hindmost.

 

8:00 am

SPX futures are flat ahead of quadruple witching today.  It managed to close above the 50-day Moving Average yesterday, but may not be able to hold support there today.  This may open the floodgates for Gamma selling.

Although hedging with options is often called “insurance,” it is the exact opposite, since the opposite party must provide liquidity for that put or call at maturity.  In a calm market dealers often sell both sides (puts and calls) of the market (Delta Hedge) which becomes self funding.  However, when the options become lopsided, dealers “Gamma Hedge,” that is, they buy or sell short the underlying security or index.  Until 2 weeks ago, the equities options purchased were overwhelmingly calls.  Today it appears that puts may be favored.  Should the SPX decline today, dealers may be forced to sell short, driving the market even further down.

Phase two of the decline is when leveraged investors become under water.  Then they are forced to either make up the deficit with cash or sell (or be sold) in an unfavorable market, forcing the market even further down.  This is why bear markets are so destructive.

ZeroHedge reports, “US equity futures were flat after trading in a narrow overnight range, and European and Asian markets drifted in a volume-light session ahead of Friday’s traditionally volatile quad witching session, when the expiration of options and futures send volumes soaring as big derivatives positions roll over. As Bloomberg notes, “there may be more attention than usual after a month where the red-hot trade in tech stocks wavered and options activity dominated headlines” however since there are fewer expirations this time, it may mute the impact.

NDX futures rallied to 11150.62, falling short of retesting the 50-day Moving Average at 11191.49.  This puts NDX in a very tenuous position since the 50-day is often considered the “trap door.”  Renewed selling today could especially lead to significant new lows next week.

ZeroHedge notes, “As the market has “rebounded” off its lows back in March, the world’s super wealthy are jumping at the chance to offload billions of dollars in stock while global central banks – and most notably the Federal Reserve – keeps a bid under the market and acts as a Mr. Magoo-like counterparty.

Many investors have been prompted to sell by market volatility over the last two weeks, which appears as though it could be signaling an end to the V-shaped recovery. This has likely helped spook the ultra wealthy into take some cash off the table.”

 

VIX futures are testing the 50-day Moving Average at 25.48 this morning.  Remember, the VIX Index options and futures expired on Wednesday.  However, VIX ETFs options expire today.  Since the short volatility trade dominate the market until recently, there may be some incentive to keep VIX low today.  However, an upset in the VIX may cause chaos in the broader market.

NorthmanTrader observes, “As long time readers know I’m a big fan of $VIX technical structures and compression patterns. Often dismissed as non chartable I think we’ve successfully to put that argument to bed a long time ago.

Recently in “Key Charts” I again outlined the $VIX as one of the key charts to watch and it’s been interesting to say the least here during this OPEX week and hence I wanted to outline an update as a pattern is forming that suggests a major $VIX uprising may be in the cards this fall.

Yes, $VIX again came under pressure into monthly $VIX futures monthly contract roll-over, but interestingly it didn’t manage to fill the August gap which would have been standard fare if you will:”

Sven discusses “open gaps” in the VIX that are normally filled.  However, gaps in a Wave [3] or [C] remain open, suggesting they may be filled when the bear market is over.

 

TNX has declined to a morning low of 6.68, just 10 ticks from Intermediate-term support at 6.58.  The 50-day is at 6.38.  The Triangle is tightening.  The final thrust of the Triangle may break support, leading investors to believe that TNX will continue the decline.  The opposite may take place instead, since Triangles are continuation structures.

 

USD futures made a new correction low at 92.68.  The Cycles Model suggests the pullback may end early next week, if not sooner.  USD may be due for a Master Cycle high in the next fes weeks.

September 17, 2020

9:43 am

The NYSE Hi-Lo Index opened in the red this morning after closing yesterday above the mid-Cycle support/resistance at 38.85 and the 50-day Moving Average at 74.10.  This is the final confirmation of the NYSE sell signal.

The NDX Hi-Lo opened at -2.00, also giving us a confirmed sell signal in the NDX.  The NDX VIX (VXN) has risen to 37.43 from 3.55 last week.  It was only briefly beneath the 50-day Moving Average at 32.87 last week and on a confirmed NDX sell signal.

 

7:30 am

Good Morning!

SPX futures have already challenged the 50-day Moving Average at 3335.96 in overnight session.  It has bounced but now appears in decline again.  Don’t be surprised to see the SPX gap through the 50-day at the open.  The Lip of the Cup with Handle formation is at 3300.00 for a final send-off to a low deeper than the March low.

ZeroHedge reports, “It all started just before 3pm on Wednesday, when during his press conference, Fed chair Jerome Powell said that “more fiscal support is likely to be needed”, sparking concerns that the Fed’s monetary toolkit is running dry and that the next move will be a massive $1.5+ trillion fiscal injection from Congress (not surprisingly, Trump also flipped yesterday and advised Senate republicans to agree with Democrat demands for “much higher numbers.” It also launched a cascade of complaints that the Fed was “not dovish enough” (just as we warned would happen), and as JPM said “there may be increasing calls for the Fed to do more” as the stocks are now habituated to a Fed that constantly caters to their every whim.

What happened next was that stocks, which had just hit session highs just before Powell’s statement, tumbled led by tech names on fears a “growth to value” reflation rotation was imminent should Congress kickstart inflation. Emini futures continued to selloff all night, and dropped as much as 100 points sliding as low as 3,310 before rebounding modestly once Europe reopened.

“The market was probably hoping for something more tangible on QE,” said Chris Chapman, a portfolio manager at Manulife Investment. “But overall this should be supportive for risk assets longer term.”

 

NDX futures are testing last week’s low by declining to 11002.75 last night.  The 50-day Moving Average at 11182.97 has been handily crossed and the next target may be the Cycle Bottom at 10705.19.

ZeroHedge comments, “But, but, but… The ‘very successful’ IPO of Snowflake now has everyone who bought after its release yesterday now underwater…

The Nasdaq is leading the plunge post-Powell…

And bond yields are tumbling

And don’t forget, tomorrow is quad-witch options expiry so hold on to your hats for a gamma-geddon in stocks and vol.”

 

VIX futures rose to an overnight high at 28.34 and appears to maintain its higher level.

CNBC observes, “The presidential election is seven weeks away, and the closer we get to Election Day, the more volatility seems to be taking center stage in the options market.

Last week’s sell-off saw several sessions where the Cboe Volatility Index spiked to close above 30 for the first time since late June, but even though the VIX has fallen since then, premiums in options contract expirations on both sides of Election Day remain elevated. Those higher prices are reflected by VIX futures, as well.

“Think of that as rolling 30-day windows of volatility. The October VIX future, which essentially is pricing right now what the VIX might be at October expiration … is the highest VIX future on the board,” Optimize Advisors CIO Michael Khouw said Monday on CNBC’s “Fast Money.”

 

USD futures continue to consolidate near Intermediate-term support/resistance at 93.06. As mentioned yesterday, the consolidation appears to be a Triangle formation which indicates a continuation of the retracement rally.

CNBC reports “Having ridden a short-covering rally sharply higher after the Federal Reserve left interest rates on hold, the U.S. dollar erased virtually all of those gains on Thursday as markets digested the U.S. central bank’s policy statement.

The greenback rebounded across the board in late Asian trade, posting its biggest daily rise in more than a week as dealers unwound short positions taken ahead of the Fed decision.

But with the new guidance from the Fed focused on keeping U.S. interest rates at current record lows until employment and inflation reach its targets, some strategists argue any dollar strength is likely to be temporary.

 

TNX whipsawed back down to violate Intermediate-term support at 6.52 this morning.  This is due to the automatic response by traders to rotate out of stocks and into bonds in a market decline.  Should TNX continue to decline, it may complete a Declining Wedge formation and extend its Master Cycle to the lower trendline before resuming its rally.  This would be the ultimate fake-out, trapping UST longs while rates rise.  This could happen in just a matter of days.

Investing comments, “(Reuters) – Yields on the benchmark 10-year U.S. Treasury note (US10YT=RR) should end 2020 just under the 1% level, Morgan Stanley (NYSE:MS) said in a recent research report that pointed to dovish moves by the Federal Reserve and other factors that led it to lower its yield forecast.

The investment bank said it expects a 0.95% 10-year yield at year-end, down from a previously forecast 1.15%, citing the Fed’s recent shift toward average inflation targeting and its signaling of “an implicit cap on yields.”

Other factors that have changed since June include “higher probability of disappointment on fiscal stimulus” to bolster the coronavirus-hit economy as Republicans and Democrats in Washington remain far apart, and an uncertain election period, which could “drive a flight-to-quality premium in Treasuries,” according to the report.”

 

The Agriculture Fund appears to be headed for a Master Cycle low in the next week.  The target may be the 50-day Moving Average at 14.16.  Keep this in mind as food prices are rising.  This may be one of the few asset-backed indexes that may be profitable during the decline in stocks and bonds.  Gold and crude oil are both liquidity driven and may decline in tandem with stocks.

September 16, 2020

3:11 pm

SPX just declined beneath its mid-Cycle support at 3401.62.  In addition, the VIX rallied above its 50-day Moving Average at 25.49.  Both are probable sell signals for the SPX.  The NYSE Hi-0Lo Index remains elevated and may not show a sell signal until tomorrow at the earliest.

2:55 pm

NDX may have peaked yesterday.  Today it fell beneath its mid-Cycle resistance at 11451.56 and is now retesting resistance there.  Interestingly, it just dropped from there while I was getting the chart.  A probable sell signal…

 

11:29 am

SPX appears to be making its final push toward Short-term resistance at 3438.55 this afternoon.  The Elliott Wave structure suggests it may not make it that far.  In addition, the Cycles Model suggests a potential reversal prior to the FOMC press release.  In addition to the lack of confidence in the Fed, traders may also begin focusing on the upcoming quarter-end.

ZeroHedge warns, “With month and quarter-end just two weeks away, Wall Street shifts its collective attention to a recurring phenomenon, namely the quarter-end rebalancing where outsized stock buying or selling can lead to short-term market havoc. The reason is that in quarters in which stocks outperform bonds – as they have in Q3 – funds need to rebalance by selling stocks to remain in compliance with their position mandates (vice versa in quarters when bonds outperform stocks).

So for those curious how the quarter-end landscape looks, JPMorgan’s market flows guru, Nick Panagirtzoglou has some bad news. When looking at the exposure of some of the biggest “rebalancing” whales including US defined benefit pension plans, Norges Bank, i.e. the Norwegian oil fund, and the Japanese government pension plan, GPIF, the JPM strategist estimates roughly $200 billion in forced selling on deck.

NorthmanTrader observes, “We all know it yet the unspoken truth deserves to be said out aloud.

You all heard the phrases ‘Don’t fight the Fed’, and ‘ there is no alternative’. Can we be clear what these phrases really mean? They mean people are buying assets at prices they otherwise wouldn’t because a central planning committee is putting in market conditions that changes their market behavior.

People are paying forward multiples that are higher than they would if they earned higher interest income. The ‘desperate search for yield’ they call it. Think of it as a forced auction. You must pay, and you must pay more because you can’t bid on anything else and neither can anyone else hence there are now bidders for ever less available product (i.e. think shrinking share floats) driving prices wildly higher. And as central banks have become permanently dovish over the past decade Fed meetings are the principal impetus for rallies. Indeed most gains in markets come around days that have Fed Day written on them, a well established history going back decades now.”

 

7:30 am

Good Morning!

SPX futures rose to an overnight high at 3417.62, giving it a cash equivalent of approximately 3430.00.  They have since eased back within yesterday’s range, but may rise to test Short-term resistance at 3441.67 later today.  The Cycles Model offers another potential reversal point today that may be made near the 1:00 pm hour.  This corresponds with the FOMC press release being published at 2:00 pm and a potential press conference later today.

The NYSE Hi-Lo Index closed at 90.00 yesterday, above the 50-day Moving Average at 74.82.  The mid-Cycle support is at 37.71, where a sell signal may be confirmed.  The chart shows the mid-Cycle support at 3395.75, where a sell signal may also be confirmed.

ZeroHedge reports, “U.S equity futures and European stocks rose as investors awaited the decision of the Federal Reserve’s policy meeting later Wednesday and the August retail sales report which was expected to show a modest growth slowdown. Treasuries were steady and the dollar slipped.

After a modest dip early in the session following news that Facebook is facing an antitrust lawsuit by the FTC as early as late this year, S&P futures rebounded and hit a session high of 3,418.25 before paring gains to a 0.3% rise, as investors hoped for a renewed dovish pledge by the Federal Reserve to keep interest rates low for a prolonged period, with upbeat quarterly results from FedEx also boosting sentiment. After dropping for two weeks in a row, the S&P 500 has rebounded 1.8% in the past two sessions, with defensive sectors including real estate and utilities among the biggest gainers.”

 

VIX futures made a low of 25.00, staying within yesterday’s range after testing the lip of the Cup with Handle formation.  Today is options and futures expiration for the VIX (not the related ETFs).  This may remove a significant amount of pressure being applied by the Short Volatility trade at the end of the day.

 

NDX futures made a new high at 11534.38, testing the 5-month trendline.  NDX is also on its final probe and may see a reversal near mid-day.  The NDX Hi-Lo closed at 64.00, above its mid-Cycle support at -6.58.  Note that this rally has the appearance of an exhaustion rally, where the morning boost gives way to selling.

 

USD futures continued to consolidate near Intermediate-term support at 93.06.  The consolidation has the appearance of a triangle, suggesting the consolidation may have a limited downside.

 

TNX is also consolidating above its support structure at 6.48.  TNX is at the cusp of a period of strength that may propel it may propel it much higher.  We also see a “golden Cross” where the Intermediate-term support/resistance at 6.48 is now above the 50-day Moving Average at 6.38.

ZeroHedge reports, “Unlike last month, when both the 20Y and 30Y auctions were so ugly they repriced the long-end well higher for the next few weeks, last week’s stronger than expected 30Y auction hinted at continued strength in the primary market for duration, and sure enough moments ago the 20Y auction, a 19-year 11-month reopening of Cusip SQ2, was also impressively strong.

The sale of $22BN in 20Y bonds – down $3 billion from last month – priced at a high yield of 1.213%, stopping through the When Issued 1.218% by 0.5bps, a solid improvement from last month’s 0.9bps tail.

The Bid to Cover also jumped from last month’s 2.26 to 2.39 (if below the btc of the first three 20Y auctions since the tenor was reintroduced in May). The internals were less impressive, with Indirect Bidders taking just 60.7%, down from 62.6% last month. And with Directs taking down 15.3%, above last month’s 11.2%, Dealers were left with 24.0%, also an improvement to last month’s 26.2%”

September 15, 2020

SPX futures are pushing against round number resistance at 3400.00.  Thus far the high has been 3399.12, but it is difficult to know how that will translate to the cash market since the September futures contract has rolled over to the December contract.

ZeroHedge warns, “The liquidity boom fueled from record fiscal and monetary stimulus has disappeared. The unwind process will be uneven just as it was uneven on the upside when record stimulus flowed through portfolio, income, and spending channels.

Finance (equity markets) was the biggest beneficiary and it should show the earliest hit and also bear the brunt of the abrupt reversal in liquidity flows. Consumer spending will be negatively impacted in time, but some crosscurrents also help retail spending.”

 

NDX futures are running up against the mid-Cycle resistance at 11407.38.  The urge to buy  the dip, especially among the MegaCaps is very strong among retail investors.  However, the government stimulus has run out.

ZeroHedge reports, “US equity futures and world stocks continued their ramp higher on Tuesday following upbeat German and Chinese data showed the economic recovery was gaining traction, coupled with the usual optimism about coronavirus vaccines while the struggling dollar kept the hot streaks for the euro and some of the biggest emerging market currencies sizzling. The USDJPY slumped to 105.53 while the Chinese yuan rose above 6.80, the highest level since May 2019.

E-Mini futures for the S&P 500 put on 0.6%, also reversing early losses. Tesla, Apple and Nvidia all climbed in pre-market trading, while in Europe Hennes & Mauritz AB led a rally among fashion retailers after beating profit estimates. Ocado Group gained after the U.K. grocery delivery company reported a strong surge in sales. Sentiment was also boosted by hopes for a COVID-19 vaccine after British drugmaker AstraZeneca restarted its vaccine trial and the dollar extending recent losses, other currencies were also on the rise.”

 

VIX futures have made a marginal new low at 25.29, but due to the roll over to the December contract, it is difficult to know how it translates to the cash market. Today would be day 264 in the Master Cycle.

SeekingAlpha suggests, “We noted at the start of the month that market breadth warned of an impending top (see “Not All All-Time Highs Are Equal“), and after 7% and 11% declines for the SPX and NDX respectively, their uptrends have been decisively broken. That said, last week’s decline in the VIX, together with the resilience of market internals, credit spreads, and international stocks, suggests risk appetite is stabilizing and a relief rally is due. We have lightened up on our U.S. short positions, but note that a close back above 30 on the VIX would suggest further near-term downside for stocks.”

 

USD futures made a new low this beneath Intermediate-term support at 93.08 this morning, declining to 92.78.  USD may decline as far as the Cycle Bottom at 92.16 before ramping higher.

 

TNX bounced off its 50-day Moving Average at 6.44 and appears to be moving higher.  The Cycles Model suggests that TNX may now be on a secular rise, with 2 months before the current Master Cycle ends.  Interesting times.

September 14, 2020

2:58 pm

SPX peaked at 10:00 am as suggested this morning, but declined reluctantly.  It has now crossed beneath the mid-Cycle support at 3390.28 and it likely to continue its decline.  This may be an actionable selling point.

 

11:30 AM

The structure of the SPX is now clearer.  It appears that a probe to 3420.00-3440.00 is possible.  However, a decline beneath the mid-Cycle support at 3383.88 indicates the rally may be over.  It is likely that the SPX will make a second attempt to test the trendline near 3448.09.  This rally has no effect on the Cup with Handle formation.

 

7:40 am

Good Morning!

SPX futures have tested Intermediate-term resistance at 3378.24 this morning.  There is a possibility of going higher.  The 61,8% retracement level is 3381.69.  However, the Cycles Model suggests the rally may be over as early as 10:00 am.  The 50-day Moving Average is currently at 3313.85.  Crossing that support opens the floodgates of selling.

Most analysts are not aware of the Orthodox Broadening Top and only believe that there may be a brief correction and the bull market resumes.  I have pointed out the location of “point 6,” the next target for the Orthodox Broadening Top.  Today I have found a Cup with Handle formation with a target that agrees with “point 6.”  The Lip of the Cup is very near the 50-day Moving Average, so crossing it may have a double impact.

We have seen that some retail investors chasing the MegaCaps have already had margin calls last week.  Crossing the 50-day may result in a panic decline.  This is what I mean by a “trap door.”  The selling will take place involuntarily and will lead to even more selling.

ZeroHedge reports, “U.S. stock index futures jumped 1.3% on Monday amid fresh progress in COVID-19 vaccine development and a triumphal return of “Merger Monday” thanks to a flurry of multi-billion dollar deals.

Oracle soared as much as 11% leading gains among the S&P 500 constituents, after emerging as the winner in negotiations to take over the US operations of ByteDance’s TikTok app. As reported last night, the deal specifics are still evolving, with the final option likely to be something closer to a corporate restructuring with Oracle taking a stake in a newly formed U.S. business. While the structure seems to be devised in order to meet recently tightened Chinese oversight rules, Bloomberg notes that it is not clear whether it would pass muster with the Trump administration, which has set tomorrow as the deadline for the sale or shutdown of TikTok’s American operation. For now however, investors are happy, even if it remains unclear just how the two seemingly disparate companies will synergize. A Microsoft-led consortium that included Walmart was also in talks for TikTok’s U.S. business. Their shares fell marginally.”

 

NDX futures are higher, but it should be noted that it closed on Friday beneath the 50-day Moving Average at 11095.94.  The Cycles Model also suggests a possible reversal this morning.  The fact that the NDX is oversold means nothing when margin calls kick in.  The margin desks will be calling clients with a clear message, either sell voluntarily or be sold involuntarily.

ZeroHedge notes, “Last week’s market pullback – which led to the fastest ever 10% correction in the Nasdaq from an all time high – was predictably concentrated in mega-cap growth (MCG) stocks, and followed their strong outperformance in August.

The selloff since the new market peak last Wednesday saw the MCG (-12%) put in a sharp correction by this Monday, while the S&P 500 (-7%), its equal weighted counterpart (-4.8%) and XMCG (-4.7%) fell much less.”

ZeroHedge observes, “he US stock market lost ground in the late Thursday session, as technology stocks lost steam. Robinhood traders tried to buy-the-dip in the morning but were monkey hammered from 10:00 ET and beyond. The short-lived rally on Wednesday trapped newbie traders into believing a “V” shaped rebound was imminent.

With the E mini Nasdaq down nearly 2% at around 11,181 level (at the end of the day) – none other than Barstool Sports’ Dave Portnoy, the market’s crazy amateur-genius, told thousands of viewers on his live Twitter stream around the 13:20 mark that he’s “over-leveraged again” and that, if he doesn’t sell by the close, his broker will force him to “write checks”.

“I’m overleveraged, so something’s gotta be sold,” Portnoy said. “

VIX futures have been testing the 50-day Moving Average at 25.68 this morning and has extended its Master Cycle low to day 263.   This is the Master Cycle not confirmed by the SPX or NDX Cycles.  However, it contains a powerful message.  That is, a reversal in the VIX may send stocks plummeting.

 

TNX appears to be consolidating above its combined support lines at 6.38-6.40.  Should it hold above that level, we may see TNX rising above previous highs.  Traders are still used to using the 10-year bond as a safe haven.  This time it may disappoint, should TNX rise as indicated by the Cycles Model.

 

USD futures declined to a morning low of 92.97.  dropping beneath Intermediate-term support at 93.09.  Should the decline continue, USD may test the Cycle Bottom support at 92.22.   Last week’s period of strength appears to be over with a decline anticipated through the end of the month.  However, a sudden spike in TNX may stop the decline early.

Investing reports, “The dollar’s downtrend will continue into next year, driven largely by the U.S. Federal Reserve’s shift to a new policy framework, although expectations for a deep fall in a sustained way have waned somewhat from last month, a Reuters poll found.

The interest rate incentive, which was the biggest driver of the dollar’s supremacy for well over two years, has fallen as reflected in lower yields on U.S. assets after the announcement last week the Fed would tolerate periods of higher inflation and focus on employment.

That has encouraged traders to sell the greenback and currency speculators to increase bets against it, with the dollar (DXY) slipping to a multi-year low – down about 10% from a March peak, and pushing the euro to break through the $1.20 mark for the first time since 2018 on Tuesday.”

September 11, 2020

1:32 pm

SPX has now declined beneath its 50-day Moving Average at 3320.51 and may be entering its panic Cycle.

ZeroHedge reports, “Simply put, Nomura’s MD of Cross-Asset Strategy, Charlie McElligott, warns, it’s not over yet…

Yesterday was a reminder on the magnitude of the $Gamma clean-up that is being worked out of by the US Eq Vol Dealer community as per the 50-handle S&P mush-down in the final hour of the session…

The Tech mega-cap single-names notably fell all while Vols (VIX and VXN both ‘down’) and Skew underperformed significantly despite the index-level market move sharply lower… “spot down, vol down”

 

 

1:23pm

NDX has broken through its 50-day Moving Average at 11128.11, while the SPX has challenged, but not declined beneath its 50-day.  The NDX is now in margin call territory for all leveraged holdings, having declined more than 10% from its peak.

ZeroHedge observes, “We have previously shown that the S&P500 is rapidly becoming the S&P5, with just the 5 FAAMG names now accounting for a record 23% of the S&P’s market cap, well above the concentration observed during the peak of the dot com bubble when a similar figure only hit 18% (for MSFT, CSCO, GE, INTC and WMT).

Which is why it won’t come as much of a surprise that according to Bank of America, just 10 S&P stocks (shown below), accounted for more than half of the market’s 7.2% return in August.”

 

9:37 am

BKX has fallen beneath its 50-day Moving Average at 75.60 yesterday.  It remains beneath it this morning.  This is a clear indication that liquidity is taking a nosedive.  In addition, it has entered Intermediate Wave (3) of Primary Wave [C], opening the potential for a very destructive decline.

 

7:30 am

Good Morning!

SPX futures made a 50% retracement of yesterday’s decline at 3375.52.  It may attempt  a 61.8% Fibonacci retracement at 3387.40, but the pattern appears complete.  The 50-day Moving Average at 3317.19 appears to be the Rubicon, where the majority of traders turn bearish.

ZeroHedge reports, “After yesterday’s surprise intraday reversal lower – the third such lurch following last Friday’s and Tuesday’s drubbing – which may or may not have been sparked by a pair of sell programs late in the morning, US equity futures levitated sluggishly in the week’s final session while European shares struggled for momentum on Friday as concerns about extra monetary stimulus and overnight falls in U.S. big tech shares kept investors on edge. The dollar continued its decline while Treasury yields rose.

Despite the modest rebound in U.S. futures, global stocks, the S&P 500 and the Nasdaq Composite were course for a second straight week of losses. On Friday, Nasdaq 100 futures were up 1.3% and S&P 500 futures 0.9% firmer. The NYSE Fang+ index of big 10 tech companies has lost 5.4% so far this week, its biggest weekly loss since the market turmoil in March if sustained by the end of Friday. Menwhile, volatility is rising and as the next chart shows, the Nasdaq has moved more than 1% on every day in September.”

 

NDX futures bounced from the 50-day Moving Average at 11115.00 to an overnight high at 11355.88, a 46% retracement, but have pulled back more than 100 points.  The 50-day has been challenged twice.  The third time may be the charm.

 

VIX futures made a low at 28.14, within yesterday’s trading range.  Yesterday’s Master Cycle low appears to be holding at a 58% retracement.

 

The NYSE Hi-Lo Index closed above the mid-Cycle support/resistance at 28.66. However the Trading Channel squeeze suggests the index may go lower while the 50-day remains above at 76.48.

 

TNX moved lower, but hasn’t broken support at 6.41.  The Cycle remains potentially bullish.

September 10, 2020

3:24 pm

The NYSE Hi-Lo Index is now beneath its mid-Cycle support at 28.53.  This confirms the sell signal for the SPX.  The low level in the Hi-Lo told me that attempting to trade the bounce would be fruitless, as several trader friends have learned.

 

3:15 pm

VIX put in a Master Cycle low today, then rallied to cross above mid-Cycle support/resistance at 29.83.  Honestly, I had been expecting a high…but this is better for the bears.  This may be the last best entry point for VIX longs.  This is the Master Cycle that I had discussed last week, mentioning that it would not be confirmed  by the SPX.  Now I know why.

 

3:06 pm

SPX made today’s high at the trendline, then reversed down.  The panic decline has begun.  The  next target is the 50-day Moving Average at 3317.24.  Beneath that is recognition by all that this is now serious.

8:00 am

 

Good Morning!

SPX futures have drifted lower to challenge the mid-Cycle support at 3377.70 in the overnight session after being rejected at the 5-month trendline.  There is a risk of another attempt at challenging the trendline, which greatly diminishes beneath the mid-Cycle support.

ZeroHedge reports, “Wednesday’s tech-led rally in stock markets stalled in Europe on Thursday as traders pulled back to hear what the European Central Bank would say about the euro’s run-up in recent months and this morning. Meanwhile, S&P futures dropped 17 points suggesting the rally in underlying stocks will stall once again amid concerns over record valuations.

The drop came after the gains in technology shares drove the largest Nasdaq advance since April on Wednesday as the S&P 500 rose the most since June following the fastest Nasdaq correction from an all-time high in history. The increased volatility in recent days suggests that U.S. stocks may be due for a pullback, with investors weighing catalysts to decide on the trajectory.”

 

NDX also challenged it 5-month trendline at 11400.00, but closed beneath it.  The overnight futures dipped to 11264.50 before re-challenging the trendline this morning.

 

VIX futures are hovering near yesterday’s low after a spike high just after the close to 29.50.  Yesterday (day 258) may have marked the Master Cycle low, but the jury is not yet out.

 

TNX is higher this morning, but no breakout.  The Master Cycle may have been completed as of Thursday (day 252) but TNX is still in a possible turn window propelling yields lower.  Today is day 259, giving TNX another possible week to change its mind.

 

USD futures have declined back beneath Intermediate-term support/resistance at 93.16, taking the shine off the rally.  A decline to the Cycle Bottom support at 92.32 is possible.

 

 

 

September 9, 2020

7:30 am

Good Morning!

SPX futures tested the mid-Cycle resistance at 3372.24 before pulling back.  That is less than a 38.2% retracement of yesterday’s decline from 3455.13 in the cash market and possibly a 50% retracement of the futures range.  Today appears to be a make-or-break day for the bulls or the bears.  Should the SPX decline (close) beneath the 50-day Moving Average, we may see another 4-5 days of possibly severe decline.

ZeroHedge reports, “After three days of furious declines in the market culminating with the worst 3-day stretch for the Nasdaq since the financial crisis which entered a correction, stocks rebounded on Tuesday on the back of oversold conditions which approached the March puke…

… as traders, algos and Gen-Z BTFDers ignored news that AstraZeneca had paused covid vaccine trials after a participant in the UK developed an unexplained illness potentially crippling the race for a vaccine, and causing a “ripple as markets question recent vaccine optimism,” according SVB Leerink analyst Andrew Berens said. Then again, with futures some 20 points higher from Tuesday’s close, it doesn’t seem like pessimism will be allowed today as a 4-day selloff would be catastrophic for market sentiment, and as such look for a green close with the blessings of the Fed.

 

NDX futures also tested the mid-Cycle resistance at 11321.42 and pulled back.  It declined beneath the 50-day Mov9ing Average at 11060.00 in the overnight session, possibly triggering another sell signal.  It appears that the NDX is leading the SPX so we may see the NDX re-cross the 50-day in advance of the SPX crossing its 509-day.  On the other hand, overhead resistance lies at themed-Cycle resistance and the  5-month trendline at 11400.00.  A break above that level tells us the decline is temporarily over.

 

VIX futures declined to 30.52, still above mid-Cycle support at 29.64.  The Cycles Model suggests today is a day of strength for the VIX.  Should that be the case, we may see the VIX go much higher to terminate its Master Cycle (inversion) early next week.  The Elliott Wave structure appears incomplete and would make a “better fit” at a higher level.

 

BKX declined beneath Intermediate-term support at 76.52 yesterday, creating a potential sell signal after making a Master Cycle high last week.  Crossing beneath the 50-day Moving Average at 75.45 confirms the sell signal and signifies an intensified drain on liquidity.

 

TNX is higher this morning, but remains beneath Friday’s high.  The uptrend may continue through Thanksgiving.

ZeroHedge reports, “Another month auction, another record big 3Y Treasury auction.

Moments ago the US sold a record $50 billion in 3Y paper, up from $48bn a month ago and more than double the nominal 3Y auction size observed in 2017 (whcn it was below $25BN).

And as auction sizes hit record highs, so do yields do the opposite and for the 3rd auction in a row, the yield on the 3Y auction hit a new all time low, sliding to 0.17% from 0.179% one month ago, which however was a modest 0.4bps tail.”

 

USD futures appear to be climbing steadily higher towards the 50-day Moving Average at 94.39.  Demand for USD may continue to increase through mid-October, and possibly even to election day.  This illustrates the growing view that there is no safe haven alternative, except the USD.

 

September 8, 2020

8:20 am

Good Morning!

SPX futures sank through the trendline at 3400.00, making a morning low of 3365.88, which suggests that Friday’s low at 3349.63 may be broken.

ZeroHedge reports, “If SoftBank’s presence in the public markets was enough to send global markets to 9 consecutive all time highs while stretching tech valuations to unprecedented levels, then it is to be expected that SoftBank’s unwind of its notorious “Nasdaq Whale” trade as we reported yesterday, would send risk tumbling and sure enough Nasdaq futures plunged over 2% on Tuesday, leading a drop in European stocks and S&P futures, while the dollar jumped as the euro dropped and the pound weakened for a fifth day amid Brexit fears.

After U.S. markets were shut on Monday for Labor Day, S&P 500 futures fell more than 1% reversing gains made in Asian hours, while futures in tech-heavy Nasdaq fell 1.3% after having lost more than 6% late last week. The tech drop was led by Tesla, which plunged over 12% – now trading below Friday’s low – after it failed to make the S&P500 on Friday, having lost a third of its value in the past week dropping to $366 this morning after hitting an all time high of $538.75 last Tuesday…”

 

NDX futures tested Friday’s low, followed by a bounce.  It remains beneath the 5-month trendline at 11308.8 and on a sell signal.

ZeroHedge comments, “Following our Thursday report identifying SoftBank as the primary – but not only – catalyst behind the bizarre moves in high beta tech names and the broader market over the past several weeks (confirmed later by the FT and WSJ), an odyssey which we summarized in Connecting The Dots: How SoftBank Made Billions Using The Biggest “Gamma Squeeze” In History with subsequent reports that SoftBank, or the “Nasdaq whale” as some now call it was sitting on “unbooked” profits of about $4 billion, the market was quick to punish SoftBank (9984.JT) which dropped on Friday then tumbled another 7% on Monday despite what the company has been proud to frequently remind its investors was the second biggest buyback authorization after Apple.

There were two reasons cited for the drop: the first was the realization that “SoftBank’s behaviour as a company increasingly resembled that of a hedge fund, populated with former investment bankers with a massive appetite for risk.” This realization was assisted by our weekend report which revealed the main players behind the Softbank trade, which was the brainchild of Abu Dhabi-based Akshay Naheta, a former Deutsche Bank prop trader who now heads SoftBank’s new asset management team which invests in public equities, including all those tech companies that have soared in August on the massive gamma melt-up facilitated by concurrent call buying as described previously.

The second reason cited by the FT for today’s tumble is that “retail investors, which make up 30 per cent of SoftBank’s shareholder registry, reacted particularly negatively to the company’s latest shift in investment strategy.”

 

VIX futures made a morning high of 35.80, but not exceeding Friday’s high (yet).  The Cycles Model suggests a Master Cycle high in the VIX this week, so we will be on the alert for it.

BusinessInsider reports, “Goldman Sachs said Wall Street’s top fear gauge is flashing a warning signal not seen in about two decades since the dot-com bubble burst in early 2000.

The CBOE Volatility Index, also known as the VIX, is the market’s best indicator of expected volatility in the next 30 days. When the stock market rises, ordinarily the index declines, and vice versa.

A market that is steadily rising or falling has low volatility, but one in which rapid rises and falls follow in quick succession shows high volatility.

A reading below 20% for the VIX means that the market is operating in a low-risk environment, while above 20 shows fear is picking up. A reading above 30 reflects heightened volatility.

 

The NYSE Hi-Lo Index closed well beneath the 50-day Moving Average and at its lowest point since June 25.  This is a clear breakdown and a sell signal for the SPX.

 

TNX pulled back from Friday’s high in what may be viewed as a normal 43%correction.  This has traders puzzled.  Where is the safe haven?

Investing observes, “Has the bond market run out of road as a portfolio-diversification tool? No one knows for sure, but for some analysts the writing’s on the wall and markets are facing regime shift. The key catalyst: the long-running decline in current yield, which has gone negative in some countries and may soon do so in US.

At issue is whether it’s still reasonable to expect bond prices to rise when stocks take a beating. That’s been the historical tendency, but the usual routine is open for debate as current yields in the US approach zero.

Consider the benchmark 10-year Treasury yield, which has fallen sharply this year and is currently a thin 0.63% (Sep. 3). That’s close to a post-World War Two low of 0.52% that was reached on Aug. 4, based on daily data published by Treasury.gov.”

 

West Texas Intermediate crude sank over the weekend.  It was immediately evident at the pump in my neck of the woods, where the price of gasoline fell below $2.00 over the weekend.  It has been on a sell signal since last week.

Investing reports, “The oil market is saying sayonara to summer, jumping into shoulder season as refiners remain shut down, and the summer driving season has ended. It did not help oil when the Saudis cut the selling price for some grades of crude oil, suggesting weak demand and a sense that it is not going to get better until the snow starts to fly.

Concerns about rising supply are happening even as U.S. inventories plummet, and both Saudi Arabia and Russia say they are pleased with overall OPEC plus compliance to the historic production cuts.

U.S. petroleum stocks continue to plummet, and concern that President Trump wants to decouple from China is hurting the stock market. ”

September 4, 2020

1:22 pm

It appears that the SPX bounce went to 3416.05 and is now in decline.  The trendline (more accurately) is at 3390.00, so a continued decline beneath that level is a good sign that the decline may actually accelerate.  People ask, “How can the market go down when it is already oversold?”  There is evidence that a third Wave (within Wave (1)) has begun.  If so, the SPX may remain oversold through a very chaotic decline to much lower depths than one can imagine.

The StockCharts tutorial says,  “Third Waves (Wave 3)

Third waves tend to be strong and broad. They are typically unmistakable, as confidence in the direction of the new trend is clearly evident. Wave 3 usually generates the most volume and price movement, and they are the most likely wave to extend. The third wave of an extended third wave will likely be the most volatile point of strength in the new trend and things like price breakouts, continuation gaps, volume expansions and increased breadth will accompany it. In Wave 3 for a stock index, nearly all stocks will participate. Because of the dynamics of this wave, it will provide the greatest clues to the correct wave count as it unfolds.”

 

10:50 am

SPX sailed past the trendline and mid-Cycle support at 3365.70 before bouncing.  At this point, it is challenging the mid-Cycle and may actually test the trendline at 3400.00.  However, the trendline appears to be solid.  We remain short for the duration of the Cycle…another week of declines.

ZeroHedge explains, “Yesterday’s sudden and violent, non-news-catalyst-driven collapse in Nasdaq (and the rest of the US equity market), especially focused on the go-go momo names, has brought home to many freshly-minted stock market gurus that risk is real and markets don’t always go up.

In fact, just as Nomura’s Charlie McElligott warned yesterday (before the crash), “something’s gotta give,” and it did.

Simply put, as the Nomura MD has explained numerous times before, the great and austere US equity market is nothing more than a weak dog being wagged by the tail of speculative mania in options markets – in other words, gamma is the market’s most important flow.”

 

10:14 am

NDX continues to gain downside momentum.  We’ll be watching the 5-month trendline and mid-Cycle support at 11296.61 for a potential bounce.  The NASDAQ Hi-Lo continues its decline at -16.  We may wish to stay short despite a bounce, as the decline has a lot of territory to cover in the next week.

ZeroHedge reports, “The S&P500 hit an all-time high price earlier this week, with a forward P/E multiple surpassing the dot com peak of 27x, printing at 27.02x. These mind-numbing valuations (before Thursday’s panic sell) have been met with intense insider selling as corporate executives dump billions of dollars worth of their stock into unsuspecting Robinhood traders.

Data compiled for the Financial Times by Smart Insider shows insider selling by 1,042 chief executives, chief financial officers and company directors in Aug. was the highest dollar amount since Nov. 2015. The total number of execs disposing of their stock as valuations, in some cases, surged beyond dot com levels, was the highest since Aug. 2018.”

 

8:40 am

Good Morning!

SPX futures made a 42% retracement of yesterday’s decline before easing back toward the closing price.  Currently it is in what may be a smaller bounce leading up to the open.

ZeroHedge reports, “Futures tracking the S&P 500 and Dow indexes bounced on Friday – if not so much the Nasdaq – after Wall Street’s worst session since June, with attention now turning to the crucial jobs report that is likely to show a faltering recovery in the labor market. S&P 500 contracts gained as much as 0.6% ahead of the U.S. open although the bounce appeared to lose power, while Nasdaq 100 Index futures resumes their slide after an attempt to rebound failed.

Despite the recovery in spoos, Nasdaq futures were deep in the red, as shares of Apple and Tesla – the poster children for the furious August ramp – resumed their slide in early premarket trading, suggesting that momentum from the rout may still be present.”

 

VIX futures declined to 31.51 with the overnight rally, staying above mid-Cycle support at 29.46.  It has made the Cup-with-Handle formation target in only a week.  The larger target is the March 23 high at 85.47 since Diagonal formations usually completely retrace themselves.

MarketWatch reports, “A closely watched gauge of expected stock-market volatility jumped Thursday as a tech-led selloff dragged major benchmarks sharply lower. The CBOE Volatility Index VIX, -3.24%, known by its ticker symbol “VIX”, rose 3.79 points to 30.76 after trading at a more-than-seven-week high of 32.19, according to FactSet. The rise took the VIX above its 200-day moving average, which stood Thursday at 28.26, for the first time since July 30. The VIX is an options-based measure of expected volatility over the coming 30 days for the S&P 500 [s:spx]. The VIX, which typically jumps during big stock-market selloffs, also tends to fall back during long, gradual rallies, but had remained stubbornly elevated above its long-term average of near 20 as stocks pushed back into record territory in recent weeks. Stocks were under heavy pressure Thursday, a day after the S&P 500 SPX, -3.51% and Nasdaq Composite COMP, -4.96% logged another round of records and the Dow Jones Industrial Average DJIA, -2.77% closed above 29,000 for the first time since February. The tech-led selloff saw the Nasdaq down around 590 points, or nearly 5%, in early afternoon activity, while the S&P 500 dropped 3.5% and the Dow shed 804 points, or 2.7%.”

 

The NYSE Hi-Lo Index closed at 30.00 yesterday, solidly making a sell signal.  This is the first time the Hi-Lo made a close at 30.00 or lower since June 26.  All indicators are now on a confirmed sell signal.

 

NDX futures bounced briefly in the overnight session, but resumed their bearish ways, making a new overnight low.

 

The NASDAQ Hi-Lo Index closed in the red, giving us a sure sell signal in the NDX.  This is the first time the NAHL has closed negative since May 14.

Bill Blain comments, ““All these tiny little bubbles, brewing up trouble…”

Going to keep the Porridge short this morning as we ponder what’s occurring in stock markets, and what’s likely to happen today and over the weekend.

Yesterday was an “ouch” moment for markets as Richter Force 5 slip hit Tech Stocks. Did it herald the Big One or was it just another tremblor? Will it prove the long-fear “Minsky Moment” many market-bears have been waiting for; when the bubblicious bull market wakes up to the reality that easy money isn’t the same as a strong economy? Or is it likely to be a more selective correction to the crazy valuations on the growth/tech sector?

Or might it just be another Friday morning storm in a tea-cup? (No – I doubt it.)”

 

Bill has an interesting point.  He commented, “The key issue about whether the current wobbling bull run is sustainable is going to be liquidity. All that money that’s been pumped into bond markets creating zero returns has had the effect of making Equities the only upside game in town. Now, the costs of the pandemic are coming due – the trillions that have been splurged on bailouts, furloughs and the QEI are largely spent.”

BKX has just ended its Master Cycle at a secondary high, suggesting the underlying liquidity has been weak to begin with.  Today it may challenge its 50-day Moving Average at 75.51.  Should it do so, it will also confirm the bubble popping.  Liquidity may hit a low in mid-October, just in time for a 1987-style panic.  The interesting feature pointed out by the Cycles Model is that there may be another low on election day.  Get out and vote!!!

 

TNX appears to have ended its anticipated Master Cycle at a low yesterday (day 252).  It now appears to be on its way much higher.  The Cycles Model suggests the 10-year yield may continue to rise through election day.

ZeroHedge reports, “Ever since the early stages of the US-China trade/tech/virus/cold war four years ago, there were frequent rumors – which eventually gave way to increasingly legitimate chatter – that China was looking to go full “nuclear option” by selling some or all of its $1+ trillion of US Treasury securities, which incidentally has not been too far off the mark: as the chart below shows, after peaking in 2013, Chinese holdings of US debt have been steadily declining (and not so steadily in the aftermath of the Chinese devaluation), and are currently near the lowest level in 8 years.

In any case, while Beijing has been gradually reducing its Treasury holdings it has never shocked the market with a major liquidation; and yet this ultimate threat has now found its way into China’s premier state-run English language news source Global Times.

 

USD futures made a new high at 93.10 in the overnight session.  The new Master Cycle may not terminate until the election, suggests the Cycles Model.

 

The Ag Fund has made a minor high yesterday and appears capable of declining back to the 50-day Moving Average at 13.98 over the next week.  Those of you who hate being short may have an opportunity to go long DBA and ride the rally in food.

ZeroHedge reports, “As global central banks continue to flood the system with money, insisting inflation is non-existent, as such, the Federal Reserve last week announced a new approach to inflation would let it run over the 2% target, food price inflation is rising this summer, according to a new report via the United Nations food agency.

Food and Agriculture Organization (FAO) of the United Nations said world food prices rose for the third consecutive month in August, led by increases in coarse grains, vegetable oils, and sugar.

FAO’s food price index, which tracks food prices monthly, averaged 96.1 in August versus 94.3 in July. The index dropped from January through April due to the virus-related recession, bottoming in May and reversing through summer. ”

September 3, 2020: The Trap Door Opens…

3:05 pm

SPX has broken the two month trendline and now may descend to the 5-month trendline/mid-Cycle support line at 3364.56.  A bounce may be made there, but the decline has a lot of territory to make in the next week or so.  It appears that the decline may now gather strength through the end of next week.

ZeroHedge speculates, “Yesterday we explained that much of the bizarre market moves seen in recent weeks can be explained as an unprecedented  gamma “cage match” between one or more funds who were aggressively loading up on gamma and bidding up calls to the point that VIX was surging even as stocks hit 9 consecutive all time highs, while dealers were stuck “short gamma” and in their attempts to delta-hedge the ever higher highs, would buy stocks thereby creating a feedback loop where the higher the market rose, the more buying ensued.

And, as Goldman pointed out this morning following our own observations on the matter yesterday, “each new high for the SPX has come with a higher VIX, and at 26.6 [ZH: make that 32 now] the VIX is now higher than it was at the SPX peaks of March 2000.”

 

 

11:37 am

SPX has made a small bounce at the 2-month trendline at 3453.27.  This bounce may not last, giving SPX the ability to decline through that support.  The next support is at mid-Cycle support at 3351.78 or the 5-month trendline just above it.    There’s a lot of damage being done to investors’ portfolios.  Just as the runaway train fed the bulls, this panic decline may also feed on itself for an entire week with maximum losses.

ZeroHedge reports, “VIX is back above 30…

…and its put-buying not call-buying this time…

 

9:35 am

It appears that the BKX (liquidity Index) has finally made its Master Cycle high and a reversal today (day 265).  Th e Implication is, after a marginal increase, liquidity is now about to be drained from whatever is left of the market.  The next Master Cycle low is due in mid-October.  Another Master Cycle (low?) appears to be close on its heels, ending in late October.

 

10:23 am

SPX is now beneath its Cycle Top support at 3553.82.  This is an aggressive sell signal that appears to have early confirmation from the VIX and Hi-Lo Index.  Take appropriate measures to short equities or go long the VIX.

ZeroHedge reports, “US equity markets have been trading like penny stocks for a while and the last two days are perfect examples as they swing schizophrenically and violently on now news from one sentiment extreme to another…

The fact that liquidity in these markets is at or near record lows is not helping…

 

10:19

VIX has now broken out above its previous high at 27.09.  The buy signal (SPX sell) is now actionable.

 

9:45 am

The NYSE Hi-Lo Index is on a potential sell signal beneath the 50-day Moving Average at 77.54.  This, combined with the VIX above 27.09 creates a confirmed sell signal for the SPX.  This is a very high level for the SPX sell signal, but the VIX and Hi-Lo tell us the bottom may be dropping out.

9:40 am

NDX has fallen beneath its Cycle Top support at 12274.30.  This creates an aggressive sell signal.  The next confirmation is at Short-term support at 11772.25, over 4% lower.  You may wait for the bounce, but so far the decline has momentum.

(10:42 am)  ZeroHedge writes, “Bonds have been bid throughout September…

…and now it appears stonks have realized the crazed buying panic at the start of the month was a mistake…

 

8:00 am

 

Good Morning!

SPX futures have declined to a morning low of 3561.12 as I write.  The Cycle has exhausted its minor period of strength as of yesterday.  Be alert to support that lies at the Cycle Top at 3545.45, where a potential aggressive signal lies.  The next support level lies at the lower trendline of the 2-month Ending Diagonal formation at 3448.15.  The March 23 trendline lies at 3385.00, just above the mid-Cycle support at 3357.86 where the change of Intermediate-term trend lies.

ZeroHedge reports, “After nine consecutive days of record highs and after closing higher on Wednesday for the ninth time in the past 10 sessions, S&P futures have done something they haven’t done in a long time: following a “magical, non-stop rally in stocks continues” as Adam Button of ForexLive dubbed it, futures are down this morning, trading down 0.5% at session lows as of 730am at 3,564, down some 20 points from their all time high hit yesterday.

Chip makers including Nvidia fell in the premarket while banks like JPMorgan Chase and Bank of America on the back of a Deutsche Bank upgrade and as the rotation away from tech stocks looked set to extend. Shares of Apple, Adobe, Nvidia and Netflix, all of which have soared more than 70% this year, slipped about 2% each in premarket trading, following yesterday’s declines as the gamma trade appears to be unwinding. Tesla tumbled 6.6%, falling for the third session after announcing a $5 billion stock offering. PVH Corp rose 2.5% after Calvin Klein owner posted a surprise quarterly profit, boosted by strong online demand for comfortable and casual clothing during the coronavirus-led shift to work from home.

“What we are seeing is a little bit of profit-taking now in the big tech sector as people look to rebalance their portfolios going into the last part of this year,” Ann Berry, partner at Cornell Capital LLC, said on Bloomberg TV. “Folks are trying to go back to basics a little bit as we continue to see these surges and the topping out in the value of the market right now.”

 

NDX futures declined to 12254.62 this morning and appears to be headed lower.  The melt-up appears to have stopped, likely from utter exhaustion.  Yesterday’s speculators appear to be trapped with a loss or no gain.

 

VIX futures are down after challenging the 50-day Moving Average at 25.96 overnight.  There appears to be two failed flash crashes in the VIX where there may have been an attempt to bolster equities by selling VIX futures.  Neither attempt appears to have worked.  After yesterday’s disappointing high at 27.07 we must see the VIX better its previous high at 27.09 for a confirmation of the buy signal.

VIX has a projected Master Cycle Top due by the end of next week.  That Master Cycle is unconfirmed by the SPX which is not due to finish its next Master Cycle until October.  This may be interpreted as a potential sell-off in the SPX which may be short of a (20%) bear market decline.

Investing reports, “(Bloomberg) — Wrinkles in the relationship between stock and options markets have a few Wall Street sleuths claiming to have unearthed clues to the storm raging in technology shares over the last few weeks.

They point to recent days when implied volatility on the S&P 500 and Nasdaq 100 rose even as equities rallied — a rare alignment that is out of step with historical patterns. One theory is that an explosion in demand for call options to bet on megacap tech is feeding into gains in the stocks as dealers hedge.

Another view sees something less exotic — investors protecting their portfolios in the volatility market in case stocks notch outsize price swings in the grip of the pandemic and the presidential election cycle.”

 

TNX appears to be testing the 50-day Moving Average at 6.36 this morning.  Today is day 252 of the current Master Cycle with a potential of only 6 days left with either a high or low.  Support must be broken for a Master Cycle low.  However, I cannot make out the Wave structure.  The alternate view is a potential crack-up market where yields soar.  TNX ix now oversold enough to do just that.  I remain neutral and await the outcome.

 

USD futures continue their march higher this morning after having made the Master Cycle low on Tuesday.  Normal retracements take an average of 3 weeks.  This one is due to run 7 weeks, projecting an unusually long and strong retracement rally.

 

Crude Oil futures plunged to a low of 40.23, beneath the 50-day Moving Average at 41.33.  Crude oil is now on a sell signal.  Crude is due for its next Master Cycle low in three weeks.  A lot of damage may be done in that time.

September 2, 2020

3:15 pm

You can see the 3:15 pm chart showing the VIX at 26.70, above the trendline at 26.50-26.60.  It has since risen to 27.05, giving a clear buy signal while the SPX and NDX continue to ramp higher.  This is no time to be long and possibly a good time to go short the SPX, provided you can withstand the rising volatility.  Wait for VIX to exceed 27.09, its previous high.

The markets are going for maximum entrapment…until the trap door swings open.

 

2:00 pm

Good Afternoon!

Today we had a server failure, causing the website to black out for several hours.  It’s hard to catch up after this elapsed time, so I am waiting for the turn in the market, which is due today.

ZeroHedge observes, “Yesterday morning, we – together with Nomura’s Charlie McElligott – explained why traders were furiously chasing the classic “Gamma crash up” in the market, which had become a “classic feedback loop” which we described on Sunday as follows: “calls spiking higher amid this gamma squeeze, leading to more buying of the underlying stock, leading to even higher call prices, even more call squeezing, even more delta-hedging and buying the underlying, which eventually spills over into more and more of the market, and so on until there is one massive marketwide meltup.” This resulted in the highest VIX print at a market all time high since, drumroll, the day the market peaked in March 2000, when the dot com bubble burst. Was history about to repeat itself?

Cross-asset guru McElligott, picked up on this saying that Gamma hedging has become “the most important flow in the market, with the convexity of said short-dated “lottery ticket” options creating an ‘all-or-nothing’ binary-options market behavior into weekly expiries, seen in these increasingly exponential ramps in names like TSLA.”

Slightly late to the game, Bloomberg published late on Tuesday “Tech Traders Say Options Hedging Is Firing Up Rally in Nasdaq” in which it also laid out the core dynamic that has been perplexing so many traders:

Rampant demand for call options in names like Facebook Inc. and Salesforce.com Inc. has left derivative dealers on Wall Street dramatically short gamma, a measure of the change in an option’s sensitivity to moves in the underlying shares.

As the stock rises, the dealers need to buy more to hedge their exposure. With a large number of call contracts outstanding and “relative illiquidity” in some of these single-name shares, they have been forced to turn to proxies such as the S&P 500 and Nasdaq 100, according to Hennessy. In order to hedge, dealers have been buying implied volatility on these benchmarks too.

September 1, 2020

12:52 pm

The VIX is pressing against the trendline at 26.60, but hasn’t broken through.  It appears that the real signal for the SPX may be the trendline.  The NYSE Hi-Lo Index is  at 135.00 which is too high for a signal.  I suspect that when the smart money says, “Sell everything.”  we may have our signal.

 

12:42 pm

The feedback loop continues with the Cycles Model suggesting that strength in equities may peak as early as tomorrow.  The Broadening Top upper trendline (not shown) is at 3518.00 today, while the Cycle Top is at 3521.88.  Both indicators are rising, so the top may be higher.  So the SPX stumbles higher.

Mohamed El-Erian writes, “Derivatives reflect risk of heavy selling that could overwhelm smaller players

Retail investors have been flocking to equity markets as an unrelenting five-month surge in valuations suggests stocks are immune to the damage being inflicted on the economy by the Covid-19 pandemic.

The seemingly endless rally in US stocks gives the impression that prices are endorsed and supported by the entire professional investment community. After all, despite the vocal concerns over valuations having split away from underlying corporate and economic fundamentals, few fund managers have been willing to challenge the market by placing outright shorts.

But the outlook is much more nuanced in the derivatives market that sophisticated investors use to express more refined views.

Retail investors should take note.

It is hard to overstate the extent of today’s risk-taking in US financial markets.”

 

9:10 am

We’re in a Classic Feedback Loop

ZeroHedge observes, “On Saturday, when we published our lengthy compendium of bizarro market charts showing the paradoxical melt up in both risk assets and the VIX, leading to the most positive correlation between the S&P and the VIX since the Feb 2018 Volmageddon event…

… we said that “one reason why no conventional indicator seem to matter is because it now appears that gamma has become a primary driver in the market’s latest meltup.”

One day later, when we showed that the VIX is now at the highest level at a a new all time high in the S&P since March 2000, i.e., the day the do com bubble burst…”

 

8:00 am

Good Morning!

SPX futures made a new high this morning at 3516.12.  The month of August is past and we’ll see who starts taking profits.

ZeroHedge reports, “Stocks started September on a positive note on Tuesday, with S&P futures flat after fading earlier gains alongside shares in Europe as global indexes close to all-time highs as data in China and Europe showed manufacturing demand rebounding from coronavirus-induced lows. The dollar tumbled to a two-year low and the Yuan jumped after Chinese manufacturing data indicated that exports are underpinning a recovery.

 

NDX futures made a new all-time high at 12248.75 at 5:30 am, then pulled back.  Some of the shares of the most popular stocks are now being distributed, a sign of a top being made.

ZeroHedge observes, “Just two days ago we reported that according to at least one CIO, Tesla is the only stock that matters: “Tesla is the key to this market, all are in Elon’s world, I am ignoring everything else, rates, dollar, etc.. for now. They are truly minor in comparison until Tesla breaks.” More importantly, the CIO made an important observation: “My gut tells me Elon does a massive secondary into SPX add, like $30B. Tesla would come out with the world’s best auto-balance sheet, on par with Toyota.

It took exactly 2 days for this prediction to come partially true because moments ago, Tesla disclosed in an 8K that it had entered into an equity distribution agreement – read an “At-the-market” offering – with banks including Goldman Sachs, BofA Securities, Barclays Capital, Citigroup Global Markets, Deutsche Bank, Morgan Stanley, Credit Suisse, SG Americas, Wells Fargo and BNP Paribas (pretty much every possible bank) to sell up to $5 billion in shares from time to time based on Tesla’s instructions.”

 

 

VIX futures pulled away from the trendline last night and has remained above 25.00 but beneath the trendline at 26.70.

MarketWatch comments, “The VIX index is “raising a red flag” for the stock market rally, flashing a warning signal that predicted the 2007 market top, according to former hedge-fund investor Jesse Felder.

The author of the popular Felder Report financial blog said that typically the stock market and expected volatility — indicated by the VIX index — should move in opposite directions. Any divergence from this, which Felder said has now appeared, can signal “an impending reversal.”

The 2007 stock market top and the 2009 market bottom were both identified by a divergence between the S&P 500SPX, -0.21% index and the VIX, he said. “Since then we had several bearish non-confirmations that warned of significant corrections. Today, we have another bearish non-confirmation,” the Bear Stearns & Co alumnus said.”

 

The NYSE Hi-Lo Index closed beneath its 50-day Moving Average at 74.50.  Since the 50-day is so elevated, it may not be used as a sell signal, but a decline beneath 0.00 may be effective, due to the small number of Mega-Caps that move the markets at this time.

 

TNX appears to be consolidating only a week away from its Master Cycle end.  Stochastics suggest a decline here, so I am without an opinion until either a breakout occurs or TNX declines beneath support at 6.27.

 

USD futures continue their decline on day 263 of the Master Cycle.  It is overdue for a reversal, since the USD often reacts inversely to equities.  The FinancialTimes gives us an observation of this relationship.

ZeroHedge comments, “The US Dollar Index has lost 10% from its March highs and many press comments have started to speculate about the likely collapse of the US Dollar as world reserve currency due to this weakness.

These wild speculations need to be debunked.

The US Dollar year-to-date (August 2020) has strengthened relative to 96 out of 146 currencies in the Bloomberg universe. In fact, the U.S. Fed Trade-Weighted Broad Dollar Index has strengthened by 2.3% in the same period, according to data compiled by Bloomberg.

The speculation about countries abandoning the U.S. Dollar as reserve currency is easily denied. The Bank Of International Settlements reports in its June 2020 report that global US-dollar denominated debt is at a decade-high. In fact, US-dollar denominated debt issuances year-to-date from emerging markets have reached a new record.