October 12, 2021

1:35 pm

Today’s action in the TNX may have confirmed last Friday’s Master Cycle high.  The Cycles Model now suggests a possible 5-week pullback in bonds.  This may be due more to a knee-jerk reaction to a sell-off in stocks rather than a ligtening of inflationary pressures.

ZeroHedge observes, “It appears that sudden drop in indirect demand for today’s 3Y auction 90 minutes ago was a false alarm, because moments ago the Treasury sold $38BN in 10Y paper in what was for lack of a better word, a stellar auction.

Stopping at a high yield of 1.584%, the auction stopped through the When Issued 1.590% by a generous 0.6bps. This was the sixth consecutive 10Y auction that has stopped through. That said, the high yield was also well above last month’s 1.338%, and the auction cleared at the highest yield since May’s 1.684%.

The bid to cover of 2.58 was virtually unchanged from last month’s 2.59 and was above the recent average of 2.50.”


1:17 pm

SPX slipped beneath the 100-day Moving Average (not shown) at 4362.50 today as it gingerly looks for the next level of support.  The Lip of the Cup with Handle is at 4306.00 and the 2-hr. Cycle Bottom at 4292.97 provide the next level from which a bounce may occur, or not.

The NYSE Hi-0Lo opened at 9.00 and rose to 118.00 during the mid-day surge, then fell back to 55 at the current level.  This is not a good sign.  The negative action on the Hi-Lo is telling.  The Cycles Model says something negative is brewing as the VIX comes out of a Trading (minor) Cycle low.  SPX may be entering a panic Cycle lasting until early next week.  Market watchers suggest stocks could go either way, with the worst of all possible outcomes beneath 4300.00.

ZeroHedge remarks, “Another day, another abrupt reversal in stocks which bounced overnight only to slide the moment markets opened for trading, suggesting some latent weakness in technicals. Just how big is this weakness is what bulls want to know.

As we discussed earlier this week, with payrolls in the rearview mirror and the next major catalyst not due until the FOMC meeting next month, technicals have taken over and as SpotGamma writes this morning, “a move back to 4400 is just as easy as a move to 4300″ but the the key factor for today’s trading is waiting for implied volatility (VIX) to tilt and signal market direction (vol down, market up/vol up, market down).”

Until that happens, the market remains trapped between and trying to find “fair value” between the large gamma strikes of 4300 & 4400. According to Spotamma, due to the negative gamma position (zero gamma is currently at 4,427) markets are not sticking to one of those strikes (i.e., no +gamma pin close to spot), “and so markets just bounce back and forth between large options strikes.” Furthermore, “when the market is dominated by puts things are much more volatile due to more frequent hedging adjustments (puts sensitivity to vol).”


8:00 am

Good Morning!

After yesterday’s 61.4% retracement of last week’s sell-off, the decline resumed.  Overnight futures made a low of 4327.60 before an early morning bounce retraced 40%  of yesterday’s decline.  We are now witnessing another bearish cross as the mid-Cycle support/resistance 4438.55 is about to decline beneath the 50-day Moving Average at 4438.04 today.  The Cycles Model also implies that a panic cyle may have begun with three trending strength indicators flashing red between now and Friday.

ZeroHedge reports, “US equity-index futures erased earlier declines, rebounding from a loss of as much as 0.8% helped by the start of the European session and easing mounting concerns about stagflation from rising energy prices, signs of widening regulatory scrutiny by China, and the upcoming third-quarter earnings which is expected to post a sharply slower pace of growth and beats than recent record quarters. At 730am ET, Dow e-minis were up 5 points, or 0.1%, S&P 500 e-minis were up 7.25 points, or 0.16%, and Nasdaq 100 e-minis were up 46.75points, or 0.31%. Oiil rose 0.3% to $83.86/bbl while the dollar dipped and 10Y yield drifted back under 1.60%.

Gains in tech stocks kept Nasdaq futures afloat on Tuesday, while energy names rose as Brent resumed gains, trading around $84/bbl on expectations that a power crisis from Asia to Europe will lift demand and tighten global balances. Higher oil prices and supply chain disruptions have set off alarm bells for businesses and consumers ahead of the third-quarter reporting season that kicks off on Wednesday with JPMorgan results.  “We believe that market participants could stay concerned over high energy prices translating into further acceleration in inflation, and thereby faster tightening by major central banks,” said Charalambos Pissouros, head of research at JFD Group.”


VIX futures rallied to 20.81 before settling back under 20.00.  The short vol trade is losing steam.  Thus an important tool in propping up the SPX is losing ground.  The Cycles Model suggests a fairly steady march to a Master Cycle high during the week of October 25.

ForexLive observes, “The VIX has been hovering around the 20-21 region so far today.

The VIX has been a great shibboleth for testing whether stocks will rise or fall and a quick barometer on the risk tone. If we move, and stay above 21, then expect equities to keep falling. If we move below, and stay below 20, expect stocks to rise.”
TNX appears to be consolidating after Friday’s (day 254) high.   Today is day 258.  There is a good probability of yet another probe higher before the end of this Master Cycle.  However,  the retracement may be brief, as trending strength grows in the next two weeks.  

ZeroHedge observes, “Some that once was in Risk Parity is lost…That balanced equity bond portfolio ain’t what it used to be. The bond sell-off in Q3 due to sticky inflation and more hawkish comments from the Fed and BOE has started to narrow the gap between equities and bonds – the S&P 500 had it’s first 5% draw-down while the usual savior, treasuries, failed to protect as US 10 year yield spiked. While the S&P 500 draw-down still is relatively small, the combined equity and bond sell-off has weighed more on 60/40 portfolios and our beloved Risk Parity. Let’s have a look.”


USD futures made a morning high of 94.52 (thus far), matching the September 30 high.  The rally appears to be corrective, allowing a brief pullback to complete what may be a shallow retracement.  The Weekly chart allows for a considerably higher probe in Primary Wave [2] once the corrective measures are finished.


Crude Oil futures made an overnight low of 79.47 as a new Master Cycle takes hold.  The bounce out of the low did not make it to a breakeven with the close.  Brent oil is still taking a hit, but US futures are easing.  All attention is on Europe where a potential polar vortex may hit the U.K. later this month.

Reuters reports, “Oil rose towards $84 a barrel on Tuesday, within sight of a three-year high, supported by a rebound in global demand that is contributing to energy shortages in big economies such as China.

With demand growing as economies recover from pandemic lows, the Organization of the Petroleum Exporting Countries and allied producers, collectively known as OPEC+, are sticking to plans to restore output gradually rather than boost supply quickly.

“OPEC+ will push ahead with its cautious approach to supply in the year-end period. Set against this backdrop, oil bears will remain in hibernation mode,” said Stephen Brennock of oil broker PVM.”

OilPrice.com observes, “What is happening in Europe—including the UK, by the way, one of the most active energy transitioners—right now is a cautionary tale of magnificent proportions.

  •  Europe was in no particular rush to top up its gas reserves at the time, and neither was Asia.
  • The quick deterioration in the energy situation in Europe should make anyone planning major energy system overhauls think twice before following the exact same scenario that Europe did.



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