SPX has lost its grip on its support at the 100-day Movig Average at 4345.00 and is now entering the panic phase of the market. Gamma is seriously negative below 4400.00 and may only beget more selling. Can a bounce happen here? Yes, but may be limited by today’s peak at 4382.00. Once beneath 4300.00 the cascade begins.
ZeroHedge remarks, “After another energetic session of buying in Asia, US futures began fading as Europe opened and accelerated lower as US opened…
Critically, this push lower has sent all the major US equity indices below key technical supports:
- S&P broke below its 100DMA
- Nasdaq broke below its 100DMA
- Dow broke below its 100DM
- Russell 2000 broke below its 200DMA”
ZeroHedge also notes, “Another day, another rollercoaster for stocks as futures were bid overnight until the European open and selling started…
But notably, Treasury yields have “stabilized” in a narrow range after their explosive surge higher recently. Nomura’s Charlie McElligott suggests that it does feel like the worst of the “short Gamma” dynamics clearly seen in both UST futs and ED$ futs early this week are now in a “cleaner” place…
But, the Nomura strategist suggests that today’s potential fireworks inside the Equities space will more than likely be generated from the absolutely mongo-sized qtrly SPX Put Spread Collar that is being rolled, where paper needs to buy 44,600 SPX SepQ 4430 Call (on the cover) to buy the DecQ 3490 / 4140 Put Spread while selling the DecQ 4515 Call x 44,600 – the trade will lift the Street on ~$3.1B in Gamma and SELL 14.5mm in Vega.”
I am due for an early morninr appointment, so this session will be brief.
SPX futures are higher this morning, but could not make resistance at 4400.00. The 38.2% Fib retracement is at 4391.05 and it appears that SPX may stay clenched at that level. The reason? Open interest at 4400.00 in today’s expiring put contracts is 19,663 versus open interest in today’s (expiring) calls is 11,149. An accident here may bring a cascade of selling as open interest in puts outnumber calls quite a way down from 4400.00.
ZeroHedge reports, “US equity futures faded an overnight rally on the last day of September as lingering global-growth risks underscored by China’s official manufacturing PMI contracted for the first time since Feb 2020 as widely expected offset a debt-ceiling deal in Washington and central-bank assurances about transitory inflation. The deal to extend government funding removes one uncertainty from the minds of investors, amid China risks and concerns over Federal Reserve tapering. Comments from Fed Chair Powell and ECB head Christine Lagarde about inflation being transitory rather than permanent also helped sentiment, even if nobody actually believes them any more.In China, authorities told bankers to help local governments support the property market and homebuyers, signaling concern at the economic fallout from the debt crisis at China Evergrande
As of 7:15am ET, S&P futures were up 18 points ot 0.44%, trimming an earlier gain of 0.9%. Dow eminis were up 135 or 0.4% and Nasdaq futs rose 0.43%. 10Y TSY yields were higher, rising as high as 1.54% and last seen at 1.5289%; the US Dollar erased earlier losses and was unchanged.”
VIX futures have pulled back to the trendline at 20.50 but have recovered back nearer the close.
The NYSE Hi-Lo Index closed at -11.00, giving no support for a further rally.
NDX futures remain range-bound within yesterday’s trading range as a battle rages over which options get paid. QQQs (closing price: 359.28) are especially sensitive, since opoen interest in today’s expiring put contracts is 15,980 versus open interest of 7,325 call contracts. The Max Pain zone is 361.00, which is still slightly tilted toward puts. Calls dominate at 362.00 and above. Today’s options expiration is a minefield where the dealers dare not trod either to the right or the left.
CharlesHughSmith opines, “The banquet of consequences is being served, and risk-off crashes are, like revenge, best served cold.
The ideal setup for a crash is a consensus that a crash is impossible–in other words, just like the present: sure, there are carefully measured murmurings about a “correction” but nobody with anything to lose in the way of public credibility is calling for an honest-to-goodness crash, a real crash, not a wimpy, limp-wristed dip that will immediately be bought.
What I’m calling for is a rip your face off, weeping bitter tears over the grave of the speculative wealth that you thought was forever crash. All those buying the dip because the Fed will never let the market go down will be crushed like scurrying cockroaches and all those trying to rotate into the next hot sector or asset class will also be crushed like scurrying cockroaches because when the Everything Bubble pops, well, everything pops. There is no shelter in a risk-off cascade.
The crash is coming as a result of multiple mutually reinforcing dynamics, the first being that no “serious person” believes a crash is possible, much less imminent. In no particular order, here are a raft of other causally consequential triggers of a cascading market crash:”
TNX is on the rise again with a high at 15.57. With only two weeks to go to its next Master Cycle (high), a breakout may be underway. The Cycles Model suggests a possible rally of the current Master Cycle to the October 18 drop dead date. The decline in stocks may extend beyond that date, as the damage of higher rates may be realized.
ZeroHedge observes, “Now that Sen. Joe Manchin has denounced his own party’s multi-trillion plan to expand the social safety net as “the definition of fiscal insanity,” we can be virtually assured that the entire Democratic domestic agenda has essentially been left dead in the water, since the progressive Left won’t agree to back the Dems’ “bipartisan” infrastructure plan via reconciliation without first passing the larger spending package through both chambers.
Whatever the outcome, Manchin’s statement suggests it will likely take weeks and months – not days – for President Biden and the leadership to negotiate the votes – if indeed they can ever resolve the intractable divide within their own party, which has largely taken the form of aggressive leftists in the House (exemplified by the AOC-led “squad”) vs. a pair of moderates (Manchin and Arizona’s Kyrsten Sinema) in the Senate.”
That’s fortunate, in a sense, since it means Chuck Schumer and Nancy Pelosi will have no choice but to focus on the arguably more pressing priorities: keeping the government funded while raising the debt ceiling, ideally before Treasury Secretary Janet Yellen’s “drop-dead” date of Oct. 18.
USD futures are consolidating this morning after yesterday’s breakout rally on day 266 of the Master Cycle. Normally we would anticipate a two-to-three week correction after the Master Cycle, but due to the extended older Master Cycle, we may only see an abbreviated correction before moving higher. The new Master Cycle may not end until mid-November.