BKX, our liquidity proxy, made its Master Cycle high yesterday, on day 266. Today may be the beginning of the decline from the mid-Cycle resistance at 105.81. Confirmation of the decline and sell signal may be had beneath the 50-day Moving Average at 103.37. It appears that a decline may be in order that may last through the end of January. The Head & Shoulders formation may be our guide for a potential target. While several US banks are showing weakness, the real problem may be in Europe, where several major banks are on the rocks.
ZeroHedge observes, “The last time we looked at the massive money-printing (literally) hedge fund that also moonlights as the Swiss National Bank, we were stunned to learn that its US equity holdings had exploded to a record $177 billion at the end of Q1 2022, orders of magnitude more than the mere $27 billion it held as recently as 2014.
Since then things haven’t gone exactly as planned for the massive asset gatherer, and the value of its US equity longs has tumbled by almost $50 billion from the record high in Q1 to $139.8 billion as of Q3, a two year low… and a huge loss despite the fact that all the SNB has to do is print some more Swiss Francs, sell them for dollars and then simply buy some more stonks to plug whatever P&L holes it has.”
SPX futures declined to 3870.20 this morning after closing just above the 100-day Moving Average at 3882.38. It had declined beneath the 50-day Moving Average at 3903.26, confirming a sell signal. The Cycles Model suggests the decline may intensify over the next week with a likely target near 3400.00. But the decline may not be over until the end of January.
A look at today’s options chain shows Maximum Pain for options investors at 3905.00. The noose is tightening with long gamma starting at 3910.00 and short gamma at 3985.00. Day traders are chasing the close trying get maximum gain instead of maximum pain.
ZeroHedge reports, “US futures dropped as investors waited to see whether Fed Chair Jerome Powell will differentiate himself from hawkish comments made by two policy makers on Monday when he speaks later at an event in Sweden at 9am ET. S&P 500 and Nasdaq 100 futures dropped to session lows around 7:15am ET after trading little changed for much of the overnight session. Traders are also reluctant to take strong directional bets before US inflation data is published on Thursday and visibility clears up on the trajectory of interest rates. The Bloomberg Dollar Spot Index was near session after trading earlier in a tight range, while the rest of the currencies in the Group of 10 were mixed. Treasuries also broke out above a range, hitting session highs around 3.57% around the time stocks stumbled. Oil rose with gold and Bitcoin rallying for a seventh-straight day.”
VIX futures rose to 22.45 in the morning session, approaching the 50-day Moving Average at 22.78. A period of strength may have begun yesterday and may last another week. Four of six indicators have turned positive for the next week, a rare event which suggests a probable breakout.
Tomorrow’s op-ex shows Max Pain at 22.00. There is a massive short position at 21.00, possibly an attempt to sink the VIX. Long gamma begins at 25.00. Long positions are not very well populated. However, day traders may be quick to move in on a breakout.
TNX has risen to 36.00 this morning and may rise above the trendline and Intermediate-term resistance at 36.50. It made its Master Cycle low on Monday at 35.08, on day 263 of the Master Cycle. The corrected Elliott Wave structure explains the extension of the prior Master Cycle from November 16 to December 7 to accommodate the completion of Primary Wave . TNX is back on a buy signal above 36.50.
ZeroHedge reports, “At 9am ET, Powell will be speaking at a Riksbank panel on “central bank independence and the mandate – evolving views”, and accordingly, some believe that there is a risk that he disappoints those who are looking for fresh insight on the current monetary policy outlook.
Stocks slumped ahead of Powell’s speech yesterday on fears that Fed chair will talk stocks down as financial conditions have once again eased notably since the FOMC even though Powell explicitly warned that “unwarranted easing is a problem.”
USD futures are on the rise after a possible Master Cycle low yesterday on day 256. A potential buy signal may have been made above 103.00. If so, the new Master Cycle may see a rise in the USD through the end of February.