3:25 pm
BKX bounced off its trendline just above Intermediate-term support at 126.27. There is some evidence that this may be the last bounce before oblivion.
ZeroHedge reports, “In today’s FOMC Minutes there was a brief section that received little focus amid the broader analysis of the Fed’s tapering, inflation language, yet which could be far more important in coming weeks in light of the violent move higher in overnight reverse repo usage.
This is what the Fed said in its discussion of money market rates and the Fed’s balance sheet:
Reserve balances increased further this intermeeting period to a record level of $3.9 trillion. The effective federal funds rate was steady at 7 basis points. However, amid ongoing strong demand for safe short-term investments and reduced Treasury bill supply, the Secured Overnight Financing Rate (SOFR) stood at 1 basis point throughout the period. The overnight reverse repurchase agreement (ON RRP) facility continued to effectively support policy implementation, and take-up peaked at more than $100 billion. A modest amount of trading in overnight repurchase agreement (repo) markets occurred at negative rates, although this development appeared to largely reflect technical factors. The SOMA manager noted that downward pressure on overnight rates in coming months could result in conditions that warrant consideration of a modest adjustment to administered rates and could ultimately lead to a greater share of Federal Reserve balance sheet expansion being channeled into ON RRP and other Federal Reserve liabilities. Although few survey respondents expected an adjustment to administered rates at the current meeting, more than half expected an adjustment by the end of the June FOMC meeting.“
This language confirms what we said last night when we discussed the spike in overnight reverse repo usage as part of the coming QE endgame…
… and where we quoted from former Fed staffer Zoltan Pozsar, who warned that “The heavy use of the o/n RRP facility tells us that foreign banks too are now chock-full of reserves.”
3:10 pm
It appears that the first 8.6 days will not end at a low. Instead, the SPX and NDX appear to be retesting the trendline that was just broken and fill the open gap. That is a high probability sign that the decline may resume tomorrow morning. That conflates with the indications of an extended decline. Stay short. This will get the maximum investors wrong-sided.
ZeroHedge remarks, “Update (1430ET): “You can’t make this shit up,” was the response we got when calling around to desks about the sudden utter panic-bid reversal from the ‘expected’ drop in stocks after The Fed began to hint at taper talk…
Yes, the Nasdaq is now well in the green for the day (after being down over 2%) and despite bond yields and the dollar remaining higher post-Fed.”
11:10 am
SPX challenged the 50-day Moving Average at 4168.82 before bouncing. It is likely to rise back to the gap opening at 4098.45 before resuming its decline. The low at the close may be near 4000.00. It may be wise to take some of your short position off the table as the close will make an 8.6-day decline and there is likely to be a sharp rally into Options expiration. Wall Street does not wish to pay either the longs or the shorts. We could see a rally back to 4150.00 to reach neutral ground for options expiration.
11:00 am
WTIC futures have fallen beneath their Intermediate-term support at 62.88 and the 50-day Moving Average at 62.84 to give a confirmed sell signal. The Cycles Model suggests the next Master Cycle low may be on June 3. The pattern grows.
ZeroHedge remarks, “Much like the rest of the world’s assets (except gold), oil prices are plunging this morning as broader markets tumbled on inflation concerns (and liquidity-based stress from crypto/tech carnage) and talks over the Iran nuclear deal add to concerns over increased supplies as traders eye the potential for a recovery in the nation’s exports. That comes as the OPEC+ alliance loosens output curbs, and after U.S. crude stockpiles expanded. The rout in stocks is adding to investor caution. Additionally, a Chinese tax on three oil-related items that begins next month could shift crude flows and reduce some product exports.
This week’s data will likely be exaggerated by the impacts of the Colonial Pipeline closure.”
9:00 am
BKX appears to be in the final days of its Master Cycle (high). Yesterday may have been the peak on day 257, but confirmation is needed. A decline beneath the 6-month trendline and Intermediate-term support at 125.96 gives us a sell signal. This is an extended Master Cycle so the new MC is due to bottom on June 9. Liquidity ay disappear quickly, so make sure that you are positioned for this event.
ZeroHedge remarks, “One week ago we highlighted a growing challenge facing the US financial system, and especially the Fed: as a result of too many reserves being injected into the system, an extension of the Fed’s relentless monetization of $120BN in debt each and every month, not only had we just seen two 0.000% 4-week Bill auction, but overnight funding rates had collapsed with the fed funds rate well below the mid-point of the fed funds target range while the Repo GC rate is at zero; often trading negative. As a result of these zero percent interest rates, billions of dollars of cash were being pushed into the Fed’s RRP facility as no rational actor would take on counterparty risk if they could get the exact same rate (0.0%) when transacting with the central bank.
As Curvature’s Scott Skyrm put it, “while this is a delightful case of deja vu irony – the Fed is taking Treasurys out of the market through QE purchases and putting them right back in via the RRP – it is also distorting the Repo market, and although the Fed can fix this aberration by hiking the IOER or RRP rates, it has so far refused to do so.”
And speaking of reverse repo usage, its use of the facility has never been this high outside of quarter-end turns, or last year’s covid disaster.”
8:45 am
Despite the drought covering the western half of the United States, shortages of food in China and now a major drought in South America, GKX may still succumb to liquidity being drained from the markets. The reason I say that is the next Master Cycle (low) is due on June 3. The target is a retest of the Head & Shoulders neckline at 410.00.
Does anyone see a pattern here?
ZeroHedge reports, “Global crop and food prices are skyrocketing to multi-year highs, and the culprit could be due to La Nina, a weather pattern characterized by the cooling of the equatorial Pacific and triggers atmospheric shifts that cause droughts in some regions of the world and wetter conditions in others. The prospect of a severe drought in the US has already be outlined in previous notes. Now it appears the worst drought in 20 years has struck agricultural rich Brazil.
Over the last month, Brazil has been faced with drought during its traditional rainy season.
“Soils are parched, and river levels are low in the nation’s Center-South region, a powerhouse of agricultural output. The drought is so severe that farmers are worried they’ll run out of the water reserves that help keep crops alive over the next several months, the country’s dry season,” said Bloomberg. ”
7:40 am
Good Morning!
NDX futures are challenging the Ending Diagonal trendline at 13000.00 this morning. Once accomplished, it’s immediate target is 12750.00 (at a minimum) to complete a leading Diagonal Wave 1. Today is day 259 of the Master Cycle and a likely place for a bounce. The 200-day Moving Average is at 12500.00, so there may be a little more depth to this decline. Should the bounce occur, the target may be the 50-day Moving Average at 13370.92.
There is an alternate view that on May 12, the Master Cycle may have been completed on day 252 at 12967.20. Should that be the case, the decline may get out of control. Should a bounce occur from a lower level, the Ending Diagonal rendline may be the limit to the retracement.
SPX futures may be testing the 50-day Moving Average at 4065.33 this morning as it hovers just above it as I write. The immediate target appears to be the upper trendline of the 2 1/2 year old Orthodox Broadening Top. There are two more Broadening Wedges within the 4-month chart that give the decline an abundance of targets. For the moment, I am leaving the nearest target for reference.
There is an argument that the Master Cycle may have topped out on May 7 at 4238.04 (day 247). The reason for being early is that a Monthly Master Cycle was due on May 8 that matched up with March 9, 2009 and March 23, 2000.
ZeroHedge exclaims, “Everything is tumbling!
Global stocks and US index futures fell for the third straight session, led by the Nasdaq 100, bonds and commodities dropped and crypto crashed ahead of today’s release of the April Fed minutes after the ECB warned the euro-area faces elevated risks to financial stability as it emerges from the pandemic with high debt burdens and “remarkable exuberance” coupled with resurgent worries over inflation and coronavirus flareups.
The yield on 10-year Treasury notes touched a one-week high of 1.67%, driving down shares of Apple, Microsoft and Facebook by about 1% premarket. Dow e-minis were down 252 points, or 0.65%, S&P 500 e-minis were down 42.25 points, or 1.0%, and Nasdaq 100 e-minis were down 170.75 points, or 1.24%.”
VIX futures made a morning high of 23.63 as it surges into a breakout position. Its Cycles Model suggests two more weeks of rally, ending on or near June 2. Should equities follow this model, the SPX/NDX Master Cycle low may also extend to that date as well.
TNX is rising and threatens to break out above its prior high at 17.00. After having made its Master Cycle low on May 7, it may continue to rally until…June 2.
USD futures appear to be consolidating just above yesterday’s low, suggesting the Master Cycle low may have been made yesterday on day 259. There are no signals to speak of, so we are neutral pending a clearer change of direction.