February 10, 2021
VIX has crossed above the 50-day Moving Average, giving us an aggressive buy (SPX sell) signal. The NYSE Hi-Lo Index is at 491.00, due to the opening probe to the new high in the SPX (after a huge liquidity injection). I don’t expect it to register a sell signal today after reaching such a lofty peak, but it may close at a much lower level.
ZeroHedge observes a small move higher.
SPX has made a key reversal in the first hour of the cash market, making a new all-time high, then plummeting beneath yesterday’s low at 3902.64. It has reversed at trendline and Cycle Top resistance at 3921.99. This is an opportunity for an aggressive sell signal.
VIX has approached its 50-day Moving Average at 23.38, making a high of 23.27 thus far. We’re sitting on the edge of a powerful decline in the markets.
ZeroHedge opines, “We have seen most things melt up lately and sentiment is getting rather extreme again. The GME VaR shock is gone and risk on is the name of the game again (yes markets surged for a long time after LTCM, but that event was different as they were too big to fail…).
We are not calling an imminent top about to happen right here, but looking at some protection is starting to make sense. One of our mantras is to “not chase protection when you must, but when you can”.
Various readings are showing rather stretched stats. The percentage of NYSE stocks above the 200 day moving average is at extreme levels.
We are upgrading earnings revisions at an extreme pace. There are many other charts to be added showing basically similar levels of stretched sentiment.”
At 8:15 am the SPX futures jumped again, adding approximately 76.5 billion of NAV. The daily Cycle Top resistance is at 3930.00 this morning, which may put a lid on the rally.
ZeroHedge observes, “If you’re over 40 you’ve lived through at least three epic financial bubbles: junk bonds in the 1980s, tech stocks in the 1990s, and housing in the 2000s. Each was spectacular in its own way, and each threatened to take down the whole financial system when it burst.
But they pale next to what’s happening today. Where those past bubbles were sector-specific, which is to say the mania and resulting carnage occurred mostly within one asset class, today’s bubble is spread across, well, pretty much everything – hence the term “everything bubble.”
When this one pops there won’t be a lot of hiding places.”
SPX futures are higher this morning, after an all-time futures high at 3924.12. At 6:00 pm an entity injected enough money into the SPX futures to add approximately $68 billion of value to the index. At 2:00 am another $42.5 billion was added. While correlation is not causation, the only entities that can moves such sums are central banks. In the last 7.5 days, approximately 1.879 trillion has been added to the SPX alone. This, my friends, is not retail investors spending their stimulus checks. Nor is it “money on the sidelines” that was waiting to be invested. Investors were already “all in” with leverage. In 6 of the last 8 days, most or all of the daily gains were made in the overnight futures. What we see here is a market that is out of control, although no one recognizes it yet.
As of 12-31 the Velocity of Money is 1.129. This measures the marginal effect of borrowed money on the economy. The yield on the 10-year Treasury Note was 1.157 as of yesterday’s close. Folks, we are sliding backwards!
ZeroHedge reports, “Global shares continued their euphoric ways, rising for the eighth day in a row, reaching record highs as market sentiment was improved by the prospect of U.S. fiscal stimulus and vaccine rollouts. U.S. stock futures also rose to new all time highs, hitting 3,924 before paring some gains, suggesting a resumption of gains after a one-day break as earnings and optimism over improving virus trends helped support sentiment while investors looked to inflation data and a speech by Federal Reserve Chair Jerome Powell for clues on the pace of an economic rebound.”
VIX futures are down after rising to 21.82 in the morning session, then dropping to a new low at 19.69. What I don’t want to see is the VIX declining to 19.51 or lower. However, the short vol trade is getting very crowded. Today is day 274 in the Master Cycle.
TNX tumbled toward Cycle Top support at 11.24 this morning. The Cycles Model suggests another week of decline, possibly toward Intermediate-term support at 10.56.
ZeroHedge reports, “US Consumer Prices were expected to rise for the 8th straight month in January and it did rising 0.3% MoM as expected, leaving year-over-year prices rising at 1.4%…
However Core CPI missed expectations, unchanged in January compared to an expected 0.2% MoM rise.
USD futures declined beneath Intermediate-term support at 90.35 this morning. This decline tracks potential money flow out of the US. The Cycles Model suggests that this trend may continue through late February.