May 7, 2021

12:02 pm

While the DJIA and SPX have gone on to make new all-time highs, the NDX appears to have completed a nearly exact 61.8% retracement of its decline.  It’s time to step back and see what happens here.

On the same note, SPX hit 4238.o4, just shy of its daily Cycle Top resistance at 4246.30.

INDU hit its high at 34734.30, slightly above its daily Cycle Top resistance at 34720.82.  A reversal from the Cycle Top may be considered a sell signal when the EW structure is complete.

Finally, VIX tested its 2020 Gap support at 17.09 with a decline to 17.13.

Gold futures have also rallied to 1844.40, a 60% retracement of its decline since the beginning of the year.

BKX, our proxy for liquidity, appears to have peaked yesterday at 132.23, an all-time high on day 268 of its Master Cycle.

11:52 am

GKX stretched its Master Cycle all the way to day 275 to make its high.  From here, the likelihood is a decline back to test the Head & Shoulders neckline, an approximate 62% retracement.  While Head & Shoulders necklines are rarely pierced on a back-test, I am neutral until we see the end of the new Master cycle in early June.

ZeroHedge reports, “Global inflation is headed into overdrive as the leading food price indicator that is the United Nations’ Food and Agriculture Organization’s food price index increased for an 11th consecutive month in April, hitting levels not seen since May 2014, with sugar prices leading the rise in the main index.

The Rome-based FAO released data Thursday showing the food price index, which measures monthly changes for a basket of cereals, oilseeds, dairy products, meat, and sugar, surged 2 points from 118.9 points in March to 120.9 in April.

That is a 30.7% YoY jump – the fastest rise since 2011…”

 

10:35 am

The action this morning shows a broadening Wedge formation which has a minimum downside target of 3375.00.  It appears to be nearing its end, if not finished already.  This may be the “disturbance” that I mentioned earlier this week.

Robert Edwards and John Magee write in Technical Analysis of Stock Trends, page 140, “…the Broadening Formation may be said to suggest a market lacking intelligent sponsorship and out of control – a situation usually in which the “public” is excitedly committed and which is whipped around by wild rumors.”  Further, it states, “…the very fact that chart pictures of this type make their appearance as a rule only at the end or in the final phase of a long Bull Market…”

The Cycles Model may not recognize this as a top because of the drawn-out nature of this formation.  Today is day 247 of the Master Cycle.  A subsequent decline, which may punctuate the end of this Master Cycle, could take up to three weeks to accomplish.

 

8:10 am

NDX futures ventured above the mid-Cycle resistance at 13566.67 to 13660.00, but not above the first correction high at 13676.90.  The correction appears complete, or nearly so.  We await the April Jobs Report.

ZeroHedge observes, “After years of lackluster performance, Warren Buffett’s Berkshire Hathaway has seen its Class A shares climb 20% so far this year, bolstered by the reflation trade that has sapped tech stocks. But Buffett’s old-fashioned resistance to a stock split is creating serious problems for the engineers who maintain Nasdaq’s data feeds, which are used by everyone from discount brokerages like Robinhood, to financial news websites that offer live stock quotes.

The problem, according to a report published in Wednesday’s WSJ, is that the biggest number that Nasdaq’s data feeds can handle is $429,496.7295. However, surpassing that level could create a Y2K-style meltdown, so the exchange was forced on Tuesday to suspend price quotes for Berkshire’s Class A shares when they closed at a record high above $421K.”

8:43 am ZeroHedge reports, “Well that escalated quickly. The dismally disappointing payrolls data has sparked chaos across capital markets as investors consider ‘tapering the taper’ talk.

Market-implied Fed Rate expectations collapsed with the odds of a rate-hike before Dec 2022 now less than 50%…

The equity market is very mixed as the rotation back to ‘growth’ explodes with Nasdaq soaring and Small Caps plunging

9:00 am  NDX futures jumped to 13813.50 after the DOL announcement.  This is strange, since the Industrials are declining.

 

INDU futures ventured higher to 34558.50.  Futures are about 110 points lower than the cash market.    I am showing a monthly chart to highlight the fact that the industrials have touched the green 1987 trendline again.  The last time it touched was January 3, 2018.  It crossed beneath the trendline in August, 2008.  The Industrials are ripe for a turn.

At 8:34 am, ZeroHedge reports, “For once the disappointing ADP report was right.

With expectations of today’s payroll print soaring, consensus expecting a whopping 1 million number and some forecasters calling as high as 2+ million, few were prepared for a miss. And of course the market gods made sure to inflict the most possible pain with the BLS reporting an April payroll of just 266K in April, a huge miss compared to the 1 million consensus estimate.”

At 8:45, the US 30 futures are down 155 points.  This may be an indicator of foreign and institutional withdrawal.  Sould this continue, the SPX and NDX may follow very soon.

 

SPX futures ventured to 4213.62 this morning.  Since the futures are roughly 7 points lower than the cash market, there is a threat of a new all-time high this morning.  This may happen despite the fact that the Industrials have already declined 150 points since the DOL announcement.

At 8:00 am  ZeroHedge reports, “S&P futures rose overnight alongside European and Asian market in another quiet session, as commodities smashed higher ahead of a blockbuster jobs report (whispers of a 2MM+ print) which will cap a series of strong economic reports this week. Global stocks headed for their first weekly gain in three with MSCI’s world index rising about 0.1% and on course for a 0.4% gain this week amid a surge in commodity prices. Copper joined iron ore and steel by hitting a new all-time record as expectations that rebounding economies will spur a boom in global demand, while the Bloomberg Commodity Spot Index jumped to its highest level since 2011.

At 730 am ET, Dow e-minis were up 80 points, or 0.22%, S&P 500 e-minis were up 9.00 points, or 0.22%, and Nasdaq 100 e-minis were up 31.50 points, or 0.23%.”

 

VIX futures are still hovering near the trendline, despite the decline in the DJIA.  The Cycles Model shows a possible disturbance in the VIX, starting today and lasting through the end of the month.  The  nature of it has yet to be revealed, but the possibility of a wickedly strong surge is the first thing that comes to mind.

8:34 am  ZeroHedge reports the shocking news, “With expectations of today’s payroll print soaring, consensus expecting a whopping 1 million number and some forecasters calling as high as 2+ million, few were prepared for a miss (just 2 forecasters out of 79 were calling for a sub 800,000 print). And of course the market gods made sure to inflict the most possible pain on as many as possible, with the BLS reporting an April payroll of just 266K in April, a huge miss compared to the 1 million consensus estimate.

 

TNX extended its Master Cycle low to day 274, a very long Cycle.  As a reminder, we allow for plus or minus 17 days from day 258, the median Cycle length.  Should the new Master Cycle begin today, TNX may see four weeks of rally ending in a probable high during the first week of June.

Zerohedge notes, “After a turbulent start to the year for the treasury market, which posted its worst quarterly total return since 1980 as 10y Treasury yields rose more than 80bp, leaving markets to consider just how much further yields might move once the expected economic acceleration went from forecast to fact, Treasuries have found themselves stuck in a very narrow range, gripped by an eerie calm even as the US economy continues to power ahead and is on pace for the strongest expansion in GDP since the record Q3 of last year.

However, hile one can analyze CTA flows, extrapolate Japanese pension positioning and even speculate about stealth central bank intervention in seeking an answer for the recent bond market calm, there may be a far simpler reason why bond moves have fizzled out even as economic surprises continue coming hot and heavy: as Goldman’s William Marshall writes, yield sensitivity to data surprises tends to decline at higher levels of forecast uncertainty – a key feature of the macro environment since the onset of the pandemic. As a result, until there is some convergence in projections, “yield responses to data releases may remain muted by historical standards.”

 

USD futures are making a potential new low at 90.35 this morning.

 

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