January 31, 2022

3:25 pm

SPX rose to Short-term resistance at 4490.00 and may be reversing from less than a 50% retracement.  Confirmation of the reversal coms at 4457.00 and below.  Now we know the pattern that may follow through to the end of March.

ZeroHedge comments, “One day after even traditionally bullish Goldman flow trader Scott Rubner said that “sell the rally trading mode is still in place” (although a capitulation, especially if coupled with CNBC’s “market in turmoil” would spark a fierce rally), we get a reminder that nobody knows anything when the Fed throws market for a loop and pulls the Fed Put.

Case in point, two market notes this morning, one from JPMorgan’s trading desk, another from Morgan Stanley’s chief equity strategist, Michael Wilson, which look at the exactly same data and reach two diametrically opposing conclusions.


11:25 am

Today it has become abundantly clear that this decline has taken a different shape than the 5-Wave decline that I expected.  Last Monday I had issued a warning of a mid-course correction.  That extension and the fact that it had landed on day 257 of the Master Cycle should have warned me that this decline was shaping up differently.  Not making a new low on Friday and a higher correction today was the final straw.  This decline is taking the shape of what is known as a “Leading Diagonal” which, instead of having 5-Wave impulses, consists of zig-zag declines.  The good news is that the 1-2 week correction usually runs out of steam after attaining the mid-Cycle resistance at 4457.34.  We may already be there.

ZeroHedge notes, “Over the weekend, we reported on the record amount of put-buying that was occurring in US equity markets, with Goldman traders pointing out that we have been averaging $1 Trillion worth of puts per day.

There were several days last week where put notional set records, and Goldman indicates that hedgers tended to be institutional… and mainly focused on the indices:

“Monday for example $2.2 Trillion notional traded in US options market, with 64% puts ($1.4 Trillion) further adding LP hedges and taking the street further short gamma. We have maxed out our index put notional chart.



6:30 am

Good Morning!

I am starting the blog early due to an appointment at 8:00-9:00 am.

SPX futures are down after a weekend of upside not exceeding last week’s high at 4453.23.  The 200-day Moving Average is at 4435.04, with Friday’s close beneath it.  This is an ideal setup for a panic decline lasting 2-4 days.  Having completed 17.2 days of decline last Friday, the most likely outcome is an extension to 21.5 days,  the same length of time as the March 2020 decline.

In today’s options expiration, there is a large stack of puts and calls at 4400.00.  Max pain is most likely at 4395.00 with short gamma starting at 4375.00.  The dealers positioned themselves well at Friday’s close in the SPX, but may not be accounting for the NDX (QQQ).

ZeroHedge reports, “After a rollercoaster week that ended just barely higher following a late meltup on Friday, overnight volatile US stock futures swung to start the week, with Nasdaq 100 futures leading gains after rallying on Friday, before turning red and threatening to fizzle a global equity rally amid persistent worries over the Federal Reserve’s plan to hike interest rates this year. Emini S&P futures were down 0.5% or 21 points to 4401, after rising as high as 4437 and dropping as low as 4395 in another extremely illiquid session where China being offline for the week due to Lunar New Year did not help; Nasdaq futures were down 0.1% while Dow futures were lower 0.7%. Technology stocks led gains on the Stoxx Europe 600. Meanwhile, the dollar fell and oil rallied.”


NDX futures are positive as I write but fading, having reached a weekend high at 14559.50.  That is short of last week’s high of 14646.50 and remains bearish.  On Friday NDX concluded 21.5 days of decline.  Should the decline continue, it may extend to 25.8 days.  The target for this decline is 12208.37, the Wave (2) low of a year ago.

In today’s options expiration, NDX is squarely in short gamma territory and also has to deal with very high margin.  Calls usually begin at losses of 10% or greater.  QQQ (price: 351.80) closed right on the MAX Pain zone at 351.00.  Options turn negative at 350.00 and gamma goes short at 345.00.  Should the decline resume, the margin desks may be very busy today.

There is talk of a short squeeze, but it appears the ammo for a further squeeze may have dried up at this point.  ZeroHedge observes, “In the end it was very close, but the bullish view of Goldman’s flow trader Scott Rubner proved accurate, even if it was a nail-biter with the S&P closing just barely green on the week after tumbling on several occasions last week only to stage one remarkable recovery after another. So what does Goldman’s veteran trader think will happen this week, when with China closed for its New Year holiday,  liquidity will be even below last week’s abysmal levels? As Rubner writes in his latest weekly Tactical Flow of Funds checklist, “Equity Supply vs. Demand Imbalance continues …but improves in February.”


VIX futures had an inside weekend, bottoming at 27.92.  A rally above the neckline locks in the Head & Shoulders target.  The Cycles Model calls for a particularly strong trending pattern over the next two days.

Today’s options expiration favors the calls over 25.00, while gamma turns positive at 30.00 and above.  Should VIX rise above 30.00, the rally may be self-reinforcing.


TNX futures are rising to challenge the Cycle Top resistance at 18.03.  Should it break above it, the rally may strengthen as the week progresses.  The next major resistance is at 19.71.  Thereafter, the Cup with Handle formation may dictate the final target.  The current Master Cycle  is due to end in strength at the end of February.



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