3:00 pm
This week’s surge in stocks defies all explanation, other than FOMO. The next technical resistance levels are round number resistance at 5300.00 and the 78.6% retracement level at 4534.00. The reversal may come without warning.
3:30 pm
Here is a partial answer to why the market is behaving in this manner. Long gamma runs hot from 4350.00 to 4430.00 for tomorrow’s (monthly) am strike. The pm strike is not as populated and is hotly contested at 4400.00. This may explain the run-up having no other fundamental or technical basis.
ZeroHedge comments, “As investors digest the Fed’s “skip” day, while clearly ignoring Powell’s warning that a July fed hike is the base case, here are a few thoughts from JPM’s and Goldman’s trading desk. But first, here is the Fed’s mouthpiece, WSJ reporter Nick Timiraos, clearly telling that “Powell’s Freudian “skip” suggests a July rate rise is the base case, even though (as always) the economy can intervene. “There is an every-other-meeting strategy, and the July decision has all but been made.”
2:20 pm
The reason I call the BKX the liquidity proxy is because one can chart the amount of excess deposits in FDIC insured banks, which is closely parallel to other forms of liquidity. According to the FDIC, excess liquidity in banks peaked in January 2022. Soon after, the Fed started raising interest rates which started draining excess bank deposits earning essentially no interest. The rising Treasury rates were beginning to compete with low interest rate savings accounts.
The insolvency of Silicon Valley Bank in March brought the problem to the forefront. With it, excess deposits took a hit and so did the bank index. However, the next phase of the banking crisis is about to bubble to the surface in the form of rising rates. Today I received an offer from my credit union offering a 5.5% yield on an insured certificate of deposit. This, in turn, may pull more money out of the market.
FT comments, “The recent failure of Silicon Valley Bank combined two ingredients: excess deposits and losses on assets, even in securities such as Treasury bonds that are ordinarily considered “safe”. SVB did not have adequate liquidity to tolerate a bank run and did not have adequate solvency to meet its liabilities. Emphatically, however, the failure did not occur because there was too little liquidity in the banking system as a whole. It occurred because there was too much.”
7:45 am
Good Morning!
NDX futures are down substantially, to a morning low of 14890.10. A Primary (monthly) Cycle may be complete. The daily Cycles may show a reversal beneath 14750.00, giving us an aggressive sell signal. Another aggressive sell may be issued beneath the Cycle Top support at 14276.11. A confirmed sell signal may be offered at Intermediate-term support at 13845.38 and another confirmation at the 50-day Moving Average at 13557.92. Should the decline continue, the current Master Cycle may end on June 30. The Potential targets may be the March 13 low at 11695.41, or should a panic ensue, the October 13 low at 10440.64.
ZeroHedge remarks, “A ‘pause’ in rate-hikes and a far more hawkish dot-plot than expected spooked markets and then Powell monotonously meandered through his press conference, seemingly providing something for doves to cling to (though we are not sure what).
Powell emphasized that the inflation fight is still a priority: “Without price stability, the economy doesn’t work for anyone.”
“There’s just not a lot of progress in core inflation.”
“We want to see it moving down decisively.”
But:
“Risks for inflation are still to the upside.”
Powell says the process of getting inflation back to the 2% target “has a long way to go,” but don’t call this ‘pause’ a skip…
“The skip — I shouldn’t call it a skip.”
SPX futures are down to a morning low of 4351.40. Should the decline continue, an aggressives sell signal awaits beneath the Cycle Top support at 4323.51. Another aggressive sell signal awaits at the upper Ending Diagonal trendline at 4250.00. A confirmed sell signal awaits beneath the lower Ending diagonal trendline at 4186.06. What may transpire may be the Master Cycle ending on June 30 with a potential target at either the Cycle bottom at 36.39.19 or (more likely) the October 13 low at 3491.58.
In today’s op-ex, Maximum investor Pain lies at 4345.00. Long gamma may begin at 4350.00, while short gamma starts at 4300.00. It appears that the dealers and hedge funds now abhor long gamma, thus the morning decline. What follows after is yet to be determined.
ZeroHedge reports, “Futures are lower, reversing much of the post-hawkish FOMC euphoria, as markets digest the Fed meeting, the decision to halt rates while projecting two more rate hikes, the increase in the terminal rate, and when the Fed begins an easing cycle, and concluding that the mix is not as bullish as they thought less than 24 hours ago. As of 7:30am, emini S&P futures were down 0.4% to 4,400 while Nasdaq futures dropped 0.7%. Treasury yields are climbing after warnings from the Fed yesterday that rates will go higher in the coming months, which also helped pull the USD higher. Commodities are seeing a modest relief rally with Ags leading while gold prices are falling, with the higher rate outlook generally a dampener on appetite for bullion, while oil and iron ore both climb. Today’s macro focus is on Retail Sales and Jobless Claims as CPI and unemployment become the two major data points ahead of the July Fed where the market is pricing ~70% chance of a 25bps hike. The next CPI is on July 12 and NFP is July 7.”
VIX futures are consolidating inside yesterday’s trading range. A further breakdown in stocks may propel the VIX to the 50-day Moving Average at 17.04. A confirmed buy signal awaits above that level.
In next week’s op-ex, Max Pain is at 20.00, a hotly contested strike. Short gamma begins at 19.00 and extends to 14.00. Long gamma starts at 22.00 and may extend to 60.00.
TNX is consolidating after yesterday’s near-breakout. The Cycles Model infers a buildup of trending strength beginning tomorrow and being reinforced over the weekend. Expect the breakout, and then some. The current Master Cycle may continue until after the July 4 holiday.
USD may be consolidating today after making its Master Cycle low at 102.24 on day 259. It had reversed at the 50-day Moving Average at 102.34, as suggested. A potential aggressive buy signal awaits above the Intermediate-term resistance at 102.78. The new Master Cycle may extend through mid-August. No one is expecting the USD to break out above its 200-day Moving Average at 105.38.