You just have to see this to recognize the craziness of this market. The SPX gained nearly 3.5% from its morning low in a day that the Hi-Lo was -563.00??? This is short covering on steroids! People are getting hurt.
Wave C of (3) is turning into a monster by subdividing, which makes it extend even more. Next up is our panic down day in the form of Wave (iii) of [iii] of C of (3). Wave threes cannot be the smallest Waves. In this case, it may be a multiple of the decline from 4489.55. A 2X multiple may take Wave (iii) down as much as 750 points, or 3500.00! Remember, tomorrow is yet another options expiration, which will compound the gamma issue. There may not be a rebound such as this the next time.
It may seem unbelievable that the NDX is back in positive territory. However, the Cycles Model calls for a retest of the Cycle Bottom at 13707.00 before resuming the decline. That may delay the Master Cycle bottom until the close of Wednesday, March 3. This retest is a “mechanical reaction” to the crossing of the trendline. We may see the “reaction” end in the next hour or so.
ZeroHedge remarks, “Update (1300ET): In case you were wondering just who (or what) was BTFDing today, Nomura’s Charlie McElligott can clear things up for those chasing the momo here.
Equities’ move off the lows is largely a function of “Long / Positive Delta” expressions in the options space (as opposed to “wholesale” uptick in risk-appetite – although there is def some offense being played).
Primarly, index / etf downside hedge monetization (see below) and VIX upside CS monetization , in addition to some “offense” with upside prem spent, largely via Call Spreads.
Collecting premium from selling QQQ Puts equals positive deltas…
So, it’s hedge unwinds, not optimism that is driving this and as McElligott warns, this may leave us open to pullback thereafter unless flows sustain.”
The GSCI Ag Index is in a panic rally that may not end until the second week of March. This is a true supply-and-demand situation. The U.S. has lost two major fertilizer plants in the past year. There is a terrific drought in the Southwest. Fuel costs for agriculture and transportation are going up and Belarus (a major source of raw agricultural materials) has stopped its export of potassic fertilizers. This is the perfect storm for food prices.
In addition, the war may raise radioactive dust across Europe.
ZeroHedge remarks, “Edible oil prices soared this week, prompting fears that record-high food prices could be imminent. On Wednesday, soybean oil futures in Chicago hit their highest levels since 2008, and palm oil, the commodity used in thousands of food products, jumped to new highs.
Soybean prices increased 1.4% to 71 cents per pound, the highest level since 2008. US canola futures are also on the verge of an all-time high, and palm oil in Malaysia hit a new record high of $1,434 per ton.”
BKX has broken its trading channel trendline at 129.00 today. It also may be in a panic mode through late next week. It has also broken the lower trendline of a two-year Ending Diagonal, which may be doomed to a complete retracement to 55.40.
TNX bottomed at 18.56, on the Intermediate-term support to make a likely Master Cycle low (day 258). Yields are set to go much higher, as the Cup with Handle formation indicates. The next Master Cycle Pivot is two months away, a probable high, as indicated by the Cup with Handle formation.
Zerohedge comments, “While it’s not the first time that the NY Fed has experienced a major “technical glitch” preventing it from executing its daily open market purchase of Treasuries and MBS securities, the Fed sure could have picked a better day for a printer jam.
Moments ago, the NY Fed announced that “due to technical difficulties, today’s Treasury outright purchase operation – scheduled for 10:10 AM – will be rescheduled. It is now scheduled to take place Friday, February 25, 2022 at 10:10 AM. Additionally, today’s MBS outright purchase operations – scheduled for 10:00 AM and 11:30 AM – will also be rescheduled to Friday, February 25th, 2022 and Monday, February 28th, 2022 respectively. Information on Treasury securities operations and MBS purchase operations can be found on the New York Fed’s webpage. This does not impact any other operations scheduled for today.”
ZeroHedge reports, “After two stellar coupon auctions this week, when both the 2Y and 5Y saw record low dealer awards, moments ago the week’s auction cycle concluded with the sale of $50 billion in 7 Year paper in another stellar auction.
The high yield of today’s just concluded auction stopped at 1.905%, stopping through the When Issued 1.915% by 1 basis point. And while this was sharply higher compared to last month’s 1.769%, and the highest yield for the tenor since July 2019, it priced in a day when there has been a lot of market chaos, which helped boost demand for the safe haven.
The bid to cover of 2.364 was also solid, the highest since November, and well above the six-auction average of 2.304%.”
SPX did not Limit Down at the open. Instead, it bounced at 4100.00. Then it retested the Lip/Neckline at 4202.00. It has been my experience that, once the neckline/lip have been retested, the decline may take another 4.3 days in a panic. That would put the bottom of Wave (3) on Wednesday, day 257 of the Master Cycle, near 2:00 pm, to be exact. It wouldn’t hurt to be early, if Wave (3) should extend beyond that time. The majority of the decline will have been done. Just so you know, there may be an extension of the decline, Wave (5) of , lasting until the week of March 14 after a very sharp rally that may go as high as 4000.00 in the interim.
Good Morning! I am getting an early start, since I am taking my wife to the dentist this morning.
SPX futures crashed down to 4100.00 before a bounce, which is currently underway. This is day two of a three-day decline in Wave [iii] of C of (3), a triple panic in the Waves, and there may be a much further to decline tomorrow. Should the Head & Shoulders stop at 3626.00, then the Head & Shoulders formation is in play. However, the Cup with Handle suggests an average target of 2609.58 by tomorrow’s end. Worse and much worse appear to be the only two choices the market can make at this time. Tomorrow’s options expiration is likely to be a disaster, since short gamma is like a runaway train. The Fed will have to wait until the weekend to just put on the brakes. Investors buy puts as “portfolio insurance.” However, there is no such thing. Risk is simply transferred to the put sellers, who must go even more short.
MikeShedlock observes, “Let’s discuss value investor Jeremy Grantham’s thesis on “super bubbles” and his target for the S&P 500.
S&P 500 chart courtesy of StockCharts.Com, annotations by Mish with thanks to Jeremy Grantham.
Fourth Super Bubble
For almost a half-century, value-investing icon Jeremy Grantham has been calling market bubbles. Now, he says U.S. stocks are in a “super bubble,” only the fourth in history, and poised to collapse.”
VIX futures rocketed to the neckline of the Head & Shoulders at 38.94 before easing back in the overnight session. The next rally may push through the resistance, turning it into support for the next week. It may fall short of the March 2020 high of 85.47 by tomorrow’s end, but next week may see the VIX push over 100.00.
ZeroHedge explains, “VIX panic in a pic
Let’s take a closer look at the VIX panic du jour. VIX is up around 20% in early prints. We have seen sharper moves to the upside in VIX over the years, but this time VIX is starting from very elevated levels already. The Russian fear has been priced in by VIX in a “slow motion” fashion over the past weeks, but don’t forget that VIX is pricing more than the Russian situation. VIX is also pricing Fed and the general macro narrative. Volatility as an asset is mean reverting for obvious reasons. It is therefore noteworthy to see the trend in VIX since last autumn. VIX has basically trended higher from 15 ish to now trading around 36/37. The sell off this time around is approx the same as the early January sell off, but the VIX is trading at much higher levels compared to what we saw in late January and is now way higher than where it closed in late January. The problem with people chasing late hedges up here is that protection is very expensive.”
NDX futures plummeted to 13032.70 this morning and bounced, but the rebound was anemic. The only alternative to the Cup with Handle formation is a Head & Shoulders formation with a target of 10685.00. The first “limit down” stop in the NDX is at 12563.00. We may see that at the open, with a market closure for the first 30 minutes. Today may be a “panic down day” with losses of 10% or more.
ZeroHedge reports, “U.S. stock index futures crashed along with global markets on Thursday as Russia’s assault on Ukraine sent investors fleeing risky assets, while the tech-heavy Nasdaq was set to open in a bear market. Contracts on the Nasdaq 100 were down 2.9% by 7 a.m. in New York, having dropped as much as 3.6% earlier and signaling that the underlying gauge was poised to fall 20% from its November record high for the first time since the pandemic; the S&P 500 was down 2.23% or 98 points to, 4,214, while Dow futures lost 2.3%. The flight to safety saw the 10-year Treasury yield tumble 14 basis points to under 1.9%. Gold hit the highest since September 2020, while the dollar also spiked higher.
The Nasdaq was set to open in a bear market, with NQ futures down more than 20% from its all time highs just two months ago…
… while the VIX spiked higher, and was last just around 37, up almost 10 points on the day.”
TNX futures declined to 18.46, just shy of the named target of 18.43, where Wave [c] equals Wave [a] of the Wave 2 correction. Wave equality in a correction is standard fare and today is day 258 of the Master Cycle. Whatever happen during the rest of the day is yet unknown, but the Cycles Model suggests that TNX may start a powerful rally by the weekend. Head & Shoulders and Cup with Handle formations usually point to a Wave 3 target.
ZeroHedge remarks, “The Fed has a problem. It’s in the business of creating money, but it formulates monetary policy without regard to money itself. So in times when its policy decisions produced a record surge in broad money, policymakers are not attentive or alerted to the negative (inflation) consequences.
From February 2020 to the end of 2021, broad money increased by $6.5 trillion or over 40%. That increase over less than two years is roughly equivalent to the rise over the previous ten years. Yet, policymakers who have long argued that “inflation is always and everywhere a monetary phenomenon” called the surge in inflation transitory, owing to supply bottlenecks. Had policymakers still recognized money as a potential source of inflation, it would not be in the pickle that they find themselves today.”