Yesterday may have been the Master Cycle high for the Ag Index. Today will tell whether a reversal is in store. Despite the rising fundamentals, it appears the GKX is due to decline over the next two months, mainly due to decreasing market liquidity. The 61.8% retracement of the two-year rally is at 387.78, not far from the Cycle Bottom. Given the time of the next Cycle, it may go lower.
Today ZeroHedge reports, “US cotton prices continued to surge above the boom days of 2010-11 after a massive crop estimate cut by the USDA, shocking Wall Street analysts and traders, due primarily to a megadrought scorching farmland of Texas, according to Bloomberg.
Futures in New York for December delivery were up 4.5% to $1.1359 a pound and up more than 21% this month.
“I don’t think you can put a top on prices right now,” Louis Barbera, the managing partner for VLM Commodities, told Bloomberg.
“I have been going to Texas for more than ten years, and this is by far the absolute worst I have ever seen, said Barbera.”
On Monday, ZeroHedge commented, “We really are reaching a major crisis point. Thanks to soaring fertilizer prices, insane weather patterns and the war in Ukraine, global food supplies have been getting tighter and tighter. So we really needed a banner year for agricultural production in both the United States and Europe in 2022, and that is not going to happen. In fact, unprecedented drought is absolutely devastating crops all over the northern hemisphere. A lot of people are complaining about how high food prices are right now, but just wait. If some sort of a miracle doesn’t happen, agricultural production is going to be way below expectations in both the United States and Europe, and that is going to have very serious implications for 2023.”
On Saturday, ZeroHedge wrote, “The next food insecurity problem that may impact the way Americans eat could be an emerging potato shortage that began last year when yields were depressed due to a heatwave, according to Boise State Public Radio.
“I’m not sure if you remember last June, but we had some just unbelievably hot temperatures here in Idaho. It did a number on our potato crop,” Jamey Higham, president and CEO of the Idaho Potato Commission, told the Idaho-based media outlet. “And so, our yields were significantly down last year.”
SPX futures consolidated between the high made yesterday and a low at 4282.80. Today is day 267 in the current Master Cycle. While it has gone beyond the median (258 days), it is still within normal deviations from the norm. Today is day 60 from the low, completing a Trading Cycle (low-to-high). There is a lot of talk about reaching/exceeding the 200-day Moving Average at 4227.82. The proximity makes it appear doable, but trending strength may have been spent, according to the Cycles Model.
In today’s op-ex, Max Pain is at 4255.00. Long gamma begins at 4350.00, while sort gamma begins at 4250.00. SPX is neatly “corralled” between long and short gamma which may limit volatility until a breakthrough in one direction or the other. Tomorrow’s long gamma begins at 4300.00. Friday’s op-ex is rife with long gamma above 4200.00. The question is, will the market prove the majority of punters wrong?
ZeroHedge comments, “With stubborn bears refusing to capitulate to this “most hated rally”, and in fact making it even more hated by the minute as they dig in their heels and add even more shorts the higher stocks rise…
… it is virtually assured that the “max pain” trade higher will continue (at least though the end of this month as Goldman’s Scott Rubner noted over the weekend). And sure enough, today ended up being another melt up higher after a poor opening, with the SPX finishing +40bps and now ~18% off the yearly lows and closing in on the 200dma (4327).”
VIX futures are creeping higher, but still within yesterday’s trading range. A rising VIX during a rally in equities may be a warning sign of an imminent top. In tomorrow’s op-ex dealers would rather the VIX drop to 14.50, where open interest is in the single digits. However, Max Pain is at 26.00, where both puts and calls are populated with over 40,000 contracts. The strikes at 23.00 and 25.00 have over 100,000 put contracts each. Getting “over the hump” of bearish options may allow the VIX to rise significantly.
MarketWatch explains, “Investors have endured a lot this year, and it’s not over yet with market technicians debating whether U.S. stocks are embarking on the start of the next bull market, or simply another vicious bear-market rally, as investing titans Stanley Druckenmiller and Michael Burry have warned.
For investors struggling to discern how best to position their portfolios amid a morass of confusing price action and technical signals, one in particular stands out: The Cboe Volatility Index, otherwise known as the VIX VIX, +0.45%, or the stock market’s “fear gauge,” which this week tumbled back below 20 for the first time since April.”
TNX futures are edging higher, leaving us at odds as to whether the Master Cycle ends the week higher or lower? My leaning is lower, but that may depend on whether some event jolts investors out of stocks.
ZeroHedge comments, “What happened to QT?
Going from QE to QT was probably the most talked about macro theme in the markets at the end of last year and during parts of the spring. It was the rock the bears stood on. Now, over the past 6-8 weeks it has been eerily quiet on the QT front from both sell-side and buy-side. Credit Suisse even wrote this one month ago: “We receive almost no questions (which may hint at complacency) on QT. Could QT be the ‘black swan event’?” What has happened? Time to dust off those old QT charts. Are they still relevant and can this come back as a macro-theme?”
USD futures continue their rally, reaching a new high at 106.83. USD is on a buy signal and the Cycles Model suggests a continued rally through September. The Cycles Model shows trending strength beginning today. The next resistance is the upper trendline/Cycle Top at 108.43.