January 25, 2022

2:20 pm…mid-course correction

It now appears that yesterday’s decline may have completed Wave 3.  I should have known, since it took more time than the pattern suggested for a lesser Wave.  It now appears that Wave 4 may be in its final stages.  The fact is, Triangles usually only fit Wave four of an impulse, so this may be the final surge, which is likely to be over near 3:00 pm.  The decline that follows may register another record.  4000.00 is still the target.

ZeroHedge informs, “In perhaps the best post-mortem of yesterday’s insanity, Morgan Stanley Quantitative And Derivatives Trading Desk (QDS) writes that yesterday intraday volatility was absolutely extraordinary with record cash volume of $1.16tr.

The good news according to Morgan Stanley is that a tame close-to-close return has kept systematic supply at bay, and the rebound in growth stocks helped stem the P/L drawdowns for both HFs and retail traders alike. The bad news according to the QDS trading gurus is that the afternoon rally was likely driven by short covering, and it is hard to draw a read from this into the future – i.e., not much has changed, and the market is still grappling with the concern of a growth shock while the Fed is likely on autopilot.”

ZeroHedge further analyses, “We previously discussed how a mystery put-selling whale emerged just around noon on Monday…

… and helped reverse a historic rout of nearly 5% in the Nasdaq, which then attracted a frenzy of retail dip-buying momentum chasers, who reversed near-record selling in the first half of the day to near-record buying in the second half.

But while there is still some speculation as to who or what may have been behind yesterday’s historic reversal, what is beyond dispute is what a massive difference the reversal meant for the market’s future demeanor, in other words the difference between the market closing down -4% on Monday and just slightly green.”

1:15 pm

There is a Triangle formation visible that tells us one more move may be necessary to complete Wave 3.  The target may be near 4150.00, then another tear-your-face-out rally into FOMC day.  This rally may be larger than yesterday’s, so it may be time to take some short profits.  However, stay tuned for another short opportunity tomorrow.  The roller coaster continues.

Gamma for tomorrow’s options expiration turns negative at 4350.00.

ZeroHedge relates, “US equity markets weakened from the moment cash trading closed yesterday, weakening overnight and puking at the open, erasing a large chunk of the unprecedented rampage higher in stocks yesterday afternoon (driven by put-sellers) before dip-buyers jumped in.

Nomura’s Charlie McElligott said that this morning so far is what happens after the “burn out” of part of that Dealer “short hedge” cover, in conjunction with the lost “bid” from the client short-covering hyperactivity.

And now to make things even spicier, the rally off the selloff lows yesterday on the US Equities Index has PERVERSELY brought us back to levels where Dealers are back near  “max short Gamma” in SPX and IWM (QQQ however a touch away from “max vs spot”).”


7:15 am

I will be leaving at 9:00 to attend a funeral of a member of my extended family.  I may return for comments this afternoon.

No, we’re not there yet.  SPX futures have declined to 4337.80 as I write and are due to decline beneath 4200.00 today.  Wave 3 needs completion today and it must be deeper than yesterday’s low, so be prepared for a lot of volatility.  The decline may hit bottom in the final hour of the day, so take appropriate action based on your flavor of trading.  Short profits may be taken beneath 4200.00.

Tomorrow’s options expiration offers its Max Pain zone at 4365.00 but becomes bearish at 4350.00.  Gamma goes short beneath 4300.00.  There may be some wild swings in the market with these parameters.

ZeroHedge reports, “Following one of the greatest intraday market reversals in history, US index futures resumed their decline led by the Nasdaq, signaling more pain for richly valued technology shares as investors braced for the highly anticipated Fed meeting and a flurry of earnings as geopolitical tensions between Russia and Ukraine persisted.  Companies including GE, J&J, Verizon and Microsoft report earnings on Tuesday, as the Fed starts a two-day meeting. As of 7:30am ET, emini S&P futures were down 60 points or 1.36% to 4,343, Nasdaq futures were down 1.88% or 272 points and Dow futures were down 236 points or 0.68%. The VIX was at 33, after swinging between 29 and 39 on Monday; 10Y Treasury yields were unchanged at 1.77% and the dollar gained.”


VIX futures have risen to 33.36, not exceeding the Head & Shoulders neckline.  Should we see the kind of moves in the SPX as described above, the VIX may hit it H&S target by the end of the day.

ZeroHedge remarks, “Heading into today’s rollercoaster session, we were – perhaps naively – confident that Friday’s massive $3.1 trillion opex would also mark the bottom for stocks (an option expiration which we correctly said would be surrounded by massive volatility, as explained last Tuesday).

And – in a roundabout way – it did, because after plunging more than 4%, stocks staged a furious rally the likes of which have been seen only on a handful of occasions, before closing green. Putting today’s historic reversal in context, this was only the sixth time since 1988 that the Nasdaq reversed a 4%+ intraday drop to close higher. The other days were 10/28/97, 10/26/00, 7/15/02, 10/10/08, and 11/13/08. As for the S&P, this was the biggest intraday comeback since November 2008 when the US was in the middle of the biggest financial crisis in recent history.


Despite the rip roaring rally, the NYSE Hi-Lo Index closed at its lowest point of the year.  Granted, the market was very oversold, but there appears to be little or no (net) new money buying stocks yesterday.   Buy-the-dippers were nowhere to be seen.  Shorts were furiously scrambling to cover.


NDX futures declined to a low of 14166.00 thus far in the overnight session.  While SPX flirts with a correction below 4336.00 (10% loss), the NDX appears to be entertaining a bear market (20% loss) at 13400.00.  It is on a similar pattern in the Elliott Wave as the SPX and appears due to complete Wave 3 of (3) today.  NDX”s deeper losses may pull the SPX further down than anticipated due to liquidity issues.  A probe beneath yesterday’s low will activate the margin calls which have a tendency to broaden the decline.  In other words, there’s more pain coming.

ZeroHedge remarks, “Monday likely marked a much needed gasp of air for Cathie Wood and those holding her ARK Innovation Fund (ARKK).

The fund, which is down 22% year to date according to Bloomberg, was able to finish the trading day on Monday up 2.82% at $73.54 per share after falling as low as $64.98, which marked a new 52 week low for the asset manager’s flagship fund.

After being down as much as 9.1% during the intraday session, ARKK rebounded with the rest of the market starting at about noon eastern time and, by the close, had posted what felt like one of its few meaningfully positive green days in 2022 so far.”


TNX futures are on the rise after bouncing from the Lip of the Cup with Handle formation, rising to an overnight high of 17.97.  It has broken through the Cycle Top at 17.64, creating a new buy signal.  This week shows a lack of strength, so it may revisit the Lip before the week is over.  However, strength returns next week, possibly elevating to the level where Wav (C) equals Wave (A) at 19.05.  The Cycles Model suggests the current Master Cycle may continue to the end of February.  I may have to recalibrate the Waves in (C) to reflect that reality.

RealInvestmentAdvice observes, “Rate hikes will be far fewer than the markets currently expect.

Currently, with inflation pushing more than 7%, the highest level in decades, it is not surprising to see the market “pricing in” a more aggressive rate-hiking campaign by the Federal Reserve. As shown via the Daily Shot, the markets expect a certainty of 4-rate hikes in 2022.

As Michael Lebowitz previously discussed, such is essential because the market tends to UNDER-estimate the Fed. To wit:

“The graph below shows how much the Fed Funds futures market consistently over or underestimates what the Fed does. The green areas and dotted lines quantify how much the market underestimates how much the Fed ultimately reduces rates. The red shaded areas and dotted lines are akin to today’s potential rising rate situation. They show estimates for rate cuts fall short of the Fed’s actual actions.”


USD futures rose above the 50-day Moving Average at 95.92 this morning after a brief challenge yesterday.  It is on a buy signal with a potential target near 98.30.  the current Master Cycle is due to end in early February, suggesting a possible hit in the next two weeks.


WTI futures appear to be consolidating after an early Master Cycle top on January 20 at 87.10.  It is on a new sell signal with a 7-week window to the next Master Cycle low.



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