2:15 pm
Here is the SPX chart with updates. There is a new Head & Shoulders formation. A bit lopsided, but a legitimate one. Should it be triggered, we may se a decline beneath 4200.00. There is yet another potential formation that may agree with “Point 6” to be discussed later. The Cycles Model tells us the decline may become quite intense on Monday, throwing next week’s monthly options expiration into utter chaos. The week following options expiration also shows a potentially intense decline into the end of the month. Be prepared for some very large moves in both directions.
It does not appear that the smart money is waiting for 3:00 pm to sell. They are probably front-running the mutual fund holders who cannot exit until the final half-hour.
1:15 pm
While the NDX has not yet crossed its Ending Diagonal trendline (see bottom entry) the NDX Hi-Low Index has plummeted to -54.44 this morning before a slight recovery, but it remains beneath the opening price. The signal occurs at 0.00, so we have a NDX sell signal from this indicator. For those who want extra assurance, a plunge beneath the trendline at 14600.00 confirms this Hi-Lo signal.
1:05 pm
BKX tested the neckline of its Head & Shoulders formation at 118.70 this morning, but did not break through. It is only a matter of time. In the meantime, there are other indicators of shrinking liquidity. Weaker banks are pulling in their lines of credit . We may also see credit card companies lowering their lines as well. The doors start slamming shut just as the need to answer margin calls arises.
ZeroHedge remarks, “Wells Fargo just announced that it’s shutting down all of its existing personal lines of credit – a popular product offered by the retail-focused Wall Street giant – a move that will likely infuriate legions of customers.
The revolving credit lines, which will be shut down in the coming weeks, typically allow users borrow $3K to $100K, were pitched as a way to consolidate higher-interest credit-card debt, pay for home renovations or avoid overdraft fees on checking accounts attached to the loan.
Customers have been given a 60-day notice that their accounts will be shuttered, and remaining balances will require regular minimum payments, according to the statement.
According to CNBC, it’s the latest “difficult decision” facing Wells CEO Charlie Scharf, who is being forced to make cutbacks to the banks’ business thanks to restrictions imposed by the Federal Reserve years ago as punishment for the bank’s criminal scandals like the now-infamous scandal whereby branch managers opened credit lines for customers without permission. a scandal that outraged the public.”
12:00 noon
SPX appears to be completing a 50% Fibonacci retracement (at 4325.14) while challenging gap resistance at 4321.07. This may be “it” for the bounce. If not already short, this may be an excellent entry point.
ZeroHedge remarks, “Stocks are trading just 1% below their all time high, yet judging by today’s open there was sheer capitulation panic.
There is a reason for that: as noted last week, the market breadth has been collapsing similar to what we observed last summer when a handful of market “generals” did all the heavy lifting. Well, as Bloomberg’s Ye Xie shows market breadth has only gone from bad to abysmal, with the number of S&P stocks above their 50DMA at just about 50%, a very tiny increase from the 47% on June 29 when the S&P hit its first of many consecutive all time highs.
Putting these numbers in context, Xie writes that “over the past three decades, there were only two periods when we saw this negative divergence (record stocks with breadth below 50): in 1998 and 1999.” Of note, the latter print took place just before the dot com bubble burst.”
9:45 am
Normally we would see a bounce at the trendline (which still may happen). However, a further decline beneath Short-term support at 4282.31 confirms our sell signal. This is one such signal that we may not wish to hesitate on.
ZeroHedge explains, “It’s already been a harrowing session for bulls who have forgotten what the color red looks like after 8 all time highs in the past 9 trading sessions, but it could get a whole lot worse because with spoos down 1.3% just under 4,300 as they rebounded from 4,280…
… as the VIX surges above 20…
And with the cash index set to open just over the critical 4300 line, SpotGamma notes that this means that gamma levels will start near zero, which implies a larger 1% max move for today. But it is under 4300 where the gamma flip line rests (below 4300 a drop move become self-reinforcing), and so SpotGamma looks for a spike in volatility if that level is broken. To the upside 4330 remains major resistance, although it’s unlikely we will get there today. .”
9:40 am
The NYSE Hi-Lo Index gave a sell signal this morning, opening at 2.00 and last seen at 0.00. That, combined with the VIX signal (above the 50-day Moving Average) gives us a clear go-ahead to pick our best entry in short positions.
7:45 am
As of yesterday’s close, the BKX (proxy for market liquidity) closed within four points of its Head & Shoulders neckline. Once the neckline is crossed, this represents the potential removal of all new liquidity since the the year-end. Breaking the Ending Diagonal trendline infers a complete retracement of the Diagonal. There is yet another potential formation that suggests a decline to or beneath the March 2020 low. The Cycles Model suggests this may happen by the end of August.
ZeroHedge observes that this agrees with the outlook of Zoltan Posar, “With the Fed’s overnight reverse repo facility hitting a record $992 billion on June 30 (a number which included a generous dose of quarter-end window dressing, having since shrank by about $200 billion)…
… earlier this week we reported that according to the now-institutionalized (following his extensive WSJ profile this past weekend) repo guru, Zoltan Pozsar, said that as part of the Fed’s ongoing reserve sterilization which was unleashed when the Fed hiked the repo facility rate to 0.05% or higher than most short-term bills, he expected that some $1.3 trillion in flows would shift away from bills and into the Fed’s RRP facility by the end of August.” (my emphasis)
SPX futures are currently testing Short-term support at 4280.27. Normally, I would put an aggressive sell signal beneath this level. However, by declining beneath the upper Diagonal trendline at 4300.00, SPX has effectively ended its throw-over and may now be in full reversal.
Tomorrow’s options expiration give the nod to the puts at 4295.00 and lower. We may expect a bounce into the Max Pain zone between 4300.00 and 4325.00 to frustrate both the bulls and bears. However, accidents may also happen to upend the apple cart in time for weekly options chaos.
ZeroHedge reports, “After S&P futures printed at new all time highs on 8 of the past 9 days, one can almost feel sorry for the euphoric bulls (and meme stock traders) who woke up this morning to headlines such as this:
- *S&P 500 INDEX FUTURES RETREAT 1.5%
- *NASDAQ FUTURES DROP 1.5%
- *STOXX EUROPE 600 INDEX DROPS 1.5% TO SESSION LOW
And sure enough, just one day after it appears that nothing could stop markets from exploding to recorder highs day by day by day, on Thursday morning both the reflation and growth trades were a dumpster fire, with Dow e-minis plunging 475 points, or 1.37%. S&P 500 e-minis were down 58 points, or 1.34% and Nasdaq 100 e-minis were down 190 points, or 1.3%, the VIX jumped above 20 after trading at 14 just a few days earlier and 10Y yields dropped as low as 1.25%. Bitcoin tumbled back down to $32,000.”
VIX futures rose to 21.229 this morning, possibly testing the mid-Cycle resistance at 221.95. However, it did cross the 50-day Moving Average at 18.03, effecting a buy signal in the VIX. We await the open to check the levels of the NYSE Hi-Lo Index for a possible confirmation of the SPX sell signal across the board.
TNX futures hit 12.50 at 6:45 this morning, but has since bounced, opening at 12.78. The mid-Cycle support/resistance is at 12,80, leaving the status of TNX in limbo for the time being. However, today is day 282 in the Master Cycle, which hardly seems able to be stretched even more. Fortunately, Elliott Wave guidelines suggest this Wave structure may still be valid, unless TNX declines beneath the top of Wave 1 at 11.87. The target remains at 19.71 (or higher) by mid-September.
ZeroHedge remarks, “It was a long time ago since we woke up with VIX printing +25% in early morning trading. Summer is here, liquidity is shitty and the crowd is feeling a huge p/l pain as consensus trades continue puking as the recovery seems to have suddenly died.
The US 10 year yield continues falling, currently at 1.26%. The trend line is broken, we are approaching the 200 day moving average and RSI has not been this oversold since March 2020, but recall yields have a slight mean reverting aspect to consider.
The crowd remains confused. JPM writes today:
“The continuous rally in USTs continues to surprise both ourselves and our clients…”
Bill Blain at ZeroHedge asks, ““How many impossible things can you believe before breakfast?”
US 10-year bonds and US equity are in full rally mode. They show contradictory expectations for a stalled recovery and future strong growth! How can that be? Because the market is about what participants collectively think – and how markets think has been utterly changed by 12 years of monetary experimentation, repression, and distortion. We’ve got to change the way we think about markets.
…and sometime during a discussion on markets my chum, CIO of a very large family office, spotted something interesting:
- The yield on the 10-year US Treasury Bond was exactly equal to the Dividend Yield on the S&P 500. Both were 1.34%.”
USD futures appear to consolidate yesterday’s Master Cycle high (day 259). There may be a two-week correction back down to the 50-day Moving Average at 90.85 before moving higher.
The Shanghai Composite Index declined to its neckline at 3520.00 in the overnight session. This threat of a breakdown has a potential knock-off effect on the NDX as you will see below.
NDX futures fell to an overnight low at 14544.62, just above the diagonal trendline. There is no sell signal in the NDX yet. However, any further weakness in the Shanghai Composite may push the NDX into a sell signal as well.