The bounce in SPX may have been stopped by Cycle Bottom resistance at 3782.28. SPX appears to have topped out at 3794.73 and has dropped beneath resistance, creating a sell signal. The chart shows yet another possible defective (truncated) rally here. While there may be a spike at the FOMC announcement, chances are it may be untradeable. A decline beneath 3750.00 confirms this observation.
ZeroHedge opines, “With just a few hours left until today’s FOMC decision, here’s what we know: Powell will hike either 50bps or 75bps, with the market pricing in more than 100% certainty of a 75bps hike today thanks to Monday’s article from the WSJ (which refuted a WSJ article by the same author just 24 hours earlier, so clearly someone at the Fed made a phone call). In fact, as shown below, besides a fully priced in 75bps, the market now prices in 7% odds of a 100bps rate hike…
… perhaps in euphoric agreement with Ackman and Gundlach, who overnight said the Fed should hike 100bps…
And yes, 100 bps tomorrow, in July and thereafter would be better. The sooner the @federalreserve can get to a terminal FF rate and thereafter can begin to ease, the sooner the markets can recover. https://t.co/lFDNvLl3oU
The Ag Index extended its Master Cycle low to day 277 today. While market liquidity issues may be suppressing Ag prices, supply is being throttled as well. Pressure is building for a massive rally over the next several months.
More than 70 firefighters from multiple fire departments battled a massive fire at Festive Foods in eastern Portage County that began around 0900 local time. The American Red Cross arrived on the scene shortly after to provide food and water to firefighters. They snapped two pictures of the blaze, showing flames erupting from the facility’s roof and a column of thick dark smoke pouring into the air. ”
Today’s action in the SPX has given me an answer to a question about where to measure the top in equities. The Elliott Wave answer is that question is that Minute Wave [v] ended on June 8 at 4164.86, a truncated (failed) Minor Wave C. The Cycles Model offered a swing high on June 3 at 4177.51. The Cycles won the contest. Today at 1:00 pm will be exactly 8.6 market days from the June 3 high. That leaves SPX 4.3 more days to finish the current Master Cycle low on Tuesday late morning/early afternoon. Of course, the decline may start sooner or later, but this gives us a certain amount of precision that may surpass “government work.”
ZeroHedge (Charles Hugh Smith) contemplates, “There would be some deliciously karmic justice if the “dumb money” driving a rally that forced the “smart money” to cover their shorts and chase the rally that shouldn’t even be happening.
Being cursed with contrarianism, as soon as a trade gets crowded and the consensus is one way, I start looking for whatever is considered so unlikely that it’s essentially “impossible.” Sorry, I can’t help myself.”
NDX futures hit an overnight high of 11451.00 as it attempts to overcome yesterday’s gap down and avoid short gamma. It appears that the open will be back within yesterday’s daytime trading range. Behind the scenes, dealers and hedge funds are positioning themselves for another volatile trading day.
In today’s expiring options, calls dominate above 11500.00, but short gamma starts at 11400.00. Thus, the push higher this morning. QQQ (275.91 at the close) is also pushing above 280.00 to avoid short gamma starting at 272.00. Failure to avoid short gamma today sets up equities for a real beating on Friday.
ZeroHedge observes, “…but next shoe to drop
While waiting for FED, lets focus on something really boring, but really fundamental, earnings. There is increasing focus on forward estimates that seem too high and that they will be the next shoe to drop in the selloff. Pretty consensus that this is the case, but still, time for a thread….and remember, when the real cutting starts we are not far away from a stock market bottom…
Earnings are stretched in the long-term context
Only way is down? Chart shows trailing earnings in US at record highs…
Earnings much more above trend than at other peaks
S&P500 EPS vs trend at peaks
SPX futures are also higher, but mired in short gamma beneath 3800.00. SPX has four more days to reach the Master Cycle low. Despite the 12% decline from the Wave (2) high, the next move may be a multiple of that. The Cup with Handle target is still within reach.
Options expiration today shows puts dominate beneath 3820.00 and short gamma beneath 3800.00. Try as they might, there just isn’t enough liquidity to overcome this barrier. Aside from a mechanical profit-taking on yesterday’s options, the dealers may be forced to go short at deeper levels to pay the price of all the maturing puts.
ZeroHedge reports, “After five days of non-stop losses, US index futures finally bounced modestly along with stocks in Europe as the ECB announced it would hold an emergency meeting to undo the damage done by its meeting from last week, and ahead of the Fed which today will hike by 75bps, the most since 1994, and will then scramble to undo the damage from pushing the US into a recession in coming days and weeks.
Contracts on the S&P 500 and Nasdaq 100 posted modest gains, rising 0.8% and 1% respectively, ahead of the Fed, with markets fully pricing in the biggest rate hike since 1994 amid worries about the outlook for the economy. Europe’s Stoxx Europe 600 index jumped more than 1%, snapping a six-day losing streak, while the euro strengthened and the region’s bonds advanced as the European Central Bank’s Governing Council started an emergency meeting. Treasury yields dipped and the dollar retreated from a two-year high.
VIX futures challenged Monday’s gap higher at 32.08 this morning. However, the lowest it could reach was 32.00. VIX options turn positive at 30.00 with the long gamma 800 lb. gorilla waiting at 35.00. While the Cycles Model implied that yesterday was to be a trending strength day, I suspect it may be today, due to the FOMC machinations.
Despite the relative positivity of the NYSE Hi-Lo Index yesterday morning, it flopped miserably. This morning may be yet a second attempt at reversing the trend. However, the Cycles Model suggests the downtrend won’t stop until the second week of July. In other words, this week may be bad, but it may get much worse.
TNX has reversed from its swing high (Minute Wave [b]) to complete its correction near the mid-Cycle support. This may be evidence of “smart money” anticipating the flow of liquidity from stocks into bonds. This flow may last three weeks or longer as money seeks a safe haven. In contrast, European and Japanese bonds are crashing.
ZeroHedge reviews, “Up Until Monday afternoon, the FOMC was been expected to hike rates by 50bps to 1.25-1.50% until the hot May CPI figures, rising consumer inflation expectations and a WSJ article, ignited a wave of 75bps calls to 1.50-1.75%. The Fed guidance initially called for 50bps (both in June and July) had the data evolved as they expected, but after the hot May data, some calls for larger hikes, a ‘Volcker moment’, fuelled speculative market activity leading into the meeting, and given a slew of publications with high-placed sources (WSJ, CNBC, Bloomberg) have come out suggesting a 75bps hike – the biggest hike since 1994 – is indeed possible on the eve of the confab, it is now seen as a base case for many…
- Barclays +75bps
- Deutsche Bank +75bps
- CapEcon +75bps
- Goldman +75bps
- JPMorgan +75bps
- Jefferies +75bps
- Nomura +75bps
- SocGen +75bps
- TD +75bps
- Wells +75bps
- BNP +50bps
- BofA +50bps
- Citi +50bps
- Credit Suisse +50bps
- HSBC +50bps
- Morgan Stanley +50bps
- StanChart +50bps
… and a certainty as per market pricing (the Fed has never hiked 100bps in the “modern” or post-Greenspan era, although it did hike 500bps in 1980 under Volcker).”
USD futures may be in reversal after hitting a morning high of 105.23, then declining into the red. Today is day 258 of the Master Cycle and likely producing a swing high in USD. Traders may look at this as a breakout, but is more likely to be a trap for the unwary.
Yesterday West Texas Crude futures finally made their Master Cycle high on day 266 of its Master Cycle. The Cycles Model shows the new Master Cycle in decline until the last week of July. If the Broadening Wedge is correct (and it usually is), we may see crude drop to 50.00 by the end of October.
This morning gold futures may have finished its Master Cycle at 1882.50 on June 13 (day 257). The decline has been sufficient to make a sell signal beneath Intermediate-term support at 1852.36 and mid-Cycle support/resistance at 1846.62. The Cycles Model shows a possible bottom at the end of June, as gold is likely to imitate the decline in stocks. I anticipate a decline in that time to the Cycle Bottom at 1713.16.