SPX finally reveals its structure as it completes a Wave (c) of [ii]. I have been warning of a coming panic and now it is time. The Decline to Friday’s low was 8.6 days. The Cycles Model suggests another 4.3 days from Friday’s low may be needed to complete Wave (1). The Hi-Lo swung back and forth this morning, but remains stuck at -40.00.
ZeroHedge observes, “While the hard de-risking of Friday has seen a calming overnight (thanks to a ‘meh’ China RRR cut), The Fed’s recent coordinated messaging-shift to “inflation fighter” remains top of mind for most investors.
A smorgasbord of Fedspeak late last week made it clear that The Fed has:
- a clear desire for an accelerated taper (double-up to complete by March) in order to…
- …liftoff the policy rate sooner (commence June?)
For now it’s working as the market is fully pricing-in a rate-hike by June…
Nomura’s Charlie McElligott warns that the sudden flip-flop jawboning has risk-assets “stuck” in a deleveraging and exposure reduction cycle, particularly for a market parked in crowded “easy-policy” trades (like leveraged “bond” proxies of “Secular Growth” profitless Tech)…”
SPX futures rose to a weekend high of 4573.80. a 70% retracement of Friday’s decline, before pulling back. It is currently hovering near the 50-day Moving Average at 4540.03. At Friday’s close it bounced from the 100-day Moving Average at 4491.13. Crossing the Ending Diagonal trendline at 4500.00 puts the SPX on a sell signal with a potentially complete reversal of the rally from March 2020. A violation of the 100-day simply confirms the sell signal.
While lighter than the past, today’s SPX options expiration shows positive gamma a 4560.00 and higher, while negative gamma starts at 4550.00. Max Pain appears to be near 4555.00. Wednesday’s options expiration is very light, but Max Pain rises to 4580.00.
ZeroHedge reports, “&P futures and European stocks rebounded from Friday’s selloff while Asian shares fell, as investors took comfort in reports from South Africa which said initial data doesn’t show a surge of hospitalizations as a result of the omicron variant, a view repeated by Anthony Fauci on Sunday. Meanwhile, fears about a tighter Fed were put on the backburner.
Also overnight, China’s central bank announced it will cut the RRR by 50bps releasing 1.2tn CNY in liquidity, a move that had been widely expected. The cut comes as insolvent Chinese property developer Evergrande was said to be planning to include all its offshore public bonds and private debt obligations in a restructuring plan. US equity futures rose 0.3%, fading earlier gains, and were last trading at 4,550. Nasdaq futures pared losses early in the U.S. morning, trading down 0.4%. Oil rose after Saudi Arabia boosted the prices of its crude, signaling confidence in the demand outlook, which helped lift European energy shares. The 10-year Treasury yield advanced to 1.40%, while the dollar was little changed and the yen weakened.”
VIX futures challenged the neckline by declining to 28.54, but has bounced back since then. VIX has tripped its Head & Shoulders trendline, with follow-through on its way. A month ago volatility was considered boring. Despite the rally in VIX, analysts are gearing up for a Christmas rally instead of a further sell-off.
MarketEar comments, “Recently realized volatility has exploded. The 1 month realized SPX vol is now well above the 3 month. Moves have picked up. Add to it imploding market depth, as well as the overall dealer gamma picture and you understand why things have been slightly chaotic. Recall, all of these factors work both ways…”
The NYSE Hi-Lo Index closed a bit lower on Friday than the prior day. I have marked last Tuesday as a possible Master Cycle low on day 250. Today is only 6 days later, so we are still in the timeframe for a much deeper low this week. While equities appear to be “on the edge” of the Christmas rally, a move in the wrong direction may develop into a panic decline. The Hi-Lo remains on a sell signal.
USD futures consolidated within Friday’s trading range, albeit with gains from the close. The next Master Cycle turning point is in mid-January, so the uptrend is likely to continue.
TNX appears to have made a bounce from Friday’s low (day 247) this morning, but it may not indicate a true true reversal from a Master Cycle low. Today is day 250, so there may yet be another probe lower, possibly as low as the Cycle Bottom support at 11.94. The uncertainty may be short-lived, as the pattern may reveal itself over the next week or so. A further equities sell-off would likely boost inflows into bonds.