7:30 am
Good Morning!
NDX futures are easing lower after struggling against the Lip/Neckline at 13020.00 yesterday. There may be no turning back after the miserable attempt at a retracement. The Cycles Model gives this decline 55 calendar days, of which only a week has transpired. Primary Wave [3] has begun. It would behoove us to discuss one of the few Elliott Wave rules. That is, Wave threes are never the smallest in the series. From that we may deduce that Wave [3] may be at least as large as Wave [1], or 5727.00 points. This puts the Wave [3] target at or near 7994.00. That is why the two bearish formation targets still stand.
In today’s QQQ (314.10) op-ex, Max pain is at 316.00. However, QQQ is already in short gamma beneath 315.00.
ZeroHedge observes, “Following today’s dismal new home sales data and “deep recession” Service PMI print, there was some reprieve from the multi-day blast of FCI tightening (to be expected with hedge funds piling into record hawkish rate bets ahead of Jackson Hole), with the dollar, real yields and equity vol either pausing their charges or pulling-back modestly, while European credit spreads also incrementally tightened overnight, easing the recent strain on broad risk-assets.
Critically for this risk stabilization, we are seeing European Energy prices or pull-back from the “exponential extremes” touched yesterday at the peak of the panic, which has acted as the key global Rate Vol catalyst in recent days.
However, as Charlie McElligott notes, the past week has seen a resumption in the prior 1H22 “momentum” regime among the CTA community, and accordingly, we have seen a sudden impulse back into the 3 of the big “trend trades” from the first 6 months of 2022: i) short bonds/rates, ii) short equities and iii) long dollar, or as the Nomura x-asset strategist puts it, “the CTA Trend is back into their G10 Bond / STIR “Shorts.”
SPX futures remain in a consolidation mode “in range” after 5 days of decline. If there is a chance of a bounce, today may be it. The Cycles Model suggests trending strength (weakness) may resume on Friday.
In today’s op-ex, the Max Pain zone may be at 4155.00. Long gamma begins at 4200.00, while short gamma starts at 4125.00.
ZeroHedge reports, “he downbeat market mood continued for a fourth day, with US stock futures turning red and erasing earlier gains after a three-day drop saw the S&P 500 lose $1.4 trillion in market capitalization amid renewed concerns about a hawkish Fed and a potential J-Pow bomb during Friday’s J-Hole symposium (that said, with expectations so bearish, there is almost no way Powell can sound hawkish). S&P 500 futures dropped 0.1% at 7:00am ET after falling as much as 0.5%. Nasdaq 100 futures were also modestly red as the yield on the 10-year Treasury hit 3.05%. The US dollar reversed yesterday’s sharp drop and extended its recent surge as the EURUSD resumed its plunge trading ever farther from parity, and at 0.992 last. Oil meanwhile has continued its ascent, pushing Brent above $100, and leading to the first Diesel price increase at the Pump since mid-June.
“Globally we haven’t seen a deceleration like this that has been so synchronized in many decades,” Frances Stacy, director of strategy at Optimal Capital Advisors LLC, said on Bloomberg Television. “I don’t want to be directional” in picking trades, she added.”
VIX futures rose to an overnight high at 24.86 before easing back. While VIX remains beneath the mid-Cycle and the 50-day Moving Average at 25.12, it may be gearing up for another burst of strength later this week.
TNX is backing away from yesterday’s high, a probable Master Cycle high on day 266. The Cycles Model suggests the new Cycle to last until mid-November. A probable target may be as low as the Lip of the former Cup with Handle, near 17.00.
ZeroHedge reports, “While the recently concluded TSY refunding auction week passed with flying colors, the same could not be said for today’s sale of $44BN in 2Y paper (to be followed by 5Y and 7Y auctions later this week) on a day when 10Y yields have been pushed and pulled by the 3.0% level on the 10Y.
The auction was ugly, stopping at a high yield of 3.307%, the highest since at least 2007, and well above last month’s 3.015%; it also tailed the 3.293% When Issued by 1.4bps, the biggest tail since Feb 2020 (when it hit 1.6bps) just as the bond market locked up ahead of the covid crash.
The bid to cover of 2.488 dropped from last month’s 2.583 and was the lowest since March.”