July 29, 2022

8:05 am

Good Morning!

NDX futures challenged the Wave (4) high resistance at 12897.63 by rising to 12906.70.  It has since pulled back from that resistance.  Should it go higher, the next resistance is the Lip/Neckline at 13020.40.  In today’s op-ex, calls dominate above 12450.00 in a thin market.  Gamma zones, if they exist, are difficult to place.  Op-ex in QQQ (309.81) shows Mas Pain at 304.00.  Calls dominate a 305.00 and above with long gamma beginning at 310.00.  Short gamma begins at 300.00.  Insurance companies, which have quietly dominated the calls in their indexed annuities, have now switched to offer limited downside protection (up to 20%) using puts.  This may make short gamma a much larger force in the next phase of the market.

ZeroHedge observes, “It was another torrid meltup for markets, one which steamrolled bears and underinvested hedge funds, but regular Zero Hedge readers were prepared for the move for two reasons: i) we previewed the dramatic impact the early Fed pivot would have a few weeks ago, and ii) over the weekend we warned that there is a massive tidal wave of buying on deck in the form of $11BN VWAP bids between stock buyback orders and CTAs blindly buying risk just because VIX keeps dropping.

Well, prepare for much more of the same because as a reminder, Goldman’s trading desk calculated that if spoos rise above 4070, CTAs will double their daily buying from $5BN to $10BN per day, to wit:

CTAs: have $5b of S&P to buy per week at these levels. North of 4070 (long term momentum) this demand essentially doubles.”


SPX futures rose above round number resistance to 4106.10 before easing back under it.  The 4000.00-4114.65 zone remains strong resistance.  Today is day 249 of the current Master Cycle.  A Master Cycle top maybe put in at any time in the next few market days.

In today’s op-ex, Max Pain is at 4015.00.  Long gamma starts at 4035.00 and short gamma begins at 3950.00.  Remember, long gamma forces the dealers to “buy high” to cover expiring in-the-money options.  This can be a painful process as they must sell longs to cover their liabilities.

ZeroHedge reports, “US and European stock were set for their best month since November 2020 following blowout earnings from the likes of Amazon and Apple last night, and record profits from energy giants Exxon and Chevron this morning, boosted by expectations of shallower Federal Reserve monetary tightening now that the US is technically in a recession. S&P futures rose 0.6% following yesterday’s meltup while Nasdaq 100 futures rose more than 1% after US stocks hit a seven-week high Thursday, as record underinvested hedge funds are forced to chase the move higher now that most downside catalysts (peak inflation, hawkish Fed, earnings disappointment) have been eliminated. The dollar was flat, and 10Y yields rose slightly to 2.70% after plunging as low as 2.65% yesterday after the Q2 GDP print confirmed news of the unofficial US recession.”



VIX futures made a new low at 21.81 on day 269 of its Master Cycle.  I had been puzzled by the “mismatch” of the SPX and VIX this month until now.  It is becoming evident that the current Master Cycle in the VIX is stretching, while the SPX Master Cycle is shrinking to make a match.  It may happen as early as today.


TNX rose from its Master Cycle low, made yesterday on day 261.  The new Master Cycle is scheduled to top out during the August options expiration.  It appears that the rally in TNX may go much higher than expected.

ZeroHedge reports, “After remarkably solid 2 and 5 year auctions earlier this week, moments ago the Treasury sold $38 billion in seven year paper in the week’s final coupon auction, which saw demand just as blistering as the previous two.

The high yield of 2.730% was a huge drop from the 3.280% in June, one of the biggest monthly drops on record, but in a testament to just how much duration is in demand today, the auction stopped through the When Issued 2.735% by 0.5bps despite the massive rally across the curve earlier, now the the US is in a recession.

The bid to cover of 2.604 was also a major jump from the 2.481 last month and well above the 2.46 six-auction average.”




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