Tomorrow I am leaving to consult on another business and will be away for the remainder of the week. I plan to return next Monday to resume the blog.
SPX futures drifted in a tight range between 4479.90 and 4512.30 over the weekend after retracing 61.8% pf Thursday’s decline on Friday. The Cycles Model suggests we may have entered a panic Cycle that may last through early March. Should that occur, the 1987 trendline at 4000.00 may be broken. Most analysts view fair market value at or near 4000.00 at 20 times earnings. However, that is a relative valuation, since anything over 4000.00 may be considered to be a Super Cycle throw-over . The 51.5-year Cycle shows valuations in 1932 and 1974 at 3.5-3.7 times earnings.
Today’s options expiration show expiring puts outweigh calls below 4520.00 with probable short gamma beginning beneath 4500.00. 4450.00 may be the point of no return.
ZeroHedge reports, “U.S. index futures swung around in a volatile, illiquid overnight session, and at last check were flat despite traders’ concerns about growing fireworks in the European bond market where Italian and Greek bond plunged amid fears of ECB rate hikes as soon as October, while waiting for Thursday’s key CPI data and further corporate earnings. S&P 500 futures were up 2 points or 0.05%, Nasdaq futures were up 26 points or 0.18% and Dow futures were up fractionally as markets now expect more than five quarter-point Federal Reserve interest-rate hikes in 2022 to keep inflation on check following a strong U.S. jobs report. Treasury yields and the dollar were stable, while the euro snapped a six-day strengthening run. WTI crude fell after last week’s rally. Chinese shares climbed on their return from a weeklong holiday. Bitcoin extended its recovery surge.”
VIX futures are higher, but have not yet broken out of Friday’s trading range. As of Friday, they are on a buy signal and may remain so through mid-March. In Wednesday’s options expiration, calls prevail above 22.00 and gamma turns positive at 25.00.
The NYSE Hi-Lo Index closed Friday on a sell signal at -198.00 after readings above 0.00 on Tuesday and Wednesday.
NDX futures are positive, having reached a weekend high at 14772.20. However, the 200-day Moving Average is at 15030.20. There is nothing positive about this chart, especially going into a panic Cycle through mid-March.
ZeroHedge remarks, “If you’re a fan of American football, this year’s playoffs were some of the best in the sport’s history. The last six contests were all decided by the narrowest of margins, often at the last second. It was a good reminder that you need to stay until the end.
I mention this because between lunchtime on Wednesday January 24 and this past Wednesday, there was a distinct feeling of ‘we made it’. Yes, inflation has surprised to the upside. Yes, key data were weak. Yes, central banks are pivoting more hawkishly. Yes, yields are rising. Yet, thanks to good earnings and fund inflows, global equities are only down 3%. Well done.
It’s tempting to think that this is the end of the story: the test arrived early this year,and the markets passed. But the reality is likely to be more complicated. This is just the start of the game. A record amount of stimulus is about to be withdrawn from the global economy. It begins.
Part of the withdrawal will come through monetary policy. That shift has two parts: reversing the lowest policy rates in history, and reversing the largest central bank bond purchases in history. You know, simple stuff. From May 2022 to May 2023, Morgan Stanley economists expect G4 central bank balance sheets to shrink by US$2 trillion, four times the largest 12-month decline ever, from 2018-19.”
TNX is taking a pause this morning after a blow-out performance on Friday. The Cycles Model call for rising rates through the month of February. The next resistance lies at 19.71, the November 2019 high.
ZeroHedge observes, “Average hourly earnings ran at a +9.2% annualized pace in Friday’s employment report,” said the Oracle. “On a three-month annualized pace, wages grew +7.0%,” he said, alone in the desert.
“For those hoping that the US will avoid a wage-price spiral, this report was no quaalude.” But the past was not what I’d called to explore. Of all my sources, only the Oracle foresaw 7% inflation back in early 2021. And my hope was to glimpse what the future holds.
“This year’s path is hazier with the Fed now in play. But it is difficult to see inflation below 7% for this year, and it is within the range of reasonable outcomes to see 10%.”