SPX inverted and made a new bear market low at 3731.13 just before 11:00 am. The attempted bounce has failed and SPX is now trading below water. We can expect a deep dive today, as a new hourly Cycle has begun.
The NYSE Hi-Lo Index opened at -104.00 today and attempted a rally to -99.00. It has now declined to -573.00.
SPX has opted to rally this morning, but with only an hour of bounce left in the present Cycle. Overhead resistance lies at the two-hour Cycle Bottom at 3813.52. Most analysts are too young to realize that the 2009 low was not the lowest stocks could go in terms of earnings multiples. The SPX earnings multiple in 2009 was 13.7, while the 1982 earnings multiple at the low was under 5! Goldman took a stab at it when they proclaimed that earnings multiples would bottom out at 14, but the analysis was quickly scrubbed. You can hardly blame them, since even StockCharts rarely show charts with values prior to 1990.00. Any real study requires an analyst to dig through the raw data and create their own analysis to get to the truth.
I was fortunate to become securities licensed in 1981. For an entire year I had nothing to sell but money market funds (no commissions) paying double digit returns while the stock market was piling up losses, thanks to Paul Volker. On April 23,1982 I had a career-changing interview with Sir John Templeton who opined that the DJIA would hit 1000.00 by the end of the year. The Dow was retesting its low of April 21,1980 at 759.13 and finally bottomed out in June of 1982 at 811.93. Sir John was correct and his advice turned into an ongoing (and profitable)conversation with him until his death in 2008.
This morning the weather service has issued a heat advisory for the State of Michigan. We are expecting temps in the high 80’s. Tomorrow we may see triple digit temperatures. Ah, Summer!
NDX futures bounced to a morning high of 11502.00, a 15% bounce off the bottom after a 12,7% decline from last week’s high. Normally we would expect a bounce to the Cycle Bottom resistance at 11948.99, a 42% bounce. That is not likely to happen. The Cycles Model suggests, at best, two more hours of bounce. The alternate is the futures bounce may have been the extent of it.
There is no NDX op-ex today. Wednesday’s op-ex shows only 7 call contracts between 10200.00 and 9500.00. Put contracts, while not heavy, make a consistent showing every 25 points down to 9500.00. Friday’s op-ex sows calls have been massively sold, with only 48 contracts left beneath 11300.00. Compare that to over 4,000 put contracts “expiring” on Friday between 11300.00 and 9500.00.
ZeroHedge remarks, “Short gamma dealers praying for Friday to pass
Lot of short gamma is expiring on Friday. After Friday the destabilization effect becomes much smaller. According to Nomura’s McElligott, these are the statistics:
SPX / SPY expecting 42% of $Gamma to expire Friday
QQQ expecting 56% of $Gamma to expire Friday
IWM expecting 57% of $Gamma to expire Friday
HYG expecting 46% of $Gamma to expire Friday
Never forget – short gamma works both ways
QQQ and SPY are both in deep short gamma land. Gamma does not care about direction, only the “oscillations”. Main point is that given the fact short gamma is so big here, all moves will be magnified. Dealers have been forced to puke deltas all the way down (nobody is that chilled and runs 4% index deltas due to short gamma). Imagine this decided reversing and dealers start buying all those sold deltas much higher. The destabilization effect is huge here and it works both ways. What is the short term pain trade from here?”
SPX futures bounced to an overnight high of 3803.90, then came back down to the closing low. The same Cycles choices here. Either the market continues its decline at the open or, at best, there may be up to two hours of bounce.
Today’s op-ex shows Max Pain near 3880.00 while options turn long at 3950.00 and above. Short gamma kicks in at 3850.00. This is not a pretty sight, since a further decline may have dealers chasing gamma down to 3500.00 or lower. Wednesday’s op-ex is more of the same and Friday’s op-ex appears to be deadly.
ZeroHedge reports, “US index futures staged a feeble, fading attempt to bounce on Tuesday, following Monday’s crash that wiped out $1.3 trillion in market cap and topped a furious 4-day selloff that was the worst since March 2020 and culminated in a bear market amid expectations – even from permabull Goldman – that the Fed’s now accepted 75bps rate hike on Wednesday will hurl the economy into a recession. Futures on the S&P 500 rebounded more than 1% in early trading before fading the gain to just 0.24%, while Nasdaq 100 futures climbed 0.5%.”
VIX futures remained beneath the Cycle Top resistance at 34.22 overnight, but the session appears to be more of a consolidation than a decline. The Cycles Model show today being a particularly strong trending day. This suggests the Head & Shoulders neckline may be challenged, if not broken.
Tomorrow’s op-ex shows calls dominating above 28.00 and long gamma at 30.00. Long gamma is magnified above 35.00, with puts tailing off. Lng gamma remains strong up to 90.00.
ZeroHedge observes, “The plunge in the stock market is on mounting risks facing corporate earnings and a Federal Reserve that may have to pivot towards super hawk to combat the highest inflation in four decades. But let’s forget the souring macro backdrop because stocks could face even more downward pressure as a far more ominous development has emerged: A stock buyback blackout begins on Tuesday.
Scott Rubner, an analyst at Goldman Sachs’ global markets division, told clients Monday that a “US Corporate Blackout window starts tomorrow (6/14).”
As Rubner wrote, “corporates have been the largest buyer of US equities so far this year ($1.3T in authorizations).” Really this isn’t what bulls and those who’ve been attempting to ‘buy the dip’ want to hear as the S&P 500 tumbles into a bear market.
“We estimate ~47% of the S&P 500 will be in their corporate blackout window. By the end of the week, we estimate ~65% of the S&P 500 will be in blackout,” the analyst said. ”
TNX has begun its decline as it corrects down to mid-Cycle support, currently at 20.39. This is not the final high, but expectations need to be blunted, if only temporarily. The Cycles Model suggests a low in the first week of July which eases the the overbought condition before going higher.
ZeroHedge analysesm “For my entire career, Paul Volcker has been deified. In fact, I cannot think of an unelected government official, since the Generals of WW2, who is held in such esteem—which may also be a function of how terrible most government functionaries are.
As JPOW suddenly pretends that Volcker was his boyhood hero, I think it’s worth re-examining Volcker’s inflation fight.
Of course, everyone knows the high-level story; Volcker broke the back of inflation by taking rates into the stratosphere, inducing a recession, taking the heat from politicians and the populace, and sticking to his principles. He had only one mission; defeating inflation. Nothing stood in his way, and he kept at it until the mission was accomplished.
As a result of Volcker’s sacrifices, we’ve since experienced four consecutive decades of economic boom. Or that’s how everyone seems to remember the situation today.
What if there were other contributing factors?
USD futures are lower, suggesting a Master Cycle peak may have been made yesterday on day 256. The Cycles Model suggests a decline may ensue into the second week of August. The target may be the lower trendline of the Broadening Wedge formation and mid-Cycle support at 97.55. From there we may see a blow-off top in the USD lasting through the end of the year.