NDX futures remained glued to the Cycle Top at 14197.84 during most of the overnight session. Tis morning near 6:30 am the futures began their descent, but remain above 14100.00 as I write. The trendline at 14000.00 may still be significant while Short-term support at 13824.15. Today’s options expiration is heavy with calls down to 13750.00 and puts dominate beneath that. The 50-day Moving Average at 13707.54 is the final line of defense against a sell-off. This morning’s expiration may release the pin holding NDX near 14000.00.
ZeroHedge comments, “At the start of the week, we warned of the potential for upheaval in markets that today’s near-record-breaking options-expiration (and quad witch) could cause as a massive amount of gamma and delta expire and are de-risked, in the process eliminating one of the natural downside stock buffers (see “4 Reasons Why The Market Doldrums End With Next Friday’s Op-Ex“).
Anyone who ‘traded’ yesterday’s markets knows that is true and today could be even more wild as Goldman points out that today will be the second largest single stock options expiration in history, with $818bn of single stock options set to expire (only Jan-2021 was larger).
Broadly, total open interest on single stocks has increased to nearly $3tn, the highest level since January of this year, as daily options trading activity continues to exceed shares traded (single stock options volumes have been 104% of shares volumes over the past month). Volumes are concentrated in short term contracts, with 71% of all contracts traded in options with less than 2 weeks to expiry; this compares to the long-term average of 57%.”
SPX futures have declined beneath 4200.00 and are testing mid-Cycle support at 4191.52 as I write. The last level of defense is the 50-day Moving Average at 4176.32, beneath which a major sell-off awaits.
ZeroHedge remarks, “US equity futures were already sliding this morning as option expirations loomed, but when St.Louis Fed Chair Jim Bullard appeared on CNBC and admitted that “it’s natural that [The Fed] has tilted a little bit more hawkish,” losses accelerated…
Bullard then added some more FUD by admitting that there “is some upside risk on the inflation forecast,” and confirmed that “Fed Chair Powell has opened the taper discussion this week.”
So much for transitory!!”
ZeroHedge reports further, “With traders on edge ahead of today’ massive quad (or triple for the anal purists) witching opex, in which over $2.2 trillion in index option gamma is set to expire potentially unleashing a burst of volatility across risk assets…
… worlds stocks were stuck just below record highs on Friday, with investors left looking for direction after digesting the U.S. Federal Reserve’s more hawkish stance (which has since been re-evaluated as bullish), while S&P futures are deathly calm with the emini trading unchanged following Thursday’ turbulent session, which saw the unwind of reflation trades resulting in a huge divergence between soaring growth (QQQ) and sliding value (IWM) stocks as markets repriced inflation expectations and as yields tumbled following Wednesday’ hawkish shock.”
VIX futures broke out above the prior highs of the month and rose as high as 20.77 this morning. It may be on a confirmed buy signal this morning with the Cycles Model showing growing strength through mid-July.
ZeroHedge observes, “Just over a week ago, Nomura’s Charlie McElligott warned – amid volatility doldrums and incessantly dip-buying stock gains – that the party could end next Friday (today) as the quad witch combined with realized risk windows shifting would lead to a notable increase in volatility.
Given the surge in vol and chaotic trading of the last three days (and more to come today), he nailed it…
And now he is warning that “Reflation” expressions are being de-grossed and even outright liquidated, as the tidal wave of the Fed’s own perceived “FIAT flinch” crescendos into a reversal of YTD macro-trends – with “official taper” pile-on from Fed’s Bullard just now (*BULLARD: CHAIR POWELL OFFICIALLY OPENED TAPER DISCUSSION AT LAST MEETING, MORE IN DEPTH DISCUSSION TO FOLLOW) adding into what we already anticipated to be a potential “Op-Ex unclenching,” thanks to today’s outlier $Gamma and $Delta declines in US Equities Index / ETF options.”
TNX futures are on the rise again as it bounces off the 100-day Moving Average at 15.12. The next move is to overcome the 50-day Moving Average at 15.83 as it gathers strength over the next week. The Cycles Model indicates a triple dose of strength that may take the UST longs by surprise.
ZeroHedge reports, “After spiking significantly immediately after The Fed’s so-called “hawkish” statement, the long-end of the yield curve collapsed today with 30Y yields down 17bps from the post-FOMC highs before finding some support as investors may be interpreting the Fed’s hawkish tilt Wednesday as a sign that an extended US post-pandemic economic expansion may be a bit harder to achieve in a potentially emerging environment of less accommodative monetary policy….
Why buy long-dated US risk-free bonds if the US central bank just indicated that it may want to raise its benchmark Fed funds rate earlier than previously expected?
Goldman’s Chris Hussey explains that the answer may lie more in duration than anything else.
Shorter-term US Treasuries are little changed today. But the longer-term view for US growth seems to be taking on a bit more of a cautious complexion with the bid for long-dated yield.
Given the post-Great Financial Crisis history of anemic US growth, investors may be saying today that they are uncomfortable with how strong the US economy can grow without monetary accommodation once we have reached out beyond this current post-pandemic reopening bounce period.”
USD futures made a new high this morning at 92.21 as the USD continues to add strength through early July. The Master Cycle low was made on May 25 and it appears that this new Cycle may be on of the strongest for the record. This appeas to be quite unexpected by market pundits.
Gold futures are hovering near yesterday’s low at 1767.90. There may be a small bounce today, but the decline may not be over. Gold is especially prone to stories to keep investors’ hopes alive, which may be crushed. This decline has the potential of extending through mid-August which gives it plenty of time to meet the doubly-indicated targets listed on the chart.
FXEmpire comments, “The direction of the gold market on Friday will be determined by trader reaction to the technical retracement zone at $1798.80 to $1770.40.
Gold futures are trading higher, but well off the high of the session with the price action being influenced by Treasury yields and the U.S. Dollar. The early strength is likely being fueled by aggressive counter-trend value buying with the market currently testing a key 50% to 61.8% retracement zone.”