Recall that today is day 256 of the Master Cycle. It may be that, if SPX closes positive here, the decline may be over (First alternate). However, today is day 11 of the decline from 4177.51. The greater likelihood is that there may be two more days of decline (second alternate), since the declines have been made in units divisible by 4.3. Tuesday afternoon would give us 12.9 days of decline. There may not be a crash yet, since they most often occur in Wave threes. Thus, the change in Wave Structure shown here. What follows is the summer rally, probably lasting until July 4. The most likely target may be the 50-day Moving Average at 4117.50. However, the Lip of the Cup with Handle is not out of the question. Stay alert for indications that the bottom has been made. A new high above 3707.71 is a likely indicator. The Cycle Bottom resistance is at 3715.00.
Despite the positive open, SPX remained beneath Cycle Bottom resistance at 3722.75 then made a marginal new low. There appears to be a valiant effort to “hold the line” but short gamma is still the most important consideration. Should SPX rise over resistance it may have the ability to rally further, so be on the alert. Today is day 256 of the Master Cycle and I am looking for a significant bounce after this decline. As long as SPX stays beneath resistance the decline may last until early Wednesday.
… the S&P was trading around 4100 which meant that today’s quad-witching expiration schedule could – and likely would – lead to market havoc as max-gamma clashed with forces that wanted risk either higher or lower.
However, with stocks crashing since then, and with spot tumbling below 3700 while the bulk of open interest remains around 4100-4200 it means that pin risk today is minimal at best…
… as is the risk of continued selling due to technicals and positioning.
Instead, according to some, it is far more likely that traders and market makers will be to cover short positions, due to the unusually benign market setup.That’s because with a boatload of recently purchased puts in the money, dealers who sold these protective contracts and shorted stocks in order to balance their books will need to buy back shares in order to stay market neutral.”
NDX futures jumped to 11288.70 in a mechanical release of short covering as yesterday’s expiring options were paid. Once accomplished, the concentration will be on today’s expiring options. Just a reminder…today is day 256 of the current Master Cycle. Based on the Cycle and Wave patterns, there may be another 3.3 days of decline. Be prepared for multiple 10% down days where the equities markets may decline 10% or more. There is a strong likelihood of possibly three such days if the bearish formations prove correct.
Today’s expiring options are deep in short gamma. Max Pain is at 11600.00 and long gamma lies at 11800.00. This morning’s bounce isn’t even close. It is hard to say where short gamma begins, but it is certainly beneath 11325.00 where there are 555 put contracts.
QQQ (271.39 at the close) expiring options go short beneath 300.00. Short gamma begins at 290.00 with pockets of puts increasing every 5 points. The 280.00 strike has 81, 363 contracts.
US 500 futures have also rallied to a morning high of 3709.70. They have since begun to decline. The Two hour Cycle Bottom is at 3739.01, providing overhead resistance to the bounce. Intermediate Wave (3) is where the crash occurs. There is a high probability of reaching the Cup with Handle target, so do the math. Several 10% down days are a high probability. Despite this, wishful thinking prevails.
This morning’s expiration of index options shows 35,780 open put contracts at 3700.00. explaining the rally to avoid serious pain at that level. However, puts prevail beneath 4000.00 with short gamma likely beginning at 3900.00. That means there is no morning ramp high enough to reclaim positive option ground.
SPY (366.65 at the close) contracts expiring at the close show put prevailing beneath 386.00 with short gamma starting at 385.00 showing 85,549 expiring contracts. Short gamma likely starts there.
ZeroHedge reports, “Ending a rollercoaster – but mostly lower – week for risk assets around the globe which saw the Fed hike the most since 1994, a shock Swiss National Bank hike and the latest boost in UK borrowing costs, as well as a bevy of central banks surprising hawkishly, stocks in Europe finally rebounded after hitting an 18 month low earlier this week, while US equity futures were bid Friday after a rout triggered by fears of recession pushed the S&P into a bear market on Monday. S&P futures rose 1% and Nasdaq futures rebounded 1.2% signaling steadier sentiment compared with Thursday’s plunge in US shares to the lowest since late 2020, after the BOJ refused to change its Yield Curve Control conditions, sending the Yen plunging, and helping the dollar snap two days of losses as Treasury yields were flat with the 10Y around 3.21%. The Stoxx Europe 600 index jumped about 1.2% after hitting its lowest level in more than a year.
Friday also brings an absolutely massive triple-witching, and although Bloomberg believes that the roughly $3.2 trillion in options expiry may lead to short covering, which could bring temporary relief for the stock market…
The NYSE Hi-Lo Index is at its lowest since March 2020. That significant damage may not be able to turn on a dime. The Cycles Model suggests is could be another month to the bottom of this Master Cycle.
VIX futures have declined to 31.82 in a brief consolidation. Next Wednesday’s options turn positive above 27.00 and long gamma begins at 35.00. It is likely that the next move may challenge 40.00, whether it occurs today or Monday. The current Master Cycle ends during options week in August.