SPX declined from its spike high at the open, as indicated earlier. Despite the Cycle Top on February 2, the trend still appears to be “higher.” Short gamma appears in the options chain at 4050.00, in line with the Broadening Wedge trendline and Short-term support. Retail investors are still buying the dips until a breakdown occurs. Be patient…
ZeroHedge remarks, “An increasing number of investors are buying any dip they can, convinced that a more dovish turn from central banks is just around the corner against the comforting backdrop of a soft landing for the economy. But at the same time, they’re bulking up on hedges, just in case.
All eyes were on Fed Chair Jerome Powell this week as he cautioned that rates may move higher than previously expected, given the strength of the job market. Suffice to say, any weakness in stock futures prompted by his warning was bought on both sides of the Atlantic.
According to Barclays strategist Emmanuel Cau, a pattern of short covering by hedge funds and systematic strategies adding equity exposure is now “well advanced.” But long-only funds that missed out on recent gains are still defensively positioned and may be tempted to make up ground by capitalizing on any declines, he says.”
BKX behavior has the appearance of “all is good.” However, the 12.9 month Cycle high has been made on February 2 with the Cycles Model proposing an imminent 2-month decline. The Fed is shrinking the money supply with interest rates rising and tightening credit sure to slow down the economy. While the US economy slows, it is virtually collapsing in Europe. European banks may be hit first, with US banks to follow. The problem may be moving from “over there” to “over here.”
ZeroHedge reports, “The better-than-expected non-farm payroll report for January along with the smaller interest rate hike delivered by the Federal Reserve at its February meeting increased optimism that the central bank can bring price inflation back to 2% without tanking the economy. But the shrinking money supply undercuts this soft landing narrative.
Money supply growth went negative for the first time in 28 years in November and fell again in December.”
This morning, ZeroHedge comments, “Back in late 2022, when Credit Suisse stock cratered to never before seen levels after a series of dismal earnings reports and regulatory “missteps” sparked a staggering bank run, amounting to some $88 billion forcing the bank to seek emergency liquidity from the Fed via SNB swap lines, and which also led to a historic corporate restructuring which included the de facto closure of the bank’s investment bank coupled with mass layoffs and bonus cuts, many thought that would be as bad as it gets as the (rapidly changing) management had finally thrown out the kitchen sink.
Boy, were they wrong.
On Thursday, Credit Suisse shares tumbled as much as 12%, after the Swiss bank unexpectedly posted a bigger-than-expected loss for the fourth quarter and even more unprecedented client outflows, exacerbating the difficulty for new CEO Ulrich Koerner in returning to profitability by next year. ”
SPX futures rose to an overnight high of 4159.50,above the 61.8% retracement value at 4151.77. This may have been due to not testing support yesterday at 4100.00 and the hold that the dealers have on the options market. The Cycles Model suggests a turn lower may ensue in the first hour of trading. Despite the bullish sentiment by the hedge funds and dealers, the Cycles must be obeyed.
Today’s options chain shows Maximum Pain for options investors at 4090.00. 4100.00 is a hotly contested strike with long gamma at 4150.00 and short gamma at 4050.00. Sentiment is gaining on the short side. This morning’s spike high may be an effort to keep SPX in long gamma.
ZeroHedge reports, “US stocks were set to rebound following Wednesday’s slide, after Walt Disney announced it would fire 7,000 sending its stock surging (alongside mediocre earnings) as investors assessed corporate earnings reports and awaited the latest US jobless claims data. Contracts on the Nasdaq 100 were up 1.1% at 7:30 a.m. ET while S&P 500 futures added 0.8%. Both underlying indexes slumped more than 1% on Wednesday following a barrage of hawkish commentary by Fed officials. European stocks also advanced after positive earnings updates from heavyweights Siemens and AstraZeneca, although a stinker from Credit Suisse soured the mood. Asia was also solidly in the green. The dollar slid, Treasuries edged higher after a strong rally yesterday and an index of commodities rose.”
VIX futures consolidated between 19.05 and 19.63 in the overnight market. It may test Tuesday’s lower range near 18.40 before reversing higher today. Te Cycles Model suggests a rally in the making to be confirmed by a rise above the 50-day Moving Average at 20.78.
ZeroHedge observes, “VVIX exploding higher
VIX of VIX is exploding higher. The crowd is loading up on VIX options. Do we see VIX catching up soon?
VIX volatility structure shifting higher
The entire curve is shifting higher as the crowd is back to chasing hedges. Note the shift is most notable in the short end of the curve, where the biggest “juice” is to be found.
TNX is testing the 50-day Moving Average at 35.84 this morning. The 38.2% retracement value is at 35.57 and the 50% retracement is at 35.15. The retracement may be short-lived, as trending strength may come roaring back tomorrow and over the weekend.
USD futures are in a pullback, testing the upper trendline of the declining Wedge formation near 102.00. The uptrend may resume next week.
After a brief foray above the 50-day Moving Average at 77.25, crude oil may drop below it today. This may resume the sell signal. Next week trending strength returns with a vengeance, propelling crude oil to possible new lows. The Broadening Wedge trendline is at 71.00. A panic decline lies beneath it.
OilPrice.com reports, “Each of the world’s biggest oil and gas majors reported record profits for 2022 in the past week, doubling their combined net earnings from 2021 and booking the best-ever year for Big Oil.
Combined, the net profits of Exxon, Chevron, BP, Shell, Equinor, and TotalEnergies surged to $219 billion for 2022, up from around $100 billion booked for 2021, as oil and gas prices surged following the Russian invasion of Ukraine and majors raised oil and gas production to meet growing demand for oil and limited gas supply from Russia to Europe.
Most majors also raised their shareholder distributions, including by increasing dividends and buybacks, much to the resentment of the White House and other governments, while households struggled with energy bills. The UK and the EU already slapped windfall taxes on the industry in 2022, while U.S. President Joe Biden said in his State of the Union address that share repurchase taxes should be quadrupled to punish Big Oil for their “outrageous” profits.”
Gold futures are consolidating after a nasty 5% drop from its February 2 high. The message from the Cycles Model is that today may be a day of unusual strength…Should gold decline beneath Intermediate-term support at 1883.00, the strength may be in a decline. Above that level, a short squeeze may develop, taking gold back near the Cycle Top at 1937.18. Either way, gold remains on a sell signal through the end of March.