SPX made a 70% retracement of the June 16 decline. It has not…overcome the gap left on Thursday open at 3788.19. It may not have completed Wave C of (5). And it has not completed an Cyclical minimum 12.9 days of decline (yet). It is also short-term overbought. A 10% down day from here may easily bring SPX beneath the Head & Shoulders target.
VIX shows trending strength next week, which raises alarms that the following correction may extend even lower. I am not comfortable with this arrangement and wish to warn that this situation may go in any direction.
SPX futures soared just beyond the 50% Fibonacci retracement value at 3737.22 before dropping back toward the 38.2% Fibonacci retracement at 3713.63. Investors are coming back in to pick up “bargains” but may suffer disappointment as the decline is not yet complete. The gap left on June 16 at 3788.19 has been left unfilled, leaving it in a weakened state. Structurally, there are two more probes lower over the next two days that may bring the Elliott Wave structure and the Cycles to completion. The declining pattern since January has been a Leading Diagonal made up of A-B-C zigzag patterns most evident in Wave (1). Wave A of (5) declined from 4177.51 to 3705.68, a 471.83 point decline. Should Wave C be equal to Wave A, the decline may go to 3232.39. This matches up with the October 2020 support/low at 3233.94.
This morning’s bounce may be explained by the fact that, in today’s options expiration, options don’t turn long until 3740.00. Thus, the attempt to boost the SPX into long option range may have failed. Short gamma may reside at 3700.00 and below, so this is the level to watch. There are put positions down to 3400.00.
ZeroHedge reports, “Following a relentless rout that erased nearly $2 trillion in market value from the S&P 500 last week, US equity futures have surged, extending their Monday holiday gains just as predicted on Sunday when we said that a “Nasty Squeeze” was on Deck following last week’s “Second Largest Ever” shorting by hedge funds. Nasdaq 100 futures rose as much as 2.2% before trading 1.7% higher as major US tech and internet stocks advanced, poised to extend Friday’s gains; shares of Tesla and Twitter also rose following billionaire Elon Musk’s comments at the Qatar Economic Forum; S&P 500 futures gained 1.8%; the cash market was closed on Monday for a holiday. Asian and European stocks also advanced as did bitcoin which jumped above $21K after sliding below $18K briefly on Saturday. Meanwhile Treasuries and the US Dollar retreated.”
VIX futures may have completed their retracement to 30.13 over the extended weekend and may venture higher as investors suddenly find themselves buying protection against a decline. This Wednesday’s op-ex shows VIX options turning long at 32.50 and long gamma beginning at 35.00. What is noteworthy here is that VIX, which normally does the inverse of the SPX is not “on pattern” VIX is showing unusual strength beginning this weekend and extending through July. It may meet its Master Cycle high on its August op-ex on or near August 17.
TNX lingers above the Cycle Top support at 32.69. A breakdown would launch a decline as far as the mid-cycle support at 20.81. A Master Cycle low may be expected in the first week of July, an adequate time to allow TNX to meet its target.
ZeroHedge remarks, “Never forget – NOT allowing price discovery for a long period of time – then forcing the process onto markets with a “bayonet in the back” – at an ever-accelerating rate – is a virgin-central bank experiment. It comes at a high price. Never happened before.
Inflation is forcing central bankers to allow price discovery. There was always price discovery before Lehman – but for much of the last 12 years markets have been in a Fed zombie trance. We mean a real – free market – “cost of capital.”
USD futures reached an extended weekend low of 103.72 after a retest of the Cycle Top at 104.43. The USD is on a sell signal with the Cycles Model calling for a decline to the second week of August for a potential Master Cycle low. The Target may be the lower Broadening Wedge trendline and mid-Cycle support at 97.80.