NDX as reversed and fallen beneath Intermediate-term support at 11447.00, creating an aggressive sell signal. Confirmation lies at the Lip of the Cup with Handle formation at 11045.00. Intermediate Wave (C) of Primary Wave  promises to be a panic decline that sets a record for 2022.
SPX appears to have reversed from the 50-day Moving Average and the resistance trendline, both at 3875.00. The Cycles Model indicated that this type of reversal may be considered an aggressive sell signal, to be confirmed by crossing the next support level at 3768.00. Should the decline continue, we may see a 12.9 market day decline beneath 3000.00 at a minimum. The Cup with Handle offers a deeper target. We may see a small bounce before the decline declines forcefully.
ZeroHedge remarks, “The S&P 500 Index will decline about 7% for every additional 100-basis point increase in the Fed funds rate, a study of its duration shows, suggesting the index may sink as low as 2,900 should the policy benchmark rise to 6% in the current cycle.”
Japanese Yen futures made their Master Cycle low on Friday and may have another week of respite before resuming their decline. The bounced of that low was due primarily to massive intervention and may have had help from the US Treasury to boost liquidity. The decline may resume in force after the end of October. Meanwhile, here in the US we find the source of the last burst of liquidity.
ZeroHedge comments, “Something strange is going on: while we already know that the BOJ has spent north of $50 billion in reserves to stop the yen from crashing in response to the BOJ’s own policy of recklessly and wantonly throwing infinite yen at the JGB market to preserve Yield Curve Control and avoid a crash in long-term Treasuries, one question many have been asking is whether Japan is spending all this money (the BOJ is effectively doing the Fed’s job for it, injecting billions in USD into the market which is painfully short the greenback) without any coordination with the US. If so, it would be effectively one central bank doing what everyone in the market is advised to never do: fight the Fed.”
Yesterday ZeroHedge noted, “Several days ago, around the time of Friday’s historic, largest-ever BOJ intervention in the FX market, we pointed out something which almost nobody had noticed: the BOJ’s Yield Curve Control had already failed on several occasions, with 10Y yields crossing well above the 0.25% Yield-Curve Controlled barrier…
… and that Kuroda was valiantly injecting trillions of yen in the financial system to defend a barn door that has already been blown open.”
SPX futures made a morning low of 3813.80 before a bounce leaving it at a loss. The good news is that SPX did not test the 50-day Moving Average at 3884.65. The more difficult news is tat the decline is not confirmed until SPX declines beneath Intermediate term support at 3762.29. The timing of the reversal still allows for a 12.9-day decline to a Master Cycle low by mid-November.
In today’s options driven market, Max Pain is at 3845.00. Long gamma begins at 3865.00, while short gamma begins at 3835.00. Futures are currently testing short gamma.
ZeroHedge reports, “US index futures are lower this morning, set to give back some of Tuesday’s 1.6% sharp rally as technology giants’ earnings and outlook disappointed investors, stoking concerns about the industry’s profitability and raising new doubts over whether this year’s $5.5 trillion selloff is nearing a bottom.
S&P 500 futures dropped as much as 1.2%, and were down 0.7% at 7:30am while Treasuries extended gains, with the 10-year yield falling to around 4.05%. Nasdaq 100 fell more than 1.5% as megacap stocks tumbled in premarket trading after Alphabet’s 3Q miss and disappointing outlook from Microsoft and Texas Instruments weighed on the cohort, which is set to lose approximately $300 billion in market value if losses hold at open. The combined weight of the three companies amounts to more than 19% of the Nasdaq 100.
VIX futures remain near the bottom of the trading channel after extending its Master Cycle to day 274. The Cycles Model now calls for a rally in the VIX lasting to mid-December. Those buying VIX futures and options at the August low have seen a pullback, but not losses. Buuying VIX during a panic is generally not a good idea.
Today’s op-ex shows both puts and calls evenly distributed at 30.00, creating a potential trigger finger volatility event. Next week trending strength returns in a double portion.
ZeroHedge remarks, ”
The bull in put puke
Regular readers of TME are familiar with our general logic on protection. You buy protection when you can, not when you must. The crowd managed loading up on puts at recent market lows. These are now being puked…”
TNX may be back-testing the Cycle Top support/resistance line at 40.83 before continuing its decline. I had mentioned that a big player may be contemplating buying long-term treasuries to fill in the liquidity gap. The Fed may not be able to do this as it would destroy (what’s left of) their credibility and so-called independence. However, there is a person more closely aligned with the White House who can do this and may be considering this option. So far, there is no significant news, but note that the Cycles Model calls for a rate reduction from now until mid-November. Is this just a coincidence? Much like the release of oil from the SPR, we may only find out the players after the fact.
USD futures declined to an overnight low of 109.79, beneath the 50-day Moving Average at 110.39 and trendline at 110.85. Today is day 264 of the Master Cycle, so we may anticipate a reversal imminently. What little relief the decline has given to other currencies may not last.
Investing.com observes, “The US dollar is having one of toughest days of the year. It has been sold across the board and taken out key levels like parity in the euro, $1.15 in sterling, and CAD1.36. The Chinese yuan surged over 1%. Chinese officials promised healthy bond and stock markets. There is some talk that the PBOC may have intervened directly in the forex market. Large bourses in the Asia Pacific region rallied and the CSI 300 rose by 0.8%, its first gain of the week. After rising by around 2.8% over the past two sessions, Europe’s STOXX 600 is slightly lower. A disappointing batch of corporate earnings is weighing on US futures. The US 10-year yield is around four basis points lower at 4.06%, while European yields are most 2-4 bp higher.”