February 3, 2021

February 3, 2021

11:08 am

TNX continues its march higher.  You will notice that, after the Fed nearly lost its control of Treasury rates in June and ramped purchases you can see the effect with each of five Cycles ending at a low since August.  However, the Fed’s influence has become weaker until January, when the Fed lost control with the last Cycle low at 10.01.  After begging Congress multiple times to curb their spending, the deficits continue.  Soon it will become evident to everyone that the deficits are out of control as the Head & Shoulders formation implies a 45% increase in the TNX by the end of February.  Possibly more.

ZeroHedge comments, “One of the less discussed, but perhaps most ominous developments in recent months, has been the surge in US Treasury auction sizes which have hit all time highs as a result of the (just as surging) US budget deficit and the need to fund it somehow (well, not somehow, but rather by selling debt)…

… which is why bond traders were eagerly anticipating today’s Treasury refunding announcement which discloses the projected auction sizes for the given quarter, as well as gives further insight into the Treasury’s funding strategy.

And as we also await the outcome of the Biden stimulus deal, which may need as much as $1.9 trillion in new funding, the Treasury held steady its planned issuance of longer-dated securities at a quarterly debt auction next week as the department also awaits the result of the latest covid package.”


10:26 am

SPX has slipped beneath its consolidation support at 3825.00 after failing to breach the upper Ending Diagonal trendline.  This may be considered an aggressive sell signal with further confirmation beneath Short-term support at 3809.43 and the Broadening Top trendline at 3780.00.  Ultimate confirmation lies beneath the lower Ending Diagonal trendline at 3760.00.  The options market turns negative beneath 3750.00.

ZeroHedge reports, “The S&P 500 exploded higher after breaching the 3800 level yesterday and is holding on to those gains this morning, as the vol-trigger area shifted up to that key level, implying much of what we have seen in the last two days of exuberance in the broad market was indeed short-covering.

More specifically, as SpotGamma explains, the risk reversal chart below indicates the level at which put demand surged last week (more that Nov elections), and then violently reverted.

Part of the reason for the bounce higher in equities, is puts quickly became expensive relative to calls last week. The level of ‘expensiveness’ was the largest since late April 2020.”


10:10 am

The NDX morning ramp had a close call but missed the top by 2.2 points.  It has crossed beneath the Cycle Top at 13522.00 and has just crossed beneath the trendline at 13480.00.  This would be considered an aggressive sell spot.


8:00 am

Good Morning!

SPX futures are coming off an overnight high at 3843.12, just three ticks above yesterday’s high.  The trendline appears to offer resistance against a run above 3850.00, where option gamma turns positive.  Large institutions and dealers often attempt a momentum run during the first hour of trading in the cash market.  Should it fail in the next couple of hours, selling may set in with a vengeance.  The demarcation of support is at 3800.00, with a glut of calls placed there.  Beneath that level is a neutral zone which turns negative below 3760.00.

ZeroHedge reports, “World shares and US equity futures rose on Wednesday as volatility caused by a retail trading frenzy on Wall Street subsided on expectations of tougher regulation, while optimism about U.S. fiscal stimulus and the appointment of former ECB-head as Italy’s PM – i.e., Prime Mario – also supported sentiment.

At 7:30 a.m. ET, Dow E-minis were down 16 points, or 0.1% S&P 500 E-minis were up 12.25 points, or 0.32%. Nasdaq 100 E-minis were up 73 points, or 0.55%. The MSCI world equity index was up 0.3% by 1119 GMT, inching closer to its record peak following gains in Asia overnight and a positive open in Europe. Shares are back in rally mode as the speculative short squeeze trades popular with Reddit crowds crumble, easing fears that they could lead to destabilizing swings in the stock market as funds are forced to deleverage.


NDX futures made a new all-time high at 13583.62 at 2:45 am after AMZN and GOOGL  blockbuster earnings were announced last night.  Futures have since eased lower, prompting comments that this may mark the top for the tech darlings.  Maximum Cyclical resistance lies at 13502.99.  NDX may be considered on an aggressive sell signal beneath that level.  The NDX Hi-Lo has been weakening, but must break beneath chart support at 20.00-36.00 for a sell signal.

ZeroHedge reports, “Earlier today we reported that traders were “on edge” ahead of today’s earnings reports by giga-cap tech giants Google and Amazon, because in a “perverse” market such as this one, where even solid beats are punished, a disappointment by either of the two companies could have led to a broader market selloff. We now know, of course, that both companies reported blowout results and the real highlights wasn’t the two FAAMG giants’ Q4 earnings but rather the departure of the world’s 2nd richest man, Jeff Bezos, from the helm of his company.”


VIX futures briefly challenged the 50-day Moving Average at 23.49 before moving higher.Vix remains on a buy signal and offers an opportunity for accumulation at this level.

This commentary from ZeroHedge is worth repeating, “One week ago, the Reddit crowd – then numbering 2 million users- sparked a historic squeeze among the most shorted Russell 3000 stocks (led by Gamestop) which inflicted hundreds of billions of losses on some hedge funds (while making other hedge funds that much richer), and launched a deleveraging VaR shockwave which forced even non-shorting hedge funds to unwind some of their biggest (and most popular) positions.

Then, this Monday, the same Reddit crowd – now having tripled to 7.5 million users – managed to spark the biggest surge in silver prices since the collapse of Lehman, and even though there were not nearly as many shorts here, the move was sizable enough to unleash another major VaR shockwave across markets, and forcing even unlinked assets to selloff amid another degrossing wave.”


TNX continues to rise without much notice from Wall Street.  Five of the six Cyclical indicators show strength over the next two weeks.  This indicates the high probability of an explosive rise in rates during that time.  There is virtually no commentary on rates for the past two weeks.


USD futures made an overnight high of 91.30, challenging the trendline at 91.20.  The Cycles Model suggests today may be the final day of strength before ending the Master Cycle at a much lower level towards the end of the month.  This may be the strongest decline yet in this series.

Investing reports, “2. Dollar rises as stimulus talks, Eurozone GDP underline growth differentials

President Joe Biden said he will press on with his $1.9 trillion spending plan after an inconclusive but “constructive” meeting with Republican Senators who want to trim the package.  The talks raised hopes that a bigger bill could pass with bipartisan support, easing fears that the package will be badly delayed or watered down due to GOP resistance.

The Congressional Budget Office had said on Monday it expects U.S. gross domestic product to return to its pre-pandemic peak by the middle of this year, after it updated its forecasts to reflect the new administration’s spending package.

The dollar index, meanwhile, hit a seven-week high as investors reassessed the relative near-term growth outlook for the U.S. vis-à-vis Europe and other developed markets after a very dovish Australian central bank statement. Eurozone GDP fell 0.7% in the fourth quarter as lockdowns returned to haunt the region. In year-on-year terms, GDP fell 5.1%, more than the 4.3% expected.”


Silver futures are rising after hitting a retracement low of 26.25.  In my prior analysis I failed to mention that the 50% Fib retracement level is at 30.73.  Monday’s high appears to have met that criterion.  However, it was done so on day 241 of the Master Cycle, giving it a possible two more weeks to complete the rally at a much higher level.  Should silver ramp higher, there will be a lot of disruption and pain due to the lack of physical bullion.  The Reddit ramp may still have more to go.

ZeroHedge reports, “With The Fed printing money ‘out the wazoo’, monetizing COVID relief package debt as fast as Congress can pass the bills, demand for bullion was already surging. However, the last week or so, on the heels of the Reddit-Raiders taking aim at Silver, demand for silver (and gold coins) has exploded…

Sales of U.S. gold bullion coins rose 258% in 2020 while silver coin demand was up 28%, the U.S. Mint said Tuesday.”


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