Note: I will be absent from the blog during the week of July 4. The blog may resume on July 11.
BKX, our liquidity proxy, is now about to break into new lows not seen since February 2021. The next Master Cycle low is due shortly after op-ex on July 15. It is possible that Primary Wave  may be complete by then and, with it, the target for the Cup with Handle may be met. Bank solvency tests were supposed to be passed this last weekend. Nothing has been said since Friday. Is there another Lehmann in the wings?
NDX futures are testing the Cycle Bottom support at 11396.84. It is likely that support may not hold. Today is not an op-ex day for NDX. Max Pain for tomorrow’s op-ex is at 11790.00 and options turn short at 11750.00. While options are not highly populated, they are not favorable to a rally.
SPX futures have fallen beneath the support line at 3800.00, but may bounce back for a retest. There may be further support at 3650.00, but a new Cycle may has begun, giving the SPX up to 37 market days of decline. The Cycles Model suggests the decline may intensify this weekend with a possibility of a limit down open on July 5. I will be gone next week, so be warned that the worst may be just ahead.
In today’s op-ex, Max Pain is at 3845, while options turn nominally long at 3850.00. Optons turn short at 3825.00 and short gamma may begin at 3800.00. This puts the dealers and hedge funds in a precarious position.
Instead, it ended up being more or less the opposite, with crypto-led liquidations dragging futures and global markets lower, and extending Wednesday losses after central bankers issued warnings on inflation and fueled concern that aggressive policy will end with a hard-landing recession, which increasingly more now see as being 2022 business, an outcome that now appears assured especially after yesterday’s disastrous guidance cut from RH, the second in three weeks!
VIX futures jumped to 30.09 this morning, a new Cycle high. The Cycles Model shows high trending strength today, and again during the entire month of July. That conforms with the emergence of the VIX out of its Triangle (coiling) formation. Analysts have been trying to figure why the VIX is low in relation to the decline in the SPX. I posted the following article yesterday, but thought a revisit might be helpful for those who missed it.
ZeroHedge asks, “One of the most frequent questions tossed around Wall Street trading desks (and strip clubs), and which was duly covered by Bloomberg recently in “Fear Has Gone Missing in Wall Streets Slow-Motion Bear Market“, is why despite the crushing bear market and the coming recession, does the VIX refuse to rise sustainably above 30, or in other words, why is the VIX so low?”
TNX is declining in earnest, with approximately a week to finish this Master Cycle at or near mid-Cycle support currently at 21.42. There is double support at 30.00 which may stall the decline, but events may conspire to assist a break-through.
ZeroHedge (TME) observes, “US 10 year update
So the 10 year reversed on the huge 3% level a few sessions ago, managed retracing around 50% of the move lower from highs and is now approaching the trend line that comes in at 3.10%. A close below 3.10% and things risk go very “dynamic”. Watch that trend line closely as well as the 50 day at 3%.”
USD futures probed higher to 105.31, testing Cycle Top resistance at 105.05. But it may be rolling over as I write. Once beneath the 50-day Moving Average at 103.00, the decline may continue to mid-Cycle support ant the trading channel trendline at 98.19.. the Cycles Model suggests a decline to the second week of August.
Gold futures may have made a Master Cycle low yesterday, on day 258. The Cycles Model calls for a month-long rally in gold. The first possible target is the 50-day Moving Average at 1862.50. Liquidity concerns suggest that, should it not rise above the 50-day, there may be a phase shift to a decline through the Lip of the Cup with Handle. A phase shift only requires 4.3 days of rally. I do not see gold coming to our rescue in a liquidity-driven market decline.