SPX tested Short-term resistance at 4224.12 and pulled back. That may be a sufficient move for a reversal. Make sure that you have at least a partial short position, although I would venture to say that this is an “accident waiting to happen.” The Hi-Lo Index has risen to 75, but its a far cry from the 200+ readings we were seeing a week ago. Be sure to add short positions beneath the 50-day Moving Average at 4180.77.
SPX futures declined further over the weekend to 4126.75 before rebounding back to the 50-day Moving Average at 4178.13. While the retracement guidelines allow the SPX to retrace 61.8% of its decline back to Short-term resistance at 4223.82, it must fight back above the 50-day to accomplish this. Should the SPX remain beneath the 50-day Moving Average, the next downside target appears to be the 2-hour Cycle Bottom at 4106.98. “Point 6” of the Orthodox Broadening Top lies at 3898.00, beneath the 1987 trendline.
ZeroHedge reports, “US equity futures and global stocks recovered some of their Friday losses after hitting a four-week low earlier in Monday’s session, as investors dipped their toe and bought risk after last week’s surprise hawkish shift by the Fed even as the dollar hovered below a 10-week high. S&P 500 futures rebounded after spending most of the Asia session in the red, while Europe’s Stoxx 600 Index also recovered from an earlier loss, with U.K. grocer Wm Morrison Supermarkets surging 32% after rejecting an unsolicited takeover bid, sending shares of peers Tesco Plc and J Sainsbury Plc higher.
“It just looks like a bit of relief rally following last week’s heavy sell-offs,” said MUFG analyst Lee Hardman. “Market participants will be watching closely comments from Fed officials in the week ahead to see if any push back against hawkish market repricing following last week’s FOMC meeting”
The NYSE Hi-Lo Index appears to be on a sell signal, but must stay beneath Friday’s range to confirm. What’s causing the Hi-Lo to go down is the blackout period during earnings season that prevents stock buybacks. The Cycles Model suggests the Hi-Lo may continue to decline through the end of June.
ZeroHedge give a more technical explanation of what happened, “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…
VIX futures spiked to a weekend high at 21.76 last night before easing back down beneath Friday’s close. It is on a confirmed buy signal that may extend through mid-July before ending at a Master Cycle high.
ZeroHedge comments, “Last week, or at least post the Fed-meeting, was wild. 2-year US Treasury yields spiked as 10 and 30-years tumbled (the latter to below 2%), dramatically flattening the curve; the dollar leaped; commodities and gold slumped; and equities just about held on. Even given the possibility the US long-end reflects the Fed buying more Treasuries than the Treasury is (currently) issuing, the overall impression is still of the market screaming “POLICY ERROR!” at the Fed. And why not? Doing nothing for 2.5 years as asset bubbles roar, and *then* hiking rates into what would logically be far closer to the end than the beginning of a recovery cycle is the embodiment of monetary policy error.
Will the Fed respond? Perhaps not short term – so more of this market action could yet be seen. Indeed, it will likely take equities tumbling to get the Fed’s full attention. But even so, last week’s volatility could *potentially* be a sign that US policy tightening is over even before it began – unless we get a shift of fiscal policy and supply chains.”
NDX futures dipped beneath 14000.00 to 13985.75, but bounced back near Friday’s close. While on a chart sell signal beneath its short-term trendline, it has not yet violated other supports such as the 50-day Moving Average at 13721.16. The NDX Hi-Lo Index closed at 25.00 on Friday. We should see it close below zero for a confirmed sell signal. Finally, the Shanghai Composite was mildly positive over the weekend, offering no direction from that parallel indicator. Nonetheless, selling may continue, as the Cycles Model is negative through the month of July.
TNX extended its Master Cycle low to Friday at a new low of 14.38. This morning it appears to be back on the rise, but it must rally above the 100-day Moving Average at 15.02 to give a buy signal. The Cycles Model calls for rising rates through early August with a potential target of 19.71.
ZeroHedge reports, “Short-dated Treasury yields are extending their rise from Friday’s bloodbath as the collapse of the long-end of the term structure accelerates in early Asia trading.
2Y is back above the Fed Funds rate…
and 30Y yields are back below 2.00%…
… for the first time since March…”
USD futures consolidated this weekend. It still has 2-3 weeks of rally ahead with growing strength in early July.