Today’s action brings us to a pivot point in the charts. NDX edged to a new all-time high at 15701.40 yesterday while completing an impulsive pattern. SPX kept its September 2 high at 4545.85 with a sloppy pattern but both sold off to important pivots in regard to today’s and Friday’s options expirations. For today, open interest is 1587 call contracts to 1089 put contracts at 4525.00. At 4500.00, open interest in puts outweigh calls 5341 to 2486. Should SPX decline beneath 4500.00, gamma forces may outweigh any liquidity injection. At 4475.00 open interest in puts outweigh calls by 5500 contracts!
It gets more difficult on Friday, as put and call contracts are almost dead even at 4525.00. At 4500.00 puts outweigh calls by 3474 contracts, while at 4550.00 calls outweight puts by 7764 contracts!
At this point, SPX must maintain Max Pain status beneath 4525.00 and above 4500.00. Friday’s Max Pain is at 4525.00. Any deviation above those levels may incite a throw-over, while beneath thos levels begins the bear market.
ZeroHedge reports, “Morgan Stanley, Bank of America, Deutsche Bank, Citigroup, Credit Suisse And Goldman Sachs.
These are some of the biggest Wall Street banks that have issued “red alert” warnings on the US stock market in just the past few days, with some expecting an imminent correction of 10-20%, while others expect a slow burning drift lower over the next few months. Below we summarize the highlights of their surprisingly downbeat views.”
SPX futures are lower this morning, most likely on their way to Intermediate-term support at 4450.00. The Next two weeks will be critical, with a potential reversal at any time. However, it may still have one more surge to the Cycle Top at 4601.80, at a minimum. It may also “throw over” to as high as 4822.00 in a spectacular show of speculative frenzy as the fear of missing out prevails.
ZeroHedge reports, “World stocks receded from the previous session’s record highs, European stocks were headed for the biggest decline in almost three weeks and US futures were set for a third straight day of losses on Wednesday with the global growth outlook coming under increasing pressure while the dollar hit one-week highs and 10Y yields dipped as investors reduced exposure to riskier assets. S&P futures briefly fell 0.5%, tipping below 4,500 before, recovering losses after the S&P 500 fell 0.34% on Tuesday, while Dow futures were flat and Nasdaq emini futs were fractionally in the red as banks from Morgan Stanley to Citigroup turned cautious on US equities.”
VIX futures reached a high of 19.63 before coming back down to 18.24. We amay see a rising VIX alongside a rising SPX in the final surge. So, although the VIX is above its 50-day Moving Average, we still need confirmation from the Hi-Lo Index. Otherwise the top trendline of the Ending Diagonal at 21.00 or the neckline of the Head & Shoulders may act as a trigger for an SPX sell signal. In the meantime, the VIX itself is on a buy signal.
TNX futures pulled back this morning and may tag the 50-day Moving Average at 13.14 before moving higher. TNX may have a show of strength in the latter half of the week which may continue through options week.