SPX has given a sell signal…
NDX has also declined beneath its Intermediate-term suort at 11495.00, giving a sell signal.
BKX may have made its Master Cycle high yesterday, on day 274. The Cycles Model calls for a potentially sharp two-week decline beneath the neckline of the Head & Shoulders formation. Following a retest of the neckline, the Model indicates a probable decline through the month of April. By that point, the markets may be in a full-fledged panic Cycle.
ZeroHedge observes, “The credit cycle is turning, which points to wider credit spreads, increasing loan-losses at banks, and rising equity volatility.
Credit has exploded higher since the pandemic. But all good things must come to an end, with credit busts typically following close on the heels of credit booms. Cracks are now emerging in lending markets as the sharpest monetary policy tightening in decades begins to bite.”
NDX futures rose to 11622.30, challenging yesterday’s high at 11616.00. While the DJIA has exceeded its 61.8% Fibonacci retracement at 33762.00 and the SPX has approached its 50% retracement at 4142.00, the NDX has thus far fallen short of even a 38.2 % retracement at 12856.00. In addition, the NDX target for a Primary Wave  would most likely be near the mid-Cycle resistance at 11937.87 in the time left to complete the current Master Cycle (February 2). I mention this due to the fact that NDX has closed above the 200-day Moving Average which has been a stopper of rallies for the past two months. Today is a day of reckoning for the direction of the markets for the next two weeks.
In today’s op-ex, Maximum Pain for options investors is 11540.00. Long gamma begins at 11550.00 while short gamma prevails beneath 11520.00. QQQ (closing price: 281.54) shows Max Pain at 279.00. Long gamma begins at 280.00 while short gamma prevails beneath 277.00.
ZeroHedge comments, “Last Monday, we showed the latest JPM prime brokerage data, which revealed that “high SI stocks in the US have seen a ~6 week period of persistent short additions. The magnitude and duration of these short additions is on par with the largest we’ve seen in past years and the cumulative additions put shorts in these types of stocks back at multi-year highs.”
This striking observation of near-record shorting by hedge funds, prompted JPM to muse that “given the consensus bearish view of Equity markets, driven by expectations for the Fed to hike us into a recession, a sharp squeeze would catch a number of investors offsides” and conclude that “we are setting up for a tech-led squeeze higher as shorting gets extreme.”
ZeroHedge observes, “SPX – right on it
SPX futures trading right on the 200 day moving average and the longer term down trend. Our squeeze logic from January 8 (here) played out very well. The set up from here is a lot “harder”. Why not an overshoot to properly frustrate the crowd?”
SPX futures rose to an overnight high of 4013.50, not surpassing yesterday’s high. The difficulty is that the 200-day Moving average at 3978.00 must be broken to reinstate the decline. Further confirmation may come beneath the mid-Cycle support at 3938.50. Sentiment is turning more bullish as this retracement wears on for three months. A decline starting here ay be catastrophic, since no one is properly hedged.
Today’s op-ex is a very confused bag with Max Pain at 3975.00. Long gamma may begin at 3980.00 while short gamma starts at 3970.00. Options are too close to call.
ZeroHedge reports, “US stock-index futures were muted on Wednesday, swinging between gains and losses, as investors initially welcomes a dovish announcement by the BOJ which refrained from further expanding its yield curve control band, then turned to corporate earnings for more clues on the health of corporate America amid growing prospects for a recession. Nasdaq 100 and the S&P 500 futures were up 0.2% as of 7:15 a.m. in New York. Treasury and JGB yields tumbled after the BOJ kept monetary settings unchanged, while the yen first slid against the dollar but then recovered all losses amid expectations the BOJ has only bought a few weeks of time. WTI crude added 1.7% this morning and has been holding above $80 amid optimism around China reopening demand. Dollar is weaker; DXY at 102 helping gold trade back over $1900.”
VIX futures have sunk to a morning low at 18.92 and remains near the low. Today is day 261 in the current Master Cycle, so there is a possibility of making new low. Last Friday’s low was on day 256, so the VIX is straddling its low point.
TNX is lower this morning and may finally reach mid-Cycle support at 33.50. This makes a very stretched Master Cycle at day 272. Futures have declined to 33.99, exceeding the December low. The Cycles Model poses an interesting point that TNX may move explosively out of its low by Friday. Retail Sales and the PPI may have driven yields lower this morning. One must observe, however, that our military stockpile is diminishing while the war in the Ukraine intensifies. At some point, congress will be coming back for more money to rebuild our military stockpile. The resulting rising interest rates may be the downfall of the “soft landing” scenario.
ZeroHedge writes, “US Retail Sales Tumbled in December” and “US Producer Prices Plunge Most Since COVID Lockdowns“
USD futures declined to 101.27 as Retail Sales and PPI reinforced the sentiment for lower rates. This stretches the current Master Cycle to day 265.