SPX is challenging the downtrend line at 4025.00. A close above that implies a potential extension of the rally for as much as 2 more weeks in a panic rally driven by long gamma. However, it is also at a critical Cycle Pivot point. Should SPX reverse in the next couple of hours it may relapse back into a panic decline that may last two more weeks. This is a very critical juncture.
ZeroHedge warns, “Just as we warned last week, the short squeeze is back again, perhaps as traders relished the start of the Fed blackout period (ahead of the Feb 1 FOMC) and the coming start of buybacks, with buyback blackout ending next weekend.
…and adding to this re-reversal in sentiment, is the latest note from Goldman prime (also available to pro subs), according to which there has been a notable shift in market sentiment as “hedge funds net bought US Info Tech stocks for a second straight week led by Semis & Semi Equip names (after being sold in 10 of the 11 prior weeks).”
SPX futures have been treading in a narrow band from 3963.00 to 3978.00 over the weekend. The 200-day Moving Average is at 3969.00 and appears to be hindering the retracement. The trendline defining the decline appears at 4025.00 and has thus far been unbroken. Trending strength reappears this week and may last for the next two weeks, ending in a probable Master Cycle low.
Today’s op-ex shows Maximum Pain for options investors at 3970.00. Calls prevail above 3980.00 and long gamma above 4000.00. Short gamma begins at 3950.00. However, the sentiment for puts is not as strong as for calls.
ZeroHedge reports, “US equity futures were little changed, trading in a narrow ten point range during a muted overnight session on Monday as investors braced for a moderation in Fed rate increases after the Fed mouthpiece suggested a 25bps hike is now the baseline (coming at a time when the Fed is now in a quiet period until the Feb 1 FOMC meeting), while bracing for a busy week of earnings. S&P 500 and Nasdaq futures each rose 0.1% at 7:45 a.m. ET after both underlying benchmarks rallied on Friday. The tech-heavy Nasdaq 100 Index has posted three weeks of gains, the longest winning streak since mid-August. 10Y TSY yield rose 2bps to 3.50%, while the dollar rebounded from nine-month lows against the euro and a group of other currencies, after a slew of Federal Reserve officials laid out the case for a downshift in the Fed’s rate-tightening campaign. China and most Asian markets were closed for the Lunar New Year holiday.’
VIX futures have consolidated between 19.99 and 20.33. Volatility may stagnate until next week when trending strength comes back.
TNX is rising, but has not broken through overhead resistance. It is on an aggressive buy signal due to the Master Cycle reversal off the mid-Cycle support at 33.61.