SPX is on a bounce that may be an attempt to get above the short gamma zone at 3750.00.. However, overhead resistance lies at 3780.00, making it difficult to do so. Should it rise above 3780.00, it may be possible to continue to 3800.00. This may not be tradable, due to the short-term nature of the bounce. The decline is likely to resume by the end of the day.
ZeroHedge remarks, “Yesterday’s market turmoil is re-awakening in early trading after the overnight hawknado from central banks around the world (except Turkey).
US equities are extending losses, now below overnight lows with Nasdaq down almost 4% from the FOMC statement…”
SPX futures declined to test the short gamma zone at 3750.00 before bouncing back to the Max Pain area at 3785.00 this morning, likely in anticipation of today’s options expiration. Yesterday’s nosedive at the close was deep into short gamma beneath 3800.00. It may have given some hedge funds and dealers losses in the hundreds of millions which may show up in their quarterly reports next month. No one is talking about it yet. The current Master Cycle is due for a low in the second week of October. In the meantime, weakness may prevail in equities through Monday.
VIX futures rose to 28.17 in the overnight market before settling back down below yesterday’s close. Yesterday may have been a test of long gamma on it op-ex, as the long gamma zone began at 29.00, Note the close was right on Max Pain. The options market is tightly controlled, as you can imagine. At some point, control may be lost and the VIX may soar. The Cycle Model seems to indicate that may happen in the next few days.
In next week’s op-ex, Mas Pain is a 25.00. Long gamma begins at 28.00 an is bolstered by 7,266 call contracts with a strike at 30.00.
Lets connect the dots. The BKX, our liquidity proxy, is hovering just above two very important trendlines that, if broken, may lead to a liquidity crisis. The Cycles Model for BKX shows a triple dose of trending (downside) strength next week. Why are banks going down next week? One reason may be the losses in the options market, as discussed above.
ZeroHedge remarks, “Don’t let the cacophony of central-bank rate-hike announcements mislead you: global policy settings are still historically loose. Monetary policy has room to tighten much more significantly, leaving asset prices exposed to further, potentially material, downside.
This week the Riksbank in Sweden unexpectedly hiked 100bps, on Wednesday the Fed delivered its fifth consecutive rate increase, while the Philippines, Indonesia, Switzerland, Norway, South Africa and the UK are all expected to lift rates today.
Yet despite this flurry of policy tightening, the Global Policy Rate – the median central-bank rate of the major EM and DM countries around the world – is only 3%. This rate was more than 5% before the Lehman crisis, and 15% in the early 1980s.”
Is Credit Suisse next? ZeroHedge observes, “Credit Suisse is mulling several drastic options as it seeks to emerge from losses and scandals, including exiting the US market, firing more than 10% of its 45,000 global workforce, and splitting its investment bank into three – which would include the creation of a “bad bank” to silo risky assets, the Financial Times and Reuters report.”
TNX futures are hovering near the high, but may be due for a correction after a 17-Wave impulse may have ended yesterday. Trending strength comes back in at the end of the month, so there may be a week of mild-to-sideways correction.
USD futures rose to a new high at 111.56 in the overnight market, exceeding Cycle Top resistance at 111.40. However, trending strength may peak today, leading to a brief but sharp corrective decline to the trendline at a minimum.
Gold futures reversed this morning after making its (expected) Master Cycle low yesterday on day 261 of the Master Cycle. There may be a week or so of rally, with the probable target for this rally near the 50-day Moving Average at 1743.53. Should the rally extend beyond the end of the month, gold may extend its rally to the mid-Cycle resistance at 1834.73.
But the decline may resume in October with the Cup with Handle formation triggered.