7:00 am
Good Morning!
This chart has given me some sleepless nights as of late, so here goes…
First, a look at the technical side. There is a Head & Shoulders formation ongoing for the past 30 months. Most analysts won’t see it because their vision is too short-term. The target listed on the chart may be met on June 14, 2023. Head & Shoulders targets are typically met on third Waves. In this case, June 14 is likely to be the bottom of Intermediate Wave (3) of Primary Wave [3], a significant confirmation of that formation.
Second, why June 14? The answer may be both simple and complex at the same time.
The Simple answer is that, if the X-date (June 1)is passed with no resolution of the debt ceiling, the treasury will have to limit or delay its payment options. The largest one is the Social Security payments with a starting due date of June 14. Nearly 70 million people are dependent on Social Security. This does not cover food stamps and other subsidies. Should the Treasury miss or delay payment starting on June 14, there will be hell to pay. The result may be that the crisis gets extended to the end of June.
The complex answer lies in the Cycles. The following Indices are anticipating Cycle lows on June 14: the Banking Index, including regional banks, Gold and the CRB. Crude oil may expect a low at the end of May. SPX may expect a low at the end of June. UST may see a low in early July.
The following Indices are anticipating Cycle highs on June 14: The US Dollar and VIX. The Ag Index may see a high at the end of June. TNX may see its high in early July. So, you can see that there is a lot of confirmations that something big may happen by June 14, with a possible extension to the end of June.
ZeroHedge remarks, “With three weeks left until Janet Yellen’s earliest estimate for when the infamous X-date will hit on June 1 (the date which effectively marks a technical default by the US, only it doesn’t because while the government can prioritize debt payments it wouldn’t make all payments to America’s bloated bureaucracy represented by some 22.6 million parasites not to mention countless deep state agents), the fearmongering has hit record highs.”
NDX futures are still on the rise reaching a morning high of 13401.90. The Cycle Top resistance may now be in reach. Today is day 268 in the current Master Cycle. Stretched, but not broken, yet.
Today’s options expiration shows Long gamma starting at 13200.00. Short gamma starts at 13170.00. All of the conviction appears on the long side.
ZeroHedge remarks, “Breaking up?
NASDAQ breaking up above the extremely boring range. Recall Goldman’s logic from yesterday (here) on how to play a possible squeeze from here.
Source: Refinitiv
King tech
The question is whether or not the broad market will follow?”
SPX futures remain range-bound between 4130.00 and 4153.00. The Master Cycle high remains at 4186.92 on May 1, day 258. The NDX is putting upward pressure on the SPX. Keep in mind that the 4 largest tech firms constitute 48% of the SPX volume. However, market internals don’t offer support, with the NYSE Hi-Lo Index at -9.00 and the NDX Hi-Lo Index at -65.00.
Today’s op-ex aows Max Pain at 4125.00. Long gamma starts at 4160.00, while short gamma begins at 4100.00.
ZeroHedge reports, “US equity futures pared an earlier advance and dropped to session lows driven by a fresh plunge in Pacwest shares after the bank warned the bank run was back (or rather, had never gone away as we warned last weekend) as a renewed sharp deposit outflow from the bank spooked investors, even as European stocks rose as more investors said the Fed is likely to pause interest-rate hikes on the back of cooling inflation data. Contracts on the S&P 500 dropped to session lows, down -0.1% after rising 0.2% earlier; the Nasdaq was flat.”
VIX futures are still consolidating beneath the trendline at 17.50. The Cycles Model suggests the VIX may rally until June 14, and possibly beyond, should the debt ceiling not be agreed upon.
Next Wednesday’s options Expiration (May 17) shows Max Pain at 20.00 with a growing put contingent down to 15.00. However, long gamma starts at 21.00 ad stays strong to 90.0.
TNX has dipped beneath the trendline at 34.50 a second time. There appears to be a lot of downward pressure on yields as the probability of a default rises…there’s a snake hiding in that grass, as the trend may be up as long as TNX does not dip beneath 32.53. The new Master Cycle is stretched to early July. I wonder what yesterday’s buyers of 10-year notes were thinking?
Zeroedge notes, “fter yesterday’s blowout, record 3Y auction, it seemed as if it was all downhill from there: after all, it would be difficult to repeat that particular stellar results with today’s 10Y refunding auction. And while today’s sale of $35BN in 10Y paper wasn’t nearly as exciting, it was anything but ugly. In fact, aside for the modest tail which has become a staple of 10Y auctions, it was rather solid.
Pricing at a high yield of 3.448%, barely down from last month’s 3.455%, the auction tailed the 3.439% When Issued by 0.9bps; it was also the 3rd consecutive tail and the 15th tailing 10Y auction of the past 19. One can assign the tail to the post-CPI rally into the auction which saw yields slide from 3.50% to 3.45%.
The Bid to Cover was 2.45, up from last month’s 2.36 and above the recent average of 2.41.”
USD futures leaped above Intermediate-term resistance at 101.64, creating a confirmed buy signal. Additional confirmation lies above the 50-day Moving Average at 102.48. The rally may last until mid-June, as flight from both stocks and bonds increase the demand for cash and money market accounts now earning 5%. Demand for USD may get even frothier, as demand heats up into August.
ZeroHedge observes, “Euro – not that great
Investors are still talking about the horribly weak dollar and pushing their euro long narratives, but price action isn’t supporting that view. Yes, the dollar is down since mid March, but it is basically unchanged since late January. First support for the latest weakness in the euro is the 50 day, around 1.087.”
