SPX appears to be weaker than one would expect for a normal retracement. I would revise the target for the correction to merely rise to 4220.00-4230.00, should current weakness continue. Be aware that a reversal may be abrupt and strong. This may be the beginning of a panic decline not seen since October 2008.
ZeroHedge remarks, “The go-to bullish indicators highlighted by pundits these days are the high levels of sidelined mutual fund cash and the AAII investor sentiment survey hitting its highest bearish reading since 2009:
Traditionally, these signals suggest that most of the carnage is priced into markets, indicating that it might be time to buy. However, these data sets only illustrate ACTIVE investor sentiment. Given that passive funds, by definition, do not strategically manage their cash levels nor do index fund patrons pay $40 per year to participate in the AAII survey, these figures give us little insight into the passive investing world. In stark contrast, Vanguard has reported net inflows to their passive vehicles of $400 million for the month of March (i.e. one behemoth is still buying). More evidence that passive investors remain all-in can be found in the lack of redemptions world-wide:”
SPX opted for the reversal above 4037.00 and a swift retracement. A 38.2% retracement would rise to 4282.00 while a (less likely) 50% retracement may go as high as 4350.00. Regardless of the target, the retracement should be over in 24 hours. Whether you step aside to avoid the bounce or not, be prepared to go short again in the next 24 hours.
ZeroHedge warns, ““Clearly you don’t want to own bonds and stocks.”
Those were the ominous words uttered by billionaire hedge fund manager Paul Tudor Jones (PTJ) this morning during an extensive interview on CNBC’s ‘Squawk Box’.
With The Fed expected to hike by 50bps tomorrow (and the short-term interest-rate market starting to price in 75bps for June) and 10 more hikes for the full-year… as financial conditions tighten and the economy contracts, CNBC reports that the founder and chief investment officer of Tudor Investment Corp. believes that we are now in “uncharted territory” as the central bank had only eased monetary policy during past economic slowdowns and financial crises.
Specifically, PTJ warned investors to prioritize capital preservation in such a challenging environment for “virtually anything.”
NDX futures are retesting the Lip of the Cup with Handle formation this morning. The bounce from yesterday’s low may be complete as NDX attempts neutrality in the options market. While options are light, tomorrow’s expiration turns long at 13060.00. Long gamma is likely to begin at 13200.00. They turn short at 13050.00 with short gamma starting at 13000.00. Of course, we await the FOMC announcement on Wednesday afternoon.
ZeroHedge observes, “Last week, when we commented on corporate earnings ahead of the upcoming “week 3” deluge of earnings where a whopping 46% of S&P500 companies would announce results, we summarized the sorry state of affairs as follows: “Q1 Earnings From Bad To Dismal: Tech Earnings Sliding, Guidance Collapsing.” In the 7 days since, things have only gotten from “dismal” to even worse, and as Bank of America’s Savita Subramanian writes in her weekly Eranings Tracker now that week 3 is in the history books…
…. we have clearly reached the “end of euphoria” phase.”
SPX futures appear to be consolidating between the Lip of the Cup with Handle and the Cycle Bottom resistance at 4203.38. There are approximately 3 weeks to the next Master Cycle Bottom in which to achieve the Cup with Handle target. While the bounces are spectacular, the declines are far deeper.
Tomorrow’s options expiration shows Max Pain at 4140.00. Options turn positive at 4150.00 and long gamma begins at 4200.00. Expiring options turn short at 4110.00 and short gamma begins at 4050.00. There is very little wriggle room for the FOMC announcement to tip the market in either direction.
ZeroHedge reports, “After initially trading higher, extending the momentum of yesterday’s last-hour meltup which saw US stocks close near session highs after plunging earlier, on Tuesday US futures hit an air pocket shortly after the European open, and slumped 0.5% at 715am EDT, as investors braced for more hawkish shocks from the Federal Reserve whose two-day meeting start today and is expected to announce its biggest rate hike since 2000. Tightening turmoil slammed bond markets: 10Y TSYs traded just below 3% after hitting the 4-year old milestone on Monday. Germany’s benchmark rate rose above 1% for the first time since 2015, while the corresponding yield on U.K. bonds climbed above 2% earlier on Tuesday. Australian bonds slid, and the currency jumped, after the nation’s central bank hiked rates costs by more than all economists had expected. The US dollar dipped, oil was lower while cryptos and gold traded flat.
VIX futures are hovering near the Cycle Top support/resistance at 32.13. There may be a final retest of the 50-day Moving Average at 26.31. However, it may be short-lived.
TNX is pulling back from its Master Cycle high on day 271. The Cycles Model calls for a month-long decline that may test the 50-day Moving Average at 23.75. The Cup with Handle target is still active with a july-August time frame for completion.
ZeroHedge remarks, “It was about a year ago, when the calendar was moving from the end of the first quarter of 2021 and into the second quarter, when we first observed something unexpected about the single biggest catalyst behind the forceful emergence of the “reflation trade” in the first quarter, which many interpreted as markets pricing in higher long-term inflation and strong growth. Yet in reality as we reported last year, the move which coincided perfectly with the end of Japan’s fiscal year on March 31..
… was largely, if not exclusively, a byproduct of Japan’s giant pension fund, the GPIF, drastically shifting out of treasuries as it slashed its US Treasury exposure by a record amount.”
USD futures eased down to a low of 103.06 this morning. While the Master Cycle calls for a reversal, the time for a decline is about six weeks, allowing for a decline to the lower trendline of the Broadening Wedge. Should the uptrend not be broken, the Cycles Model allows for a resumption of the rally through early 2023.
Gold futures may have started a bounce after testing its trendline and mid-cycle support at 1836.94. The low was made on day 266 of the Master Cycle. This allows for a final surge to a possible all-time high near 2250.00 by the end of the year.