May 9, 2022


SPX has declined beneath 4000.00 where there are virtually no calls.  This is a pure short gamma play with no support.  A limit down day (or two) awaits.  Watch out below!

ZeroHedge observes, “Nasdaq is now down 3% since Friday’s rebound off-the-lows close, and down 9% in the last three days…

And the derisking of all equity exposures is dragging the S&P ever closer to the 4000 line in the sand…

All eyes are now on the large 4000 support area (total OI: 220k calls & 450k puts). SpotGamma has noted its significance for some time, as its the last strike with any meaningful call interest.

You may note in the image above that to the left of 4000 there is no call gamma at any strike (i.e. positive gamma bars).


9:30 am

The Ag Index is treading water, which is a far cry from the equities index performance.  I am still waiting to determine the Master Cycle low, although the best candidate so far is last Monday’s low.  Food prices are set to go higher as multiple inputs aggravate the supply/demand equation.

ZeroHedge reports, “A combination of delayed plantings in Northern U.S. Plains and Canada due to soggy weather, a dry spell in Western Europe, chaos in Ukraine, and severe weather in India, have disrupted global wheat markets, sending prices in Minneapolis to the highest levels since 2008.

Spring wheat is used to make bagels, pizza crust, rolls, and croissants, among other specialty items, which touched a 14-year high on Monday morning at $12.31 a bushel due to delayed planting fears across the northern U.S. Plains and Canada because of abnormally wet conditions.


ZH further observes, “A massive backlog of grain shipments is piling up in Ukraine to the tune of nearly 25 million tonnes due to ‘infrastructure challenges’ and blocked ports in the Black Sea, including Mariupol, Reuters reports, citing a UN food agency official.’

Ukraine was the fourth-largest exporter of maize (corn) in the 2020/21 season, and the sixth-largest wheat exporter in the world, according to the International Grains Council.

It’s an almost grotesque situation we see at the moment in Ukraine with nearly 25 mln tonnes of grain that could be exported but that cannot leave the country simply because of lack of infrastructure, the blockade of the ports,” said FAO Deputy Director Josef Schmidhuber during a Geneva press briefing via Zoom.

According to Schmidhuber, the full silos could result in storage shortages for this year’s July and August harvests.”


7:40 am

Good Morning!

NDX futures made a new morning low of 12349.50 after having crossed the Lip of the Cup with Handle for the last time on Friday.  NDX is trading deep in short gamma territory and, while NDX options are light, there are no bullish pockets beneath 13000.00.

QQQ (Close: 309.25) options show Max Pain at 313.00, but short gamma may begin at 312.00.   QQQ may open today at or beneath beneath 300.00.

ZeroHedge remarks, “Even the most committed long-term investor can learn a thing or two from how traders go about their process. The core tenets of trading are: 1) respect price action, 2) manage risk so you can meet your goals, and 3) maximize the impact of your time and attention. The last 2 days tell us US/global equities still have a slog ahead of them. The only goal now, for investors and traders alike, is to make it to the turn in asset prices (whenever that is) with the least amount of incremental damage to portfolios. A little bit of traders’ discipline can help.

Ever since I (Nick) started on Wall Street in the mid 1980s, there has been a bright line between “traders” and “investors.” The stereotypes for each tell the story. Traders are momentum-chasing volatility addicts. Investors buy and hold no matter what the tape is saying.”


SPX futures declined to a low of 4037.20 this morning before a mild bounce.  The Cycles Model suggests another two weeks of decline that may bring it to its Cup with Handle target.  This may be the worst week of the decline with Monday, Wednesday and Friday shaping up to be the worst down days.  To date, the largest holdings in the SPX are passive investors, who seem confident that they are adequately allocated to absorb any shocks.  Little do they know there is no place to hide.

In today’s options expiration the Max Pain zone is at 4170.00.  Options turn positive above 4175.00 with long gamma at 4200.00.  Options turn short at 4165.00 with short gamma starting at 4150.00.  This will not be a good day to be long.  I met a shop keeper who said, “I’m in it for the long haul.”  I told him he will regret ever hearing that thought.

ZeroHedge reports, “It’s a bloodbath.

With Bank of America conveniently reminding us over the weekend that markets never bottom on a Friday, and that Mondays tend to be the worst day of the week for markets…

… that’s exactly what is playing out today as risk assets are puking across the globe, with S&P 500 futures crashing, the Chinese yuan tumbling amid a growing slowdown in China, and the US 10-year Treasury yield climbing as high as 3.2% as risk parity funds are getting monkeyhammered… again.”


VIX futures made a weekend high of 34.37, beneath Friday’s high at 35.34.  It is poised to break out above the neckline of the Head & Shoulders formation.  I do not know what will push the VIX above the neckline.  Perhaps it will be the uptick in margin calls expected today or passive investors finally throwing in the towel after seeing all the profits from the pst year up in smoke.


TNX futures hit a new high at 32.03 while the cash market opened slightly lower.  This may be an expanded correction that is yet incomplete.  Another possibility is a “running ” correction that may leave an almost imperceptible jog in the overall trend.  The expanding or irregular correction is the most favored outcome.

ZeroHedge comments, “Some have used peak inflation to create the impression that the worse of inflation news is in the rear and that the Fed has less tightening to do than what many expect. Yet, peak inflation says a lot about what the Fed has to do, which should worry the Fed and scare investors.

In three out of the last four decades, the US experienced a cyclical rise in inflation (4% and above) that compelled policymakers to raise official rates in response. It didn’t matter if the inflation cycles were broad (the early and late 1980s) or narrow (oil spike in the mid-2000s). But policymakers had to raise official rates above peak inflation on each occasion to squash the price cycle.

No one is thinking the unthinkable that the Fed has to raise rates above the 8.5% increase in consumer prices over the past year. Yet, past experiences provide painful lessons on the level of official rates required to reverse inflation cycles.



USD futures made a new correction high at 104.21 this morning.  Like TNX, this is an example to an extended correction that indicates the strength of the long-term trend.  However, there is a need to finish the correction which may come down to the bottom of the Broadening Wedge formation.  The new Master Cycle ends near mid-June.


BKX has tested the Lip of the Cup with Handle formation and is poised for a deeper decline.  The next probable Master Cycle low may be coming due in the next two weeks.  This low may correspond with the Cup with Handle target, so this may have a detrimental effect on the entire market.

ZeroHedge remarks, “A few days ago, we brought readers’ attention to the one chart which we think is the most important in setting market tone and sentiment: that of emini liquidity, or lack thereof.

This morning, Goldman’s trading desk also brings attention to this most important market dynamic, and in an early note from trader Matthew Fleury, he writes that “this chart should be on everyone’s radar. This is the top of book depth of S&P futures divided by 1mo ATM vol. It is flashing red. The set up for an equity market crash is as high as I have seen it.”



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