BKX approaches the Neckline of its massive Head & Shoulders formation at 97.00 today. Crossing beneath it may trigger a selling response not seen before. The Cycles Model suggests the selling may accelerate into the New Year.
ZeroHedge remarks, “2022 is set to end up as one of the more volatile years on record, led by rapidly rising interest rates and high inflation, and while we note that December is (so far) on track to be the least volatile month of this high volatility year, the recent ‘surprise’ hawkish comments/actions from The Fed and ECB (right as the market convinced itself ‘enough is enough’) will likely exacerbate that into the ultra-low liquidity of year-end…”
SPX has declined beneath the 50-day Moving Average. The next supports are down at 3730.00-3750.00. We may see an acceleration of the decline as the NDX is also beneath its 50-day.
NDX futures continued their decline beneath the 50-day Moving Average at 11454.37, aiming at the Lip of the massive Cup with Handle formation at 11000.00. The new low thus far is 11208.20. Should Tuesday’s high at 12466.40 be the high, the new Master Cycle may decline over the next seven weeks to a possible waterfall low. The mild descent to the October 13 low has inspired little fear of the coming rout.
In today’s op-ex, Maximum Pain for options investors is at 11050.00. Long gamma begins at 11100.00, while short gamma starts at 11000.00. QQQ (closing price $276.89) options expiration shows Max Pain at 288.00. Long gamma kicks in at 290.00, while short gamma begins at 280.00.
ZeroHedge observes, “Earlier today we discussed why today’s violent market action – which was hardly predicated by the latest hawkish central banks developments, all of which were extensively telegraphed and generally priced in – may have been a frontrunning of the hobbled market conditions and technicals that await traders tomorrow during the massive, $4 trillion option expiration.
SPX futures declined through the 50-day to 3841.90, then bounced to retest the 50-day Moving Average at 3858.80. The battle this morning may be to curb the losses prior to the open and maturation of the massive am expiration of $2.4 billion. The outcome may set the tone for the rest of the day.
In today’s am expiration, Max Pain is at 3910.00. Long gamma starts at 3950.00. Short gamma may begin at 3900.00, adding a layer of difficulty to the am settle.
ZeroHedge reports, “A miserable week for global stocks – which wrongfooted traders as risk first soared after a weaker than expected CPI only to tumble more than 7% just two days later – was set to end with even more selling on Friday after hawkish signals from the Fed and the ECB sparked worries about higher-for-longer interest rates leading to a possible recession: the latest economic data signaled a slowdown in US growth; data from France showed that it faces a greater recession risk, with its PMI falling to its lowest level in two years. Similarly UK companies are steeling themselves for an economic contraction, with both the manufacturing and service sectors experiencing a slump in the fourth quarter. Economists now see a 60% probability of recession in the US and an 80% chance in Europe. Equity analysts have cut 12-month earnings estimates for the regions to the lowest levels since March and July, respectively.
Not helping matters is today’s massive, $4 trillion quad-witching option expiration, which as we previewed yesterday threatens to become a liquidity-draining vortex just as CTAs are forced to dump stocks. potentially leading to outsized price moves. With the S&P 500 stuck for weeks within 100 points of peak gamma at the 4,000 strike, the sheer volume provides a positioning reset that could turbocharge market moves. Given the backdrop of hawkish central banks and slowing growth, worries are mounting the expiration will act as an air pocket.
VIX futures rose, but remained within yesterday’s trading range thus far.
TNX rose above the trendline at 35.00 this morning, possibly reigniting the buy signal. The attempt at a beat-down of the yields may backfire, sending the 10-year higher through the end of the year.
USD futures appear to be consolidating after reversing out of its Master Cycle low on Wednesday. Although not yet recognized by the mainstream, USD may be rising through mid-January as investors in other currencies seek safety in the USD.