SPX short covering is showing fatigue after this morning’s brief foray above 4000.00. The formation is an Ending Diagonal that may signal a reversal at the break of the lower trendline at 3980.00. The Cycles Model calls for a 13-(market) day decline from here to the next Master Cycle low. Should it break down, the decline intensifies starting tomorrow.
The Ag Index has risen above its 50-day Moving Average at 460.31 this morning. This confirms a buy signal that lasts until the end of January. Should the Ag Index move above the mid-Cycle resistance at 486.67, the next Master Cycle (starting in February) may be a slingshot move higher until the end of March.
ZeroHedge reports, “Last year was a bad year for corn — the latest US Department of Agriculture (USDA) report shows drought conditions and extreme weather wreaked havoc on croplands.
USDA unexpectedly slashed its outlook for domestic corn production amid a severe drought across the western farm belt. Farmers in Nebraska, Kansas, and Texas were forced to abandon drought-plagued fields.
The agency estimated farmers harvested 79.2 million acres, a decline of 1.6 million acres versus the previous estimate — the smallest acres harvest since 2008.
The unexpected cut to US harvested corn acres means grain supplies are a lot tighter than realized. A report Thursday showed the corn area in the world’s largest producer is at the smallest since 2008 with crops failing in states such as Texas and Nebraska. That’s due to persistent drought conditions in the western part of the country that could also hit harvests for wheat plants that are currently dormant for the winter. — Bloomberg”
SPX futures have declined to a low of 3981.40, it 200-day Moving Average. Beneath this level may constitute an aggressive sell signal. The mid-Cycle support at 3940.00 may confirm that signal due to short gamma. Additional supports are at 3921.50, then 3912.40. If the SPX is entering a Wave 3, the decline will cut through these supports like melted butter. If not, we may see further rallies. The 50% retracement of last year’s decline is at 4140.04. The 61.8% retracement is at 4311.00.
Today’s op-ex shows Maximum Pain at 3985.00. Long gamma starts at 4000.00 while short gamma begins at 3950.00.
ZeroHedge reports, “US stock futures slipped for a second day as investors braced for a busy week of parsing earnings reports for signs of an earnings recession, falling profitability and an economic slowdown. Contracts on the S&P 500 fell 0.2% at 7:10 a.m. ET, recovering from a -0.5% drop earlier, while Nasdaq 100 futures dropped 0.3% after trading in the cash market was closed on Monday for a holiday. The dollar was flat after rebounding from an 8 month low on Monday while the US 10-year Treasury yield rises to top about 3.55%.”
VIX futures rose to 20.22 this morning after making a new low not seen in a year. A reversal from the Cyclle Bottom may constitute a buy signal on the VIC, to be confirmed above the Triangle trendline at 22.00 and the 50-day Moving Average at 22.26. Perhaps they may converge later today.
Tomorrow’s op-ex shows Maximum Pain at 22.00. Short gamma starts at 20.00 while long gamma begins at 25.00. Short gamma nearly disappears after tomorrow’s op-ex.
ZeroHedge observes, “Some risk indicators are moving sharply higher
In case you missed it, but the most recent move in VVIX is actually up, not to mention the move higher in the SKEW index. This is not a predictor of equities moving lower, but shows you that people have started paying up for hedges. The last squeeze has managed forcing people into chasing longs, and they are hedging part of that “forceful” chase.”
TNX is moving higher, topping out at 35.79 this morning. Intermediate-term resistance is at 36.22 while the trendline is at 36.50.00. A move above them constitutes a buy signal. The Cycles Model shows new trending strength later htis week, which goes into full bloom in early February.
ZeroHedge comments, “By now everyone knows that for the past year has seen the Fed unleash an unprecedented crusade against not only runaway inflation – having been responsible for the surge in prices in the first place thanks to trillions in post-covid “MMT” helicopter money – and employment – hoping to contained the soaring inflation by means of a broad economic recession – but has also targeted prices of equities and bonds, i.e., risk assets, which after a decade of merciless and relentless asset bubble blowing have been suddenly forsaken by the money printing institution of the US which has been doing everything in its power to hammer every rally and crush animal spirits (if only for the time being, a time when weekly angry phone calls from the senile occupant in the White House demanding the Fed make everyone equally poor impinge on the Fed’s true first commandment which is to make a handful of people very rich while monetizing the US debt in the meantime).
In its determined pursuit of lower asset prices, the Fed has been engaged in the fastest rate hiking campaign since Volcker broke the back of double digit inflation 40 years ago. But as rate hikes are about to downshift again to 25bps, before hitting pause (and going into reverse in the second half of ’23 according to the market if not the Fed) the Fed is left with another, more powerful tool to crush risk prices: QT, the same Quantitative Tightening that Goldman’s head of hedge fund sales last week said that “While All Attention Is On Rates, The Real Risk Is That Global QT Is Just Starting.”
USD futures have settled near Friday’s low, but not lower. That was day 260 of the Master Cycle and a likely bottom. However, there is no clear reversal, so we wait for a rally above the trendline at 103.50. The Cycles Model infers that, should the Master Cycle be complete, the enuing rally may last through the end of February.
ZeroHedge advises, “Know your tails. In a year facing an unusually wide set of outcomes, knowing what the tail risks are and how to hedge them is of paramount importance.
The top three tail risks I see facing the global economy – and three havens offering a refuge – are:
- Stubborn or resurgent inflation —> commodities and other real assets
- US recession —> shorter-dated Treasuries or bills (or even cash)
- Global funding crisis —> US dollar”
Gold futures may have reversed from its Cycle Top at 1922.13 on Friday after an unusually long (270 days) Master Cycle. The Cycles Model shows gold in a projected decline to the end of February, opposit an USD rally in the same time period.