3:45 pm
Today’s assignment for the dealers was to keep SPX above short gamma at 3650.00. Mission accomplished…for today. Tuesday and Wednesday both appear to be serious down days.
10:19 am
One of the reasons for the bounce in stocks this morning is the bounce off the Lip of the Cup with Handle formation by the BKX. This shows a bounce in liquidity, primarily due to the currency interventions by Great Britain and other central banks.
7:40 am
Good Morning!
NDX futures dipped to 11199.00 this morning, not making new lows yet. However, The Elliott Waves call for at least one more probe lower to complete an impulsive series of Waves. Wave 3 cannot be the smallest Wave in an impulsive series, suggesting a probe to the Lip of the Cup with Handle, at a minimum. Finally, the Cycles Model suggests a short-term pivot may await equities around mid-afternoon. It may lead to a bounce for a couple of days or a phase shift, intensifying the decline. The Model offers two days of strength Tuesday and Wednesday, which may either initiate a bounce or indicate a panic decline. Today’s action is crucial to the outcome.
NDX expiring options are light, but indicate short gamma beneath 11400.00. QQQ (closing price 275.51) is in short gamma beneath 282.00. with Max Pain at 283.00 and long gamma starting at 285.00.
ZeroHedge remarks, “Friday was a bad day for stocks, and while spoos managed to stage a tiny end-of-day bounce to avoid sliding below the 2022 June closing low of 3,666, one can only describe Friday’s action as a crash – which is what we did – especially in the bond world where things are starting to break, as Michael Hartnett explained in “The Bond Crash of 2022”
But even just looking at equities, it was a full-blown capitulation: as Goldman’s flow trader John Flood observed, the last day of trading saw continued Long Only (L/O) derisking in broken names (Goldman’s asset manager sell skew peaked at 21% Friday which was 91st $-ile vs 52 week look back), at the same time as Goldman saw meaningful supply in growth complex.”
SPX futures made a weekend low of 3658.80 and is on a bounce. The decline on Friday was not large enough to be a Wave 3, so we may conclude that either a bounce to 3790.00 (then a panic decline) may be underway or the decline continues this morning with a vengeance. Should the bounce continue this morning, an afternoon pivot may set up for at least two panic down days later this week. The current Master Cycle calls for a major low during the week of October 10.
Today’s op-ex shows Max Pain at 3695.00. Calls are light but short gamma begins at 3650.00.
ZeroHedge reports, “The rout which hammered stocks on Friday, nearly pushing them to close at a new 2022 low, resumed overnight when the global FX crisis returned with a bang, and a flash crash in the British pound which as noted late last night, plummeted 500pips in thin trading, to fresh record lows following Friday’s shocking mini-budget announcement which confirmed the UK has no idea what it is doing and will cut rates and issue more debt just as the BOE is desperately trying to tighten financial conditions.
The plunge in cable was however just one symptom of a bigger malaise, namely the relentless surge in the dollar which overnight hit fresh record highs as the BBDXY rose as high as 1,355 before briefly fading the surge…
… as every dollar-denominated debt issuer in the world is suffering crippling pain and begging Powell to do something to ease the unprecedented shock of the strongest dollar in history just as the world slumps into a global depression.
Alas, so far there is nothing but silence from the Fed – which will likely have to make some announcement on central bank currency swaps at some point before the open today to avoid an even more epic FX rout – and as traders await something to break big time across global markets…
… this morning futures have tumbled another 0.7%, as eminis drop to 3,683 while Nasdaq futures are down 0.8% to 11,290 on fears that Federal Reserve rate hikes to combat persistently elevated inflation will crush the economy into a full-blown recession, or depression, and the VIX soared above 32.”
VIX futures made a new high at 32.88 this morning before easing back. I indicated the Master Cycle ending on September 9. It is a legitimate low at 248 days, but a bit early. The next few days will indicate whether that is the correct location.
In Wednesday’s op-ex, Max Pain is at 28.00 while short gamma may not begin until it reaches 24.00. Long gamma begins at 30.00. and is heavy to 55.00.
ZeroHedge(TME) remarks, “VIX caught up (partly)
More and more equity sales people have started showing us the longer term MOVE vs VIX gap. This is usually a late sign. We outlined the lagging VIX in mid August in our post, “Beyond boring equities – BIG stuff is moving“. The VIX has moved sharply higher since mid August, while MOVE has done very little. People pointing out the gap here are very late to understanding cross asset volatility…
Source: Refinitiv
In puts we trust?
Put volumes exploding…
Source: GS
Put options bonanza – time to bounce?
Nobody has missed the “great” put options chart, but Spotgamma dives into something slightly more interesting comparing total premium bought vs sold (ETFs, bot-sold (open+close)). The latest move in puts is huge and could be a sign for the short term bounce ready to kick in.”
TNX futures ramped to 38.01 over the weekend session, while the cash market was a little less exuberant at 37.85. New highs, in both cases. This week may be especially strong in TNX, as the trending strength ramps up later in the week. This is what a phase transition looks like. Every time I call for a pause, it ramps higher. There is no stopping a runaway train. The end of the track may be November 15. Please read the weekend special report.
USD futures hit a new high at 14.41 over the weekend. Today is day 256 in the Master Cycle, suggesting a pullback may be in order later this week. The Cycles Model suggest a correction may last up to three weeks. But the march to higher highs may resume with a vengeance. Foreign governments and corporations borrowed money in USD because the rates were lower. However, they did not factor in the rising USD which is driving them into default.
ZeroHedge remarks, “The rout which hammered stocks on Friday, nearly pushing them to close at a new 2022 low, resumed overnight when the global FX crisis returned with a bang, and a flash crash in the British pound which as noted late last night, plummeted 500pips in thin trading, to fresh record lows following Friday’s shocking mini-budget announcement which confirmed the UK has no idea what it is doing and will cut rates and issue more debt just as the BOE is desperately trying to tighten financial conditions.
The plunge in cable was however just one symptom of a bigger malaise, namely the relentless surge in the dollar which overnight hit fresh record highs as the BBDXY rose as high as 1,355 before briefly fading the surge…
… as every dollar-denominated debt issuer in the world is suffering crippling pain and begging Powell to do something to ease the unprecedented shock of the strongest dollar in history just as the world slumps into a global depression.”
Gold futures are making new lows as it has declined beneath the Lip of the Cup with Handle on Friday. It appears to have made a Master Cycle low on September 21, but only has an insignificant bounce at the FOMC announcement. Normally we would see a three week bounce, but the Cycles Model suggests the decline may extend for up to two months.