May 24, 2023

8:15 am

Good Morning!

NDX futures hit a new morning low at 13614.80 after breaking through the (August peak) trendline support at 13720.91.  It is currently challenging the Cycle Top support at 13616.00 and on an aggressive sell signal.  The throw-over bottom is at 13600.00, confirming the sell.  The NDX Hi-Lo Index closed at -1.00 and may be poised to give further confirmation beneath 0.00.

Today’s op-ex shows Maximum Pain for options investors at 13725.00.  Long gamma begins at 13750.00.  Short gamma may begin at 13700.00, with a growing number of contracts reaching 13500.00.

ZeroHedge observes, “The last few weeks have seen the market’s expectations for Fed’s rate trajectory shift significantly more hawkish (as the weights of the bi-modal probability distribution shift from ‘recession-emergency rate cut’ to ‘high for longer’) and that has dragged the dollar higher with it (on almost a tick-for-tick basis)…

Source: Bloomberg

The stronger dollar and higher rates have significantly tightened financial conditions in May, but stocks just don’t care…”



SPX futures declined to 4128.70, challenging the Intermediate-term support at 4130.65.  A further decline gives an aggressive sell signal which may be confirmed the the Ending Diagonal trendline at 4100.00.  The 50-day Moving Average lies just beneath it at 4077.33, giving a final confirmation of the sell signal.  The Cycles Model suggests a sideways-to-moderate decline through the next week, due to the Memorial Day holiday, which is seasonally positive.  However, the decline intensifies the first full week of June and continues at a strong (panic) phase through the end of the month.The NYSE Hi-Lo Index closed at -5.00 yesterday with the decline being confirmed beneath -32.00.

Today’s options expiration shows Maximum Pain for investors at 4160.00.  Long gamma starts at 4175.00 while short gamma begins at 4150.00.

ZeroHedge reports, “US equity futures drift drift lower for the second day following a deluge of bad news across global markets driving European stocks to their biggest drop in two months, pushing copper below $8,000 and snuffing out this year’s gains in China equities. As of 730am ET, S&P futures were down 0.4% to 4,143  following Tuesday’s 1.1% drop with Nasdaq futures sliding the same amount. Treasury yields are flat trading around 3.67%, the USD is slightly stronger, and bitcoin got the usual Asian session trapdoor as gold rose. Commodities are mixed: energy rallied (WTI + 2.1%) while metals are falling on concerns about China’s fading recovery. Yesterday, we saw de-risking in crowding stocks with Momentum Winners and MegaCap Tech being the biggest laggards. On debt ceiling negotiation, two parties have not come to an agreement. Today, we will receive the FOMC Minutes at 2pm ET; AI-leader Nviidia reports after the close.”



VIX futures hit a new high at 19.74 this morning after challenging the 50-day Moving Average yesterday.  It is on a buy signal with plenty of elevation ahead of it.   The primary target over the next few months may be the 2020 high at 85.47.  The Cycles Model suggests a peak as early as mid-June, with a probable higher peak at the end of June.

Today’s expiring options show Max Pain at 17.00 with virtually no short gamma to report.  Long gamma extends to 40.00.

Despite the buy signal, some analysts believe the low VIX is bullish.

RealInvestmentAdvice offers this comment, “Last week, the S&P 500 volatility index (VIX) fell below 16 for the first time since November 2021. The VIX index uses options prices to imply how much future volatility the market expects. Typically, in upward-trending markets, the VIX trends below 20. Conversely, in bearish markets or shorter drawdowns, it lingers in the 20s but can peak above 50. Lower volatility, like the current reading of 16, implies the market is very comfortable with potential risks.”


TNX may pull back to the mid-Cycle support at 36.58 this morning and may even extend the pullback as far as the 200-day Moving Average at 36.04.  However, once accomplished, it may offer a burst of energy higher.  The Cycles Model maintains that yields may climb until early July.

ZeroHedge Notes, “Two weeks ago we published a lengthy report looking at the hypothetical consequences of a US default – including “Clearinghouse Collapse And Shockwave Of Catastrophic Treasury Margin Calls” – which again are purely hypothetical: as we first said last week…

… and as Stifel’s Brian Gardner confirmed just a few days later…

Federal revenues cover only 75 percent of outlays so at some point, without an increase in the debt limit, Treasury will be unable to pay all of the government’s bills.  It seems clear that Treasury will prioritize the payment of principal and interest on U.S. Treasuries, so the chances of a default on Treasuries is remote.  Also, it is unfathomable that the government would not pay Social Security recipients or meet payroll of the American military. On any given day, however, Treasury would likely have to delay payments of some obligations. Depending on who the creditor is (a government contractor, veterans’ benefits, other social safety net payments, etc.), delayed payments would likely increase political pressure which would, in turn, increase the chances of reaching a debt ceiling deal, but would also be accompanied by some economic disruption and possibly a downgrade in the credit rating of U.S. government debt.

… because despite all the posturing, the US can and will prioritize debt and interest payments and avoid a technical default, even if it means that some 20 million deep state bureaucrats go unpaid for a week or two.”




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