May 11, 2021

12:15 pm

I was dubious about the NDX filling the gap this morning.  However, it managed to bounce back to the 50-day Moving Average as resistance, just a dozen points short of yesterday’s close at 13359.40.  The selling pressure may not be over if the 50-day cannot be breached.

ZeroHedge remarks, “Nomura’s “futures imbalance” monitor showed enormous sell pressure all day in NQ futs across all lots sizes (the largest in at least 1m), but particularly in our medium- and large- lot buckets, proxies for large HFs and Asset Managers aggressively selling / shorting…

Two things were behind the QQQcrash – ARKK’s vicious circle and CTA Deleveraging.

Nomura’s Charlie McElligott warns that the monstrous ~$20B ARKK active ETF is getting absolutely torched in recent weeks amid a negative feedback loop from the mega-high growth / high multiple / “unprofitable” single-names.

Critically, he explains, the ETF itself now acting “shadow leverage” pressuring this selloff, especially with their dubious risk management practice of heavily concentrated positioning into what are extraordinarily illiquid names.”

Additionally, ZeroHedge observes, “Late on Monday, we made two important observations: i) hedge funds had never been more levered to market moves, with gross leverage at all time highs, as hedge funds strive to extract every last ounce of beta from the market (net leverage was also extremely high, but not record high, and is more a reflection of any given hedge fund’s alpha preference)…

… and ii) hedge funds had scrambled to short tech shares explaining the recent decline in the Nasdaq, with Goldman Prime pointing out that Info Tech stocks were net sold for a third straight week and saw the largest week/week $ net selling since last August, and that Info Tech was by far the most net sold sector on the GS Prime book driven by short sales outpacing long buys 7 to 1.

One day later and the bearish pile up is reaching epic proportions.”


9:40 am

The NDX Hi-Lo Index plummeted to -91.00 this morning, effecting the confirmed sell signal in the NDX.  The VIX and VXN both climbed above their respective 50-day Moving Averages, confirming the SPX/NDX sell signals.  Volatility is high, so pick your  entry carefully.

The NYSE Hi-Lo opened at -6.00 and barely climbed to 1.00 at this time.  We have selling confirmation on all fronts.

7:30 am

Good Morning!

NDX futures again lead the decline and is now beneath the 50-day Moving Average, plunging to a low (thus far) of 13079.88.  It is on a confirmed sell.  The Cyclical path becomes more certain, with a minimum decline to Wednesday of options week.  It may go much further, but we will have to monitor it for progress during this time.  This may be a vicious decline, since virtually no one has been short until a few days ago.  Options may play a big influence on the decline, with a possible extension of the decline through options week.

ZeroHedge observes, “Hedge funds had another rough week according to Goldman’s Prime Brokerage, with the GS Equity Fundamental L/S  Performance Estimate falling -1.68% between 4/30 and 5/6 (vs MSCI World TR -0.33%), driven by alpha of -1.11% – the worst weekly alpha in two months – and to a lesser extent beta of -0.57% (from market exposure and the market sensitivity factor combined). As a result, global fundamental equity L/S hedge funds lost almost two-thirds of their YTD gains in just the past week, bringing their total YTD return to just 0.97% in what is setting up as another dismal year for the 2 and 20 crowd.”


The NDX Hi-Lo has been predominantly been resisted at the mid-Cycle line at 175.00, but it has not declined beneath 0.00 for more than a day.  That should change today.


SPX futures have declined thus far to 4127.62, approaching the Broadening Wedge trendline, which may confirm the sell signal today.  As mentioned previously, as the NDX becomes less liquid, the selling migrates to the more liquid indices.

ZeroHedge reports, “Yesterday was bad, but not too bad, and we titled our morning market wrap “Futures Flat As Soaring Commodities Depress Tech Stocks.” 24 hours later it’s much worse, as the rout that hammered US tech stocks on surging inflation fears (see “This Is Not Transitory”: Hyperinflation Fears Are Soaring Across America“) has now gone global, with markets in Asia and Europe hammered and S&P futures sliding 0.8%, while Nasdaq futures tumbled by another 1.3% after Monday’s 2.6% rout. Treasuries were steady ahead of today’s 3Y auction while the dollar erased its gains and dropped to session lows.

Here are some of the notable bloodbath highlights: the Hang Seng Tech Index sank as much as 4.5%, extending its tumble from a February high to about 30%. In Europe, the Stoxx 600 Index fell the most since January as tech sector losses drove the gauge lower. One of the biggest winners over the past year, Cathie Wood’s Ark Innovation ETF, was down more than 3% in pre-market trading after plunging 5.2% yesterday.

“It seems to be a combination of inflation fears making a comeback and some market participants moving higher along the value spectrum, cutting their exposure to anything with a stretched valuation,” said Marios Hadjikyriacos, investment analyst at online broker XM in Cyprus.

In a late session reversal on Monday, inflation jitters drove investors away from growth stocks to cyclicals, which benefit the most as the economy reopens, resulting in the S&P 500 logging its worst day in nearly eight weeks. At 700 am ET, Dow e-minis were down 159 points, or 0.46%, S&P 500 e-minis were down 31.5 points, or 0.75%, and Nasdaq 100 e-minis were down 169.25 points, or 1.27%.”


The NYSE Hi-Lo illustrates the move over to value vs growth.  However, the Orthodox Broadening Top formation shows a potential for a very deep dive.  The entire market may be about to have its Wile E. Coyote moment.


VIX futures rose to 22.60, potentially breaking above its previous high.  The rally above the 50-day Moving Average at 19.94 confirms the VIX buy signal (SPX sell signal).  This is not at the broad recognition point for a market sell signal.  It is likely that that may come above the upper trendline near 25.00.


TNX is challenging the 50-day Moving Average at 16.07 this morning.  A close above that level produces a buy signal.  The Cycles Model affirms that the rally may continue through the month of May.


USD futures appear to have consolidated near the bottom that was made yesterday on day 251.  It is not clear whether that is the Master Cycle low or not.  Time will tell, so I am assigning a neutral stance to the USD for the week.


Light crude oil futures declined this morning as (lack of) liquidity affects all classes of assets.  Crude has quit making new highs since March 8, leaving it in a vulnerable position to decline more radically than one would expect.  There may be, literally, no bottom in oil.


Commodities have reached their Master Cycle high in the past few days.  In addition, they may also have reached their secular high, as well.  Copper futures peaked at 4.89 yesterday and appears to have begun their decline.  This is not a new super Cycle.  It is an errant Cycle Wave b that drank too much Fed juice.  Wave c of II may end up near .73 for a low.

ZeroHedge reports, “There was some good news for the (transitorily hyper)inflation-ravaged US economy today when copper, wheat and lumber futures all fell after days of surging – in the case of the latter, the first drop in 13 days…

… pushing the Bloomberg commodity index lower after six straight days of gains.”



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