7:45 am
Please Note: I am leaving for a week-long vacation on Monday, February 13. I will be returning late on February 20. I may not be capable of writing in my blog during that period of time. Good luck and good trading!
SPX futures have declined to 4051.20 thus far this morning, moving into short gamma. The support/resistance of the descending trendline may be today’s target near 3990.00. Beneath that, the aggressive sell signal changes to confirmed. Should that line be breached, SPX may suffer the potential of giving up all its gains made in January over he next three days. Furthermore, Wave (C) may be a broadening formation, suggesting a likely decline to 3450.00 by the end of the month.
Today’s options chain shows Maximum Pain for options investors at 4095.00 Long gamma begins at 4125.00 while short gamma starts at 4075.00.
ZeroHedge reports, “Global markets dropped, US futures extended their slump into a third day and the Nasdaq 100 was on course for its first weekly loss of 2023, while Treasuries extended a selloff as wagers for more hawkish monetary policy mounted. Oil rose after Russia said it will cut output. Nasdaq futures were down 1.1% by 730 a.m. ET after the tech-heavy index lost 0.9% during the previous session, bringing this week’s declines to 1.5%. Nasdaq futs have broken below the support level of the rising channel since the start of the year.
The tech benchmark is still up over 13% year-to-date, but expectations of interest rates staying higher for longer – at least for a few more days – after a blowout US payrolls report and concerns about inflation pressures are weighing on sentiment. Investors will be closely watching the US inflation report next Tuesday for clues on the Fed’s monetary policy outlook.
S&P futures were also down, off by 0.6% and trading near session lows, and at the lowest level since the Golden Cross earlier this week. Treasury yields held gains across the curve after investors inverted the TSY yield curve by the most since the early 1980s, a sign of flagging confidence in the economy’s ability to withstand additional Federal Reserve hikes. The dollar reversed earlier losses when the yen surged after a report that Japan’s Prime Minister Fumio Kishida had picked the hawkish Kazuo Ueda as the next head of the BOJ.
VIX futures rose to a new high at 21.94 this morning. The move has exceeded the 50-day Moving Average at 20.79 and created a confirmed buy signal. The next target for this rally may be the mid-Cycle resistance at 24.71. However, should a panic occur, The Cycle Top at 32.81 may be the alternate target by next week.
In Wednesday’s op-ex, Maximum Pain for options investors is at 22.00. Short gamma starts at 21.00, while long gamma begins at 23.00. Long convictions are rising, with 189,244 call contracts at the 80.00 strike.
ZeroHedge reports, “With both BofA’s Michael Hartnett (last week) and Goldman’s biggest FICC bull, Scott Rubner (this morning as pro subs know already, and we will have more on this in a subsequent post) now calling for a mid-February peak in risk assets and predicting a slide in stocks following the CPI report, sentiment appears to be shifting and as our friends and derivative gurus over at SpotGamma discuss this morning, they have “received a large number of inquires into two, linked points”: first, the spike in the VVIX which we first discussed yesterday (this takes place as the VIX lifted back up to around 20 as options traders begin to price in event risk around next week’s CPI print)…
… and second, the Large 25k ES 2/17 4050 put buyer (who according to some unconfirmed twitter reports may be Carl Icahn, although there is zero evidence of this). That said, there has been only a change of 18k OI at that strike for today.”
TNX futures have risen to a new high at 37.17, while the cash market has yet to catch up. Today begins a period of strength that may last through the weekend. The new Master Cycle continues through mid-March, so not only might there be fireworks starting today, but it may continue for another month or more.
ZeroHedge reports, “After a horrific 3Y auction, and a stellar, record-demand 10Y auction all in the span of just two days, moments ago the Treasury concluded the refunding week with the sale of 30Y paper. Some expected yesterday’s solid demand to continue while others were worried that we may see a reversal and demand would tumble. Well, the latter group was spot on because today’s 30Y auction was almost as ugly as the 3Y earlier this week.
Let’s start at the top: the auction stopped at a high yield of 3.686%, which was above last month’s 3.585% and the highest since November. More importantly, the yield tailed then When Issued 3.654% by 3.2bps, the biggest tail since Nov 2021’s 5.2bps tail, and the third highest on record (going back to 2016).”
USD futures are consolidating inside yesterday’s trading range. Today may see a retracement back to the trendline at 101.80, but the pullback may not last. The Cycles MOdel does not show rising strength until the end of the month. However, rising yields may pull the USD along for the ride.