7:45 am

Good Morning!

NDX futures surged to an overnight high of 13018.10, but has since subsided beneath that level.  The probability of having reached its maximum gain is high and downside risk is elevated.   The NDX Hi-Lo Index closed at -78.00 yesterday while the NYSE Hi-Lo may have peaked yesterday, closing at 28.00.  Neither index looks healthy.  The Cycles Model call for a decline through the end of April.

ZeroHedge remarks, “Stocks are prone to significant further downside as overly optimistic hopes of a mild recession and an end to inflation fail to materialize.

Stocks are always glass-half-full. Despite rapid rate rises and pockets of acute stress in the banking sector, they appear to be expecting only a modest downturn and an end to the inflationary regime. Even more rose-tintedly, earnings are behaving as if the recession is already behind us.

Equity markets, though, have a habit of remaining jubilant right up until the asteroid strikes (October 2007?). So you don’t have to be a total killjoy to raise some questions to avoid getting sucked into what is likely to be another bear-market rally.”

SPX futures rallied to an overnight high of 4064.40 before sliding back near breakeven.  There is room for a probe to the Wave 4 high at 4078.49, but time may be running out.  The Cycles Model suggests a decline may ensue that lasts the entirety of April.  Buckle up!

Today’s op-ex shows Max Pain at 4015.00.  Calls gain the ascendancy at 4025.00 while puts gain ascendancy at 4010.00 with short gamma beginning at 4000.00.

ZeroHedge reports, “US futures extended gains for the 3rd straight day and are on pace to rise 6 of the past 7 days, led by the Nasdaq 100 which is set for its best March in more than a decade as investors bet on a softening in central-bank policy amid worries about a recession while the slowdown in new money market fund injections eased fears about the ongoing bank run.

Contracts on the Nasdaq 100 were up 0.3% as of 7:45 a.m. in New York, while S&P 500 futures also rose 0.2% hitting the highest level in 6 weeks.”

VIX futures rose from its overnight low at 19.02 to post a probable gain this morning.  A buy signal awaits investors above the 50-day Moving Average at 20.71.  The Cycles Model sows the VIX matching inversely with the SPX through the month of April.

TNX may have found support as it probes the 200-day Moving Average at 35.04.  Should that be so, TNX may resume its rally.  The Cycles Model suggests the rally may continue through mid-April.  The ultimate target may be 53.16, its June 2007 high.  A 17.2 year Cycle would target August 2024 as the high.

USD futures are consolidating under overhead resistance at 103.20 (the 50-day Moving Average).  USD is in a correction that, when finished, may allow the uptrend to resume through the end of April.

11:15 am

The Ag Index may be reversing at the 50-day Moving Average at 457.99.  If so, it may be due for a probable sharp Master Cycle low near the 61.8% retracement level at 388.00 by the end of next week.  Be prepared for a surge in volatility.

10:56 am

BKX, our liquidity proxy, is advancing slowly higher on day 258 of its Master Cycle.  The Cycles integrate both time and price.  The time may be now, but the price is still not achieved.  The Cycles Model suggests possible strength through Monday, which is still in the reversal window.  The minimum price may be the Cycle Bottom at 87.68.  However, I have yet to see a Head & Shoulders formation where the bounce after the trigger event has not reached the neckline.  The Alternate view is a possible acceleration lower in a failed retracement.  Very dangerous.

ZeroHedge observes, “It’s not just the credit markets that are sending out a signal of distress. A key barometer that the Fed watches, the St. Louis Fed Financial Stress Index, is telegraphing a similar message about the state of the US economy.

While the spread between high-yield and investment grade debt captures one major variable, the Fed’s gauge comprises a host of yield spreads, interest rates and other indicators, making it a veritable one-stop-shop.

The average value of the index is intentionally meant to be zero, capturing a moment in time when the financial markets are in a “normal” state, with values above indicative of heightened stress.”

8:15 am

Good Morning!

SPX futures are higher, nearly reaching the 50-Day Moving Average at 4012.62.  As mentioned earlier, this appears to be an effort to end the quarter on a positive note, no matter how small the gain.  However, it may be reaching a Cyclical Pivot point this morning that could end the bounce rather abruptly.

In today’s op-ex, attempts are being made to elevate SPX over 3990.00 where long gamma begins.  Max Pain is at 3970.00 and short gamma begins at 3950.00.  There is a wall of calls at 4030.00 that may propel the SPX higher, should it be reached.  Open interest appears to be bullish, giving an opportunity to sell the bounce.  In other words, this is not the place to join the crowd.

ZeroHedge reports, “US futures extended gains for a second day on Wednesday as banking sector fears continued to ease, while Nasdaq futs got a boost from a rally in Asian tech stocks following the announced split of Chinese internet giant Alibaba which sent the Hang Seng up 2.1% and HSTECH +2.5%.

S&P 500 and Nasdaq 100 futures contracts were up 0.8% as of 7:30 a.m. in New York, trading at 4,034 and 12832 respectively.

The S&P 500 is set for a flat month, while the Nasdaq 100 has surged nearly 5% in March and more than 15% in Q1 – its best quarter in nearly three years and its first rise in 5 quarters – as tech stocks, especially megacaps, found renewed favor with investors.”

While NDX futures appear to be strong, it may have already peaked on March 22nd.  The Cycles Model points down, with the next low at the end of April.  This is no time to buy tech, mega- or otherwise.

In QQQ (307.12) options, Max Pain is at 305.00, a hotly contested level.  Long gamma starts at 308.00, while short gamma begins at 304.00.

ZeroHedge observes, “Today was quiet from the headlines perspective; but a notable undercurrent is emerging beneath the surface as MegaCap tech – a trade that had been crushing it in recent weeks on the back of massive flows into a handful of tech gigacap “Generals”, with Goldman noting that going back to 1990, the extent of S&P 500 outperformance over Equal-Weight S&P 500 this month – NDX>Small Caps by 13% MTD – has only been eclipsed twice (March 2020, June 2000)…

… has started to underperform the broader market again while recent laggards (Energy/Materials) are outperforming.”

VIX futures sank to a low at 19.16, an 84% retracement of its rally in a complex correction that can only be a Wave B.  That allows the most powerful Wave to follow.

In today’s VIX options, Max Pain is at 22.00.  Short gamma begins at 19.00, but with no downside follow-through.  Long gamma begins at 25.00 with strong open interest to 45.00.

ZeroHedge remarks, “VIX starting to realize SPX is doing nothing

The roundtrip in VIX post the SBV crisis is pretty much done…

Source: Refinitiv

Hedge funds have basically done nothing

Gross exposure has moved higher, but more interesting is the fact net exposure according to GS prime data has done nothing for months. Fat and flat anyone? Brian Garret adds: “…this is one of the longest stretches in our dataset where exposure to the market has not shifted meaningfully in either direction …”

TNX has reached a morning high of 36.10, having issued a buy signal by rising above the mid-Cycle support/resistance at 35.29.  Overhead resistance is at the 50-day Moving Average at 36.60.  The new Cycle may be short but powerful, with a possible target at the Cycle Top at 43.34.

USD futures are consolidating after making a slightly new low at 102.03.  The trend is now up, although hard to recognize yet.  The USD is not due to crash anytime soon.  Domestic analysis overlooks the fact that the banking crisis is much worse in Europe, for example, due to negative interest rates since 2014.  In addition, the war in the Ukraine may bring a flood of deposits to the US for safekeeping, thereby strengthening the USD.

ZeroHedge gives the domestic analysis, “Peter Schiff appeared on NTD News to talk about the bank bailout and the March Federal Reserve meeting. During the conversation, Peter explained that everybody is going to pay for these bailouts because they will ultimately devalue the dollar as inflation skyrockets.

During his press conference after the March FOMC meeting, Jerome Powell said the banking system is “sound and resilient.” Peter said it’s not sound at all.

It’s a house of cards that is starting to collapse.”

Gold futures are higher as they continue to rise into their Master Cycle high, due early next week.  The Cycles Model suggests this week may end in strength with a turn due by mid-week, next.  Gold may be ready for accumulation by the end of Summer.

10:15 am

Last week I have warned of a possible short squeeze in bank stocks lasting through the rest of this week.  A combination of “good news” and the lack of bad news may aid in this analysis, however short lived it may be.

ZeroHedge remarks, “Despite an ongoing “banking crisis,” investors continue to chase stocks triggering several bullish buy signals. As noted in this past weekend’s newsletter, two primary reasons exist for this current dichotomy. The first is psychological, and the second is purely technical.

The psychological component of the recent disregard of underlying financial and economic risk is the “Pavlovian” response to Central Bank interventions. To wit:

“Classical conditioning (also known as Pavlovian or respondent conditioning) refers to a learning procedure in which a potent stimulus (e.g., food) becomes paired with a previously neutral stimulus (e.g., a bell). Pavlov discovered that when he introduced the neutral stimulus, the dogs would begin to salivate in anticipation of the potent stimulus, even though it was not currently present. This learning process results from the psychological “pairing” of the stimuli.

Importantly, for conditioning to work, the “neutral stimulus,” when introduced, must get followed by the “potent stimulus” for the “pairing” to complete. For investors, as the Fed introduced each round of “Quantitative Easing,” the “neutral stimulus,” the stock market rose, the “potent stimulus.” 

8:15 am

Good Morning!

SPX futures are flat this morning, just under resistance at the 50-day Moving average at 4012.59.  Support is at the mid-Cycle line at 3941.90.  SPX remains on a sell signal.  The appropriate behavior is to sell the bounce. There may be attempts to keep the SPX above 3839.50, the December 30 close, until the end of the month.  The Cycles Model indicates trending weakness beginning next week.

In today’s options expiration, Maximum Pain for options investors is at 3980.00.  Long gamma begins at 4000.00, while sort gamma starts at 3955.00.

ZeroHedge reports, “US futures are flat with bond yields reversing an overnight drop, lifted by the belly of the curve; the USD weaker for 8 of the past 9 days, and commodities mostly higher as investors shift their focus back to concerns about inflation and potential further monetary tightening from the recent banking-industry chaos; after all, a bank hasn’t failed in at least a few days.  WTI has soared 5.6% this week.

S&P 500 contracts were little changed as of 7:45 a.m. ET, after earlier gaining as much as 0.4% and closing 0.2% higher on Monday. Nasdaq 100 futures slid 0.2% after the tech-heavy benchmark lost 0.7% on Monday following strong gains over the previous two weeks. European stocks advanced along with Asian equities and the dollar traded lower as fears of broader contagion from the banking turmoil eased.”

VIX futures are slightly elevated as the new (up)trend finds support at the 50-day Moving Average at 20.71.  The Cycles Model shows a potential burst of strength beginning next week and lasting through the month of April.  VIX may be due to emerge above its Triangle pattern in the next week.

Tomorrow’s op-ex shows Max Pain at 20.00 with virtually no substantial puts beneath it.  On the other hand, long gamma starts at 25.00 with substantial long interest up to 55.00.  The April 19th monthly expiration shows long gamma starting at 24.00 and long interest up to 75.00.

ZeroHedge comments, “One of the most frequent laments on Wall Street these days – where sentiment has turned from mere “doom and gloom” to outright “apocalyptic” and according to the latest BofA fund manager survey the majority of Wall Street professionals now expects a “systematic credit event” emerging unexpectedly out of the shadow banking sector – is how is it possible that after everything that has happened, are stock not only not lower but actually rallying?”

TNX has risen above the mid-Cycle resistance at 35.25 and is now on a buy signal.  The Cycles Model suggests a possible three more weeks of rally, giving TNX the chance to break out above its March 2 high at 40.91.  The market is still bullish on bonds, possibly leading to a trap for investors as yields surge higher.  Fundamental analysis may not work in the bond market, as forces beyond the domestic purview gain ascendancy.  The developing war in the Ukraine may have a greater effect on bond yields that what is being calculated.  The White House has sent more than $75 billion in aid to the Ukraine in the past year in an undeclared war.  This figure may actually be low, since the US has also been sending military aid to Poland and other neighboring countries near the Ukraine.  But no money for Ohio….

ZeroHedge remarks, “The labor market, the yield curve, inflation and a stock-market selloff are poised to force the Federal Reserve into a rate cut sooner than the market is currently pricing.

In markets, it pays to remember that things take longer to happen than you think they will, and then they happen much faster than you thought they ever could. It was only two weeks ago that the market was expecting up to another four rate hikes. Now it’s effectively pricing the end of the rate-hike cycle, and the first cut by the end of the third quarter.”

USD futures are lower this morning, but may be poised for a surge higher after the quarter end.  Although not discernible yet, the trend is higher through the end of April.

ZeroHedge remarks, “The dollar is at risk from further deterioration in the Fed’s balance sheet as it moves to stabilize the US banking system.

Markets are taking a breather this morning after the histrionics of last week. Nonetheless, problems remain, with several smaller US banks still at risk after the decimation of sentiment in the wake of SVB’s collapse.

The calm is being aided by reports that one particularly beleaguered lender, First Republic, will receive more support from the Fed. The central bank is expected to extend its lending programs to help banks in First’s position.”

Crude oil futures are hovering near the 50% retracement level and Broadening Wedge trigger line as the Master Cycle appears to be wrapping up on day 257.   There is a sell signal beneath the 50-day Moving “Average at 76.26.  The Cycles Model suggests a month of decline ahead, after which accumulation of shares may be de rigeur.

OilPrice.com reports, “Russia has succeeded in redirecting its crude oil and fuel exports after the EU embargoes and the price cap set by the West, Russian Energy Minister Nikolai Shulginov said on Tuesday.

Russia hasn’t reduced its sales of crude and petroleum products, the minister was quoted as saying by Russian news agency TASS.

“As far as sanctions are concerned, it is important to not only keep the production and refining volumes but exports, too, and thus the revenues for the federal budget,” Shulginov was quoted as saying.”

Gold futures have another week to wrap up its Master Cycle with a new high.  It may end up with an expanded flat correction with a target near 2078.00.  The all-time high thus far has been 2089.20 in August 2020.  Thereafter, a decline may be anticipated, lasting through the end of July.  The Cup with Handle formation may be engaged.

10:13 am

Despite the horrible news, BKX investors may be about to suffer a short squeeze.  The possible targets may be from 89.06 to 96.00.  Perhaps the Financial Stability Oversight Council may offer a glimmer of hope. Large speculators may try to take profits on their shorts, only to re-engage after the squeeze is over.  The Head & Shoulders formation is in play.

ZeroHedge remarks, “Here comes the panic.

Bloomberg just reported that Treasury Secretary Janet Yellen – who was singlehandedly responsible for stoking and restarting the bank crisis on Wednesday which until that day was easing back, with her comments that nobody in charge was even talking about a uniform deposit insurance, let alone working on one – will convene the heads of top US financial regulators Friday morning for a previously unscheduled meeting of the Financial Stability Oversight Council.”

8:30 am

Good Morning!

SPX futures have reached a morning low of 3906.60 thus far, and cratering.  There may be some attempt at damage control going into the end of the quarter.  However, the trend is down.

Today’s op-ex shows Max Pain at 3965.00 with short gamma beginning at 3950.00 with a huge put wall at 3900.00.  Long gamma starts at 4000.00.

ZeroHedge reports, “Yesterday, while attention was still focused on the US banking system and the ongoing botched response by the Fed and especially the Treasury’s senile Secretary, who more than two weeks after SIVB collapsed, have still not been able to stabilize confidence in banks – thereby assuring the US is about to slam head first into a brutal recession, just as Biden ordered to contain inflation, as US consumer spending is now in freefall – we pointed out that something bad was taking place in Europe: the credit default swaps of perpetually semi-solvent banking giant Deutsche Bank were quietly blowing out to multi-year highs.”

VIX futures rose to a morning high of 25.21, just beneath trendline mid-Cycle resistance.  VIX is scheduled to continue rising through the end of April as it embarks on a strong and violent Wave (3) of [C].  Hang onto your hats.  This move is likely to meet or exceed the 2020 high at 85.47.

TNX has reached a new Master Cycle low at 32.95 this morning on day  261 of the Master Cycle.  It may be due for a turn either today or over the weekend.  We may be witnessing a false breakdown which may trap a lot of investors seeking refuge from the declining stock market.  Make no mistake.  The neocons want war.  As long as our country is on a war footing, we will have inflation, leaving the Fed trapped.  Stagflation, anyone?

ZeroHedge gives us the counter-arguments, “Recession indicators a ringing loudly.

Yet, the Fed remains focused on its inflation fight, as repeatedly noted by Jerome Powell following this week’s FOMC meeting. During his press conference, he specifically made two critical comments. The first was that inflation remains too high and is well above the Fed’s two-percent goal. The second was that the bank crisis would tighten lending standards which would have a “policy tightening” effect on the economy and inflation.

As shown, lending conditions have tightened markedly, and such tightening always precedes recessionary slowdowns.”

ZeroHedge comments, “Another week of banking turmoil did not halt the fight against inflation for the central banks that were scheduled to make monetary policy decisions this week. However, the Fed seems to have been impacted the most as concerns about credit tightening have averted the rise in the projected peak for the hiking cycle that Powell had announced only a few weeks ago. Nevertheless, we continue to doubt the rate cuts that have been priced in by the markets for this year, as inflation in the US remains persistent.

Banking turmoil

This week saw additional efforts to stabilize the banking system across the globe.

On Sunday, six central banks – the Bank of Canada, the Bank of England, the Bank of Japan, the ECB, the Fed and the SNB – announced a coordinated action to enhance the provision of US dollar liquidity through an increase of the frequency of US dollar swap line operations to daily from weekly, at least through the end of April. The network of swap lines is a set of standing facilities that serve as a liquidity backstop for global funding markets.”

USD futures rose to a morning high of 103.01 today, reversing a 12.9-day correction.  Although not evident to many, the trend in the USD is now up.  By mid-April the trend may be evident for all to see.  The uptrend may continue through the end of April.

10:10 am

The Ag Index continues in a (more or less) flat correction that may last another two weeks.  Thus far, the Cycle Bottom has held, but may give way to a quick plunge to 400.00-430.00 in its final days, making a potential flat correction.  The bottom may be a volatile one, with a sharp recovery.  The reversal may launch one of the largest rallies since the recovery out of the 2020 low.  Be prepared.

FoodBusinessNews reports, “Recap for March 22

• Traders liquidated long positions starting before the Federal Reserve announced the latest interest rate hike, leaving wheat and soy complex futures lower for the day and corn futures mixed. The most-active soybean contract touched a 15-week low in the session. More pressure on the wheat complex came from beneficial, timely rains in France and elsewhere in western Europe. The renewal of the Black Sea grain initiative weighed on wheat and deferred corn prices. May corn added 3½¢ to close at $6.33½ a bu, but later months were mixed. Chicago May wheat dropped 19¾¢ to close at $6.63½ a bu. Kansas City May wheat lost 9¢ to settle at $8.11¼ a bu. Minneapolis May wheat lost 12¢ to close at $8.33¾ a bu. May soybean futures were down 18½¢ to close at $14.48½ a bu. May soybean meal shed $9 to close at $451.60 per ton. May soybean oil dropped 1.60¢ to close at 54.64¢ a lb.”

9:36 am

Despite all the headwinds, BKX may be poised for a technical bounce back to its Cycle Bottom resistance at 90.83.  Today is day 252 in the current Master Cycle, leaving another week for it to bounce.  An alternate view may take the bounce to the neckline at 96.00.  The bounce may be another shorting opportunity, as the decline Cycle is not yet over.  In fact, the next phase of the decline may take up to three months to the low.   We are not just talking about a higher risk for smaller banks.  There is a systemic risk of asset mismatches across the board.  In addition, WOKE investing has left portfolios with large segments of non-performing assets.

ZeroHedge reports, “Over the past weekend, it was determined that the Federal Deposit Insurance Corporation (FDIC) would break up Silicon Valley Bank into two separate auctions. But now, the auction for SVB’s wealth-management unit has been delayed.

FDIC was set to receive bids for Silicon Valley Private Bank, successor to Boston Private, which SVB acquired in 2021 at 2000 ET Wednesday. However, without any reasoning, government regulators shifted the auction until Friday, according to Bloomberg, citing people familiar with the matter.”

(Could this be the turning point?)

ZeroHedge observes, “Amid the justifiably shocked outcry from Credit Suisse junior debtors, who saw their entire AT1 debt tranche wiped out before the equity was fully impaired, violating every conventional liquidation waterfall, on Thursday Swiss financial regulator Finma has defended its decision to wipe out a huge swath of risky subordinated bonds as part of the Credit Suisse rescue deal even as an army of bondholders is preparing to sue the Swiss government.”

ZeroHedge adds this observation, “The cascade of defaulted regional US banks is blowing out the circulating inventory of distressed debt which expanded by about $65.9 billion last week as US insolvency courts saw six new, large bankruptcy filings, according to data compiled by Bloomberg.

The heap of dollar-denominated corporate bonds and loans in the Americas trading at distressed levels rose to $295.4 billion in the week ended Friday, a 28.7% increase from $229.5 billion a week earlier, Bloomberg-compiled data show.”

8:30 am

Good Morning!

SPX futures bounced this morning to 3968.10, remaining beneath the 50-day Moving Average at 4008.97, where it remains on a sell signal.  The final straw may be the crossing of the 200-day Moving Average at 3934.28.

Today’s op-ex shows Maximum Pain for options investors at 3965.00.  Long gamma begins at 4000.00, while short gamma resides at 3950.00.  Dealers may take a hit today.

ZeroHedge reports, “After 76 year old treasury secretary Janet Yellen blew up the market yesterday with her post-FOMC comments that regulators aren’t looking to provide “blanket” deposit insurance to stabilize the US banking system, stock futures have rebounded modestly on Thursday, while paring some earlier gains. S&P 500 futures were up 0.5% at 3990 at 7:45 a.m. ET while Nasdaq 100 futures rose 0.9%. Both underlying indexes fell the most in two weeks yesterday. The tech-heavy Nasdaq index flirted with a bull market yesterday after briefly rising 20% from its December low. US government bond yields have edged up after falling sharply on Wednesday when the Fed raised rates 25bps but also opened the door to a pause, while WTI crude futures are down 0.6% in early US session. The Stoxx Europe 600 Index slid 0.8%, falling for the first time this week before a rates decision from the Bank of England.

VIX futures pulled back to a morning low of 20.89, but have stabilized above 21.00.  VIX is now on a buy signal with further confirmation above the mid-Cycle resistance and Triangle trendline at 23.72.  VIX is scheduled to make its all-time high this year.  The options investors speculating on a high of 180.00-200.00 may not be far off the mark.

Next week’s options expiration shows Max Pain at 21.00, while long gamma begins at 22.00.  Short gamma is in short supply, as speculators become more bearish.  Open interest is long up to 55.00.

ZeroHedge remarks, “When it comes to the Morgan Stanley house view, it’s not just Michael Wilson that is borderline apocalyptic, most recently warning on Monday of a “vicious” end to the bear market, one which drags stocks to fresh cycle lows: it appears that the bank’s global head of research, Katy Hubary, is not too far behind.

In her latest weekly closely read “Charts that Caught my Eye” report (available to pro subs here), she writes that there has been a lot of market debate over the past year about whether yield curve inversion, which historically has been a precursor of US recessions, meant that a recession was inevitable this time, in light of key idiosyncrasies in the current environment.

She then points to an “interesting section” of the bank’s Cross-Asset Strategy team’s latest dispatch which examines the confluence of five macro developments that, like inversion, are consistent with a strong economy that is starting to slow and leads to a sharp drop in risk assets:

1. S&P 500 forward earnings are declining relative to three months ago;
2. The yield curve is inverted (or has been over the last 12 months);
3. Unemployment is below average;
4. US Manufacturing PMIs are below 50; and
5. More than 40% of US banks, on net, are tightening lending standards.

Pointing to the chart below, which shows that these five events tend to cluster just before major market crises (2007, 2001) that “all five are in place today, which is rare”

TNX futures are lower this morning as it attempts a retest of the Master Cycle low.  The Cycles Model suggests window for a new low is closing, as today is day 260.00.  The pullback still has the chance of matching the low at 33.69 over the next couple of days.  The Model also shows that trending strength is due for a big comeback as early as this weekend with new highs possible through mid-April.

USD futures may have made their corrective low this morning at 101.55.  The uptrend may be about to resume.  The potential is for the USD to hit new highs by mid-April with the new trend extending to the end of April.    Analysts are calling for an end to the USD (see below), but miss two important points.  First, the US balance sheet is the cleanest on the clothesline.  And second, war brewing on the European front may send capital to the US for safety.

ZeroHedge remarks, “A full guarantee of all bank deposits would spell the end of moral hazard and mark the final chapter of the dollar’s multi-decade debasement.

It’s said the cover-up is worse than the crime. With the latest banking crisis in the US, it’s the clean-up that could end up doing far more lasting damage. The failure of SVB et al prompted the FDIC to guarantee that all depositors will be made whole, whether insured or not.

The precedent is being set, with Treasury Secretary Janet Yellen commenting on Tuesday that the US could repeat its actions if other banks became imperiled. She was referring to smaller lenders, and denied the next day that insurance would be “blanket”, but given the regulatory direction of travel over the last forty years, this will inevitability apply to any lender when push comes to shove.

This marks the end of moral hazard and, ultimately, the final desecration of the Fed’s balance sheet.

The dollar is a liability of the central bank; therefore, this would mean further erosion of its real value, compounding the decimation of its purchasing power seen over the last century.”

2:50 pm

SPX may have reached the high point of the day as it tops over the 50% retracement level at 40.17.02.  It may be an aggressive sell candidate.  Confirmation of a sell signal comes beneath 4000.00, where we find the 50-day Moving Average and round number support.

ZeroHedge remarks, “Tl;dr: Fed hiked 25bps and maintains QT (as expected), and left the terminal rate (via the DotPlot) unchanged. However, it shifted a slightly more dovish guidance on future policy hikes and an admission that the impact of its monetary policy could impact banks.

*  *  *

A lot has changed since The Fed last met on February 1st and decided to hike 25bps. Between Powell’s hawkish hearings with Congress and the dovish-inference of a global financial system crisis, the market’s expectations for The Fed’s actions today have swung wildly – but ironically, are basically unchanged since the Feb 1st meeting.

At its most hawkish the market priced in a 75% chance of a 50bps hike (after Powell’s hearings). That then collapsed to a 63% chance of a ‘pause’ by The Fed following the collapse of SVB and CS. The last week has seen expectations rise back to 80% or so of a 25bps hike…”

12:40 pm

Crude oil bounced on Monday, on day 249 of the Master Cycle.  However, the average Master Cycle length for crude is 266 days, suggesting the decline may continue another two weeks in the current Cycle.  It is noteworthy that on Monday it hit the 50% retracement value based on the rally from April 2020 to March 2022.  The 61.8% retracement value is 53.87, which may yet occur by the end of May.  A waterfall event involving a decline to 30.00 may be possible.

OilPrice.com comments, “By approving a scaled-down project for new drilling in Alaska, even the Biden Administration tacitly admitted that oil and gas would be needed for decades regardless of the pace of the energy transition.

However, the headline message from the U.S. Administration and EU policymakers hasn’t changed—the world needs to move faster in deploying renewable energy solutions to reduce unwanted dependence on foreign fossil fuels coming from rogue regimes and to have a chance at net-zero emissions by 2050.

Mixed Messages For The Oil Industry 

At the same time, oil companies are getting mixed messages. They are criticized for not investing in raising production when oil and gasoline prices are high, and slammed for wanting to keep and attract investors – after years of poor returns – with the excess cash they rake in. ”

11:50 am

Gold futures are hovering at the Cycle Top resistance at 1951.98 after yesterday’s strong reversal.  Monday’s high appears to be the Master Cycle high, suggesting a sell signal in the making.  The Cycles Model indicates a strong decline through the end of April.  It also implies the decline may continue through the end of July.  Gold is not money.  It is a commodity like any other commodity.  The decline through the summer implies that liquidity may be in scarce supply, affecting the price of gold, which is not liquid, in the classical sense.

ZeroHedge gives a contrary opinion, “Peter (Schiff) appeared on Fox Business Claman Countdown to talk about the recent bank failures and the ensuing government bailouts. During the interview, they discussed how to invest in the current environment. Peter said that right now, gold is undervalued, but investors will bid up the price much higher when they come to terms with the reality of inflation.”

11:28 am

The Ag Index has been in a sideways consolidation since September.  The Cycles Model suggests the consolidation may end in the next two weeks.  While I am tempted to mark the Master Cycle low on March 10, it appears to be a month early.  That suggests another two weeks of decline while liquidity continues to be drained from the markets.  However, GKX may offer one of the few asset classes that may thrive in a horrible economy.

11:05 am

BKX is hovering in a corrective position, likely waiting for the FOMC announcement.  I must warn that the current Master Cycle is due to end within the week.  That implies a possible spike to the Cycle Bottom resistance at 90.54, or the neckline of the Head & Shoulders at 96.00.  That implies a dovish announcement.  It also implies “too little, too late” as the decline in BKX may resume with devastating consequences.  The decline may resume through the month of July and possibly August as liquidity continues to disappear.

ZeroHedge reports, “While all eyes have been distracted by First Republic Bank’s efforts to re-capitalize, it appears Pacific West Bank (PacWest) has also been trying to raise capital.

The bank issued an update this morning confirming that it is abandoning its plans for a capital raise:

In addition to these liquidity-enhancing measures, and as part of its proactive approach to capital and liquidity management, the Company has explored a capital raise with potential investors.

In light of the current volatility in the market and depressed market prices for regional bank stocks, as well as the availability of other options to enhance capital, the Company determined it would not be prudent to move forward with a transaction at this time.

This decision reflects the Company’s confidence in its financial strength and commitment to ensuring the long-term stability and profitability of the institution.”

ZeroHedge states further, “While Powell was scrambling like a headless chicken during his post-FOMC presser, doing everything to keep stocks stable and avoid an overreaction to either side, his peer over at the Treasury, Janet Yellen was actively seeking to unleash chaos and havoc on jittery stocks with comments such as these which predictably sent stocks to session lows just seconds after they were blasted by Reuters and Bloomberg.

• YELLEN: NOT TIME YET TO SAY IF FDIC INSURANCE CAP APPROPRIATE
• YELLEN: SITUATIONS LIKE RUN ON SVB MAY MORE READILY HAPPEN IN THE FUTURE, REGULATIONS MAY NEED RE-THINKING.
• YELLEN: DEPOSITS LEFT SVB AT PACE THAT WAS NOT SEEN BEFORE
• YELLEN: WE HAD NEVER SEEN DEPOSITS FLEE AT THE PACE THEY WERE WITHDRAWN FROM SILICON VALLEY BANK

Why were these comments particularly destabilizing if not outright idiotic, coming at a time when Powell spent the entire first paragraph of his statement and most of his presser on boosting confidence in bank stability and the sanctity of bank deposits when even a modest selloff in banking stocks drags risk sentiment through the floor?”

9:30 am

Good Morning!

SPX futures are flat as they await the FOMC decision/announcement.  The Fed is trapped and the bear market is about to resume.  SPX remains on a sell signal beneath the 50-day.  Any probes above the 50-day may meet a wall of selling.  The Cycles  Model suggests continuous selling through the end of April.  All bounces should be sold.  There is a monor Head & Shoulders formation informing us that the minimum decline may exceed the October low.

In today’s op-ex calls outnumber puts by 2 to 1 at the 4000.00 strike.  However puts dominate beneath 3950.00 with a gamma wall at 3925.  Long gamma dominates to 4050.00, but tapers off above that level.

ZeroHedge reports, “S&P 500 futures little changed, reversing a modest drop earlier in the session, and were set for a muted open on Wednesday after two days of gains, with investors awaiting the “most important Federal Reserve rate decision of 2023″ and as recent turmoil in the global banking sector subsided. Futures contracts on the S&P 500 were up 0.1% by 7:30 a.m. ET while Nasdaq 100 futures were flat. Both underlying indexes have gained for two consecutive sessions. European stocks fluctuated in a narrow range and Treasury yields were unchanged after a surge on Tuesday that added 19 basis points to the two-year maturity. The dollar dropped for a 5th straight day, its longest losing streak since April 2021, while the pound strengthened after a surprise jump in UK inflation which came above all expectations.”

VIX declined this morning to a low of 20.60, near the 50-day Moving Average at 20.59.  The retracement is nearly done.  The following rally may be a barn burner.

Today’s options expiration shows Max Pain at 23.00, so there may be pressure to keep the VIX subdued, at least til the end of the day.  Short gamma lies at 21.00 and below, while long gamma bursts onto the charts at 25.00 and extends to 75.00.  By the way, VIX options extend to 180.00.

ZeroHedge comments, “Which vol is right?

We have seen huge moves across assets as the banking crisis hit the world two weeks ago. In terms of volatility, equities have actually been the resilient one. If you believe that the banking crisis is not fully over, equities downside hedges look attractive from a volatility point of view. The recent resilience in Tech makes QQQ vol trades extra interesting. Time for a thread on some vol trades.”

TNX is challenging the trendline and the 50-day Moving Average at 36.67 after a false breakdown.  It is putting the March 16 Master Cycle low behind it and trending strength is due for a large comeback.

ZeroHedge comments, “It was another wild day yesterday in markets. Very strong US housing data allayed fears of immediate recession, but then raised them that the Fed might keep hiking even as credit conditions turn. So, as our current global financial crisis, which is still not a Global Financial Crisis, rumbles on, all focus is now on the FOMC, in its biggest meeting for many years.

Imagine they don’t hike. On one hand – phew! On the other, markets could be spooked that a Fed set to do 50bps weeks ago is suddenly not willing to focus on its inflation mandate.

Imagine they hike 50bps. Panic. Chaos. Tears before bedtime.

Imagine they hike 25bps and are hawkish, with a shift higher in the dot plot in some form. A slightly milder version of the above would ensure.

Imagine they hike 25bps and are dovish, or say they are done. Commodities and risk assets will likely soar. But inflation will still be there unless there really is a credit crunch looming after this liquidity pinch.”

USD futures remain in decline as of this morning.  That may change this afternoon.  The Cycles Model shows possible (up)trending strength that may last through late April.  A breakout above the 50-day Moving Average at 103.30 confirms the new trend.

9:00 am

SPX futures are going higher after the March 13 Master Cycle low.  As expected, it was later than usual, on day 269.  The Cycles Model suggests a probable quick turn back down in the next few days.  Meanwhile, a possible target for this retracement rally may be at the 50-day Moving Average near 4000.00.

ZeroHedge reports, “It’s only appropriate that the day after the weekly dose of doom and gloom from Marko Kolanovic and Mike Wilson, that stocks soar to the highest level in almost two weeks. S&P futures spiked above 4,000 on Tuesday as fears about turmoil in the global banking sector subsided, following a Bloomberg report that the Biden admin was considering insuring all deposits (unclear exactly how they will credibly insure all $18 trillion in deposits, some 75% of US GDP but whatever) followed by an FT article this morning previewing Janet Yellen’s speech at the American Bankers Association on Tuesday in which the Treasury Secretary will signal further US government backing for deposits at smaller American banks if needed, “a shift that seeks to protect parts of the country’s banking system struggling in the recent financial turmoil.”

VIX futures are trending lower to an overnight low of 22.59.  It has gone beneath the mid-Cycle support at 23.78.  It may revisit the 50-day Moving Average at 20.61 in the next few days.  The Cycles Model suggests the VIX may regain strength by next week and proceed above the Triangle formation.

The February sell signal in BKX was prescient, as it led to a 32.6% decline from the top.  The decline isn’t over yet, as it may regain strength going into it’s Master Cycle low due at the end of March.  There are some indications that the banking crisis may extend into early April.  If so, a banking crisis panic may spread through other sectors in the economy…and the markets.

ZeroHedge reports, “The sound and fury of demands for universal deposit insurance are growing with Bill Ackman and Elon Musk the latest to join the calls for this ultimate step and as we detailed last night, Bloomberg reports Washington is studying just how to guarantee all $18 trillion in US deposits (with just $125 billion in the FDIC’s Deposit Insurance Fund).

“US officials are studying ways they might temporarily expand Federal Deposit Insurance Corp. coverage to all deposits, a move sought by a coalition of banks arguing that it’s needed to head off a potential financial crisis.”

8:00 am

Good Morning!

SPX futures rose to 3998.00, short of yesterday afternoon’s high at 4000.47.  The 50-day Moving Average is at 3980.71, which must be broken to continue the decline.  Overhead resistance is at 4040.40.  Should the decline follow the Cycles structure, approximately 6 more days may be left to the Master Cycle low.  I had originally projected the low to be on Friday, March 3.   However, Cycles are organic and may be influenced (short-term) by periodic events.  This Friday is when the monthly jobs report comes out and it may snuff out investors hopes of a soft landing.

Today’s options chain shows Maximum Pain for investors at 4020.00.  Short gamma lies at 4000.00 and is reinforced beneath 3980.00.  This becomes the focal point for today’s activity.

ZeroHedge observes, “SPX – will it get “surprised”?

SPX has totally ignored the latest rise in Citi’s US economic surprise index.

Source: Refinitiv

SPX – must hold approaching

SPX is down to the 200 day moving average again. 3950/3960 is basically the must hold area.”  _______________________________________________________

ZeroHedge reports, “US stock futures rebounded on the last day of a turbulent month for stocks which saw much of the January gains wiped out, and even with S&P futures inching above 4000 the S&P 500 was on course to post a monthly decline as investor fears about a hawkish Fed response to sticky inflation prevailed. Contracts on the Nasdaq 100 and the S&P 500 rose 0.4% at 7:45 a.m. ET; the S&P 500 is set for a drop of more than 2% in February, trimming a sharp rally last month. Bonds sank in the wake of reports that showed accelerating inflation in France and Spain. The dollar reversed earlier gains and crypto rose.

VIX futures are dancing inside yesterday’s trading range.  The VIX Cycle is still unclear.  The February 18 low (day 252) may have been the end of the current/previous Master Cycle.  If so, VIX may be destined to continue rising through the end of April.  The alternate view is a possible (Master Cycle) high on Friday, followed by a 2-week consolidation.  The end result is the same.  After the consolidation, the VIX continues to rise until the end of April.  March and April are measuring up to be a potential panic period.    The VIX continues to be on a buy signal.

TNX may be resuming its rally.  The current Master Cycle may continue to the week of March 20, but may extend to March 27-28.  A rally back above 4.00 may provoke a panic in equities.

The USD is reaching the end of its current Master Cycle.  Normally this may mean a reversal to lower lows.  However, an alternative course may be a phase-shift, where after a brief consolidation of 1-2 weeks, the rally resumes with greater vigor to the end of April.  USD remains on a buy signal as long as it remains above the 50-day Moving Average.

9:52 am

BKX, our liquidity proxy, has a probable day left in its correction mode.  Intermediate-term resistance is at 110.30, while the 38.2 % Fibonacci retracement is at 110..70.  While it could go higher, time is running out for this move.  The Cycles Model suggests the decline may extend to the end of March.

ZeroHedge remarks, “Nomura’s Charlie McElligott notes that the market has rightfully “trued-up” Fed terminal rate expectations in-line with spectacularly resilient growth data both domestically and internationally, following the FOMC’s multi-month “premature FCI easing” blunder which allowed for a reacceleration of “animal spirits” across inflation-, retail / consumption-,  labor- and even survey- / “soft-” (particularly within Services sector) data, pouring gasoline on a still too robust economy, relative to their purported inflation-fighting aspirations.

Source: Bloomberg

The market had to reassess a ton of “mis-pricing” in Rates – needing to effectively remove the probability distribution which then implied the potential for Fed EASING later in 2023 – and we got it, with U3 / Z3 smashed lower, upper left Vols reaccelerating, a monster “de-inversion” in M3-Z3, and a power flattening in cash UST curves…”

8:20 am

I am planning on doing a final post tomorrow, but may be cut short due to scheduling issues.  I have a 3-week tour of the mid-West starting tomorrow and lasting through the 21st.

SPX futures have bounced back above the 50-day Moving Average at 3979.19 to a morning high at 4003.00 thus far.  The bounce may go to 4020.00-4040.00 and last through the morning.  The earliest we  may see a low is Wednesday March 1.  However, the  Wave structure is far from complete, leaving the current Master Cycle to extend at least to Friday or the following mid-week.  The reason for this extension is the jobs report on Friday, which may cause a chaotic reaction.

Today’s options chain shows Max Pain at 3975.00.  Calls eke out an advance at 3995, while puts show short gamma starting at 3950.00.  Short interest is gathering steam and only needs a push to dominate the Cycle.

ZeroHedge reports, “US index futures jumped after suffering their worst weekly drop of 2023, as traders looked for fresh opportunities to buy stocks while assessing the outlook for growth. S&P 500 futures rose 0.5%, rising just shy of 4,000 by 7:45 a.m. ET after the underlying benchmark fell 1.1% in the last trading session. Nasdaq 100 futures rose by about 0.6% after the tech-heavy gauge tumbled 1.7% at the end of last week. European and Asian stocks also rose; the Bloomberg Dollar Spot Index turned red after retreating from the day’s highs, lifting most Group-of-10 currencies. Treasuries edged lower, mirroring moves in global bond markets. Gold was little changed, oil fell and bitcoin resumed losses after gains overnight.”

VIX futures are consolidating near the lower end of Friday’s trading range.  There is a strong likelihood of extending its pullback to the 50-day  at 20.53 or slightly lower today to 20.15, its 61,8% Fibonacci relationship.  That leaves another 4.3 to 6.45 market days for a panic spike higher.

Wednesday’s op-ex shows Max Pain at 23.00.  Short gamma is strong at 21.00 with over 11,000 contracts at that level.  Meanwhile long gamma kicks in at 25.00.  Next Tuesday’s op-ex (March 7) is early due to International Women’s Day on March 8.  Max Pain is also 23.00, but long gamma begins at 24.00.

TNX has pulled back this morning to 39.04, but the Cycles Model suggests a possible spike in yields in the next 24 hours.  The Cycles Model suggests the trend may peak the week of March 20.  The following week may be chaotic, but it is not clear whether the uptrend extends or not.

ZeroHedge observes, “Longer-term bond yields continue to reflect an environment where inflation eventually comes back to target, and are not adequately pricing the likelihood it remains elevated and unstable.

PCE deflator data for the US is released today and we will find out how intact the current disinflationary trend is.

The trend looks set to end sooner than expected, with global inflationary forces picking back up as China recovers, reinforcing already sticky domestic inflation. If bond holders start to demand more premium to reflect a higher-inflationary world, yields will rise.”

USD futures have pulled back, but still within Friday’s trading range.  Today is day 257 of the current Master Cycle, suggesting a high is in the making.  Today’s reading still shows strength, suggesting a final trip to mid-Cycle resistance or the 200-day near 106.59.The corrective phase of the new Cycle may test the 50-day Moving Average at 103.56 or Intermediate-term support at 102.8.  The behavior at that point may indicate a resumption of the rally through the end of April.