The Dow Jones Industrials have declined over 300 points in the first full hour of the cash market. It appears that the DJIA is leading the decline at twice the velocity of the SPX decline. That is attributable to the nature of a Wave 3. This decline also tells us that institutions are leading the wave of selling, as retail investors usually come in later in the day. This may be an Uh-Oh moment for retail speculators.
RealInvestmentAdvice comments, “Is the retail investor rampage over?
Since the crash in March 2020, the “retail investor army” marched propelled by chat rooms and social media channels. As discussed previously in “Blind Leading The Blind:”
- In all, 46% have used social media for investing information in the past month.
- 22% of Gen Z investors say they were younger than 18 when they started investing, versus 8% of millennial investors.
- Only 36% of young investors plan to use that money for retirement. 35% will make additional investments, while 19% will use the funds to pay for a major purchase.”
SPX futures are lower this morning after making a new all-time high in the futures. We shouldn’t be surprised by either. SPX hit several relationships last Friday. First, it was day 266 of the Master Cycle. Second, Wave 5 is equal to Wave 1 at 4322.00, so it overshot that relationship. Third, the DJIA, which is the most liquid index containing the largest companies failed again to make a new high on Friday and is also declining this morning along with the Transports. Fourth, the indices are approaching 60 days from peak-to-peak (May 7 in the SPX and NDX, May 10 in the DJIA and Transports), which is one of the most basic Trading Cycles.
ZeroHedge reports, “Stock futures were steady, if drifting lower from overnight highs in muted trading as traders were watching whether Monday’s surge in oil which pushed WTI to the highest price since the November 2014 OPEC Thanksgiving massacre would depress stock sentiment after yesterday’s breakdown in OPEC+ talks. As of 730am, Emini S&P futures were down 2 points ot -0.05%, Dow jones futs were down 28 points ot -0.08% and Nasdaq minis were up 16.75 or +0.12%.”
NDX futures are modestly higher, having reached a new all-time high in the futures at 14743.38. This index seems to be the most reluctant to reverse course. However, it too appears complete.
ZeroHedge observes, “Stocks around the world continue to smash one record after another, and some of the world’s biggest money managers have a simple message: Get used to it.
The likes of BlackRock Inc., State Street Global Markets, UBS Asset Management and JPMorgan Asset Management expect equity markets to keep rising in the second half of the year, with many investors increasingly looking outside the U.S. for more returns. They cite reasons such as the economic recovery, continuing central-bank accommodation and a lack of alternatives amid low rates and the tightest credit spreads in a decade.
“Many indicators suggest there is still overwhelming liquidity in the system that is looking for a home,” says Carsten Roemheld, capital markets strategist at Fidelity International. Flows will continue to go into equities, though return expectations should be much lower from here, he says.”
The Fly in the Ointment for the NDX appears to be the tech-heavy Shanghai Composite Index, which is sitting on the neckline of a credible Head & Shoulders formation after making its all-time high on February 18. A decline beneath the neckline is certain to have a knock-on effect to the NDX. We should be seeing more reporting on Chinese stocks as the SSEC loses its grip.
VIX futures rose to a high at 15.89 over the holiday weekend. The 50-day Moving Average is at 18.10 where a buy signal may be given.
TNX appears to be continuing its Wave 4 low to 13.52 on a very stretched day 280 of its Master Cycle. This may be typical Wave 4 pattern. The Cycles Model also labels this as a “triple” Trading Cycle low. A single Trading Cycle calls for a 5-10% move out of that reversal. However The “triple” indicator suggests a potential rally over 30%.
ZeroHedge reports, “As stagflationary signals grow louder (after this morning’s ugly Services survey data), Treasury yields are plunging with 10Y back below 1.50% (testing the post-Fed/Bullad/Quad-Witch chaos puke lows)…
And 30Y yields have plunged back below 2.00%