February 11, 2021

February 11, 2021

1:45 pm

TNX has clearly resumed its rally toward the Head & Shoulders target.  This may happen by options expiration, so this rally may be gamma-driven and potentially explosive.  Today’s 30-year auction may be a catalyst.  The Cycles Model cites a triple strength week starting this weekend.

ZeroHedge reports, “After two mediocre coupon auction earlier this week, the Treasury closed off the refunding week with the sale of 30Y paper in an auction which tied the previous record at $27 billion…

… yet which was subpar in virtually every category.

The high yield of 1.933% was the highest since February, up more than 10bps from January’s 1.82% and tailed the When Issued 1.923% by 1bp.

Hinting at a lack of investor demand was the sharp drop in the bid to cover which slumped from 2.472 to 2.176, far below the 2.33 recent average and the lowest since August.”

 

11:02 am

SPX has been repelled at trendline and Cycle Top resistance at 3926.91 this morning with a high of 3925.99.  We now anticipate the decline may get underway.  The next downside “correction” target appears to be Short-term support at 3841.84…or possibly the trendline at 3800.00.

However, the time for the decline may be 12.9 market days.  Therefore, should the SPX decline beneath 2800.00, it may go much lower.  The minimum structural decline appears to be “Point 6”  of the Orthodox Broadening Top at 3550.00, a 10% decline.  However, this decline has crash potential with a much deeper potential “Point 6” for the 3-year Orthodox Broadening Top near 2100.00, a potential 47% decline.  Does anyone feel lucky?

 

9:50 am

Introducing the GSCI Agricultural Index, to be replacing DBA, an ETF.  I want to show why The Ag Index may be on Cycle Wave III of Super Cycle Wave (V).  The test of this hypothesis may come very soon.  In an inverse of the CRB (monthly) Index, the GKX may now decline in Wave C of Primary Cycle Wave [4].  The key support is at the top of Primary Wave [1] at 312.94.  Wave C cannot decline beneath that level without changing its structure and making a new low beneath 252.23.  On the other hand, should it remain above that level, it may rally as high as the September 2011 high at 570.20 later this year or early next.  Right now, a significant 50% correction may be in order.

ZeroHedge reports, “Chicago Board of Trade corn futures have faded 7-1/2 year highs after the U.S. Department of Agriculture (USDA) projected supplies of the grain would be well above market expectations.

“Corn led the sell-off as the USDA only minimally trimmed its U.S. end-of-season stocks outlook and raised its export forecast by less than many traders had anticipated following record-large sales to China,” according to Reuters.

“The surprise in the report is that the government only took (U.S. corn) exports up 50 million bushels despite the fact that we had huge Chinese buying,” said Don Roose, president of U.S. Commodities.”

 

8:00 am

Good Morning!

This is an unusual beginning, but I am posting this as an observation and a probable warning.  An analyst with top credentials is coming out with an announcement that commodities have begun their next supercycle.  If he is reading the Elliott Waves, he may conclude that the CRB index may have completed a Cycle Wave a-b-c correction to 101.48 and a new Cycle Wave may have begun.

He may be right.  There is a simple way to find out if this is true.  Cycle Wave IV is approaching its mid-Cycle resistance at 196.58, which by Cycle standards, should stop this rally cold. If the rally exceeds the mid-Cycle and, more importantly, invades the territory occupied by Cycle Wave I starting at 200.16, he is likely to be correct.  If it falls short, then the Wave structure you see may be correct, suggesting a massive decline to single digits before the new Super Cycle begins.

The icing on the cake is that we may see a reversal of this rally in the next 1-2 weeks, with a target date at options/futures expiration.  The exception to this chart is Ag Products, which appear to have completed Cycle Wave V last July.

ZeroHedge observes, “Having dabbled in the fields of viral epidemiology and presidential polling, JPM quant Marko Kolanovic is set to conquer yet another “cross-asset”: commodities.

Two days after Dylan Grice published an article “The Stage is Set for a Bull Market in Oil“, with various commodities around the world soaring, and the price of oil up a stunning 64% since November, today Marko Kolanovic made a bold prediction – that the world has entered a new commodity supercycle:

It is generally agreed that over the past 100 years, there were 4 Commodity supercycles and that the last one started in 1996 . We  believe that the last supercycle peaked in 2008 (after 12 years of expansion), bottomed in 2020 (after a 12-year contraction) and that we likely entered an upswing phase of a new commodity supercycle.”

 

Yesterday the SPX touched its daily Cycle Top resistance at 3930.00.  This morning SPX futures topped out at 3918.38, making what appears to be a corrective (partial) retracement.  Today we may find out whether the decline has indeed begun.

ZeroHedge reports, “Global shares rose for a ninth day in a row on Thursday, just off record highs, with much of Asia closed as investors digested recent gains, while bulls received a twofer of food news after a benign U.S. inflation report and a dovish Federal Reserve outlook.  Nasdaq 100 Index futures reversed yesterday’s losses and technology stocks led the advance in Europe. S&P 500 futures were 0.3% higher following Powell’s “sobering” comments on the labor market that should continue to fuel stimulus optimism, reinforce the Fed put, and assuage some inflation concerns. Powell said the true unemployment rate is 10% (when normalizing for covid losses) implying that there are years to go before tightening is needed.”

 

VIX futures stayed above yesterday’s Master Cycle low, declining to 21.65.  Currently it is hovering beneath yesterday’s close.

10:15 am

ZeroHedge reports, “The past weeks has seen an odd bifurcation in the VIX term structure, with spot tumbling after the reddit short squeeze phenomenon fizzled as hedge funds re-grossed even as the rest of the VIX curve remains surprisingly sticky… and high.

In his latest note, Nomura’s Charlie McElligott discusses the two sets of distinct factors that are behind this divergence, starting with spot, where he says that after we had seen the vol market really only pricing “chop” to outright “crash-down” prior to the past week with action dominated by puts, we are starting to now see investors increasingly grab for “crash-up” in the index too (i.e., VIX moving higher on call buying), where after seeing 0%ile 3m SPX upside call skew just two Fridays ago “we now see to a move higher to ~30%ile SPX upside call skew since as the upside got really cheap.”

This is why he thinks there probably “isn’t a lot lower to go in implied vol from here” anchoring the front VIX at 20-22, and instead we are more likely to reprice higher into a tape breakout higher – as yet another marketwide gamma meltup emerges “and this grab into index upside tails is turning vol-of-vol VVIX higher again too.”

 

TNX bounced from the Cycle Top support at 11.29 this morning after making a low of 11.31 yesterday.    This suggests the Master Cycle may end at a high in the last week of February.  The Head & Shoulders target is not an unreasonable goal for this Master Cycle.  The 10-Year Treasury auction helped reinforce the trend.

ZeroHedge reports, “While there were some concerns about the demand ahead of today’s 10Y auction, they quickly evaporated after today’s CPI miss which promptly pushed yields to session lows amid a bout of short covering, which eliminated fears about chasing into the auction or unmet concessions. And sure enough, moments ago, as part of the month’s refunding, the Treasury sold a record $41 billion in 10Y notes, matching the all time notional high from November.

The auction priced at a high yield of 1.1550%, stopping through the When Issued 1.157% by 0.2bps, and down slightly from last month’s 1.164% if a far cry from the record low yields hit in early 2020.”

 

USD futures declined beneath critical support at 90.36, hitting a low of 90.25.  This decline may now pull the plug on foreign investors choosing US stocks.  A look at the SPX denominated in the Euro and the Yen show a decline already in progress, but sitting on Cycle Top support.  Today’s decline in the USD coupled with a weak close in the SPX may break that support just as the weekend begins, opening the door for a weekend sell-off by foreign investors.

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