SPX has taken 10 hours into the afternoon high from yesterday’s high. It is said that both time and price requirements must be met to complete a Cycle. the 61.8% retracement is at 4596.37. Thus far, the bounce has gone to 4592.13. The retracement pattern appears complete.
The Hi-Lo (-110.00) remains beneath its Cycle Bottom resistance at 101.70. The VIX remains within a point of its neckline at 28.79.
I spoke too hastily this morning. SPX is now approaching the 61.8% retracement at 4596.37 and has spent 8.6 hours making the hourly Cycle from 4562.94 to 4588.81. Whereas Minor Wave 1 – 2 took 43 hours (8.6 X 5), Minute Wave [i] – [ii] only took 8.6 hours. It is likely that Wave [iii] – [iv] may elongate. I suspect that Wave [iii] alone may take 8.6 hours, putting the low at mid-afternoon tomorrow. Most onlookers view this pattern as chaotic. I see a distinct rhythm.
The NYSE Hi-Lo Index rose to -108.00, but still very bearish. VIX is consolidating at the neckline. NDX has completed a 42% retracement of a nearly 685 point decline.
ZeroHedge relates, “While US equity indexes have been relatively stable despite the recent spike in volatility, what is going below the surface is sheer turmoil.
Take the Nasdaq: while the index remains just shy of all time highs, this is entirely thanks to the five or so gigacaps, the GAMMA (fka FAAMG) stocks, which has found solid support in recent days. Alas, the same can not be said for the rest of the tech-heavy Nasdaq where as the chart below shows, we have just seek the biggest spike in new 52-week lows since the March 2020 crash.
This, when coupled with the recent bloodbath observed in the median stock (as measured by the Value Line Geometric), is why yesterday we rhetorically noted that “they better not start selling the generals” or else everything will come crashing down.
SPX made a 43% retracement of yesterday’s decline, far less than the “worst case” scenario (61.8%) I painted near yesterday’s close. It is clearly in negative gamma territory and bearishness may heighten at the crossing of the 50-day Moving Average at 4532.45. Today and tomorrow may see a panic develop as equities complete their next 4.3-day Cycle (3rd Wave) late on Friday.
The 100-day Moving Average lies at 4489.03, of which traders may take note. The 200-day Moving Average is near 4300.00. The massive Orthodox Broadening Top trendline is near 4000.00. Finally, the daily Cycle Bottom is at 3935.00. All of these potential supports may be taken out in Wave (1), due to end late next week.
VIX has climbed to 30.39, above the neckline a 28.79 and the Hi-Lo has declined from an open of -43 to a low of -151.00.
NDX has made a new low at 15770.92, beneath yesterday’s close at 15877.72.
ZeroHedge advises, “This morning’s melt-up from the cash open was extremely technical, lifting the US majors above various key technical levels.
However, that surge of buying did not last long and now that Omicron has struck in a second place in the US, the S&P (back below its 50DMA), Nasdaq (back below its 50DMA), and Dow (back at 200DMA) are all fading fast…
So what really changed?
Nomura’s Charlie McElligott explains:
It’s pretty obvious: the Fed has green-lighted an accelerated taper in order to pull-forward a dense-but-short “lift-off,” as Jerome Powell is clearly now much more concerned about inflation (which is no longer transitory) than about economic growth
And Nomura’s “Economic Quadrant” playbook highlights the fact that the current Equities risk-premium / thematic return profile very closely mirrors what they said it would do upon this the phase shift from “Expansion” into “Slowdown” being confirmed in the first week of October (and holding since)…”
SPX futures rose to an overnight high of 4554.00, for the first time not overlapping its previous low. This may be an indicator that Wave 3 of (1) is underway, as Wave 1 may overlap, but generally impulsive Waves do not. Yesterday may have been the half-way point of this decline and it may become much more impulsive as it progresses. It currently sits just above the 50-day Moving Average at 4631.51. It remains deeply in the negative gamma zone. Should it open beneath the 50-day, all hell may break loose as dominoes start falling hard.
ZeroHedge reports, “U.S. index futures regained some ground alongside Asian markets while European stocks slumped to session lows in a delayed response to yesterday’s late Omicron-driven US selloff, as markets remained volatile following the biggest two-day plunge in more than a year, spurred by concern about the omicron coronavirus variant and Federal Reserve tightening. Investors await data for unemployment claims, as well as earnings from companies including Dollar General and Kroger. Tech is the weakest sector, dropping in sympathy after Apple warned its suppliers of slowing iPhone demand. Nasdaq futures pared earlier gains of up to 0.8% to trade down 0.1% while S&P futures are only 0.2% higher after rising as much as 0.9%.
While the knee-jerk reaction of stock investors may “continue to be to take profits before the end of the year,” there is “plenty of liquidity available to drive stock prices higher as dip-buyers enter the market,” Ed Yardeni wrote in a note. The U.S. economy grew at a modest to moderate pace through mid-November, while price hikes were widespread amid supply-chain disruptions and labor shortages, the Federal Reserve said in its Beige Book survey Tuesday.”
VIX futures dipped beneath the Head & Shoulders neckline at 28.99 but has recovered to rise back above it as I write. The Cycles Model suggests trending strength may be growing over the weekend, indicative of a third Wave. As mentioned before, the H&S target is a minimum. There is also a Cup with Handle formation with a potential target near 50.00 for Wave 3 of (C).
The NYSE Hi-Lo Index closed at -202.00 yesterday,, the second lowest close of the week. Dip buyers appeared in the morning, as it opened at 5.00., but it appears that hedge funds and institutions saw this as an opportunity to liquidate.
ZeroHedge observes, “Over the weekend, and then again on Monday we reported that It had been a catastrophic week for hedge funds: heading into
Black Red Friday, losses were staggering with Goldman Prime reporting that many hedge funds were caught off-guard by news of the Omicron variant as they had bought Reopen stocks and sold Stay-at Home names in the past week. As a result, in the week ending Nov 25, GS Equity Fundamental L/S Performance Estimate fell -1.57% between 11/19 and 11/25, driven by alpha of -1.12% which was “the worst alpha drawdown in nearly six months” and beta of -0.45% (from market exposure and market sensitivity combined).
It only got worse on Friday and then again Monday, when Moderna – the 3rd most popular short in the hedge fund universe with some $4.5BN of the stock held short by the 2 and 20 crowd…”
TNX is challenging the 100-day Moving Average at 14.20 this morning, but has not yet broken beneath the previous low at 14.12. Should it break through, the decline may continue for another week, according to the Cycles Model. The next support level is the Cycle Bottom at 11.97.
USD futures consolidated, making an overnight low of 95.83, just above the Cycle Top Support at 95.71. The Cycles Model suggests gathering strength over the weekend with possible new highs early next week.
BKX broke through its Ending Diagonal trendline on Tuesday and now its atop it mid-Cycle support at 128.75. That, and the 200-day Moving Average at 127.86 are due to be skewered. The Cycles Model suggests the decline may pick up intensity next week with the Cycle Bottom at 115.67 being the next potential support.
WTIC futures made a new low at 63.85 this morning, breaking through the Broadening Wedge trendline at 64.40. The current shorting opportunity was made last week when the bounce was rejected at the 50-day Moving Average. The Cycles Model suggests a Master Cycle low early next week, with a probable target at the Cycle Bottom support at 56.84. From there we may expect another bounce lasting up to 2 weeks to retest the trendline.
ZeroHedge observes, “An earlier trial balloon of a smaller 200k b/d production hike was been popped as Russia moves with a formal proposal for OPEC+ to lift oil output by 400,000 b/d for January, sending oil markets crashing.
Energy Intel’s Deputy Bureau Chief & Chief Opec Correspondent Amena Bakr confirms that “All ministers appear to be in agreement with an increment of 400k for Jan (i.e. a rollover of the current policy)” according to sources.
This is what was planned by OPEC+ but not what the market was ‘hoping’ for.
WTI plunged further on the headlines, tumbling to a $62 handle.”
After a week-long consolidation, gold futures made a new low this morning at 1768.40. It is approaching its own Broadening Wedge trendline at 1760.00. Should it break through, the next support may be the Head & Shoulder neckline at 1670.00. The Cycles Model calls for a Master Cycle low in early January. By then we may see gold near or below 1200.00.