SPX could not rise to the 50-day Moving Average at 421.14 today, showing profound weakness. Should SPX decline beneath 4370.00, it may continue the decline to new lows. Otherwise, there may be another attempt to retrace more of the decline.
ZeroHedge reports, “There are other types of stock market leverage, and no one knows how much leverage there is in total. Margin debt is the only reported indicator...
Margin debt – the only type of stock market leverage that is reported regularly – dropped by another $36 billion, or by 4.3%, in March from February, and by 12.4% over the past three months, to $800 billion, according to FINRA which collects this data from member brokers. Margin debt has now fallen below the year-ago level. But leverage is still gigantic and has a long way to go.
After peaking in October at $936 billion, margin debt started falling in November, which was also the month that the Nasdaq started falling. Margin debt has since fallen by 14.5%. The Nasdaq has fallen by 17.6%.
And many of the highfliers have collapsed by 60%, 70%, and even over 90%, some of which I track in my collection of Imploded Stocks. Stock jockeys that were margined in those trades got turned into forced sellers to raise the cash to pay down their margin debt. A margined portfolio specialized in these stocks can get wiped out.”
BKX continues to make new lows, with one of two possible outcomes. The first is a potential stretch of the Master Cycle to day 273, the most likely scenario, as the decline completes its fifth Wave of an impulsive decline. Should that be the case, BKX may bounce above the Lip of the Cup with Handle, possibly to the 50-day Moving Average at 124.85, in a brief retracement. The second outcome is that BKX may decline even lower in an oversold panic decline. Note the Target for the Cup with Handle. This target may be due by the end of June.
GKX has clearly broken above its previous high at 570.50 made in March 2011. This may be interpreted as a possible Head & Shoulders formation, although a long one, with a target in the range of 900.00. There are about two weeks left in the current Master Cycle, after which it may retrace back down to the trendline at 570.50. The alternate formation may be a Cup with Handle formation, with a slightly lower target.
ZeroHedge reports, “The bird flu outbreak has only been spreading around the US for two months, and some industry experts are warning the rate of spread could be worse than the devastating 2015 outbreak.
On Friday, the US Department of Agriculture (USDA) announced yet another state where the contagious strain of highly pathogenic avian influenza has been detected. Idaho is the 27th state where the virus has been found since February.
WaPo spoke to Gro Intelligence (ag data experts) senior research analyst Grady Ferguson who tracked the last outbreak in 2015, saying this one could be more disruptive to the poultry and egg markets.
Ferguson said that 66 days into the outbreak, 1.3% of all US chickens had been affected, and 6% of the US turkey flock. In 2015, he said, only .02% of total chickens were affected at this same time. The number rose to 2.5% of chickens infected at the outbreak’s peak, and more than 50 million were culled.
So far, the bird flu tsunami wave across 27 states has infected 27 million chickens and turkeys, forcing farmers to “depopulate” or cull flocks to prevent spreading.
ZeroHedge observes, “There is a high probability that a self-perpetuating wage-price spiral will develop in the next few years. Households have already become less resistant to paying higher prices and firms have become less resistant to offering higher wages. Prices and wages will continue to spiral upward until the cumulative erosion in inflation-adjusted incomes causes the economy to collapse in recession. It is like the children’s game of musical chairs: Everyone knows the game will end, but they feel compelled to keep racing around the circle at an ever-faster pace hoping their forced exit will leave them in the best possible position—even if it still means an inflation-adjusted loss.
This situation has been termed “inflationary psychology.” Consumers purposely advance their purchases in order to beat anticipated future price increases. Firms readily pass along higher costs to consumers, including the future cost increases that they anticipate. That’s what happened in the last inflationary age, which started in 1965 and ended in 1982: Expected inflation became a self-fulfilling prophecy. Many commentaries assert that the current situation is nothing like the situation faced in 1978-80. That’s true, but irrelevant. The more apt comparison would be to the five to ten years prior to that period, when inflation had not yet reached crisis levels. Government officials claimed they had the policy tools that could easily reverse inflation, just as they claim now.”
Making for a potentially worse outcome, ZeroHedge reports, “A fertilizer supply shock is imminent for US farmers as CF Industries Holdings, Inc. warned Thursday that rail shipments of crop nutrients would be reduced to top agricultural states, which couldn’t come at the worst time as the Northern Hemisphere spring planting season is underway.
The world’s largest fertilizer company said Union Pacific had hit it with railroad-mandated shipping reductions that would impact nitrogen fertilizers such as urea and urea ammonium nitrate shipments to Iowa, Illinois, Kansas, Nebraska, Texas, and California. Union Pacific told CF Industries without advance notice to reduce the volume of private cars on its railroad immediately. This means CF Industries had to decrease shipments by a whopping 20% to stay compliant.
“The timing of this action by Union Pacific could not come at a worse time for farmers,” said Tony Will, president and chief executive officer of CF Industries.
“Not only will fertilizer be delayed by these shipping restrictions, but additional fertilizer needed to complete spring applications may be unable to reach farmers at all. By placing this arbitrary restriction on just a handful of shippers, Union Pacific is jeopardizing farmers’ harvests and increasing the cost of food for consumers,” Will said. “
NDX futures continue to lead the stock indices lower. The weekend low was 13731.70 and the bounce has stayed beneath 13900.00. In today’s options expiration, Puts currently dominate with an especially large put position (172 contracts) right at 14000.00. However, there is also a large position of calls (150) at 13750.00. Should the NDX slide beneath 13750.00 today, the the outcome may be dramatic. NDX is on a sell signal.
ZeroHedge observes, “Observations From A Week On The Road
1. General skepticism from the trading community on equity markets. Most conversations center around the deep challenge faced by global central banks: how to move with serious force on inflation, without provoking an asset bust or a recession. While most acknowledge that its hard to foresee a near-term US recession when jobs are so plentiful and wage growth is so strong, the crowd struggles to envision how the Fed can ultimately pull off a soft landing. To be sure, this wariness is reflected in survey work and positioning metrics: AAII bull sits at the lowest level in 30 years, and length held at GS PB by fundamental hedge funds sits at the lowest level since April of 2020.”
SPX futures bounced at a low of 4361.60 only to be repelled at Thursday’s lows. The outlook for next two weeks appear to be dismal and the decline may last into mid-May. Today’s expiring options are short beneath 4440.00 and short gamma takes over beneath 4360.00. While a bounce over the next three days may help to neutralize the effects of options on the markets, there seems to be no willpower to make it happen. SPX is on a sell signal.
ZeroHedge reports, “Equity futures fell, Treasury yields rose and nat gas prices soared to the highest since 2008 as US markets reopened after a three-day holiday weekend while the U.K. and euro-zone markets remain closed. Nasdaq 100 futures led the retreat, falling 0.3% at 730 a.m. EDT after tumbling as much as 0.8%, and signaling a bearish start to the week after the U.S. market was closed on Friday for a holiday. S&P 500 futures also dropped 0.2%, while European markets remained closed on Monday. Oil was flat, while a cautious overall investor mood bolstered the dollar and gold. The USDJPY was set for the longest winning streak on record.
Nat gas soared another 3%, rising to the highest level since 2008.
“We think inflation is no longer a net positive for earnings growth given the impact on costs that are now showing up in margins,” Morgan Stanley strategists led by Michael Wilson wrote in a note. The effects of soaring prices “are now more likely to be a headwind to growth.”
VIX futures reached a morning high of 24.60. VIX is on a buy signal above mid-Cycle support at 21.26 with confirmation above 25.00. Today’s options expiration is dominated by puts from 17.00 to 25.00. The short-vol trade appears to be very popular. An emergence over 25.00 is likely to change the tenor of the market with a potential wipe-out of a massive number of puts.
The NYSE Hi-Lo Index closed on Thursday at -136.00. It is on a sell signal.
TNX futures reached a weekend high of 28.84 before pulling back. This morning’s high may be the Master Cycle high on day 257 of the current Cycle. It may take another day or two to confirm it.
ZeroHedge advises, “When the system can’t borrow more and distribute the insolvency, it implodes
I started writing about debt saturation back in 2011. The basic idea is we can continue to borrow and spend as long as one of two conditions hold: 1) real (inflation-adjusted) income is rising, so there’s more income to service additional debt, or 2) the cost of borrowing declines so the same income can support more debt.
After 13 long years of declining interest rates and stagnant incomes for the bottom 90%, we’ve finally reached debt saturation: after dropping to near-zero, interest rates are now rising, pushing the cost of debt service higher, while wages are losing purchasing power (a.k.a. inflation), so there’s less disposable income left to service debt.”
USD futures rose to 100.76, not overcoming Thursday’s high at 100.77. Should USD not go higher, Thursday’s Master Cycle high on day 258 may be confirmed by declining beneath the Cycle Top at 99.66.
Crude oil futures surged to 108.00 this morning, approaching its Cycle Top resistance at 109.95. There may be a pullback at the Cycle Top resistance, but the trend is higher. Trending strength returns in May.
ZeroHedge reports, “On the heels of lower Russia output (sanctions and snubs of Urals crude, despite record discounts) and Libya’s oil production plunging by more than half a million barrels a day amid a wave of political demonstrations engulfs the OPEC member’s energy industry, oil prices have extended their gains this morning, with WTI now erasing all of the lower price benefits from Biden’s SPR Release Plan announced in late-January. It also appears Biden’s relenting on Ethanol and land leases has done nothing at all (for now).
WTI Crude topped $108 this morning..
This is a major problem for President Biden as ‘the largest release’ in history has achieved nothing at all in terms of his endgame hope of reducing gas prices at the pump, which are now turning up once again, following crude and wholesales gasoline prices back towards record highs…