Please Note: I will be attending a conference from September 28 to October 5. There may be no blogs during that period of time.
September 18, 2020
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…
(Ed)…and the devil take the hindmost.
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  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
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.
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.
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…
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
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.
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…
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).
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.”
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.
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.
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
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.
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.
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.
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.
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
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…
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).
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.
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.
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
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.
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.
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.
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.
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
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…
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).
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
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.
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.
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
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)
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.
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.”
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.
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…”
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.
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…
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.”
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…
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.
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…
VIX has now broken out above its previous high at 27.09. The buy signal (SPX sell) is now actionable.
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.
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…
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.
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
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.
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?
September 1, 2020
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.
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
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…
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.