11:52 am
SPX may be completing its bounce to yesterday’s high at 3717.53 where strong resistance lies. Today’s day of strength appears to be the exact opposite of yesterday’s day of weakness where it tested the larger Lip of the Cup with Handle at 3600.00. The higher Cup with Handle formation is in play, which indicates the probable target for the ensuing decline. While the decline has had “near panic” days, there have been no real stampede for the exit yet. Over the next 8-9 days we may yet see multiple panic down days.
10:10
The British Pound has entered a “waterfall” event for which I have no numerical target…only a probable date for it’s next Master Cycle low. The minimum “speculative” downside target may be 90.00, with extensions to 73.00, then 60.00. Under any of these conditions, the entire British financial system may collapse. Who will volunteer to turn off the lights in Great Britain?
ZeroHedge comments, “Just a few days ago we wrote that “Something Is About To Break” and prompt a capitulation from one or more central banks, which oddly was met with mockery in the comment gallery. Also, a few weeks ago, we said that we are nearing a moment in time when central banks will do QE and rate hikes at the same time.
Finally, for much of the past year we have said it is only a matter of time before the coming market crash and economic collapse forces central banks everywhere, not just in one or two countries, to pivot as the price of economic collapse and tens of millions unemployed is far, far greater than simply shifting the inflation target from 2% to 3%.”
8:10 am
Good Morning!
SPX futures declined to test the Lip of the massive Cup with Handle formation at 3600.00, reaching 3601.60 before a mild bounce. It remains in negative territory with a probable retest later today. The Cycles Model calls for trending strength today, likely to drive SPX much lower.
It has been interesting how the options market has been controlled by the dealers and hedge funds to produce the least payout to investors (Max Pain). This morning, neither $SPX nor SPY options are being shown by my brokerage company. I wonder what gives? There is some information in yesterday’s report that may give pause.
ZeroHedge reports, “With everything biw breaking, including an explosive move in bond yields in the UK, 10Y yields rising above 4.00%, and Apple “suddenly” realizing there was not enough demand for the latest iteration of its iPhone 5, it was only a matter of time before some central bank somewhere capitulated and pivoted back to QE, and this morning that’s precisely what happened when the BOE delayed the launch of QT and restarted QE “on whatever scale is necessary” on a “temporary and targeted” (lol) basis to restore order, which sent UK bond surging (and yields tumbling the most on record going back to 1996 erasing an earlier jump to the the highest since 1998)…
… the pound first surged before falling back as traders realized the UK now has both rate hikes and QE at the same time, the dollar sliding then spiking, the 10Y US TSY yield dipping from 4.00%, the highest level since 1998, and stock futures spiking from fresh 2022 lows, but then fizzling as traders now demand a similar end to QT/restart of QE from the Fed or else they will similarly break the market.”
VIX futures rose to an overnight high at 34.88, surpassing Cycle Top resistance at 34.21. Protection against a meltdown is being ramped up in the options market while my dealer refuses to show the options chain for VIX as well.
ZeroHedge observes, “Protection ain’t easy
You buy protection when you can, not when you must. Premium is usually much cheaper in times when “you can…” The crowd tends to do the inverse though. VIX term structure is shifting higher today again. Note the backwardation now becoming rather extreme in the shorter end maturities. Fear is definitely here…
Source: vixcentral
MOVE – say hello to post Covid panic highs
Another day, another new recent high in bond volatility.
Source: Refinitiv
SPX/VIX – at least something is “back to normal”
Muted VIX is gone. The “gap” between SPX and VIX is basically gone. The sell off has been rather “controlled”, despite the “crash” feeling. VIX has “caught up”. On Aug 15/16 we outlined our logic on protection and VIX. If you played the “Fancy some VIX call spreads” (Aug 15 ), it is time to book profits and move on. Buying VIX/protection at these levels is only for the ones that believe we are crashing imminently. Recall, volatility is about pace and not direction…”
The NYSE Hi-Lo Index attempted a recovery yesterday, reaching a high of -65.00 before sliding back toward the prior lows. The Cycles Model shows trending (declining) strength intensifying as this week ends and remaining strong throughout the following week. Panic time?
ZeroHedge remarks, “Investors are becoming increasingly bearish on stocks as persistently high inflation has compelled the Federal Reserve to hike rates aggressively, with Bank of America analysts and the American Association of Individual Investors (AAII) both saying that investor pessimism has hit levels not seen since around the time of the financial crisis of 2008–09.
The latest sentiment survey from AAII shows that the percentage of individual investors describing their six-month outlook for stocks as “bearish” rose sharply by 14.9 percentage points, to 60.9 percent. The last time the AAII investor pessimism gauge was higher was in March 2009, when it hit 70.3 percent.”
USD futures made a new high this morning at 114.72, extending the rally further. However, the anticipated Master Cycle high may have been made this morning, with a pullback to the trading channel trendline a most likely outcome. The correction may take up to three weeks before reverting back to trend.
TNX futures rose to 40.20 this morning before pulling back beneath 39.00 at the cash open. However, trending strength is due for a comeback by the weekend, suggesting that the attempts of unlimited QE by the Bank of England may fail.
ZeroHedge reports, “It’s only fitting that literally hours after the most clueless dwarf in capital markets history, Janet “No crisis in my lifetime” Yellen said that financial markets are functioning well, that the Bank of England literally panicked, and shocked markets by resuming unlimited QE.
“We haven’t seen liquidity problems develop in markets — we’re not seeing, to the best of my knowledge, the kind of deleveraging that could signify some financial stability risks,” Yellen said in answering reporters’ questions Tuesday on a trip to North Carolina.
Fast forward just a few hours when the the Bank of England saw quite a few “liquidity problems” when it cited “significant repricing of UK and global financial assets… This repricing has become more significant in the past day – and it is particularly affecting long-dated UK government debt.” It warned that “were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability” and used that to justify the end of QT (before it even started) and the restart of QE.”