3:06 pm
Today is (calendar) day 51 from the top of the current daily Cycle beginning on June 2. There were 16 days of decline followed by 35 days of correction in this particular Cycle, as opposed to 37 down days followed by 14 days of rally in the first two Cycles. Investors have been buying the dip, or at least covering their shorts on each of these 51.6-day Cycles that began on January 4, especially this one. The next daily Cycle may be another top-to-top ending mid-September. But the final Cycle may be measured from top-to-bottom, ending shortly after the mid-term election, in my estimation.
What may be noteworthy is that today’s close may be nearer to Max Pain (3930.00) than most would have expected. The 50-day Moving Average is near 3925.00.
ZeroHedge brings out the (stumped) commentators, “As we end the week, the question – according to JPMorgan’s trading desk – is whether the bear market current rally has ended and what that means for stocks moving forward.
While the Banks painted a picture of strength in Consumer and Corporate sectors, bears will point to (lack of) hiring (and outright firing) in Tech and headlines from companies such as AT&T that consumers are behind on payments on their phone bills! Recall AT&T’s management said “we’re seeing an increase in bad debt to slightly higher than pre-pandemic levels, as well as extended cash collection cycles. However, it’s important to note that customers are making their accounts today consistent with historical patterns and previous economic cycles.”
9:48 am
The Ag Index appeared to have completed its Master Cycle low on July 6 very near the 3-year 50% Fibonacci retracement value of 429.64. This morning, however, it declined lower, extending the correction to a possible 61.8% retracement at 387.78. Critical support for this decline lies at 380.54. An alternate view may be that GKX may have completed a PI Cycle of 314 days from its September, 2021 low in the place of its Master Cycle shown in the chart. I have reached no conclusion, yet.
ZeroHedge reveals, “Turkey has announced that Russia and Ukraine are on the cusp of signing a deal that would allow for the resumption of crucial grain exports from Ukrainian ports, after days of intense negotiations in Istanbul. Expected to be signed Friday, details have yet to emerge, but The New York Times is reporting that Ukraine may have compromised on a key demand regarding demining its ports.
“The Turkish presidency says that a signing ceremony will be held on Friday to unveil a deal brokered between Ukraine and Russia” – which would allow some 20 million tons of Ukrainian grain to be released under the UN-sponsored plan, the Times reports. In the afternoon local time, Turkish President Erdogan said he’s about to give the world “good news” on grain exports later in the day.”
8:30 am
Good Morning!
NDX futures declined to 12498.10 and bounced. However, NDX still remains in the red this morning. Equities may have completed a 50-day top-to-top Cycle, giving way to the next decline. The next Master Cycle bottom may lie near mid-August, where the Head & Shoulders target may be in play.
In today’s op-ex, calls hold sway down to 12200.00. in a lightly populated options market. Op-ex in QQQ (307.38) shows Max Pain at 299.00 with Long gamma starting at 310.00 and short gamma beginning at 295.00. It appears that retail investors are more involved than institutions.
ZeroHedge notes, “Earlier today, we wrote that according to the Goldman flow desk, “most clients were hating this rally“, sentiment which Nomura’s Charlie McElligott picked up on later in the day when he wrote that the risk over the near term is a “further pile-on to the crowd who has expected another surge lower in stocks, instead squeezing their shorts and accelerating the enormous Systematic buying already going through as CTAs cover and flip long.”
Well, it appears that the most steadfast bears – who are recently capitulated bulls, and who according to the latest BofA Fund Manager Survey, are now the most pessimistic on record – are starting to capitulate yet again, this time calling a bottom to stocks, and are starting to buy. Indeed, as Goldman flow trader John Flood writes in his end of day wrap, “some noteworthy long-only clients have now started to passively buy on our desk throughout the day (velocity picked up this afternoon as mkt moved higher)” adding that “executed flow across US equities franchise had +338bp buy skew vs 30d avg of -30bp sell skew. L/Os buy skew +9.8% was highest here since since 6/30.”
SPX futures bounced from a low of 3977.10, but failed to make a new high in the overnight session. Yesterday’s high was considered a breakout, but note that a normal 61.8% retracement value was 3970.00. A decline beneath the 50-day Moving Average at 3925.12 may confirm a sell signal.
In today’s op-ex, Max Pain appears at 3930.00. Long gamma begins at 4000.00, while short gamma resides at 3850.00. Given a choice, dealers may not wish to pursue longs at this point.
ZeroHedge reports, “US futures were flat (bouncing off session lows), and a rally in tech stocks reversed after three days of gains as recessionary PMI data out of Europe and disappointing results from COF, CRSR, SAM, SIVB, STX and others raised concerns about sliding corporate profits amid slowing economic growth. Contracts on the Nasdaq 100 were down 0.5% as 7:30am in New York, while S&P futures ticked 0.3% lower, but are on pace to close the week more than 3% higher after solid rallies in the past two days.”
VIX futures made a new Master Cycle low at 22.85 this morning, stretching the Current Cycle to 261 days. This decline may be due, in part, by short gamma.
Wednesday’s op-ex shows Max Pain at 29.00 with short gamma at 26.00. Long gamma begins at 30.00. If this weren’t the end of a Master Cycle, I would be bearish on VIX.
Bloomberg writes, “A recent bout of volatility in US equities has prompted some traders to think Wall Street’s so-called fear gauge should be higher. For Goldman Sachs Group Inc., that isn’t necessarily the case.”
ZeroHedge notes, “Longer-dated VIX futures: still fear
Longer-dated VIX futures are well above their pre-COVID range, reflecting persistent risk aversion.
Source: Goldman
Implied high
Implied volatility is well above pre-May levels across tenors.
Source: Goldman
VIX hedges
VIX call open interest on strikes ≥40 is at record highs.”
TNX made a surprise move this morning, indicating that the current Master Cycle (day 255) may end as low as mid-Cycle support at 22.51 in the few days that may be left of the Cycle. Wave C reaches equality with Wave A at 23.64, so it may not be too much of a stretch to make up the difference.
ZeroHedge observes, “ECB hiked rates (50bps) for the first time in 11 years and attempted a word-salad to explain their defragmentation ‘tool’ to save spreads from blowing out. In the US, there was more ugly data today with 8-month highs for initial jobless claims and Philly Fed plunging to COVID-lockdown lows (and AT&T admits Americans can’t afford to pay their phone bills?!)
This prompted a very dovish dive in rate-hike expectations
Source: Bloomberg
Additionally expectations for a rate-cut in Q1 are re-accelerating…
Source: Bloomberg
As Curvature’s Scott Skyrm notes, after the rally today, the market is only pricing a 15% chance of a 100 basis point tightening next week. Of course, 75 basis points is still fully priced-in.