February 21, 2022 Washington’s Birthday

9:00 pm

SPX futures have a chance of showing their true colors tonight as they have already slipped beneath Cycle Bottom support at 4274.17.  A “regular” decline would stop and bounce at the Neckline at 4200.00, confirming the Head & Shoulders formation.  However, should it go beneath the trendline (alternatively known as the Lip) we may see a limit down day tomorrow to 4100.00 or lower in a Cup with Handle formation.  SPX is now deep within short gamma territory (beneath 4300.00) where the decline may become self-reinforcing.

ZeroHedge reports, “As somewhat expected, the general risk-off theme has hit market as they reopened after Putin’s actions.

US equity futures extended their losses with Nasdaq down over 2.5%…

Treasury futures indicate a 5bps or so drop in the 30Y Yield to around 2.18%…


8:15 am

Good Morning!

SPX futures rallied to a high of 4396.40 at 2:00 am, then sold off.  The financial markets are closed for President’s day, so all activity ceases at 9:30 am.  Tomorrow’s options expiration sows Max Pain at 4355.00 while puts gain dominance at 4345.  Short gamma is likely to start below 4300.00.  The daily trading band is narrowing, suggesting a potential panic decline beneath 4300.00.

ZeroHedge reports,”Any hope of de-escalation following the news late last night that Putin and Biden had agreed to a Macron-organized summit to pursue a diplomatic path out of the Ukraine crisis lasted only a few hours, and died a painful death around 3am Eastern time, after Kremlin spokesman Dmitry Peskov poured cold water on the summit progress when he said that  “It’s premature to talk about any specific plans for organizing any kind of summits” and that there are no “concrete plans” for a summit yet. Subsequent news that a mortar shell had destroyed a Russian border checkpoint near Rostov – something which Ukraine’s military denied doing – did not lift the already downbeat mood, but it was the news just after 7:40am ET that Russia had killed five “saboteurs” who tried to violate its border (and which Ukraine once again slammed as fake news) in an unconfirmed incident that would be the first direct clash with Ukrainian forces, that sent US equity futures tumbling 0.92% to session lows of 4,299.5, down some 90 points from overnight highs, and hit global risk assets while safe havens such as gold and the dollar spiked. The 1.5% decline in Nasdaq 100 futures outpaced that of S&P 500.”


VIX futures are flat due to President’s Day.  Should they reflect the action in the SPX futures, we might be seeing new highs in the VIX.


TNX futures are also flat this morning, due to President’s Day.  It is due for a Master Cycle low later this week, making it likely that it may test or challenge the Cycle Top support at 19.06.

ZeroHedge remarks, “Back in April 2018, when the world was growing briskly, the global economy was firing on all cylinders, the US was merrily hiking interest rates and shrinking the Fed’s balance sheet without a cloud in sight, the repo crisis was over a year into the future and the covid crash wasn’t due for almost two years, we noted a strange move in a very underfollowed – if critical and very forward looking – corner of the market, and wrote that “this would imply some expectation priced in of a reduction in the Fed policy rate around Q1 2020; that or the market starting to actually price in – and not just contemplating – the next Fed policy error, i.e., hiking right into the next recession.”

What was this indicator that correctly predicted the most iconic event of the post Lehman generation, to the quarter if not the month?

Well, we were looking at the forward curve for the 1-month US OIS rate, perhaps the best predictive proxy for the Fed policy rate, and noted that it had inverted after the two-year forward point. This was notable because, as we also said then, such an inversion had happened “only three times over the past two decades: in 2005, 2000 and 1998.” Of course, 2018 was another such inversion, one which prompted us to predict – two years ahead of time – that Q1 2020 is when the Fed would cut rates and in retrospect, we were spot on as that’s when the Fed fired its bazooka and not only slashed rates to zero to fight covid, but also unleashed the biggest ever bond buying program ever while also backstopping the corporate bond market to avoid the total collapse of the Western financial system in the aftermath of the covid global economic shutdown.

We bring this up because not only is the 1 month OIS spread between the 2Y and 3Y fwd negative again – for only the fifth time in history – but it is now the most negative it has ever been!”







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