SPX futures spent most of the night in pullback mode, down to 4488.40 before rising back to breakeven. It is hovering just beneath the 50% retracement value at 4519.16 and may test it one more time this morning. The Cycles Model suggests a possible hourly pivot before 10:00 am that may shift stocks back into decline. Month-end rebalancing may now be over. Despite the rally, the NYSE Hi-Lo Index closed at -92.00.
Wednesday’s options expiration show 4500.00 as the dividing line between the bulls and the bears. The calls have it above 4500, but gamma doesn’t turn positive until 4550.00. Meanwhile, gamma turns negative at 4480.00.
ZeroHedge reports, “World stocks began the new month on firmer ground, after a volatile January, as reassuring comments from Federal Reserve officials helped to calm rate-hike jitters even though US futures failed to extend recent gains. After closing out January with a furious two-day, dip-buying meltup thanks to a flood of inbound month-end rebalancing, US index futures briefly traded through Monday’s highs, backed by decent rally in European equities where financials outperformed, boosted by solid UBS earnings, before dipping lower as the volatility seen in past days lingered. At 7:00am ET, emini S&P futures traded 0.23%, or 10.5 points lower, Nasdaq futures were also red, some 31 points or 0.15% lower, and Dow futures dropped 0.2% as investors weighed cautious rate-hike commentary from Fed officials and awaited earnings from firms including Alphabet and General Motors. Treasuries climbed and the dollar weakened. Oil fell, but held close to seven-year highs.”
VIX futures declined to 24.40 before beginning a probable bounce this morning. The Cycles Model calls for a very large dose of strength coming in today. The Elliott Wave structure also calls for an upcoming Wave (iii) of 3 of (3), a very potent Wave.
NDX futures rose to 14981.00, still short of the 200-day Moving Average at 15015.00. It remains in correction territory with more that a 10% loss to date. It may also attempt to move higher, to overcome the overhead resistance and escape correction territory. However, it has met a common Wave relationship in the correction Wave (c) = Wave (a) at 14802.00.
QQQ (price: 363.05) managed to close in the Max Pain zone and may attempt to maintain that level. However, Wednesday’s Mas Pain level is 360.00 and options turn negative at 358.00.
RealInvestmentAdvice cautions, “Market bottom? Is it in? That was the main question I got last week, and I even discussed it with Charles Payne of Fox Business. It’s the one answer everybody is searching for. Is it time to “load up the truck” for the next leg of the bull market or go to cash?
It certainly is a problem now, given that January had a rough start for the S&P 500. But, of course, such brings up the age-old Wall Street axiom “so goes January, so goes the year.”
TNX futures may have reached its correction low overnight at 17.39 and appears to have begun a bounce. Trending strength comes back on Thursday and may encourage a breakout later in the week.
ZeroHedge warns, “A popular hedge fund trade – known as the Treasury Basis Trade which, reminiscent of what LTCM did back in the day seeks to profit from minuscule differences between prices in the futures and cash markets for Treasuries by using massive amounts of borrowed money – is set to make a comeback as the Federal Reserve plots to shrink its footprint in the U.S. Treasury market, even though it nearly blew up the financial world in late 2019.
The strategy, which as we explained in detail most recently here, involves taking leveraged positions in Treasury notes and bonds in order to exploit price differences with the corresponding futures contracts, backfired both in Sept 2019 (leading to the repo market crisis which ushered in the Fed’s “NOT QE” phase of reserve replenishment) as well as the March 2020 liquidity crisis, when the normal relationships between cash and futures broke down completely.”