BKX has broken its 8.6-month trendline near 135.00 and may be considered on a sell signal. Intermediate-term support is at 130.40 and the 50-day Moving Average is at 127.66 for those seeking more confirmation. BKX is the proxy for liquidity in the markets. Declining liquidity suggest available money is moving into cash.
NDX futures have made a morning high of 13874.38, exceeding the estimated target of 13841.00. FOMO (fear of missing out) appears to be the driver of this rally as the NDX approaches 14000.00. The Cycles Model suggests not. The period of strength that was discussed yesterday may run out very quickly, as it appears to be a one day affair. On the other hand, the Cycles Model shows increasing weakness leading into a Master Cycle low following options expiration.
ZeroHedge comments, “While stocks remain rangebound ahead of Thursday’s CPI print which according to Deutsche is “the most closely watched data release so far this year“, the real action remains below the surface where the continuation of last week’s big story in Equities is the acute underperformance of Longs relative to the Squeeze in Short Books led by the Retail “Meme,” SPAC and Bankruptcy plays. As Nomura’s Charlie McElligott shows, this appeared in risk-premium HF Crowding Factor which dropped -1.3% on the week, along with Size Factor (Large over Small) -1.3%, Growth Factor -1.6% and 1m Reversal -2.2%
Yet while the return of the short-squeeze is a closely watched if transitory phase, the big picture “renormalization reflation” narrative remains alive and well, with the 3 month Value inflow now surging to $44.5 billion (99.9%-ile since 2003) compared to a 3-month outflow from Growth stocks of -$20.8BN (2.7%-ile).”
SPX futures made an overnight high of 4234.62, potentially making a new retracement high, but not a new all-time high. This topping process has been going on for two months with no resolution neither up nor down. Interestingly, the gamma bear puts are building up at 4200.00 and 4150.00, where the Broadening Wedge trendline may be triggered. Most analysts view the shallow decline thus far as an indicator of a mild decline to follow. There is no relationship that justifies that conclusion.
ZeroHedge reports,”US equity futures suffered a violent airpocket shortly after 6am, sliding 20 points in minutes after news that a Fastly outage had sent many media and government websites offline in a repeat of last year’s Cloudflare fiasco, pushing traders to buy safe assets, but then rebounded just as quickly rising to session highs even as the dollar and Treasuries also rose. Nasdaq 100 contracts rebounded. The 10-year yield fell back to 1.55% area with focus turning toward Thursday’s blistering CPI report that may offer clues on how far the Fed can postpone a tapering of stimulus.”
TNX continues its decline, indicating a potential second (lower) Master Cycle low in Minor Wave 4. The Cycles Model calls for a further decline through this week and early next, culminating in a potential Master Cycle low before a rally in strength emerges. This may give some solace to the equity bulls, but it may turn out to be a trap for the unaware.
ZeroHedge comments, “A week ago, none other than Larry Fink poured an illiberal amount of cold water on the current inflationary narrative being spewed by Powell, Yellen, and their lackeys in academia.
The Blackrock CEO – who happens to manage more than The Fed at last check – countered soothing talk that soaring prices are here and gone tomorrow, and said that investors may be underestimating the potential for a spike in inflation.
“Most people haven’t had a forty-plus year career, and they’ve only seen declining inflation over the last 30-plus years. So this is going to be a pretty big shock”, Fink said, his warning falling on deaf ears.
Alas, unlike the Fed, Fink actually know what he is talking about: he began his career at First Boston Corp. in 1976, in during runaway US inflation, with the Consumer Price Index hitting a high of 14.8% in March 1980, and forcing Volcker to hike rates as high as 20%.
Treasury Secretary Yellen was quick to dismiss this fearmongering malarkey by claiming that while she may, possibly, kinda, sorta see higher prices, it will be transitory (because The Fed is awesome) and besides, America… it’s all good!
“If we ended up with a slightly higher interest rate environment it would actually be a plus for society’s point of view and the Fed’s point of view,” Yellen said in an interview with Bloomberg. And yes, she really said that.”
USD futures appear to be consolidation beneath Intermediate-term resistance at 90.44. This consolidation may end soon, as USD is in line for a double dose of strength by the weekend. The short USD trade is crowded, so a liftoff may result in massive short covering.