The Ag Index only has a week to go in the current Master Cycle. This looks dicey, but I am leaning toward another low, just to foil the experts. In the meantime, some market gurus are calling for a “slight” shift to commodities. No particular mention of food.
SPX broke its modified Ending Diagonal and is now challenging short gamma at 4120.00. The 100-day Moving Average lies right beneath it at 4114.14 as a confirmation of the sell signal. The short position is looking less aggressive.
ZeroHedge observes, “The last few weeks have seen a dramatic rotation from an “inflation will overshoot forcing central banks to tighten financial conditions aggressively and imminently” narrative to a “fears of growth downsides/recession will bring forward the end of the tightening cycle and herald utopia” dream.
Rate-cut expectations have continued to drift dramatically higher in the last week while the expectations for Fed’s rate-hikes has also rebounded some in the short-term. The recent Fed jawboning has worked in the short-term to remove hopes of an imminent pivot but the higher rates are expected to go, the faster and more aggressive The Fed is expected to cut next year…
As Nomura’s Charlie McElligott details below, that rotation has now reached its peak as CTA-backed Bond- and Equities- legacy ‘Shorts’ in aggregate across net positions are back near ‘flat’, while the Commodities ‘Long’ is de-grossed back to ‘flat’ net as well.”
SPX futures started what may be day 1 of its new Master Cycle by declining to test the 100-day Moving Average at 4116.53. The Top may have occurred on day 259.
Today’s op-ex shows Max Pain at 4145.00 again. However, it may have difficulty holding above the 100-day Moving Average at 4116.53. Puts dominate the options chain beneath 4140.00 with short gamma beginning at 4120.00. Calls populate the chain above 4150.00 with a possible long gamma starting at 4175.00.
ZeroHedge reports, “After a Monday which started off with a powerful rally only to fizzle and close in the red, overnight market action has seen a continuation of the muted drift lower, and S&P 500 futures have turned lower this morning, falling 0.2% to 4,132, near session lows after trading 0.2% higher earlier. Nasdaq futures dropped 0.5%, indicating that the index will extend its losses for a third session, and semiconductor companies like Nvidia and AMD slipped in premarket trading after Micron forecast adjusted revenue for the fourth quarter at or below the low end of its June 30 guidance. The fading of some meme stock euphoria that defined the past 3 days has not helped bullish sentiment. Treasuries dipped, with the 10-year benchmark yield rising three basis points to 2.79% as traders await Wednesday’s CPI report to gauge the path of Federal Reserve tightening.
VIX futures went higher in the overnight session, reaching 22.11 thus far. The buy signal is at 25.00, so a long position here, while potentially profitable, would be considered aggressive prior to breaching the mid-Cycle resistance. However, in favor of going long is the prior Master Cycle stretched to day 275, This mean the VIX is very wound up and potentially ready for a very large move. Prognosticators have been speculating on the VIX turning higher for the past month. In addition, this week offers a double dose of strength on the upside.
One reason why VIX has been beaten down until now is that tomorrow’s op-ex shows Max Pain at 20.00. Both puts and calls are heavily populated above that level,, an unusual tug-of-war. Puts dominate beneath 23.00 while while calls dominate above 24.00. Long gamma may also begin at 24.00. 25.00 is certain.
TNX has risen above 28.00 with the next overhead resistance at 29.07. There are two weeks left in the current Master Cycle, with trending strength coming to the fore. This may not be the final high of this Wave structure. The Waves may need recalibration should TNX rise above its current high.
ZeroHedge opines, “Every time I open twitter these days, I see someone saying “Here comes deflation and its time to buy bonds!” and then providing some graph to back up the view. Typically it will involve the price of commodities, or perhaps some variation of PMI that leads core inflation. I think they a probably wrong – and I say that with about 90% confidence. At some point bonds will be a buy, but not today.”