12:15 pm
I have completed a Cycle study of the most recent events and have found that my Cycle interval of 18.5 is still at work. From the May 20 low to the June 17 low was 28 days (18.5 X 1.5 = 27.75). From the June 17 low to today was 55 days (18.5 X 3 = 55.5). Cycle intervals change with the type of Wave structures. Corrective structures (A-B-C) are ruled by 18.5, while impulsive structures 1-2-3-4-5) are ruled by intervals divisible by 4.3, such as 8.6, 12.9, 17.2, 20.5, 25.8 and 30.1 are some examples. Wave [3] is likely to be impulsive.
11:21 am
SPX has reversed course and fallen through the trendline and Cycle Top at 4233.00. While it may bounce around near the top, this may be considered an aggressive sell signal. The next level of confirmation is 100 points lower, at the 100-day Moving Average at 4109.82 (not shown). Remember, Max Pain is at 4195.00.
11:05 am
Today is day 254 in the Master Cycle and possibly the final day of strength in this retracement. We may see the Ag Index rise to the 50-day Moving Average in the next few days, but the reversal may be swift and severe. The final target for this Intermediate-term retracement may be the Cycle Bottom at 393.31. The 61.8% retracement from the 2019-2022 rally is 387.60. This may be a bit counterintuitive, but t new Master Cycle may last through mid-October. Food prices lower into the mid-term election?
ZeroHedge comments, “Now they are trying to convince us that dramatically higher prices are good news. Are you kidding me? Our standard of living is being systematically destroyed, and more Americans are falling out of the middle class with each passing day. The government just announced that in July the consumer price index was 8.5 percent higher than it was the previous July. Of course many have challenged the value of the inflation numbers that the government is giving us because the way inflation is calculated has been changed many times over the years. As John Williams of shadowstats.com has pointed out, if the rate of inflation was still calculated the way that it was back in 1980 it would be far higher than anything that we experienced during the Jimmy Carter era of the 1970s. You can spin that any way that you want, but it is still a raging national crisis.
Yes, energy prices in the U.S. have fallen a bit, and many Americans are very thankful for that.
This reprieve won’t last indefinitely, and so don’t celebrate too much.”
11:27 am
It’s not just food inflation, it’s the drought in the Southwest. ZeroHedge remarks,
“Extreme drought in northern Mexico has sparked a water crisis. President Andres Manuel Lopez Obrador addressed the beer industry in the region to shift production elsewhere because of sustainability factors, reported Bloomberg.
The water crisis is particularly critical in Monterrey, one of Mexico’s most important economic hubs and home to some of the largest beermakers in the world, such as Heineken NV.”
8:20 am
Good Morning!
SPX futures extended its rally to challenge the trendline, near 4230.00. Today is day 262 of the current Master Cycle. The 50% retracement value is 4225.62. This ramp is frustrating even the most experienced traders as we prepare for an overshoot of the targets..
In today’s op-ex, Max Pain is at 4195.00. Calls dominate above 4200.00 and long gamma starts at 4250.00. Puts control the options chain beneath 4190.00 with short gamma possibly beginning there, as well.
ZeroHedge reports, “US equity futures extended their post-CPI miss gains (for reasons laid out last night by Goldman’s trading desk which sees $13 billion in non-fundamental demand every day and a new round of FOMO by lagging hedge funds), rising 0.4% on Thursday morning…
…. while tech stock futures were also higher changed after the Nasdaq 100 advanced 20% from its June lows, entering a new bull market, with Wednesday’s softer-than-expected inflation print bolstering hopes of less aggressive Fed tightening. Contracts on the Nasdaq 100 were 0.4% higher by 7:15 a.m. in New York after the underlying gauge soared 2.8% on Wednesday to the highest level since May 4.”
VIX futures have consolidated above yesterday’s extended Master Cycle low. Yesterday was day 280 of the Master Cycle. I have commented before about the potential mismatch between the VIX and SPX Cycles. The mismatch may be finally resolved.
In yesterday’s op-ex, VIX closed beneath the Max Pain level at 20.00. I have commented before that equities have been options-driven. Amazing. In next Wednesday’s op-ex, Max Pain has fallen to 14.50. Puts dominate from 15.00 to 26.00, while calls dominate above 27.00. There are over 100,000 put contracts at strikes 22, 23 and 25. Given the Cycles structure, the dealers must move the VIX above 25.00 for the least payout next Wednesday.
ZeroHedge remarks, “VIX – welcome to inverse panic
We are finally reaching the volatility puke we have been writing about for the past two weeks. VIX has not closed here in a long time. Reversal strategists are pointing out the VIX vs SPX gap, but these people do not trade volatility, nor do they understand what volatility is. Volatility is mean reverting by “nature”, so don’t buy into the “last time VIX was here…” arguments. Time to get busy when it comes to using cheap(er) volatility in your overall strategy.”
TNX continues its slide with only a week left in the current Master Cycle. Should it go lower, the target may be the mid-Cycle support at 23.42. The 8.6 month support (not shown) is at 23.96, so there is some confirmation of the direction of this Cycle.
ZeroHedge reports, “One day after a stellar 3Y auction saw the lowest dealer award on record, which many said (correctly) hinted at a big CPI miss, moments ago we got the follow through to today’s massive CPI miss when the Treasury sold $35BN in 10Y paper in one of the strongest auctions on record.
The high yield in today’s sale of $35BN in paper came in at 2.755%, down from 2.94% in July and the 2nd consecutive decline; the yield also stopped through the 2.7610% When Issued by 0.6bps, the first stop through for the 10Y tenor since February!”
USD futures may be consolidating after making a Master Cycle low yesterday, on day 259. There is no clear reversal yet, so the chances of a lower reading are still high, given today’s market action and the probability of a lower TNX.
ZeroHedge comments, “Only old people experienced real recessions–those in 1973-74 and 1980-82. Recessions since then have been shorter and less systemic.
In the good old days, a recession laid waste to entire industries which never recovered their previous employment. People who were laid off couldn’t find another job. Major sectors of the economy dried up and blew away. Jobs were scarce and there was an oversupply of people looking for work.
We’re told consumer confidence is in the dumps and everyone expects the worst: recession! Oh Lordy. Interestingly, there isn’t much evidence of this near-panic behaviorally. Everyone’s tightening their belts and battening down the hatches, but it’s not the cliff-dive we see in a real recession.”
Crude oil futures are higher this morning, reaching an overnight high of 93.69. The Cycles Model suggests a week to go to meet the Master Cycle high, targeted for the 50-day Moving Average, currently at 104.77. Pundits are calling for lower prices, due, in part, to a recency bias.
Zerohedge remarks, “Oil prices extended losses this morning – amid some notable volatility around US CPI – after a bigger than expected crude build reported by API, the imminent reopening of crude flows to Europe from Russia through Ukraine, and continued weakness in real wages.
“Crude oil prices rose on Tuesday on news pipeline flows of crude oil from Russia via Ukraine to Europe had been halted over a payment dispute of transit fees. The line, however, is expected to reopen within days but it nevertheless highlights and supports the current price divergence between WTI futures stuck around $90, amid rising US stockpiles and slowing gasoline demand, and Brent,” Saxo Bank said in a note on its website.“
Gold futures tumbled to a low of 1798l50 before bouncing. Yesterday was day 267 of the old Master Cycle, so a reversal is imminent, if not already happening. The Cycles Model suggests about seven weeks of decline, more than enough time for a significant decline. The initial sell signal resides at 1790.00, just beneath the 50-day Moving Average at 1792.40. The gold-as-money crowd is calling for gold at 2500.00 when the inability to legally transport gold is a major factor in making gold nothing more than another commodity, subject to market influences.