SPX has reached a new high of 4039.56 as I write. It is in long gamma which may force dealers to buy high to cover today’s maturing options. In any event, we must see SPX come back down to 4000.00 by the close or the market may wake up with a hangover, since Dealers will have to sell their longs to pay today’s in-the-money options.
ZeroHedge remarks, “Yesterday, ahead of today’s FOMC meeting we were musing what would happen if the Fed followed in the ECB’s footsteps and killed forward guidance.
Well, we got the answer today when Powell effectively confirmed he is just as clueless as Lagarde when it comes to forecasting the future, and his admission that the Fed will be pretty much exclusively data-dependent…
- *POWELL: PACE OF RATE HIKES TO DEPEND ON INCOMING DATA
… coupled with the Fed Chair’s confirmation that it will “likely be appropriate to slow increases at some point” is all the market needed to unleash a huge buying spree, sending the Nasdaq more than 4% higher, and triggering the biggest buy program since March 2021!”
SPX made a new correction high, but I was amazed at the precision of it all. From the 4177.51 high, it took 56 calendar days (18.5 X 3) ,exactly 37 market days (18.5 X 2) and 259 market hours (18.5 X 14). You may recall that I mentioned that the market patterns were divisible by 18.5 (4.3 squared). It seemed that this Cycle was breaking all the rules and I had attempted to find the new pattern, to no avail. Today was like a bullseye. We may now expect to see a 12.9-market day panic decline where Wave C may equal or exceed Wave A to fulfill the Head & Shoulders Minimum Target.
I have a 7:30 breakfast appointment, so here is a brief summary to tide us over until I return.
SPX futures rallied to a 54% retracement of yesterday’s decline, at 3965.20. It appears that the “status quo” is being held until the FOMC announcement later today.
In today’s op-ex, Max Pain is near 3940.00 with options favoring calls at 3950.00 with long gamma beginning at 4000.00. Puts dominate at 3915.00 and short gamma may begin at 3900.00.
ZeroHedge reports, “Global markets and US equity futures got a strong boost on Tuesday from reassuring big tech reports including Microsoft, Texas Instruments and Google, which delivered double-digit revenue growth reversing the doom and gloom from other reporters. Microsoft assuaged fears that the strong dollar and a weakening economy would hurt sales while Alphabet posted advertising revenue that surpassed analysts’ expectations amid an industry slowdown. Credit Suisse CEO Thomas Gottstein will to be replaced by asset-management head Ulrich Koerner next week after the Swiss bank posted its third straight quarterly loss and its worst trading first half in decades. All of that, of course, pales ahead of the day’s main event Later today, the Federal Reserve is expected to increase its benchmark interest rate by three quarters of a percentage point.
Nasdaq 100 contracts led gains rising 1.3% and reversing much of Tuesday’s plunge. S&P futures rose 0.8% alongside European stocks which also rose, with the banking sector up even as Credit Suisse Group AG posted a larger-than-expected loss, Deutsche Bank AG warned on costs, and the outlook on Italy’s sovereign debt ranking was lowered by S&P. The dollar and Treasury yields slipped, while oil and European natural gas prices extended gains.
VIX futures pulled back to 24.04 after closing above the mid-Cycle support at 24.52. It is on an aggressive buy signal with additional confirmation above the 50-day Moving Average at 27.17. VIX is recognized as a “buy” above 25.00.
SeekingAlpha observes, “Summary
- Since the beginning of 2022, the Cboe Volatility Index® (“VIX”) futures curve has shifted higher, indicating that expectations for volatility in the market remain elevated.
- A state of contango represents the expectation that the VIX index will increase from its current level moving forward.
- When the VIX futures curve does go into backwardation it could signal weakness and overall risk in the market but the market can recover quickly.
TNX remains slightly elevated above yesterday’s possible Master Cycle low (day 259). The Cycles Model projects the next Master Cycle pivot (high) during the August monthly options expiration. A likely target may be the Cycle Top resistance at 35.21, but may be higher.
Yesterday ZeroHedge reported, “After soaring last month to 3.27%, the highest level since July 2008, in what was an ugly auction that tailed by a whopping 3.5bps, moments ago the US Treasury sold $46 billion in a much more solid auction.
The high yield of 2.860% tumbled from last month’s 3.271%, the biggest one month drop since the Covid crash. It also stopped through the When Issued 2.870% by 1 basis point, a spike in demand which was no doubt facilitated by the concession during this morning’s modest selloff.
The bid to cover jumped from June’s dismal 2.28 to 2.46, the highest since March and above the six-auction average of 2.44.”
Today ZeroHedge observes, “What the Fed says at Wednesday’s meeting is going to matter much more than what they do.
That, according to Bloomberg’s Garfield Reynolds, will be the case even if Powell shocks us all by hiking less or more than the three-quarter point shift that’s been solidly priced in for most of the time since the June meet.
But assuming policy makers meet those projections, then all of the focus is going to be on what guidance we get from the policy commitment statement and Chair Powell’s presser. Traders are betting the cash rate will be about 3.1% in a year’s time and 2.6% in two years, following rate cuts which are expected to start in Q1 2023. Making matters more complicated, the Fed’s WSJ mouthpiece, Nick Timiraos today published an article warning that the Fed could nuke the practice of forward guidance (similar to what the ECB did last week).”
USD futures traded in range this morning, awaiting the FOMC announcement and guidance. The Cycles Model shows USD ending the week in strength with only two more weeks left in this Master Cycle.