The NYSE Hi-Lo Index opened at -23.00 in a decline, but has bounced, though in the negative. The sell signal remains intact. The NDX Hi-Lo Index declined to -97.00 and may be triggering another sel signal.
The SPX bounce stopped near its daily Ending Diagonal trendline at 4400.00 and is declining again. It is hard to say whether the correction may be prolonged or not. Howeer, once finished, Wave (v) of [i] equals Wave (i) of [i], a common relationship) at the 50-day Moving Average. Should the decline stop there we may see another retest of the trendline near 4400.00. As mentioned earlier, negative gamma progressively worsens beneath 4400.00 and may accelerate beneath the 50-day.
ZeroHedge remarks, “Well that de-escalated quickly…
US equity markets have got back to ‘even’ after ramping violently at the cash market open on what smells like more of a gamma spike than any real buying…
It appears the bounce is off some critical technical levels (Nasdaq at 50DMA and Russell 2000 at 200DMA).”
SPX futures are gapping down through the Ending Diagonal trendline as they approach the 50-day Moving Average at 4340.48. There may be a bounce as it reached the 50-day, but the rebound may be limited by the trendline at 4400.00. The 50-day has marked the lows since March, so that may be considered the “Maginot Line” for a larger decline.
However, the new Master cycle is not due to find a bottom until mid-October with a possible bounce to “save” options expiration in mid-September. Therefore, support may crumble, especially as gamma hedging may now turn negative. Tomorrow’s options are bearish beneath 4400.00, progressively more so at 4325.00, with a net open interest of nearly 4000 net put contracts. Should the SPX slip beneath the 50-day, dealers may be forced to sell longs and go short as the decline becomes self-reinforcing.
Investors should be net short at this time, with a bouncy ride until the 50-day breaks.
ZeroHedge reports, “In a perfect storm of adverse developments suddenly sweeping the complacent and calm sea of manipulated global markets, overnight futures plunged, global stocks slumped, commodities tumbled, as investors rushed to the safety of Treasurys, sending yields sharply lower and pushing the dollar to the highest level since November, amid concern the Federal Reserve may start tapering stimulus this year even as the delta virus variant undermines global growth. At 730 a.m. ET, Dow e-minis were down 0.92%, S&P 500 e-minis lower by 0.80% and Nasdaq 100 e-minis off 0.63%.”
VIX futures have surged to an overnight high of 24.74, testing the Head & Shoulders neckline at 25.00. It launched above the 50-day Moving Average on Tuesday and overcame mid-Cycle resistance at 20.23 on Wednesday, clearly a Model buy signal. Once above 25.00, VIX options and futures may likely be at a premium as sentiment dramatically changes.
ZeroHedge warns, “In the new normal world of ‘Correlation 1’ risk-on, risk-off trading, the only thing that matters is the rise and fall of the Equity vol flows.
This is why, as Nomura’s Charlie McElligott explains, with all the pre-warning warnings and expectations management, the current sudden slide in stocks is “not a taper tantrum”, adding that “yesterday’s minutes were a non-event, where the market has already price Q4 official announcement anyhow.”
Instead, the Nomura MD notes that US Equities Realized Vol is finally trueing-up to the incessant CRASH -signals from Implied Vol / Skew / Term-Structure / “Vol of Vol” signal extremes we’ve been hammering-on the past few weeks… and it’s causing a risk management / “crash” slide / stress issue around the Street now which is being traded around, ahead of the ever-critical monhtly options expiration cycle as an “accelerant” risk.”
The NYSE Hi-Lo Index gave a sell signal on Tuesday, closing at -13.00. Yesterday’s close was sufficient to keep it on the sell signal, which appears justified this morning. The Cycles Model suggests the next Master Cycle low (not confirmed by the SPX nor the VIX) may come in mid-September, but the final (c0nfirmed) low appears due in mid-October. So, it appears that the Hi-Lo is a bit more nuanced during this bear market.
The Shanghai Composite Index made an overnight low at 3446.01 before a bounce. China’s heavy handedness appears to be driving sentiment down. The spill-over is now reaching European stocks as well as the NDX.
ZeroHedge reports, “European luxury stocks slumped, and were among the worst performers in Europe’s Stoxx 600, after Chinese state media this week said President Xi Jinping offered an outline for “common prosperity” via “wealth redistribution” – who know that China was communist after all – that includes income regulation and redistribution, putting China’s wealthiest citizens on notice. Among the biggest losers were Richemont -5.6%, Kering -5.3%, LVMH -4.2%, Swatch -3.6%, Burberry -2.7%, Hermes -2.2%. Hong Kong-listed Prada plunges 10%.”
NDX futures made a new low at 14714.90 this morning, nearing its 50-day Moving Average at 14621.67. Investors who took last week’s sell signal had to wait through choppiness until yesterday, when it finally paid off. There is likely to be a bounce at the 50-day, or possibley lower, at the Cycle Bottom support at 14577.75. However, the bounce may be tied to options expiration and may dissolve by early next week.
The NDX Hi-Lo Index bounced to -1.00 in early trading yesterday, but tailed off to -96.00 at the close. The sell signal remains confirmed.
TNX futures slid to 12.20 this morning, but may have found support and may be on the mend, with the cahs market opening at 12.32. Dynamic strength may return early next week after being in the doldrums this week. This may be viewed as another selling opportunity for treasuries. The Fed ma be “led” by arket forces to begin tapering much sooner than anticipated.
ZeroHedge observes, “Dovish Fed minutes note ‘substantial further progress’ not yet been made, but most see conditions being met later this year
- The FOMC July meeting minutes provided dovish offset from some of the hawkish Fedspeak that has been heard recently.
- The minutes suggested that participants generally judge that the standard of “substantial further progress” had not yet been met, particularly with respect to labor market conditions, and that risks to the economic outlook remained, although most judged that it could be appropriate to start reducing the pace of asset purchases this year because they saw the Committee’s “substantial further progress” criterion as satisfied with respect to the price-stability goal and as close to being satisfied with respect to the maximum-employment goal — all dependent on progress towards the Fed’s goals.”
The BKX, our liquidity proxy, is showing signs of stress again. It has declined very near the 50-day Moving Average at 124.72, where a sell signal lies. Crossing the lip of the Cup with Handle at 115.00may be the “kiss of death” for market liquidity. The next Master Cycle low may be accomplished by the end of August. All it takes is one bank failure to set off a firestorm in the markets.
ZeroHedge observes, “With the Fed’s reverse repo facility hitting a new all time high today, rising to a record $1.116 trillion among 82 counterparties…
… the manager of the Federal Reserve’s open market operations, Lorie Logan, was quoted in the FOMC minutes as saying that “market participants were beginning to focus on the potential effects of changes in the Treasury General Account at the Federal Reserve and Treasury bill issuance over coming months in connection with the debt ceiling.” She then said that “if a number of counterparties reached the per-counterparty limit on their ON RRP investments and downward pressure on overnight rates emerged, it may become appropriate to lift the limit.”