3:25 pm
The SPX did indeed make a new low…and tested 3900.00 to boot. This afternoon had some pain for both the longs and the shorts. Now the SPX is back below 3850.00 and testing short gamma for the second time this afternoon. This time the brakes are gone and the train may be unstoppable, especially beneath 3825.00.
1:58 pm
I am taking the “risk” that equities may go down after the FOMC announcement. Granted, there may be an effort to “elevate” the SPX, but the trend is down and we may see new lows before the day is done.
ZeroHedge chimes in, “everyone and their pet rabbit is heading into today’s FOMC meeting long the dollar, short bonds, and underweight/low-nets to stocks (with extreme negative gamma from hedges).
That combination has Nomura’s Charlie McElligott worrying about what is essentially a “butterfly flapping its wings” moment, where simple monetization / closing / or profit-taking then risks a larger unstable reversal, turning into a “un-economical” market impulse which is not related to any fundamental change in macro stance.
Despite Nomura’s “hawkish” out-of-consensus house view that The Fed will hike 100bps today…”
8:15 am
Good Morning!
SPX futures are rising again to test overhead resistance at 3875.00 after being slammed by the Russian announcement overnight. The reasons for positivity may include, but not exclusively to (1) rise into the Mas Pain zone and (2) paint a picture of a positive market going into the FOMC announcement. The possibility of any strength doesn’t show up in the SPX until next Wednesday. It is possible that yesterday may have been the first day of a panic decline, having tested but remained beneath the Lip of the Cup with Handle formation.
Today’s option market shows Max Pain at 3865.00. Long gamma begins at 3900.00. Short gamma may begin at 3850.00, but is reinforced at 3825.00.
ZeroHedge reports, “With traders nervously doing nothing ahead of today’s FOMC meeting, where Powell will announce a 75bps rate hike but all attention will be on whether the 2023 median dot (which as we previewed will unleash havoc if it comes above 4.5% which is where market expectations top out for this hiking cycle), today’s extremely illiquid market got an extra jolt of volatility just before the European open when shortly after 2am ET Vladimir Putin delivered his postponed message to announce a “partial mobilization” over the Ukraine war. The news slammed stocks, yields, and the euro while sending oil and commodities sharply higher. And while the initial spike lower has reversed and futures are modestly in the green now, there is zero liquidity right now and the smallest sell program could topples risk assets.
As of 7:15am ET, US futures pointed to a recovery from Tuesday’s tumble on anxiety policy makers are hoping to spark a recession in their zeal to subdue price pressures. S&P futures were up 0.2% after trading down 0.6% earlier, with Nasdaq futures 0.1% in the green. 10Y yields dipped 3bps to 3.54% even though the USD was higher and bitcoin fluctuated between losses and gains.
A look at the NYSE Hi-Lo Index shows internal weakness, suggesting any appearance of strength may come from a few mega-caps rather than the NYSE as a whole. The current downtrend in the NYSE is not due to end until the second week of October.
ZeroHedge observes, “With the Fed successfully slamming stocks, corporate bonds and pretty much anything that isn’t the dollar, and tightening financial conditions the most in the past 2.5 years ahead of tomorrow’ 75bps rate hike…
… things went from bad to worse for the bulls today on surging Terminal-rate pricing – last seen at 4.49% down modestly from 4.52% earlier…
VIX futures rose to a high at 28.03 in the overnight session, but have subsided to a small loss as I write. Today is day 260 in the Master Cycle, which appears to be running late due to the FOMC.
In today’s op-ex, the Max Pain zone is at 27.00. Short gamma may begin at 26.00, with increasing positions beneath it. Long gamma may begin at 29.00 with strong reinforcements at 30.00. Today’s session may be extremely volatile.
TNX futures are “giving it a rest” after reaching new heights yesterday. The period of consolidation may last up to a week with trending strength reappearing after the first of October, according to the Cycles Model.
ZeroHedge explains the reason for yesterday’s easing, “After last month’s terrible 20Y auction, which matched a record big tail of 2.5bps, expectations were not very optimistic for today’ sale of $12 billion in 20Y paper (actually 19-Y 11-month reopening of the ugly August issue) despite the Treasury’s attempt to boost demand by reducing supply. Well, for once consensus was wrong and moments ago Treasury Direct announced pretty strong results in today’ auction”
ZeroHedge comments, “The massive debt levels provide the single most significant risk and challenge to the Federal Reserve. It is also why the Fed is desperate to return inflation to low levels, even if it means weaker economic growth. Such was a point previously made by Jerome Powell:
“We need to act now, forthrightly, strongly as we have been doing. It is very important that inflation expectations remain anchored. What we hope to achieve is a period of growth below trend.”
That last sentence is the most important.’
USD futures may be resuming its advance higher as it reached 110.62 this morning. Trending strength is reappearing and may continue through the end of the month with a possible new high for the current Master Cycle.
ZeroHedge reports, “On the eve of The Fed’s big decision to hike rates 75bps or 100bps in an effort to shock the system and tamp down out of control inflation, no lesser entity than the CCP-backed Global Times penned an editorial attacking US monetary policy, entitled: “The strong dollar should not become a sharp blade to cut the world.”
Gold futures rose to 1685.60, breaking above the Lip of the Cup with Handle in a probable bounce that may last up to three weeks. It made a probable Master Cycle low last Friday and the rise above the Lip gives a potential buy signal. Unlike the Head & Shoulders formation, the Cup with Handle formation is more permeable, allowing movement on either side of the trendline. This is confusing for most traders who are familiar with the Head & Shoulders, but not the Cup with Handle.