BKX challenged its mid-Cycle support at 129.53 and the 200-day Moving Average at 128.84 today. Although it may close above those supports, the die is cast for a major breakdown in liquidity.
SPX is desperate to close at 4666.00 (SPY: 466.00) which is the Max Pain Zone, the 50% Fibonacci retracement and mid-Cycle resistance at 4660.00. Today’s high at 4666.70 occurred in the ninth (8.6) hour from yesterday’s high, completing the first hourly Cycle of the decline. The question is, will SPX be able to reach that level again at the close? Charlie McElligot claims that the “generals” are now being taken out and shot, which makes the final outcome doubtful. Dealers and hedge funds may have to sell/go short to cover the negative options-generated gamma should SPX close beneath 4660.00.
I have a date with my 11-month old granddaughter at 9:00 am, so I will be out of the office until after the open.
SPX futures made an overnight low at 4643.60, then bounced toward Intermediate-term support/resistance at 4655.58. There are nearly 36,000 of both puts and calls at 4650.00. The trouble is, there are over 130,000 put contracts between 4650 and 4700, while there are 162,000 call contracts in the same space. All of these expire at the open which may cause extreme volatility this morning.
ZeroHedge reports, “US futures tumbled after hitting an all time high less than 24 hour ago, as the favorable if paradoxical bounce in risk from the hawkish FOMC pivot faded from memory and as investors questioned whether global stocks are due for a rough ride on the backdrop of growing risks from inflation and the omicron virus variant. S&P 500 futures slumped about 0.5% Friday morning, while the U.S. 10-year Treasury yield fell for a second straight day to 1.394%, the lowest since Dec. 6.
Futures were dragged down by tech stocks as volatility surged amid mounting concerns about monetary tightening and the omicron coronavirus variant.
“Rates hikes do not end bull markets, but reversal of central banks’ liquidity means less speculative froth and more volatility,” said Barclays strategist Emmanuel Cau. “Policy angst may be here to stay, but following months of unclear guidances and conflicting signals, the direction of travel is clear now.”
Investors are also bracing for the quarterly rebalancing of the S&P 500 Index after the market close and the triple witching expiration of equity derivatives that could magnify market moves.”
VIX futures consolidated near the top of yesterday’s trading range. There are 4.3 days between yesterday’s pivot low and the monthly VIX options expiration next Wednesday. It may get interesting…
After trading in triple digits yesterday, the NYSE Hi-Lo Index closed at 13.00, neutral territory. There are more ETFs in the NYSE than there are stocks, reminiscing of the period just before the 1929 crash. Back then they had mutual funds entirely made up of other mutual funds. The job of separating the wheat from the chaff is done after the close.
NDX futures broke through the 50-day Moving Average at 15769.77 this morning, confirming its sell signal. Trendline support for the 21-month rally is at 15250.00. Los of the 50-day M.A. support is critical and may increase volatility.
The NDX Hi-Lo closed yesterday at -136.00. This shows the NDX as the leading index in the decline.
TNX has declined to a retracement low of 13.88 thus far this morning as it completes its correction. It is an exact 78.6% Fibonacci retracement and is due for a reversal today. Next week begins a period of trendline strength that may last nearly to the end of February.
USD futures consolidated at the lower end of yesterday’s trading range. Trending strength may return in spades next week as USD breaks above resistance at 97.00 and marches higher. The next Master Cycle Pivot appears in mid-January.