Market Has Reached “Exhaustion Equilibrium”, Gamma-Hedging Flow Impacts Will Only Get Worse From Here
Make sure you are short beneath the 50-day Moving Average at 4420.00.
The Ag Index is back-testing a probable support line at 570.50 prior to completing its current Master Cycle by the end of next week. The Support may be a neckline that has been generated in March 2011 during the last Solar Minimum. Tis one may be considerably worse.
Zerohedge reports, “A confluence of circumstances has come together to create a “perfect storm” for global food production, and now that “perfect storm” is about to get even worse. For months I warned that this crisis was coming, and in recent weeks I have been documenting how dire conditions have already become all over the globe. The head of the UN World Food Program is warning that this is going to be the worst worldwide food crisis since World War II, and even Joe Biden is admitting that the approaching food shortages “are going to be real”. Unfortunately, there have been some new developments which threaten to significantly escalate things.”
ZeroHedge also observes, “A combination of factors has sent corn futures in Chicago to the highest level in a decade as investors fret over dwindling supplies.
Corn futures haven’t exceeded $8 a bushel since September 2012, following a devastating drought that damaged crops across the U.S. Midwest. Now supply risks return but for different reasons.
The global outlook for corn supplies has plunged since Russia’s invasion of Ukraine began in late February. The war-torn country supplies a fifth of the world’s corn and could experience a 50% decline in output this year.
Soaring fertilizer costs have forced some farmers in the U.S. to increase plantings of soybeans this growing season versus corn as the crop requires fewer nutrients. ”
SPX is nearing the completion of a top-to-top Cycle in 12.9 market days (21.5 calendar days). Should it go no higher, it will have made a 30% retracement. Weakness prevails. The next Cycle may take 21.5 market days (30.1 calendar days) to the bottom.
RealInvestmentAdvice prognosticates, “Is there a bear market lurking in the shadows?
Such seems to be the question everyone is asking me as of late. Over the last couple of weeks, we have reviewed the bullish and bearish cases for the market.
- Sentiment Is So Bearish. It’s Bullish
- Bullish Or Bearish? Where Are We Now?
- Bear Squeeze Or The Return Of The Bull?
In those discussions, I tried to balance the bullish and bearish arguments into some actionable strategies over the next few weeks. The purpose of analyzing both views is to minimize confirmation bias, which can negatively impact portfolios over time.
“When investors seek out information that confirms their existing opinions and ignore facts or data that refutes them, such may skew the value of their decisions based on their own cognitive biases. This psychological phenomenon occurs when investors filter out potentially useful facts and opinions that don’t coincide with their preconceived notions.” – Investopedia
While analyzing the shorter-term probabilities of a further advance or decline, the case for a more significant lurking bear market within the next 18-months solidified. Such is the context of today’s post.”
NDX futures were on a roller coaster in the overnight session, ranging from 13828.00 to 14017.90. Overhead resistance appears to be the Intermediate-term resistance at 14224.45. It has since then settled back down beneath 14000.00, which appears to be the maginot line.
As for tomorrow’s options expiration, Max Pain is at 14000.00. There is an especially large number of puts (101) at 13910.00, suggesting a decline beneath that level could spark a firestorm of selling. In the meantime, the roller coaster continues its mission of frustrating both the bulls and the bears.
ZeroHedge observes, “Morgan Stanley’s runner-up in the “Biggest Wall Street Bear” category (to BofA’s Michael Hartnett whose weekly Flow Show doom and gloom is now a source of inspiration for bears everywhere) is out with his own weekly dose of pessimism and in his latest US Equity Strategy note, Morgan Stanley chief US equity strategist Michael Wilson writes that “Q1 earnings season will be more disappointing than thought” and that “inflation is no longer a net positive for earnings growth.”
Wilson, whose bio and message header speaks for itself, and hints that bulls are now “the greater fool”…
… predicts that “earnings revisions will decelerate amid 1Q reporting season as the MS Business Conditions Index (a survey of industry analysts) just fell further and margin headwinds mount / are not fully reflected in consensus estimates. Stocks should discount this risk via the ERP channel.”
Worse, Wilson argues against of the most recurring (and perplexing) arguments spread by the bears, namely that inflation is actually positive for stocks – which it is, to a point – and according to Wilson, that point has now been reached and writes that “inflation is no longer a net positive for earnings growth given the impact on costs that are now showing up in margins.”
SPX futures are flat after an overnight range between 4376.70 and 4415.80. Tomorrow’s expiring options show Max Pain near 4400.00. Expiring options turn positive at 4450.00, but negative beneath 4390.00. Gamma turns short at 4350.00 and more so each 25 points beneath it. Dealers and hedge funds may be walking a tightrope to keep options from spinning out of control.
ZeroHedge reports, “After some jerky rollercoaster moves in Monday’s illiquid trading session, which jerked both higher and lower before closing modestly in the green, US futures resumed their volatility and at last check were trading flat after earlier in the session rising and falling; Nasdaq futures retreated 0.1%. as investors weighed the risks to economic growth from hawkish Federal Reserve comments. Stocks in Europe dropped as markets reopened after the Easter holiday, while bonds around the globe slumped as investors weighed the prospect of aggressive policy action to curb inflation. Asian stocks also dropped as did oil, while the dollar extended its gains . Treasuries extended declines, with the 10-year yield hitting a fresh three-year peak north of 2.90%. German and U.K. 10-year yields climbed to the highest since 2015 as bonds across Europe plunged.”
VIX futures consolidated in a narrow range between 22.19 and 22.92 as it awaits the breaking of the stalemate in stocks. Tomorrow’s options expiration shows Max Pain at 26.00 with short gamma beneath 23.00. Long gamma kicks in at 30.00.
The NYSE Hi-Lo Index closed at -164.00, solidly in bear country. While on a sell signal, confirmation is added beneath -200.00.
TNX futures made an overnight high of 29.09 before pulling back at the open. Today is day 258, and we should be looking for a reversal in the next few days. Getting a sell signal here may be difficult since TNX is so high above support. However, unless a phase shift occurs, we may see TNX pull back to the 50-day Moving Average over the next six weeks.
USD futures made a new high at 101.01 this morning as it wraps up its Master Cycle on day 263.
WTIC futures made an abrupt reversal at the Cycle Top resistance at 109.46, suggesting that may have been the Master Cycle Top on day 262. The significance of that is a potential 2-month decline into the end of June. A 50% retracement of the rally from April 2020 takes WTIC down to 68.20. A 68.2% retracement may decline to 63.07, near the Wave (4) low of 61.74. The question is, “What would make crude oil do that?”
Gold futures made a sudden breakdown, declining beneath the Cycle Top at 1966.96, making a low of 1959.85. That suggests a probable decline to the mid-Cycle support at trendline at 1831.11 may be made over the next two months.