11:00 am
ZeroHedge gives more detail, “The template of 1929 and 1987 is coming into focus in recent trading days.
Let’s start with the 1929 crash. The Dow Jones Industrial Average began the week of October 5 with a slight gain, and then the rest of the week (October 6-9) were all down days as well. This first week down brought stocks to new intermediate lows that had held for several months. The next week, the DJIA opened up down on Monday, October 12 and traded down each day of the week. Then, bang, on October 19, 1929 we experienced a 20% waterfall decline, which carried into Tuesday. The whole 11-day episode erased 28.94% from the DJIA.”
10:06 am
With options expiration looming, the need to get SPX into the Max Pain zone is immense. However, it may not last. The Cycles Model suggests the next 4.3 days may be give us a real panic Cycle. Prepare to embark on the roller coaster.
ZeroHedge remarks, “Futures surged overnight and holding gains after the cash market open this morning, having bounced almost to the tick off the ‘bear market’ trigger levels for the S&P 500.
As SpotGamma warns, outside of the very large 4000 strike, the call positions remain light. We note that in particular the strikes above hold little in the way of call gamma, and so there is little to offer resistance above 4000.
It just seems like the market is “full up” on downside protection, and chasing higher IV’s/short-sale risks remain high (ie. you can get face-ripping rallies here).”
7:35 am
Good Morning!
NDX futures rose to 12178.80 before easing down. The decline is complex and wide-ranging, giving false signals along the way. Today the Cycles Model suggests a severe down day despite the morning rally. Should the Model be accurate, the decline may last into Monday with a brief respite on Tuesday. The final drawdown for Wave 3 of (3) may last through late Monday, May 23 or early Tuesday, May 24. Options are deep in short gamma territory and may not let up until May 20.
ZeroHedge observes, “Two weeks ago, after Twitter reported disappointing earnings and admitted that it was “overestimating” millions of users since 2019, we asked whether this “merits a purchase price adjustment.”
A few days later, noted short-seller Hindenburg Research picked up on this and in a report warned that Twitter is overpriced and that there is “significant risk” that the deal could get repriced lower.”
The NDX Hi-Lo Index shows approximately 50% of NDX stocks making new 52-week lows. In the coming week(s) we may see over 80% making new 52-week lows.
SPX futures may be hitting trendline resistance from the short-term trading channel near 3980.00 (not shown). Today’s pm options expiration show Max Pain at 4025.00. Expiring options turn positive at 4050.00, while expiring options turn short at 4000.00. Short gamma begins at 3925.00. Little wonder it closed at 3930.00 yesterday. Options still control the flow, but as more investors bail, options expiration is becoming more painful for the dealers. The Cycles Model suggests today may be a strong down day by the close.
ZeroHedge reports, “After dropping to the edge of a bear market, with Eminis sliding to precisely 3,855 or exactly 20% lower than the all time high, US index futures rebounded sharply from the brink (the same way they did on Dec 24, 2018 when the S&P spent a few minutes in a bear market) as the stabilization of much of the cryptosphere (where no new stablecoins suddenly cratered to 0) and an overnight easing in Treasury yields provided some relief after a two-day slide. Nasdaq 100 futures climbed 1.7% as of 730 a.m. in New York. S&P 500 futures were also higher, rising 1.1%, as high as 3976 after dropping to 2,855 yesterday. Twitter shares plunged as much as 26% in New York premarket trading after Elon Musk tweeted that his deal for the social media company was “temporarily on hold.” Yields on 10-year US Treasury yields fell for a fourth consecutive day on Thursday, reaching 2.85%, before edging higher again on Friday. The dollar index dipped but remains on course for its longest streak of weekly gains since 2018, while bitcoin and ether reversed several days of harrowing losses to rise back over 30,000 and 2,000, respectively.”
VIX futures declined to 30.25 in the overnight session. The May 18 options expiration shows Max Pain at 29.00 while expirations turn long at 30.00 and long gamma begins at 35.00. To the extent that VIX has remained range-bound since December makes it difficult to predict where VIX may go next. That leaves most investors unwilling to hedge at these prices.
ZeroHedge (TME) remarks, “Muted VIX in a pic
VIX is not higher than where it was on previous sell offs this year when the index was much higher. GS writes: “Even though the VIX’s reaction to recent spot downside has been mild, its high starting point leaves vol high overall, and we like strategies with a short volatility bias, including put selling and 1×2 call spread overlays.” We agree on this point.
TNX popped above the Cycle Top resistance at 28.65 but may not stay there long. The Cycles Model suggests the decline may last through the end of the month.
ZeroHedge reports, “After a stellar 3Y auction and a subpar 10Y sale yesterday (although judging by the plunge in yields those who bought it are quite happy today), moments ago the Treasury concluded the week’s refunding issuance where investors were eyeing to see if today’s sale of $22BN in 30Y paper would translate in the first 3% coupon since March 2019.
It did not, because the auction stopped just below 3.00%, and even though the When Issued was trading at 3.006%, the auction stopped through the When Issued by 0.9bps at 2.997%, which nonetheless was well above last month’s 2.815% and the highest since the 3.014% in March of 2019.”
USD futures consolidated beneath yesterday’s high at 104.96 this morning. It may go higher as another burst of trending strength may be due this weekend.
Gold futures passed beneath the weekly mid-cycle support at 1828.11 yesterday and continues its decline today, hitting a low of 1799.70. The uptrend is broken and the decline may extend to mid-June, per the Cycles Model. The goldbugs are strangely silent, as it flies in the face of “gold as money.” In fact, the loss of liquidity means that gold is like any other commodity that may crash with the onset of a recession.
ZeroHedge proclaims, “The paper price of the yellow rock sjust tumbled back below $1800 for the first time since early Feb…
This is well below pre-Putin-invasion levels and Gold is now underwater for 2022…
…because nothing says ‘sell paper gold’ like raging global inflation…”