May 8, 2023

10:15 am

The Ag Index broke through both the trend line and Cycle bottom to begin what may be the strongest rally yet after 7 months of decline.  Should GKX break out, the rally may last until the end of June.

 

10:01 am

BKX bounced out of Thursday’s Master Cycle low and is currently testing the Cycle Bottom resistance at 77.34.  Should it probe above the Cycle Bottom, there may be a high probability to continue the bounce to the 50-day Moving Average at 86.38.  Conversely, the inability to cross above the Cycle Bottom may propel BKX to deeper lows over the next month.

ZeroHedge observes, “Deposits at U.S. commercial banks have fallen to lowest figure in nearly two years, according to the Federal Reserve. This figure has fallen by $500 billion since the Silicon Valley Bank collapse. However, total banking credit has risen to a new record high of $17 trillion, according to the U.S. central bank. Fewer deposits, but more credit. What could go wrong?

The inevitable credit crunch is only postponed by a consensus view that the Fed will inject all the liquidity required and that rate cuts will come soon. It is an extremely dangerous bet. Bankers are deciding to take more risk expecting the Fed to return to a loose monetary policy soon and expecting higher net income margins due to rising rates despite the elevated risk of increasing non-performing loans.”

 

7:45 am

Good Morning!

NDX futures are consolidating at the upper end of Friday’s trading range.  Last Monday it put in a probable Master cycle high on day 258.  While it is testing that high, there is little reason to believe that it may go higher.  The Cycles Model suggest Equities may remain range-bound this week, with trending strength returning next week.

Today’s op-ex shows the 13200.00 strike being hotly contested by both puts and calls.  Long gamma starts at 13250.00. while short gamma may begin at 13000.00.

ZeroHedge observes, “Boom boom buybacks

Buyback announcements have continued to boom…almost $200bn worth in the last 3 weeks.

Source: Deutsche

Selling and selling

Goldman’s PB was net sold for the 3rd week in a row and saw the largest net selling in three months…note short selling was the main driver, not selling of longs…

 

 

SPX futures are also trading at the upper end of Friday’s trading range.  The first hourly Cycle (4.3 days) appears complete, revealing an expanded flat correction.  This suggests the decline may resume imminently.

Today’s op-ex shows Maximum Pain for options investors at 4125.00.  Long gamma begins at 4150.00, while short gamma starts at 4110.00.  Short gamma is well populated down to 3900.00.

ZeroHedge reports, “US stock futures reversed losses and traded near session highs as the squeeze in regional banks pushed stock prices higher despite another huge (unadjusted) deposit drop last week as investors assessed the outlook for the banking crisis while awaiting inflation figures due later this week for clues about the path of Federal Reserve policy. Contracts on the S&P 500 and Nasdaq 100 rose 0.2% at 735am ET. The underlying benchmarks had rallied 1.8% and 2.1% on Friday, respectively. Oil edged higher to start the week, while European markets rose and Chinese bank stocks soared. Japanese stocks fell as traders came back online after a holiday. Elsewhere, Janet Yellen warned the debt-limit impasse may trigger a constitutional crisis. And Warren Buffett says good times are coming to an end.”

 

 

VIX futures have risen above the long-term trendline near 17.50 this morning after retesting it last week.  This gives us a buy signal in the VIX.  The Cycles Model suggests a possible peak in mid-June and a probable stronger one near the end of June.

The May 10 op-ex shows a population of put positions between 15.00 and 19.00.  However, there is a huge call position at 15.00 that appears to neutralized the puts.  Long gamma starts at 19.00 and runs strong to 47.50.

Zerohedge notes, “Despite reassurances from Powell and Biden that everything is probably awesome and that the banking crisis is just a short-seller thing, Bloomberg reports that one trader seems to be extremely worried about the prospect of an S&P 500 Index meltdown, entering into a massive call position in the VIX.

A huge block trade was printed on Thursday for 300,000 VIX September call options at a strike price of 60 amid intensifying concerns over the health of US regional banks and sustained monetary tightening by the Federal Reserve. The strike price is triple the current VIX level near 20.

Additionally, the trader sold a total of 100,000 September calls with a strike price of 40 (offsetting some of the cost of the calls) in a strategy commonly known as a bullish call ratio back spread strategy.

The trade cost around $4.8 million and he is far from alone as VIX Calls continue to dominate VIX Puts, with the ratio trading around its pre-COVID collapse levels…”

 

 

TNX gapped above Intermediate-term resistance as it embarks on its new rally.  The cross-over confirms th buy signal for the 10-year rates.  The first leg of this new trend may extend to early July as the summer heats up.  The 200-day Moving Average is at 35.54.  Crossing it would put TNX back in a rising trend scenario.

Zerohedge remarks, ““We’d be in unchartered territory and the consequences on the US economy could be highly uncertain and adverse,” said Jerome Powell, warning of the risks from a looming government debt default. “No one should assume that the Fed can protect the economy from the potential short and long-term effects of a failure to pay our bills on time,” continued the Chairman. And that’s really saying something. You see, when the person running a $7.8trln central bank balance sheet, acquired through successive rounds of protecting the economy from any and every risk imaginable, says not even he can help, you probably ought to listen.

“Our economy is in free fall due to unsustainable fiscal policies,” wrote a group of 43 GOP senators, including Minority Leader McConnell. So severe is Mitch’s purported economic freefall that the unemployment rate declined to 3.5%, nearly a 54-year low.

“This trajectory must be addressed with fiscal reforms,” added the senators. But as pretty much everyone knows, both parties run colossal deficits when in power, and seek reforms when out. This is why our national debt rises inexorably in good times and then explodes higher in bad times.”

 

USD futures are hovering near their lows this morning.  There is an outside possibility of making a new low, thereby extending the old Master Cycle into May, on day 271.  No trades hav ebeen initiated, so we remain cautious until the pattern becomes clearer.  In the meantime, pundits call for the demise of the USD at the bottom of the Cycle.

 

Crude oil futures continue their bounce from Thursday’s low.  It has about two more weeks left in the current Master Cycle, suggesting that overhead resistance at 75.00 may stop the bounce.  Should that be the case, WTI may continue its decline to the 61.8% retracement value at 55.87, or possibly the Weekly Cycle bottom at 53.17.

OilPrice.com reports, “Oil prices are still on track to finish out the week in the red, but crude prices saw a strong rally on Friday morning as the market attempts to rebalance itself from the disconnect between bearish sentiment and fundamentals.

Much of the previous week’s price slide can be attributed to a disappointing crude oil demand look out of China on the back of lackluster manufacturing activity, compounded by bank sector stressors in the United States. Nevertheless, little has changed in the way of oil market fundamentals, and the market is looking to make that correction.”

 

Gold futures are bouncing this morning off the low at Intermediate-term support at 2004.21.  It may test the Cycle Top resistance at 2060.42, but may soon resume its decline.  The Cycles Model suggests gold may decline through mid-June.  It is on a sell signal with the next support at the 50-day Moving Average at 1955.40.  Should that not hold, the mid-Cycle support at 1824.24 may be the next target.

 

 

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