August 29,2022

10:10 am

SPX has been unable to close its opening gap at 4057.66 this morning, leaving the probability of yet another probe lower, possibly to the 50-day at3981.02 before a higher bounce develops.  It must bounce to 4080.00 to loosen the grip of short gamma on today’s op-ex.  Should this event develop, we may see a sideways market through the end of the week.  Overhead resistance is at 4200.00.


9:50 am

BKX (our liquidity proxy) is challenging its 50-day Moving Average at 106.8A1 this morning.  The Cycles Model suggests a possible short-term bounce, then a continued decline through the end of September.  A decline below the 50-day confirms the sell signal with the next support at 97.50.

ZeroHedge comments, “The hawkish tone of the Fed’s chairman Jerome Powell on Friday 26th was unequivocal. His most important sentence, in my view, was the following: “With inflation running far above 2% and the labour market extremely tight, estimates of longer-run neutral are not a place to stop or pause.”

What does this mean? The Fed will do what it takes to cut inflation if the labor market remains strong. These strong messages sent ripple effects to markets. Stocks and risky assets fell in unison and the US dollar relative strength created another widespread depreciation of weaker currencies.

The Fed knows that inflation is fundamentally a monetary phenomenon and that they must correct the mistake made in 2020 by increasing dramatically money supply and sending rates to even lower territory.


7:20 am

Good Morning!

NDX futures challenged the 50-day Moving Average at 12418.61, dropping to 12393.30 before bouncing back above the 50-day.  Should it open above the 50-day, there is a probability for a bounce to Intermediate-term resistance at 12807.93.  Structurally, the NDX is due for a bounce, but short gamma still may have control.  The Cycles Model allows the decline to continue to mid-day (8.6 market days from the high).  Stay alert for a bounce later this morning.

In today’s op-ex, Max Pain is at 12825.00, so NDX is deep in short gamma.  QQQ (Friday’s close 307.44), Max Pain is at 318.00.  It is also in short gamma with no leveling off in sight.

ZeroHedge remarks, “It was an ironic twist: one week ahead of Friday’s Jackson Hole meeting, Goldman’s biggest trading desk bull, Scott Rubner, who steadfastly – and correctly – encouraged the bank’s hedge fund clients to keep buying the most hated rally until its peak just below the 200DMA, joined BofA’s Michael Hartnett in turning bearish and warning that it’s time to sell and that the response to the question “are we there yet”, is “yeah we are” and that “sellers are lower.” At the same time, Goldman’s biggest trading desk bear, Matt Fleury, unexpectedly jumped the fence and sided with the bullish market consensus, saying that “I am of the view Powell doesn’t have the stomach to be all out hawkish here, and will give himself room to maneuver highlighting that monetary policy take time to have an impact & they need to see the lagged impacts.” He then added that “At the risk of being overly specific: I think Powell will seem dovish on Friday and risk premium will be taken out of the market” (granted, he added that “It wouldn’t surprise me to see some people return from vacation early on a market sell off into Labor Day given the current set up.“) Needless to say, the former bull was right and the bear’s view that Powell “will seem dovish” was wrong, and the result was a 4% tumble in the Nasdaq, the biggest 1-day drop in more than 2 months.”



SPX futures plummeted to 4007.20 before bouncing.  Unlike the NDX, SPX did not challenge the 50-day Moving Average at 3987.21.  This remains the focal point for a bounce, either in the futures or later in the day.

In today’s op-ex, Max Pain is at 4115.00.  Long gamma begins at 4150.00.  Short gamma starts at 4080.00.  Dealers have quite a hole to dig themselves out of this morning.  Short gamma is especially dangerous at 4000.00.  Thus, the bounce this morning at 4007.20.

ZeroHedge reports, “Market sentiment has only deteriorated after Friday’s sharp post-Powell/ECB dump, and investors started the week with the bear market rally in tatters after the world’s biggest central banks huddled around a simple message in Jackson Hole this weekend: they are ready to fight runaway inflation with higher interest rates, even if it does some damage (in other words they want to crush demand, even as Biden’s debt relief plan and Inflation Reduction Plan hopes to stimulate demand). Powell quashed the idea of an early dovish Fed pivot (ensuring a much more forceful one later once all EMs fully blow up on the back of the soaring USD) and also said on Friday that the road ahead will “bring some pain to households and businesses” in the US, an “unfortunate cost of bringing down inflation” while ECB’s Isabel Schnabel said she and her colleagues had “little choice” but to continue tightening even if Europe’s economy tips into recession, which is becoming increasingly likely. As expected, Senator Liz Warren said she was worried the central bank will tilt the US economy into a recession, but for now Biden still thinks that soaring inflation polls worse than recession and/or global depression.

In any case, Powell’s signal of higher-for-longer interest rates rocked market on Friday and then followed through in Asia and Europe on Monday, sinking stocks and equity futures. S&P 500 futures slipped 1% as of 715 a.m. New York time, while Nasdaq futures tumbled 1.3%, as swaps traders boosted their expectation for where the Fed rate will be a year from now to 3.82%, from 3.68% a week ago.”



VIX futures rose to a new high at 27.67 this morning.  It remains near the top of its range.  As of Friday it is on a confirmed buy signal.  Traders view this as a “risk off” signal.

ZeroHedge observes, “Friday was an equity “thing”

FX volatility down while VIX exploded higher. On the other hand, the VIX catch up was overdue. If you played our VIX call spreads logic from Aug 15 (here) when VIX closed at 19.95, make sure to actively adjust this position in order to capture max optionality.

Source: Refinitiv

VIX term structure – shifting higher

The entire curve moved higher on Friday, with the biggest impact in the short end of the curve as investors always chase the shorter term maturities for the “quick” hedge. We mentioned “playing the curve” two weeks ago (here), we wrote: “….buying the short end of the curve vs shorting longer end of the curve.” This is now playing out…but there is still no “real” panic being priced.”


USD futures Made a new high at 109.44 before pulling back to trendline support at 108.60.  This week may see some consolidation, but the first week of September may see a powerful move higher.


Crude Oil futures rose to 94.62 this morning.  It is on an aggressive buy above Intermediate-term support at 93.70.  The Cycles Model suggests a probable two-month rally through the end of October.  We await a breakout above mid-Cycle resistance at 96.79 to confirm the outlook.


Gold futures continue their decline to 1731.40 this morning.  The Cycles Model suggests the decline may continue through monthly op-ex before a possible bounce.  Cycle Bottom support lies at 1697.71 while the next Cup with Handle trendline lies at 1678.00.  Those are the two “lines in the sand” before a very significant decline.



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