SPX may have made its secondary high this morning, exactly 34.4 market days from its all-time high. Noting confirmed yet. Just though you’d like to know.
The Industrials made a new all-time high yesterday, above the August 16 high of 35631.91, but was not accompanied by the other indexes. US 30 futures made a morning low of 35483.20, having made no follow-through to yesterday’s high. In addition, none of the other indices followed the DJIA to a new all-time high. Dow Theory states that a new high must be confirmed by another index making a similar breakout to a new high. The reversal without confirmation of a new high by other indices is problematic. Note the declining volume after the September 20 low, giving us another non-confirmation.
Dow Theory takes its primary confirmation from the Dow Jones Transportation Average, which is lagging substantially behind the Dow 30 Industrials. Logistical problems, high fuel costs and lack of manpower all suggest that the Transports may continue to lag the Industrials. While Dow Theory is not a foolproof means of judging the markets, it still may be used as a guide to the market’s health.
SPX futures slid to a morning low of 4518.80. Not enough to call it a reversal, but intriguing that it stopped short of a new high yesterday and has lost momentum. 4500.00 is still the critical juncture for tomorrow’s options, with the Max Pain zone at 4485.00. While the primary dealers and hedge funds are interested in the least payout, they are still primarily long, with hedge funds being leveraged long.
ZeroHedge reports, “US index futures dropped after IBM and Tesla fell after their quarterly results, with investors turned cautious awaiting more reports to see the see the adverse impact of supply chain disruption and labor shortages on companies even as jitters remained over elevated inflation and the outlook for China’s property sector. The dollar reversed an overnight drop, while Treasuries fell pushing the 10Y yield to a 5-month high of 1.68%. At 745 a.m. ET, Dow e-minis were down 98 points, or 0.3%, S&P 500 e-minis were down 14 points, or 0.31%, and Nasdaq 100 e-minis were down 49.25 points, or 0.32%.”
VIX futures climbed to 16.11 in the overnight session. The 50-day Moving Average is at 18.84 and may be used as a buy signal.
RealInvestmentAdvice asks, “Is A Volatility Storm Coming?
“Volatility often refers to the amount of uncertainty or risk related to the size of changes in a security’s value. A higher volatility means that a security’s value can potentially be spread out over a larger range of values. This means that the price of the security can change dramatically over a short time period in either direction.” – Investopedia
Federal Reserve Bond Tapering & Interest Rate Hikes Reduce Liquidity
Federal Reserve liquidity injections have bailed out the economy and equity markets for the last 18 months. And as a result, the bailout created a relatively low volatility environment for equity and bond markets. Will the announced withdrawal of Fed injections of $120B per month set up the monetary system for higher volatility? We see major economic forces combining in the intermediate future to create a possible ‘volatility storm’ driving valuations down. These economic forces include:
- Fed tapering
- Interest rate hikes
- Labor wage increases.
One of these macro factors is a challenge for monetary policymakers to mitigate damage to the financial system. But, a combination of these factors already building may overwhelm the monetary system. Further, markets are at historic high valuations today. But, market weaknesses and structure, along with valuations may create optimal conditions for a volatility storm.”
TNX has reached a new 5-month high at 16.75 (16.82 in futures) this morning. Normally we would see a pullback in the next day or two before new highs are made, but the strength of the rally is evident and even more strength appears to be due starting Tuesday of next week.
ZeroHedge reports, “After last week’s solid auctions, traders were optimistically eyeing today’s 20Y auction – in the form of a 19-Yyear 10-Month reopening – as some speculated that just because this may be the last fully-sized, $24BN auction before the Treasury starts shrinking the notional next month, demand would be stellar. It wasn’t.
Stopping at 2.100%, more than 30bps above the September 1.795% high yield, the auction not only had the highest yield since June, but tailed dramatically to the 2.075% When Issued, the biggest tail in the 20Y auction history (which, of course, is not that long since the first auction was just last May).
The ugliness spread to the bid to cover, which slumped to 2.25 from 2.36, well below the six auction average of 2.36 and also the lowest since May.”
USD futures tested Intermediate-term support at 93.41 this morning, but appears to be on the rise again. The Cycles Model calls for a Master Cycle high in the week of November 8.
The GSCI Ag Index climbed above its 50-day Moving Average at 414.25 and is on a buy signal. The Cycles Model implies a continued uptrend until mid-December. Serious flooding in China and India have exaserbated food shortages in Asia and
ZeroHedge remarks, “US restaurant chain Caribou Coffee Co. is panic hoarding coffee beans as a global supply deficit grips the world and fuels inflation.
“We continue to increase safety stock on key items,” CEO John Butcher told Bloomberg. Besides coffee beans, he said the company is loading up on cups, lids, packaging, chocolate, and anything that comes to mind as supply chains remain snarled.”