October 13, 2022

3:05 pm

SPX was slowed at short-term resistance at 3675.00, then moved on to test the 50% retracement at 3687.21.  Gap resistance is at 3706.00.  I still view this as a retracement of the decline.

ZeroHedge comments, “A little over an hour before today’s CPI report, we published a snapshot of current hedge fund exposure, warning that “net equity positioning fell to fresh 5-year lows ahead of the US CPI data”…

… and concluding that “sentiment has completely bombed out – yes the CPI may come in hot, and will likely lead to more selling, at least initially, but everyone is already positioned for this.”

 

1:16 pm

SPX made a slight overshoot of the 38.2% Fibonacci retracement at 3658.64.  Should it go higher, the 50% retracement is at 3681.00.  It is testing long gamma at 3650.00, so act accordingly.

 

10:01 am

There has been some downside profit-taking at the low this morning.  While there may be a chance of a retest of the Lip just above 3600.00 on a rebound, the structural damage may have already been done.  Earnings season starts today which may dampen the ardor of the longs.  Today’s action is a good indication of more downside, regardless of the short-term outcome.

ZeroHedge comments, “US inflation is at a 40-year high, Europe is enduring an energy crisis and major economies are nearing recession. The impact on earnings is about to be laid bare.

Analysts will scrutinize results and conference calls over coming weeks for details of how firms plan to navigate pressure on margins from rising input and labor costs. Soaring interest rates and China’s Covid restrictions are also fanning worries that they haven’t been fast enough to cut earnings estimates.

“No one expects the profit warnings to date will be the end of the story,” said Danni Hewson, an analyst at AJ Bell.”

 

7:52 am

Good Morning!

NDX futures bounced to an morning high at 10937.90, (before the CPI report) but may be easing lower.  The Lip of the Cup with Handle is near 10960.00.  Today is day 262 of the old Master Cycle, currently terminated at 11660.60.  This may be the “last chance” for a rally that is strong enough to decisively break through resistance at the Lip.  Even so, additional resistance remains at 11293.00 where the NDX gapped down on October 7.  In summary, trendline resistance lies at 10960.00 while the 38.2% Fib retracement is at 11080.00 and the 50% retracement lies at 11188.00.

In today’s op-ex, Max Pain is at 10875.00.  Long gamma is at 11000.00, while short gamma begins at 10840.00.  The key for dealers is to stay above short gamma.  QQQ (closing price: 262.66) is at Max Pain at 269.00.  Puts dominate at 268.00 and below with short gamma in full force at 265.00.  Long gamma starts at 275.00.

ZeroHedge comments, “It’s understandable that traders, both retail and hedge funds, will be nervous ahead of tomorrow’s CPI print: as we noted earlier, with just one exception – the CPI report for July –  the S&P 500’s response has been to slide every time the data was released as inflation has chronically come in hotter than expected. In fact, as shown in the chart below, core CPI has come in at or above expectations on 9 of the past 11 occasions.”

 

SPX futures rose to 3628.00 pre-CPI, then plummeted to 3500.00.  I won’t bother to change the commentary on the NDX, which is also plummeting.  This morning’s high speed plunge in the indices sets the pace for Wave (C) of [3] which may last another 4 weeks.

In today’s op-ex, Max Pain is at 3605.00.  Long gamma may begin at 3650.00.  Short gamma starts at 3600.00 and is especially strong at 3540.00 and 3500.00.

First, ZeroHedge reported, “US equity futures traded heavy for much of the overnight session ahead of the much-anticipated (and gloomy, having hammered stocks on 7 of 9 CPI days so far in 2022) inflation data at 830am ET (full preview here), even as gilt yields suspiciously slumped overnight as if someone was aware of some non-public news, before futures ripped sharply higher around 730am ET when first SkyNews…”

Then, ZeroHedge did a double take, “While the market’s volatility this week has been focused on UK pension funds and budgets and systemic risk, this morning’s US CPI print will likely determine the next leg from here with expectations for an acceleration in core inflation and small slowdown in headline growth of consumer prices.

Disappointingly, for the hopeful bulls, Headline and Core CPI printed hotter than expected.

Headline CPI rose 0.4% MoM (double expectations) and up 8.2% YoY (hottere than the +8.1% exp)…

Source: Bloomberg

Core CPI is up 28 straight months, soaring to +6.6% YoY – the highest since August 1982…”

 

Something odd is going on here.  VIX futures rose to 33.70, then dropped to 32.65 before levelling off.  A major breakout should have been anticipated after the CPI print.  Has the market been caught flat-footed, buying calls instead of puts, keeping the VIX suppressed?  Or perhaps there may have been a delay in reporting?  We may find out more after the open.

ZeroHedge comments, “US inflation is at a 40-year high, Europe is enduring an energy crisis and major economies are nearing recession. The impact on earnings is about to be laid bare.

Analysts will scrutinize results and conference calls over coming weeks for details of how firms plan to navigate pressure on margins from rising input and labor costs. Soaring interest rates and China’s Covid restrictions are also fanning worries that they haven’t been fast enough to cut earnings estimates.

“No one expects the profit warnings to date will be the end of the story,” said Danni Hewson, an analyst at AJ Bell.”

 

TNX decisively broke over 40.00 this morning, reaching a morning high of 40.75.  Rates are acting like a runaway train, with the Cycles telling us it won’t stop until mid-November.  A potential target appears to be 5.3%.

ZeroHedge reports (without the picture), “The hotter than expected CPI print – following a hotter than expected PPI print – has sparked chaos in markets this morning…

Most importantly, rate-hike expectations have soared with the terminal rate now over 4.85%…

Critically, the market is now pricing in 18% odds of a 100bps hike in November…”

 

USD futures made a high at 113.83, just above Cycle Top support at 113.50.  The Cycle Model suggests a boost in strength next week, leading to a possible new Master Cycle high at the end of the week.

 

Gold futures plummeted to 1650.50 this morning after crossing beneath the Lip of the Cup with Handle formation yesterday.  This may have triggered a likely panic decline in gold that may last until Thanksgiving week.  Note the potential target.

 

Crude oil declined to 85.56 this morning, beneath Intermediate-term support at 86.15.  WTIC is now on a confirmed sell signal.  The Cycles Model suggests the decline may continue until the end of the month of October.

 

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