SPX is approaching its 50-day Moving Average at 4444.31. It may overshoot, but the rally is very extended. Prepare to go short. Pick your spot and hang on!
ZeroHedge comments, “In late 2021 we noted a gaping divergence in one of Wall Street’s most closely watched surveys, the BofA Fund Manager Survey: while the number of respondents seeing a stronger economy had collapsed with the majority now expecting a contraction, the allocation to stocks remained near record high levels, resulting in what we called a “historic divergence“.
Well, earlier this week we learned that this bizarre divergence had largely collapsed: after several months of tentative declines, Wall Street sentiment in March finally hit rock bottom and according to the latest BofA Fund Manager Survey published on Tuesday (which polled some 341 panelists with $1 trillion in AUM were polled, the full survey is available to ZH pro subs in the usual place) global growth optimism has crashed to the lowest since July 08, two months before Lehman crashed.”
Today’s rally exceeding the March 3 high altered both the Elliott Wave structure and the Master Cycle date. It turns out that the Master Cycle made a low on February 24 (day 251) instead of the March 3 high (day 258), which was too convenient to argue with until today. It also simplifies things tremendously. In Summary, Wave (1) took 51.5 calendar days and Wave (2) is on its 22nd day today (21.5), which may bring the correction to an end. The current Master Cycle may end on or near April 4, giving the SPX a potential 17.2 calendar days of decline.
SPX futures declined back to the mid-Cycle support at 4375.99 as it finishes its short squeeze into options expiration. This morning’s expiring options are long at 4400.00 and above, so it is back in neutral territory. The options tree is heavily laden with both puts and calls with puts dominating below 4300.00. There is every reason to believe that the longs have exhausted their liquidity and the shorts may soon dominate again. The next Master Cycle (low) is due on April 5, 12.9 market days from now.
ZeroHedge reports, “After a torrid three days which pushed US stocks up almost 6%, the best 3-day run since the Nov 2020 election..
… U.S. index futures finally dropped on Friday one day after JPMorgan again said to BTFD, as traders were concerned Washington may take a tougher stance on China for its muted response to Russia’s invasion of Ukraine during a phone call between Xi and Biden set for Friday morning, while bracing for volatility on quad-witching day where $3.5 trillion in options and derivatives are set to expire…
… as the concurrent rebalancing of benchmark indexes including the S&P 500 sill send volumes soaring. Contracts on the S&P 500 and the Nasdaq 100 both ticked lower about 0.6%. Oil dropped after yesterday’s remarkable surge with WTI trading around $102, while Treasuries and the dollar rose and bitcoin traded just above $40,000. ”
ZeroHedge further warns, “While index options are the key focus ahead of today’s huge quarterly expiration, there is still a sizable $610bn of single stock options are set to expire today.
And, as we have touched upon during all previous quad-witches, today’s expiry could be important for stocks with large open interest in at-the-money (ATM) option, and market makers delta-hedging large options portfolios will be active. As Goldman so helpfully puts it, “this flow is likely to dampen volatility in some names while exacerbating stock price moves in others.”
VIX futures rose to a morning high of 26.82 as it recovers from its extended Master Cycle low. Yesterday I mentioned the setup for a slingshot move and the trendline is an ideal mechanism to launch it. In addition, it has crossed above the 50-day Moving Average at 26.50, giving it a buy signal.
TNX is consolidating after a very strong move higher. The consolidation may not last, as the Cycles Model indicates trending strength returning by this weekend. It appears that TNX may continue to rally in srength for the next four weeks.
RealInvestmentAdvice observes, “Recession risk is rising rapidly. In fact, it is possible that we may already be in one.
While such a claim may sound impossible, given that Q4-GDP was above 5% in terms of annualized growth, such would not be the first time such a turn occurred.
As I discussed in “Shortest Recession In History,” the 2020 recession lasted just two months. However, during those two months, the economy fell by 31.4% (GDP), and the financial markets plunged by 33%. Both of those declines, as shown in the table below, are within historical norms.”
USD futures rose above the Cycle Top resistance at 98.37 and is aiming for the upper trendline near 100.00. There are only three market days left to the Master Cycle high due by mid-week. The Cycles Model shows a triple burst of strength, so we may see the final stretch in the USD rally boosted by a very large inflow, possibly from Europe, which is destabilizing.
ZeroHedge comments, “It was just a couple of weeks ago that I wrote an article arguing that the economic sanctions we have cast upon in Russia, due to its invasion of Ukraine, likely mark the beginning of a period where China and Russia would bifurcate the global monetary system, leading them to eventually challenge the U.S. dollar’s reserve status.
Now, Saudi Arabia is joining the fray, further threatening to tip the balance of the global monetary scales that have kept the U.S. dollar afloat for decades.
The fact that predictions of a “new economy” and “new monetary system” only exist on fringe blogs like mine and haven’t gone mainstream given the current economic situation with Russia (even amidst our abuses of printing the dollar over the last several decades) is baffling to me.”