Crude oil futures took a beating today, down over 6% this morning. Last week I had warned that WTIC is due to collapse in an Intermediate Wave (C) of Primary Wave . The Cycles Model suggests the decline may continue through the month of June. The preliminary target may be 70.00 but, should it go lower, ultimately the current Master Cycle may end closer to 50.00. That’s a lot of demand destruction.
The BKX has declined beneath the Lip of the Cup with Handle formation in a complex but bearish decline. Tis is our liquidity proxy and it is signaling a potential crash. Within the Cup with Handle is a Head & Shoulders formation with a minimum target of 89.00. Take your pick. The new Master Cycle may have a duration until the end of June where Intermediate Wave (3) may be completed.
SPX has bounced at its 2-hour Cycle bottom, but the decline is not yet over. The bounce may go to as high at 4300.00 before rolling back over to complete the first impulse (Wave 1) at or near the Lip of the Cup with handle at 4114.65. SPX is deep within short options territory beneath 4300.00 and short gamma lies beneath 4250.00. Should SPX decline beneath 4200.00, the Cup with Handle formation may be activated at 4115.00. Most analysts are too cautious about what is coming next. See below.
ZeroHedge (TME) cautions, “Remember range?
Before you get too bearish it is worth remembering the following. Firstly, we are getting close to the bottom of some prominent market participants have considered to be the new range. Secondly, some fast money positioning indicators are at extreme levels, same as it was when we bounced in March. Thirdly, some sentiment indicators are at even more extreme levels than when we bounced in March.
Chart showing the SPX range that has basically dictated the entire year. Buy 4200 (or slightly below), sell/short 4550/4600. Time for the mean reversion mind again as we approach the lower part of the range?
Sentiment screams BUY even louder than at the March low
The Goldman Sentiment Indicator measures stock positioning across retail, institutional, and foreign investors versus the past 12 months. Out of 687 weekly readings (first recording: 2/27/09), there have only been 14 instances in which the sentiment indicator was more negative.”
NDX futures declined to 13185.40 over the weekend and remains well beneath Friday’s close. The next level of support may be the Lip of the Cup with Handle formation near 13060.00. Should that level be breached, the next target is that of the Cup with Handle formation. The Cycles Model suggests the next Master Cycle low may be on or near May 20.
In today’s options expiration, Max Pain is at 13600.00. Short gamma begins near 13520.00 and intensifies at 50-point intervals beneath 13500.00. This doesn’t look good at all.
ZedroHedge notes, “Hedge Fund mega cap tech exposure at 4-year low
Mega Cap Tech has had a sharp reversal lower MTD and has seen renewed selling as we head into the heart of Tech earnings next week. Most of the selling has come from longs and HF net exposure is at the lowest level in over 4 years.
Source: JPM PI
But Retail Army just keeps on buying Tech
Buy-the-dip in tech….Chart shows cumulative Tech flows
SPX futures reached a weekend low of 4220.40 followed by a shallow bounce thus far. In today’s options expiration, Max Pain is at 4330.00 while options turn negative at 4300.00. Short gamma starts at 4275.00. Dealer pain takes a turn for the worse at 4200.00. Just a reminder, should the Lip of the Cup with Handle become breached, the Cup with Handle target becomes activated. The Cycles Model suggests the next Master Cycle (low) ends on or near May 20.
ZeroHedge remarks, “This may be one of many revaluations of capital vis-a-vis labor and resources and core vis-a-vis periphery.
You’ve heard the expression “cash is king.” Very true. But it’s equally true that “crash is king:” when speculative excesses collapse under their own extremes, the crash crushes all other narratives and becomes the dominant dynamic.
Everything that the mainstream uses to predict “value,” market action and “the future” is tossed out the window. Price-earnings, “growth,” “innovation,” cash flow, yields, the bat-guano-quatloo carry trade, etc., etc., etc.– none of it stops the crash or makes sense of the crash, which happens for systemic reasons beyond conventional explanations.
In the context of conventional concepts of “value” and central bank power, crashes are impossible. According to conventional explanations, the central banks control the markets and so crashes are brief and shallow because the banks will quickly change course and flood the financial markets with free money.
In the conventional view, markets are rational and liquid: there will always be a a buyer for every seller (i.e. liquidity) because there will always be a rational reason and cash/credit available to buy an asset at the current price.
Crashes reveal this as false: there is no buyer for every seller in crashes because it’s not rational to buy assets which have been grossly overvalued and are resetting at new valuations in a chaotic freefall. Indeed, the entire concept of “value” is in doubt, and as we all know, markets hate uncertainty.”
VIX futures hit a weekend high of 30.05 as investors seek to hedge risk. The Buy signal is confirmed above the 50-day Moving Average at 25.71.
ZeroHedge remarks, “Put chasers are back…
…and they look “serious”. Let’s see if this time will be different, but the spike in put call ratio is big, and people tend to love puts when they should hate them and vice versa.
VIXplosion is back
VIX moved sharply higher on Friday. The entire term structure curve moved to the upside and the short end of the curve exploded to the upside. This is pure panic as investors decided loading up on short term protection at “any” price. Charts shows the volatility structure today vs how it looked on Wednesday.”
TNX continues ist correction with a likelihood of testing the Cycle Top support at 25.66. The decline may last through the end of May, so it may have time to tag a lower support.
USD futures are surging higher on day 269 of the Master Cycle. The Cycles Model suggests another day of strength before a potential reversal.