10:40 am
There is a chance that a bounce may be in order. SPX has a huge set of (14840) put contracts at 3800.00 and there may be an effort to rise above that level. The next large population of puts is at 3750.00, with 9868 contracts outstanding. A close beneath these levels may leave the dealers and hedge funds bloodied. They may try to “hold the Line” above 3800.00 until closing.
ZeroHedge observes, “US cash equity markets opened with no panic-bid, instead being met with a wall of selling after the ugly overnight futures session.
The selling wave was almost unprecedented, with a TICK below -2000 – the fifth largest ‘sell program’ in history…
As Bloomberg notes, sell programs of this size are typically not single events. They tend to happen in clusters and that probably means stocks might be in store for bigger losses.”
10:06 am
The Ag Index made a new Master Cycle low at 539.77 on day 275 of the currently overdue Master Cycle. The new Master Cycle is not due to mature until mid-August. Be prepared for a monster spike higher, as news may overcome liquidity issues in this index.
9:53 am
BKX , out liquidity proxy, is making new lows this morning as it has triggered the Cup with Handle formation and may have more than a month to go until the next Master Cycle low. This does not bode well for the rest of the markets as banks seek to limit their exposure. This is where bank failures may arise, as most have been doing ‘business as usual” until now. Earnings pre-announcements have become quiet as we count down the days for quarterly earnings to be announced in th e second week of July.
8:05 am
Good Morning!
NDX futures crashed to a new bear market low , at 11435.20 and is hovering near the low. I don’t have to explain much about the impact that op-ex has, especially when it is in short gamma. NDX is due for a bounce, but considering the weak bounces thus far, there may not be any incentive to “take profits” on short positions when the outlook is so bleak for the bulls. Thus, not much chance of a short squeeze. Commentators imply that the NDX , being oversold, may find a bottom soon. Unfortunately, those that believe it may be the grist for the next melt-down. In the meantime, monthly op-ex is looming. Any mistakes here will be catastrophic, especially with another probable 30% decline still ahead.
ZeroHedge (TME) comments, “NASDAQ – welcome to oversold
NASDAQ has not closed this low in “forever”, but we saw futures trade slightly lower during the May sell off. RSI is very oversold here, but on the other hand oversold can stay oversold for longer than most think. Must hold levels are slightly lower…
Source: Refinitiv
Welcome to max short gamma pain
Both SPY and QQQ continue moving into “deeper” short gamma territory. Dealers must sell more and more deltas the lower we move as short gamma makes them longer and longer on the way lower. Do not forget the inverse will play out should this decide to bounce later. The destabilizing dynamics are in full motion here, and given the (still) awful liquidity, reshuffling big books remains practically impossible. (For more on short gamma, see here).”
SPX futures also made a new bear market low at 3798.50, followed by a shallow bounce. That bounce may last into the cash market, but most investors will only see the losses and not the attempt to make a bottom. It may fail quickly as the bounce may be sold before it has a chance to materialize. As for op-ex, dealers are frantically trying to avoid paying on the 4800.00 strike with 14840 outstanding put contracts.
ZeroHedge reports, “For all those claiming that stocks had priced in 3 (or more) 50bps (or more) rate hikes, we have some bad news.
All hell is breaking loose on Monday, with futures tumbling (again) into bear market territory, sliding below the 20% technical cutoff from January’s all time high of 3,856 and tumbling as low as 3,798.25 – taking out the May 10 intraday low of 3,810 – before reversing some modest gains. S&P 500 futures sank 2.5% and Nasdaq 100 contracts slid 3.1%, in a session that has seen virtually everything crash. Dow futures were down 567 points at of 730am ET.”
VIX futures reached a morning high of 33.24 on its third day from its Master Cycle low. There may be a pause at Cycle Top resistance at 34.05 this morning. Wednesday’s op-ex in the VIX shows calls heavily favored at 30.00 and above, while long gamma starts at 35.00. There may be some incentive to keep VIX out of long gamma before the Wednesday options expiration.
The NYSE Hi-0Lo Index closed Friday at -247.00…and it is not oversold.
TNX futures leaped to a high of 32.86 this morning, with the cash market opening just beneath it. The oddity created here is that there may be an incentive for cash coming out of stocks to buy treasuries, bringing the yield back down. The sentiment appears to favor higher rates, but it could lead to the opposite due to crashing stocks.
ZeroHedge observes, “After first Barclays and then Jefferies caused a stir by making a 75bps rate hike this Wednesday their base case, moments ago Standard Chartered head of global FX research and NA macro strategy, Steven Englander, upped the ante once again this morning when he said that while his team expects a 50bps hike at the 15 June FOMC, he does not “preclude a hike of 75bps or even 100bps.”
The reason why such a rate hike shock is even contemplated is because, as Englander explains, neither inflation nor the economy are giving clear enough signals of slowing to deter the Fed from its path of 50bps (or more) hikes for the next couple of meetings.”
USD futures rose to a new retracement high of 104.75 this morning, day 256 of the Master Cycle. Be prepared for a reversal this week as USD must correct down to the lower trendline as early as mid-July.
WTIC futures declined beneath its Cycle Top at 121.27 to 118.00 this weekend before a technical bounce brought it off the new low. It has made its Master Cycle high on June 8 and is due to decline over the next six weeks in tandem with equities. Investors have been crowding into crude, but may be in for a rude surprise. Sentiment is running high, as one can see below.
ZeroHedge comments, “Energy was the best performing sector once again….
….last week, continuing to demonstrate ‘defensive’ characteristics in a dreadful tape…ultimately outperforming the S&P 500’s -5.1% sell-off by +410 bps, as WTI extended its recent rally by +1.3%. Chart shows Energy vs. S&P 500.
Source: Bloomberg
Back above 5%
The outperformance this week allowed the energy sector to achieve a >5% weighting in the S&P 500 for the first time since mid-’19 (see below)… Morgan Stanley’s excellent energy specialist sales: “this is a key psychological milestone that makes the sector increasing difficult to ignore, as demonstrated by an inbound call this afternoon from a ‘TMT investor’ seeking Energy stock ideas”. Chart shows Energy’s Weighting in the S&P 500.
Source: MS sales
Energy vs. WTI
Energy is now struggling to keep up with WTI’s recent strength, but the glass half-full argument is that the sector now screens even cheaper vs. crude, with E&Ps still only pricing in <$70 bbl. Chart shows Energy vs. WTI’s 12-month Strip.
Gold futures declined beneath Intermediate-term support at 1845.91 an id on a sell signal. Should it decline beneath the previous low at 1785.00, it may trigger a Cup with Handle formation that may decimate investors.