September 19, 2022

7:35 am

Good Morning!

NDX futures are on the decline, but not yet to new laws as I write.  On Friday the indices crossed beneath their respective Lip of the Cup with Handle formations, then rallied to close at that juncture.  Unfortunately, it gave bottom seekers hope that it was the end of the decline.  This morning, the new reality is that they were too quick on the draw and may suffer the consequences of a fresh decline to new lows.  I myself had estimated that, with the NDX is short gamma beneath 12000.00, the indices would close even lower on Friday, since the Cycles Model called for a burst of trending (declining) strength over the weekend.  Fortunately, buyers stepped in after 2:00 to save the day.  It would be interesting to see what the actual losses were on Friday.

In today’s op-ex, Max Pain is at 12010.00, while short gamma may begin at 12000.00.   While the put options are not numerous, call contracts are scarce beneath 12100.00.

ZeroHedge remarks, “After last week’s furious selloff in stocks, which was sparked by the one-two knock-out punch of an overheating CPI and FedEx’s “shocking” global recession warning, it”s not like stocks needed  more reasons to be bearish now that even the CTAs have turned decidedly short again. Alas, as even Goldman’s trading desk warned on Friday after the worst week for stocks in months in which global markets lost a massive $4 trillion in market value, anyone hoping for another bear market rally, or even a quick dead-cat bounce, will likely be disappointed for one main reason: that other giant, price indiscriminate buyer of stocks, corporate stock buybacks orders – the first one being CTAs – is about to go on a month-long hiatus courtesy of the start of the buyback blackout window.

As Goldman’ Michael Nocerino writes, it’s buy bye-backs, because the Buyback Blackout window began on Friday with 50% of the S&P 500 in their closed window. During such blackout periods, Goldman’ traditionally very busy buyback desk typically expects flows to decrease by 30-35% as 10b-5.1 plans kick in. Indicatively, Goldman’s buyback desk Friday ran at 0.7x the 2021 average daily volume, so this slowdown matters “and can’t come at a worse time.”


SPX futures declined to a new low at 3830.30 this morning. It also rallied late on Friday to close just beneath the lip of the cup with Handle formation.  The formation was triggered on Friday and there is a good probability of a panic decline lasting 4-6 days, starting last Friday.  This may be a horrendous week for the markets as liquidity has been draining and shorts are starting to pile on.

In today’s op-ex, Max Pain appears at 3885.00, while short gamma may begin at 3880.00 and is most certainly at work beneath 3850.00.  Long gamma begins at 3900.00.  There may still be a struggle to keep the SPX above the Lip in order to minimize the dealer pain this morning, but it may not last.

ZeroHedge reports, “After a dismal week for risk assets, which saw equities drop the most since June 17, global markets and US equity futures are tumbling in another extremely illiquid session (Japan and UK are both closed, the latter for the state funeral of QE2) as the realization sparked by Fedex that the world is in a global recession, is starting to finally seep through. Add to that Wednesday’s 75bps rate hike by the Fed (which however is more than priced in by now) as well as the previously discussed start of the buyback blackout period, and CTAs and pensions becoming forced sellers with investor sentiment that can at best be described as pervasive record doom and gloom, and it becomes clear why this week could be an even bigger bloodbath for stocks.

And sure enough, Nasdaq contracts have tumbled 1.2% as S&P futures are down 1.0%…”



VIX futures are approaching 28.00 again, having reached a morning high at 27.95.  A Master Cycle high is due this week, but not evident yet.  A new high at or above the Head & Shoulders neckline would fulfil the order.

Wednesday’s op-ex shows Max Pain at 27.00, while long gamma may begin as low as 28.00.  There are 147,513 call contracts at 30.00 with several six-digit clusters of calls above that level.  Short gamma lies at 26.00 and below.


TNX futures mad a new high at 35.18, while the cash market has topped out at 35.10 thus far.  The trend is clear and unrelenting.  This is called a phase shift showing virtually no corrections.  The Cycles Model suggests it may have the expectation to last until mid-November.  The probable target appears to be over 5.00.  Let it be said that, since records were kept in 1949, the Fed has never mad move ahead of the market.  In fact there is a lag of 1-3 months between the treasury market and Fed decisions.  Has Larry Summers been reading my blog?

ZeroHedge reports, “he dawning week couldn’t have been bigger in its import for the markets even if Treasury and other traders had asked.

Monday is perhaps is the calm before the storm, with Japan closed and the UK observing a day of mourning for the Queen. On Tuesday we get the first of several monetary policy decisions in the developed markets with Sweden’s Riksbank’s review coming under scrutiny. The central bank is widely expected to raise rates by at least 75 basis points, which given how inflation and inflation expectations are evolving in the economy shouldn’t come as a surprise to anyone. In fact, considering that this will be the Riksbank’s penultimate review this year, it may not be a complete surprise if the monetary authority were to go jumbo and raise rates by a full percentage point, giving itself some head start over the European Central Bank.

A day later we get the Fed, and the markets are still torn between a 75-basis point increase and an even bigger move. That apart, it would be interesting to see how the members’ dot plot evolves, with current market pricing making the version we have from June pretty much moot. From near-zero interest rates just a couple of years ago, are we going to a 5% zip code as former Treasury Secretary Larry Summers reckons?”


USD futures continued their consolidation above the trendline.  That may not last, as a surge of trending strength is about to arrive.  This strength may last through the end of the month when the next Master Cycle is due to end.


Crude oil has resumed its decline after a brief pause on Friday, making a new low at 82.23 as I write.  There is no nearby formation to give us direction  other than the Broadening Wedge, which may be triggered beneath 66.00.  The Cycles Model suggest the decline may continue for another month with the decline accelerating into a panic next week.


Gold is losing its grip on the Lip of the Cup with Handle formation, by declining to 1667.60 this morning.  However, it is due for a Master Cycle  low this week, so I am not recommending a trade here, despite the probability of a nasty sell-off.






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