March 22, 2023

2:50 pm

SPX may have reached the high point of the day as it tops over the 50% retracement level at 40.17.02.  It may be an aggressive sell candidate.  Confirmation of a sell signal comes beneath 4000.00, where we find the 50-day Moving Average and round number support.

ZeroHedge remarks, “Tl;dr: Fed hiked 25bps and maintains QT (as expected), and left the terminal rate (via the DotPlot) unchanged. However, it shifted a slightly more dovish guidance on future policy hikes and an admission that the impact of its monetary policy could impact banks.

*  *  *

A lot has changed since The Fed last met on February 1st and decided to hike 25bps. Between Powell’s hawkish hearings with Congress and the dovish-inference of a global financial system crisis, the market’s expectations for The Fed’s actions today have swung wildly – but ironically, are basically unchanged since the Feb 1st meeting.

At its most hawkish the market priced in a 75% chance of a 50bps hike (after Powell’s hearings). That then collapsed to a 63% chance of a ‘pause’ by The Fed following the collapse of SVB and CS. The last week has seen expectations rise back to 80% or so of a 25bps hike…”

 

12:40 pm

Crude oil bounced on Monday, on day 249 of the Master Cycle.  However, the average Master Cycle length for crude is 266 days, suggesting the decline may continue another two weeks in the current Cycle.  It is noteworthy that on Monday it hit the 50% retracement value based on the rally from April 2020 to March 2022.  The 61.8% retracement value is 53.87, which may yet occur by the end of May.  A waterfall event involving a decline to 30.00 may be possible.

OilPrice.com comments, “By approving a scaled-down project for new drilling in Alaska, even the Biden Administration tacitly admitted that oil and gas would be needed for decades regardless of the pace of the energy transition.

However, the headline message from the U.S. Administration and EU policymakers hasn’t changed—the world needs to move faster in deploying renewable energy solutions to reduce unwanted dependence on foreign fossil fuels coming from rogue regimes and to have a chance at net-zero emissions by 2050.

Mixed Messages For The Oil Industry 

At the same time, oil companies are getting mixed messages. They are criticized for not investing in raising production when oil and gasoline prices are high, and slammed for wanting to keep and attract investors – after years of poor returns – with the excess cash they rake in. ”

 

11:50 am

Gold futures are hovering at the Cycle Top resistance at 1951.98 after yesterday’s strong reversal.  Monday’s high appears to be the Master Cycle high, suggesting a sell signal in the making.  The Cycles Model indicates a strong decline through the end of April.  It also implies the decline may continue through the end of July.  Gold is not money.  It is a commodity like any other commodity.  The decline through the summer implies that liquidity may be in scarce supply, affecting the price of gold, which is not liquid, in the classical sense.

ZeroHedge gives a contrary opinion, “Peter (Schiff) appeared on Fox Business Claman Countdown to talk about the recent bank failures and the ensuing government bailouts. During the interview, they discussed how to invest in the current environment. Peter said that right now, gold is undervalued, but investors will bid up the price much higher when they come to terms with the reality of inflation.”

 

11:28 am

The Ag Index has been in a sideways consolidation since September.  The Cycles Model suggests the consolidation may end in the next two weeks.  While I am tempted to mark the Master Cycle low on March 10, it appears to be a month early.  That suggests another two weeks of decline while liquidity continues to be drained from the markets.  However, GKX may offer one of the few asset classes that may thrive in a horrible economy.

 

11:05 am

BKX is hovering in a corrective position, likely waiting for the FOMC announcement.  I must warn that the current Master Cycle is due to end within the week.  That implies a possible spike to the Cycle Bottom resistance at 90.54, or the neckline of the Head & Shoulders at 96.00.  That implies a dovish announcement.  It also implies “too little, too late” as the decline in BKX may resume with devastating consequences.  The decline may resume through the month of July and possibly August as liquidity continues to disappear.

ZeroHedge reports, “While all eyes have been distracted by First Republic Bank’s efforts to re-capitalize, it appears Pacific West Bank (PacWest) has also been trying to raise capital.

The bank issued an update this morning confirming that it is abandoning its plans for a capital raise:

In addition to these liquidity-enhancing measures, and as part of its proactive approach to capital and liquidity management, the Company has explored a capital raise with potential investors.

In light of the current volatility in the market and depressed market prices for regional bank stocks, as well as the availability of other options to enhance capital, the Company determined it would not be prudent to move forward with a transaction at this time.

This decision reflects the Company’s confidence in its financial strength and commitment to ensuring the long-term stability and profitability of the institution.”

ZeroHedge states further, “While Powell was scrambling like a headless chicken during his post-FOMC presser, doing everything to keep stocks stable and avoid an overreaction to either side, his peer over at the Treasury, Janet Yellen was actively seeking to unleash chaos and havoc on jittery stocks with comments such as these which predictably sent stocks to session lows just seconds after they were blasted by Reuters and Bloomberg.

  • YELLEN: NOT TIME YET TO SAY IF FDIC INSURANCE CAP APPROPRIATE
  • YELLEN: SITUATIONS LIKE RUN ON SVB MAY MORE READILY HAPPEN IN THE FUTURE, REGULATIONS MAY NEED RE-THINKING.
  • YELLEN: DEPOSITS LEFT SVB AT PACE THAT WAS NOT SEEN BEFORE
  • YELLEN: WE HAD NEVER SEEN DEPOSITS FLEE AT THE PACE THEY WERE WITHDRAWN FROM SILICON VALLEY BANK

Why were these comments particularly destabilizing if not outright idiotic, coming at a time when Powell spent the entire first paragraph of his statement and most of his presser on boosting confidence in bank stability and the sanctity of bank deposits when even a modest selloff in banking stocks drags risk sentiment through the floor?”

 

9:30 am

Good Morning!

SPX futures are flat as they await the FOMC decision/announcement.  The Fed is trapped and the bear market is about to resume.  SPX remains on a sell signal beneath the 50-day.  Any probes above the 50-day may meet a wall of selling.  The Cycles  Model suggests continuous selling through the end of April.  All bounces should be sold.  There is a monor Head & Shoulders formation informing us that the minimum decline may exceed the October low.

In today’s op-ex calls outnumber puts by 2 to 1 at the 4000.00 strike.  However puts dominate beneath 3950.00 with a gamma wall at 3925.  Long gamma dominates to 4050.00, but tapers off above that level.

ZeroHedge reports, “S&P 500 futures little changed, reversing a modest drop earlier in the session, and were set for a muted open on Wednesday after two days of gains, with investors awaiting the “most important Federal Reserve rate decision of 2023″ and as recent turmoil in the global banking sector subsided. Futures contracts on the S&P 500 were up 0.1% by 7:30 a.m. ET while Nasdaq 100 futures were flat. Both underlying indexes have gained for two consecutive sessions. European stocks fluctuated in a narrow range and Treasury yields were unchanged after a surge on Tuesday that added 19 basis points to the two-year maturity. The dollar dropped for a 5th straight day, its longest losing streak since April 2021, while the pound strengthened after a surprise jump in UK inflation which came above all expectations.”

 

 

VIX declined this morning to a low of 20.60, near the 50-day Moving Average at 20.59.  The retracement is nearly done.  The following rally may be a barn burner.

Today’s options expiration shows Max Pain at 23.00, so there may be pressure to keep the VIX subdued, at least til the end of the day.  Short gamma lies at 21.00 and below, while long gamma bursts onto the charts at 25.00 and extends to 75.00.  By the way, VIX options extend to 180.00.

ZeroHedge comments, “Which vol is right?

We have seen huge moves across assets as the banking crisis hit the world two weeks ago. In terms of volatility, equities have actually been the resilient one. If you believe that the banking crisis is not fully over, equities downside hedges look attractive from a volatility point of view. The recent resilience in Tech makes QQQ vol trades extra interesting. Time for a thread on some vol trades.”

 

TNX is challenging the trendline and the 50-day Moving Average at 36.67 after a false breakdown.  It is putting the March 16 Master Cycle low behind it and trending strength is due for a large comeback.

ZeroHedge comments, “It was another wild day yesterday in markets. Very strong US housing data allayed fears of immediate recession, but then raised them that the Fed might keep hiking even as credit conditions turn. So, as our current global financial crisis, which is still not a Global Financial Crisis, rumbles on, all focus is now on the FOMC, in its biggest meeting for many years.

Imagine they don’t hike. On one hand – phew! On the other, markets could be spooked that a Fed set to do 50bps weeks ago is suddenly not willing to focus on its inflation mandate.

Imagine they hike 50bps. Panic. Chaos. Tears before bedtime.

Imagine they hike 25bps and are hawkish, with a shift higher in the dot plot in some form. A slightly milder version of the above would ensure.

Imagine they hike 25bps and are dovish, or say they are done. Commodities and risk assets will likely soar. But inflation will still be there unless there really is a credit crunch looming after this liquidity pinch.”

 

USD futures remain in decline as of this morning.  That may change this afternoon.  The Cycles Model shows possible (up)trending strength that may last through late April.  A breakout above the 50-day Moving Average at 103.30 confirms the new trend.

 

 

 

 

 

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