SPX has paused beneath the mid-Cycle resistance at4378.65 that has stopped the last two Cycle tops. The rally appears complete, but may be subject to a whipsaw at the FOMC announcement. There really is no consensus about what happens next, so analysts attempt to baffle with BS. The EW structure calls for a slingshot move down over the next 4.3 days. The Cup with Handle target is still valid, while most analysts have been using the Head & Shoulders methodology. Point 6 of the massive Orthodox Broadening top is 2104.00. The Cycles suggest it may be reached by June.
Crude oil futures are consolidating beneath the Cycle Top/trendline at 100.45. It has another possible 3-4 days of decline to the next Master Cycle terminus (low). Possible targets range from the mid-Cycle support at 78.67 and the lower Broadening Wedge trendline at 70.00, depending on market liquidity. A liquidity crisis may bring it down to the Cycle Bottom at 56.89. Stay on alert for developments.
ZeroHedge observes, “With traders expecting a drop Crude inventories in the latest week, moments ago the DOE surprise the oil market when, in an echo of last night’s API report, it said that crude stocks actually grew by an unexpectedly large 4.345MM barrels, just shy of the highest weekly build of 2022 (it rose 4.5mm in the week of Feb 18), and printed far higher than the expected -1.8MM drop. It was not immediately clear how such a large crude build was possible unless demand destruction has already struck.”
ZeroHedge updates, “Yesterday, we reported that the Bloomberg news that one of the world’s largest independent energy merchants – the secretive Trafigura which trades hundreds of billion in commodities every year – was facing “margin calls in the billions of dollars” which meant that the commodity “margin call doom loop” idea floated by repo guru Zoltan Pozsar was finally coming true, and despite Barclays’ earnest attempts to minimize its impact, could threaten broader financial stability and was manifesting itself in broad liquidity squeezes which could be observed in the surge in such unsecured funding markets as the FRA-OIS.
The Shanghai Composite Index rallied to 3177.79 in a short-covering episode. Don’t be fooled by the size of the rally. Instead, look at how little it has recovered compared to the losses. The Cycles Model suggests another six weeks of decline from here. The Cup with Handle formation gives us a potential target for this decline that matches that time frame. The bottom of a bear market is not marked by dealers urging their clients to buy…
ZeroHedge observes, “Yesterday, we had a feeling that China would finally do something to arrest the collapse in its local stocks…
… and little did we know that just a few hours later we would see the biggest surge in Hong Kong stock history, coupled with a furious surge in China’s CSI300.
Two days after we said that JPM’s call that Chinese internet stock are uninvestable and that the bank’s wholesale downgrade of Chinese tech would mark the bottom…”
SPX futures roared back to 4300.00, removing one of the iterations in the Wave structure and suggesting the market may stay pumped at least until the FOMC announcement. I had anticipated that the decline might resume yesterday, but the Cycles are still working on 5-day intervals (not 4.3-days) which may be complete this afternoon.
This is likely due to options expiration today. SPX closed at Max Pain at 4260.00 yesterday. It is now attempting to go bullish. Today’s expiring options go appreciably long above 4300.00, but it is difficult to say where gamma turns long. Friday’s options expiration appear evenly matched all the way to 4400.00 with $3 trillion of expiring options. A failure today may bring a bloodbath among the dealers and hedge funds selling both sides of the options market. It is no wonder the SPX is being propelled higher.
ZeroHedge reports, “Normally, the first rate hike in more than four years meant to spark a “shallow” recession and destroy commodity demand would not be viewed positively by markets (unless it leads to another mega QE, which it will), but today is an exception with global stocks and US futures surging after the Kremlin hinted at progress in peace talks with Ukraine, adding to positive sentiment stoked by China’s vow to stabilize its battered markets which sent Hong Kong stocks soaring by the most on record.
At 730am, S&P futures are up 1.3%, with Nasdaq futs +1.8% outperforming amid overnight tech action, influencing European sectors, on the back of China’s jawboning stocks higher and constructive commentary from Ukraine’s Zelensky and Russia’s Lavrov. European bourses are also firmer across the board, Euro Stoxx 50 +3.3%, after a firmer handover from the Asia session and on geopolitical optimism. Treasuries were steady and the dollar slipped ahead of the Federal Reserve rates decision. In FX, DXY reels amid support for EUR on yield action ahead of noted EUR/USD option interest at the NY cut. Core debt is depressed, with yields continuing to climb and the German 10yr through 38bps. WTI and Brent are consolidating and have most recently dipped into negative territory as premia unwinds.”
VIX futures made a new low at 28.34, extending Wave (ii) and the Master Cycle to day 260. This is an acceptable stretch and further sets up the VIX for a “slingshot move” that may propel the VIX over 65.00. This appears to be a confirmation of the Head & Shoulders target. There may be turmoil under the surface that becomes evident today.
ZeroHedge comments, “The Volmageddon event of February 2020 is back, only this time instead of destroying the XIV inverse ETF, it is now targeting the VXX
Yesterday we said that we had a feeling the market would break today, and one look at the VXX volatility-tracking ETN, confirms just that.
As a reminder, on Monday morning Barclays announced – to the shock and dismay of millions of VXX investors on both the long and short side – that it would suspend any further sales from inventory and any further issuances of the VXX VIX Short-Term Futures ETN, claiming that “Barclays does not currently have sufficient issuance capacity to support further sales from inventory and any further issuances of the ETNs.” As some humorously put it, a volatility ETN just broke because of… volatility.”
TNX futures made an overnight high of 22.04, whereas the cash market merely rose to 21.83. This may have completed an impulse (five waves) which suggest a more modest pullback than the one illustrated in the past couple of days. In any event, there is often a knee-jerk reaction to buy bonds when stocks decline. This may occur as early as this afternoon.
Zerohedge comments, “Central banks face a challenging trade-off: do they react to the labor market close to full employment and near record jump in inflation visible even before the latest energy price moves to prevent a further unanchoring of inflation expectations to the upside, or do they react to the considerable downside risks to the economic outlook from a massive geopolitical and energy price shock, preferring not to add volatility to the current market environment. The ECB opted for the former, and the Fed is expected to follow suit.
Tomorrow the Fed will hike 25bps – its first rate hike since Dec 2018 and the first liftoff (from zero) since Dec. 2015. In his recent testimony to Congress, Chair Powell summed up the compromise that the FOMC appears to have reached by noting in his recent testimony to Congress that he will support a 25bp hike at the March meeting, but is open to hiking by more than 25bp at a future meeting if inflation surprises to the upside or remains persistently high.”
USD futures sagged toward the Cycle Top at 98.26, making a low of 98.41. USD has another week to go to make its Master Cycle high near 100.00.
ZeroHedge observes, “One of the core staples of the past 40 years, and an anchor propping up the dollar’s reserve status, was a global financial system based on the petrodollar – this was a world in which oil producers would sell their product to the US (and the rest of the world) for dollars, which they would then recycle the proceeds in dollar-denominated assets and while investing in dollar-denominated markets, explicitly prop up the USD as the world reserve currency, and in the process backstop the standing of the US as the world’s undisputed financial superpower.
Those days are coming to an end.”