2:48 pm
BKX appears to be in an irregular correction that may have further to go. Despite poor fundamentals, BKX appears to be headed higher…for a time. If so, BKX may venture to its April high of 85.95 before resuming its decline. The debt ceiling impasse may have a positive effect on bank stocks. It may be the Treasury refilling its coffers after the impasse is settled that will nail bank stocks due to rising interest rates.
2:35 pm
VIX has challenged the 50-day Moving Average at 18.85 on a trending strength day. This lends further confirmation to the buy signal. While trending strength may diminish over the Memorial Day holiday, it may pick up strength in the first full week of June, which purports to be an active month. Meanwhile, traders are picking up nickels in front of a steam roller shorting the VIX.
ZeroHedge notes, “I mean seriously… make it stop, please!”
Nomura’s Charlie McElligott is worried that things are just a little too good to be true for traders currently.
Specifically, he highlights that the dangerous dance builds – as from a risk-adjusted basis, “Short Vol” is crushing even “Long Stock” in everything but QQQ / Nasdaq Long only, with the AI “manna from heaven” – as a lot of the Asset Manager complex looks at the SPX fully-valued here at 19x and is more than happy to keep Overwriting (while others Underwrite), and Systematic “Short Vol” prints.
Over the past two weeks a strategy of selling Daily 25-Delta Puts has a Sharpe Ratio of… wait for it… 34!
But… and it’s a big butt! The cross-asset strategist warns that this impossibly-smooth “Short Vol” return in recent weeks, this “smooth risk-adjusted return” path is indicative of asymmetry, fragility and instability.”
8:00 am
Good Morning!
NDX futures consolidated inside yesterday’s trading range as the markets await the FOMC announcement on Wednesday. NDX is in a throw-over phase of its Ending Diagonal formation. Once finished, the target is commonly the starting low in October. An aggressive sell signal awaits investors beneath the August high at 13720.91. The Cycle Top at 13594.16 provides confirmation.
Today’s op-ex shows Maximum investor Pain at 13800.00. Long gamma starts at 13825.00. Short gamma may start a t 13760.00, but not a lot of conviction.
ZeroHedge comments, “Big five PE
Narrow and powerful…Jeff writes: “…29% of the stocks outperforming and the top five stocks driving 78% of S&P 500’s returns this year.”
Source: Jefferies
Lowest since 1999
The number of stocks outperforming the SPX has crashed formidably.
SPX futures are trading lower, but still within yesterday’s range. Intermediate-term support is at 4129.30, beneath which an aggressive sell signal may be taken. Friday May 19 remains the Master Cycle high in the SPX.
Today’s op-ex shows Max Pain at 4190.00. Long gamma starts at 4215.00, while short gamma may begin at 4175.00.
ZeroHedge reports, “US equity futures are lower, as treasuries also dropped across the curve, with the two-year yield rising for an eighth day, after the latest round of talks between Joe Biden and Kevin McCarthy Monday ended without a deal, while Eurozone manufacturing activity shrank at the fastest pace since the pandemic shuttered factories three years ago, threatening to sap momentum from an economy driven by services. The dollar rose as did bitcoin, gold fell again while oil reversed earlier losses and jumped to session highs after Saudi Arabia’s energy minister told oil speculators to “watch out” just over a week before the OPEC+ alliance is due to meet.
At 7:45am ET, US equity futures dropped 0.2% to session lows, dropping back under 4,200, whlie the Nasdaq was shocking in the red perhaps finally realizing where the 10Y yield is. Lowe’s slipped 1.5% in pre-market trading after cutting its sales outlook. In Europe, a rout in luxury-goods makers including Hermes International and LVMH dragged the Stoxx 600 lower after Deutsche Bank AG analysts warned the sector is crowded and valuations are lofty. Tokyo’s Topix index fell for the first time in eight days, with semiconductor-related stocks turning lower on news that Japan’s tighter export controls will take effect July 23.”
VIX futures rose above the trendline at 17.60, giving a technical buy signal. The Cycles Model shows increasing trending strength starting today. The next phase may last through mid-June, but the final target may not come until the end of June. Hedge when you can, not when you must.
Tomorrow’s op-ex shows only long gamma, starting at 17.00. Currently, long conviction rises to 40.00. Note; the June 21 conviction rises to 85.00.
TNX continues its rise above all resistance levels with the exception of the Cycle Top. Trending Strength is rising, according to the Cycles Model. Any pullback may only be a retest of supports as low at 36.00. Meanwhile, the Cycles Model shows rising rates into early July.
Zerohedge remarks, “The White House and GOP negotiators plan to meet again Tuesday to continue negotiations on a months-long impasse over raising the nation’s $31.4 trillion debt ceiling before a default occurs.
Republicans say the White House isn’t negotiating in good faith, with House Financial Services Chair Patrick McHenry (R-NC) saying on Tuesday that he’s not sensing urgency from the White House – which waited months to arrive at the bargaining table at the 11th hour.
Rep. Garret Graves (R-LA), who authored the House GOP’s opening bid on permitting reform, says that Republicans and the White House are still ‘far apart’ on a deal.
After a Monday night meeting between President Biden and House Speaker Kevin McCarthy (R-CA) – their third meeting, failed to produce meaningful progress, White House aides headed back to Capitol Hill for further talks throughout the night.
House Appropriations Committee Chairwoman Kay Granger, a Republican, also suspended work on pending funding bills this week “to give the Speaker maximum flexibility as talks continue,” she said in a statement.
The lack of clear progress continued to weigh on Wall Street with U.S. stock indexes set to open lower Tuesday morning and global markets on edge. –Reuters
Meanwhile, the Treasury Department has asked federal agencies if they can delay payments, the Washington Post reports, citing two people familiar with the matter, as the Biden administration looks for ways to limp things along until a deal is struck – or June 15 quarterly tax payments roll in, buying Congress a bit more time to negotiate before the so-called “X-date” when reserves run dry.”