2:27 pm
SPX has taken out the June 16 low and is likely to challenge the Lip of the massive Cup with Handle formation at 3600.00. The next two days may be instructive, as the target for the Cup with Handle formation may be 2543.00.
ZeroHedge observes, “Another day, another yield-driven market shock, and another down day for the S&P which is now lower for 6 consecutive days, the longest stretch since February 2020 when the world was about to shut down (worse, as the last chart at the bottom of this post show, stocks are now officially in meltdown pattern mode… read on).
For those who don’t see the pattern yet, it’s simple: with central banks seeing who can outhawk each other the most every day, even as their governments vow to go into a debt-funded fiscal overdrive at a time of rising rates and QT, yields are predictably surging, and real yields are surging even more with real 10Ys hitting 1.63% today, the highest since April 2010. And since real yields track fwd PEs, it’s getting uglier and uglier in risk land. Alas, it will likely get much uglier, as fwd PEs could drop as low as 12x.
Throw in some mild recession E of around 200-210 and you end up with S&P around 2400, a 50% drop from the market’s all time high this January.”
2:19 pm
Just when I say that TNX may take a rest, something new happens, and off it goes. FYI, I have never seen the likes of this in my forty-some odd years in the business. This may affect other assets, as well. One example may be the US Dollar. The BKX is also a candidate for a phase shift downward. SPX and NDX are definitely in that category.
ZeroHedge comments, “For the second day in a row, a feeble attempt to lift risk assets overnight has fizzled dramatically, as what was a modest drop in yields has reversed completely, sending the 10Y TSY surging above 3.97% – reaching levels not seen since 2010 – and just shy of 4.00%, a critical level which will be crossed shortly…
… while across the pond, in an even more remarkable move, the 30Y Gilt soared another 50bps today (the second day in a row), pushing the yield above 5.00%…
… the highest level since 2002, and an increase which is simply stunning: the 30Y was trading at 1.0% at the start of the year… it is now 5%!”
8:04 am
Good Morning!
NDX futures rose to 11452.00 this morning, but aimed for yesterday’s peak at 11473.40 to complete an [a]-[b]-[c] retracement, a mere 25% retracement. Remember that retracement bounces seem large, but in proportion to the declines, are often minimal. Equities have completed 28 market days of a 37 market day decline. Nine more days are left in the decline. They are likely to be the most destructive of all, starting today.
In today’s op-ex, Max Pain is at 11330.00. Long gamma may begin at at 11350.00-11400.00, with short gamma starting at 11300.00. Options are light, so it is a difficult call. QQQ (closing price: 274.73) Max Pain appears at 277.00 with a heavy population of both puts and calls. Long gamma begins at 280.00, while short gamma may begin at 275.00 and becomes very strong beneath 270.00.
ZeroHedge remarks, “When it comes to sellside analyst performance in 2022, nobody can surpass BofA’s Michael Hartnett: having not only correctly called the bear market, and the inflationary and recessionary turmoil this year, Hartnett also timed his tactical bearish call just as stocks peaked in late August, and has provided actionable weekly commentary on every move in stocks before and after.
But while Hartnett’s legendary status for 2022 has been secured, close in second place is that other bearish “Michael”, Morgan Stanley’s own chief equity strategist, Michael Wilson, who – despite still unable, or refusing, to call the coming recession, has been largely accurate in calling for the continued drop in stocks without any grand, Goldman Sachs-esque pivots (which collapsed from an S&P price target of 5,100 to 3,600 in 10 months), and in his latest note he was quick to rub it in the faces of all those bulls who ignored his warnings.”
SPX futures attempted to overtake yesterday’s morning high at 3715.67, but may have stopped short at 3710.90, leaving yesterday’s high as the pivot. Futures are receding and may open beneath 3700.00 as today’s first day of (downside) strength ushers in. Yesterday SPX challenged the Cycle Bottom support at 3655.04, suggesting it may go lower today. The Lip of the massive Cup with Handle at 3600.00 appears to be the next challenge. From there we may see another 8.6 days of decline.
In today’s op-ex, Max Pain appears at 3675.00. Long gamma may begin at 3700.00 while short gamma may start at 3650.00. Today’s option are light, but tomorrow short gamma may begin as high as 3700.00 and puts are heavily populated. Even more populated with puts is Friday’s op-ex, with short gamma beginning as high the strike at 3800.00 with 14,491 put contracts!
ZeroHedge reports, “US equity futures and European stocks staged a solid rebound after the recent rout which saw the S&P close at a fresh 2022 low on Monday, as the dollar finally weakened against all of G-10 peers, snapping a five-day gain of new record highs as Treasury yields fell and the pound rebounded from a record low, even as (or perhaps because) Goldman Sachs and BlackRock soured on equities for the short term and Citigroup said bearish positioning continues to rise. As of 715am, S&P Futures traded 43 points, or 1.2% higher, at 3,714 while Nasdaq futures were 1.3% higher. 10Y yields dropped to 3.80% after rising above 3.90% late on Monday.
The dollar gauge dipped but held near the record high set Monday, when a barrage of Fed officials repeated hawkish comments on policy. Meanwhile, European authorities are probing “unprecedented” damage to the Nord Stream pipeline system that transports Russian gas to the region. Benchmark European gas prices climbed as much as 12% on Tuesday, after four days of losses. Oil and gold also rose.”
VIX futures pulled back to a morning low at 30.48. While the Cycles Model has no short-term indicators, the trend is decisively higher. The Cycle top at 34.16 and the neckline of the Head & Shoulders formation at 40.00 are squarely in the target range as early as this week.
CNBC reports, “A measure of fear in stocks just hit the highest level in three months amid mounting worries over rising rates, a possible currency calamity and a recession.
The Cboe Volatility Index, known as the VIX, jumped nearly 3 points to 32.88 on Monday, hitting its highest level since mid-June when the stock market last reached its bear bottom.
TNX appears to be consolidating near the high this morning after hitting an overnight high of 39.12 in the futures. A test of the Cycle Top support at 38.61 may be in order before strength roars back at the end of this week.
ZeroHedge comments, “MOVE on the move (again)
Bond volatility surged today again. Will this take out year highs and revisit Corona panic highs. You know things are extreme in bond world when the recent VIX rise looks “tiny” compared to MOVE’s trajectory since last autumn.
Source: Refinitiv
Fed destroyed bond volatility
Nothing really new to regular readers of TME, but Fed has destroyed bond volatility. Note MOVE closed at the highest levels on the weekly chart since 2009 (chart 2). Broken markets, bond edition.
USD futures may be consolidating near the highs. Keep in mind that USD is approaching it’s Master Cycle high on day 257. Yesterday’s high may have already fulfilled the requirement, so be on the alert. The Cycles Model anticipates an approximate three week correction that may take USD back down beneath the trendline at 110.00. But this may be a false flag, since the Model also indicates a likely 3-month rally to resume after that.
ZeroHedge observes, “Finally, and as everyone knows by now, the Fed’s historically hawkish action has led to record strength in the US dollar: indeed, the DXY is now up 21% Y/Y and still rising, while the Bloomberg dollar index is at new record highs day after day. Based on Wilson’s analysis that every 1% change in the DXY has around a -0.5% impact on S&P 500 earnings, 4Q S&P 500 earnings will face an approximate 10% headwind to growth all else equal. This is in addition, of course, to all the other headwinds discussed here for months – i.e., payback in demand and higher costs from inflation to name a few. And here Wilson echoes what we have been saying for month, namely that it is important to note that such US dollar strength has historically led to some kind of financial/economic crisis.”
