2:45 pm
SPX bounced at Nomura’s final support (before oblivion) at 4310.00, having gone past the 100-day at 4328.00. Whether it holds or not is still in question. A decline beneath 4300.00 introduces the concept of a running correction, that is, a corection that may not be able to even make the lowest (25%) Fibonacci retracement, currently at 4353.00. This is no time to take short profits. There’s much more to come.
ZeroHedge comments, “US equity markets crashed through several technical levels, with S&P finding some support (for now) at its 100DMA…
As the spike in volatility (VIX is back up near 28)…
…prompted forced sellers in size, Nomura’s Charlie McElligott – who correctly called this post-opex plunge – notes some remarkable flows going-through earlier this morning in response to the initial “vol squeeze” risk-off, as we witnessed brave vol sellers not waiting for the market purge- or Fed event risk- to clear, and instead, actively attempted to harvest “rich” index vol & skew / shorted it, while others monetized downside hedge gains (because the back-test on vol spikes tells you that you have under 1 day before the rally in spot, LOL)…”
12:15 pm
VIX has risen above the neckline and is testing the Cycle Top resistance at 26.95. While the SPX Master Cycle is scheduled to end on October 15, the VIX Master Cycle is not due to terminate until October 26, 11 days later. There are other anomalies among the Cycles that suggest that what is happening ths October may not be normal. This suggests such possibilities as a market closure.
ZeroHedge comments, “The last seven times that the S&P 500 has traded down to its 50-day moving-average, it has rebounded rapidly and aggressively.
This time – for now – is different, as Friday saw the S&P cash close back below the 50DMA and futures indicate a serious move below it at the open…
And things could escalate, as. following the extinction of a serious chunk of options on Friday, we start today with a sharply negative gamma position.
This negative gamma position doesn’t flip positive unless markets recover the 4425 area. For today we look to 4415 as resistance, with support at 4360 and 4310.”
8:15 am
SPX futures are down over 80 points as I write, crossing beneath the 50-day Moving Average and approaching the 43-week Moving Average at 4308.00. The combination run-off from options expiration and Evergrande now at its lowest point ever, soon to be insolvent.
I am highlighting the weekly SPX chart to show the three-year Orthodox Broadening Top with a throw-over lasting a year. Normally the throw-over of this height and duration may disqualify the Broadening Top, but a decline beneath 3900.00 may re-instate the Broadening Top and result in a quick decline to 2100.00.
ZeroHedge reports, “In retrospect, China, Japan, South Korea and Taiwan picked a great day to take a holiday, which as we noted last night hammered Hong Kong stocks more than 3%, slamming the Hong Kong property sector and sending Evergrande – which is expected to default within hours to a bank loan due Monday while crucial interest payment deadline on its offshore bonds looms on Thursday – to its lowest market cap ever (it closed down 10.2% just off the worst levels of the day) before the rout spread to European bourses and US equity futures as Evergrande’s escalating liquidity – and now solvency – crisis spread beyond the sector.
At 24,099 points, Hong Kong’s broader Hang Seng index has closed at its lowest level since October 2020.
“Evergrande is just the tip of the iceberg,” said Louis Tse, managing director at Wealthy Securities, a Hong Kong-based brokerage. Chinese developers were under substantial repayment pressure on dollar-denominated bonds, he added, while markets had become nervous that Beijing would push listed real estate groups to cut the costs of housing in mainland China and Hong Kong.
“That affects the banks as well — if you have lower property prices what happens to their mortgages?” Tse said. “It has a chain effect.”
But there may be yet another risk that is being summarily dismissed by the mainstream media. Newsweek reports, “volcano has erupted on the Spanish Canary Island of La Palma, prompting unfounded fears that a so-called mega-tsunami could be headed to the East Coast of the United States.
The Cumbre Vieja volcano began erupting at around 3.12 p.m. local time (10:12 a.m. EDT) on Sunday, according to officials. It forced the evacuation of around 5,000 people from their homes in villages in the area, Canary Islands president, Angel Victor Torres, said in a press conference on Sunday. It marked the volcano’s first eruption since 1971.”
For those living on the East Coast, it may be advisable to monitor www.tsunami.gov for updates. Should El Cumbre Vieja collapse, the espimated time to landfall in the United States would be 6-9 hours.
VIX futures have reached a new high at 26.75, crossing the Head & Shoulders neckline. VIX has 3-4 weeks left in its Master Cycle, giving it time to go well past the Head & Shoulders target of 36.08.
ZeroHedge notes, “The last seven times that the S&P 500 has traded down to its 50-day moving-average, it has rebounded rapidly and aggressively.
This time – for now – is different, as Friday saw the S&P cash close back below the 50DMA and futures indicate a serious move below it at the open…
And things could escalate, as. following the extinction of a serious chunk of options on Friday, we start today with a sharply negative gamma position.”
The NYSE Hi-Lo Index opened at -28.00 and declined from there. This is the final confirmation of the decline and SPX sell signal.
ZeroHedge remarks, “As futures indicated, the US cash equity open was greeted by an avalanche of selling, breaking the S&P back below its 50DMA…
This was the second largest sell-program in history with TICK crashing to -2067 (record low as -2069 on 5/11/21)…
…which means that we were off by just 2 stocks from the biggest selling-wave in history.
A sea of red in stonks…”
TNX appears to have made a Master Cycle high last Friday at 13.86. This may allow a decline to the next Master Cycle(low) due in three weeks. Today’s action is indicative on money flows into treasuries and out of stocks. We may expect the next Master Cycle to reach its low at or near the Cycle Bottom, currently at 9.79.