July 11, 2023

10:35 am

The Ag Index is testing its lower trendline prior to a final plunge to its 61.8% retracement low at 387.76 or, its Wave (4) technical support at 380.54.  The Cycles Model suggests this may take place in the next week or so.  While this has been a steep decline, it has been a seasonal feature for this time of year for the past three years, due to the start of the harvest season.  The lower prices at the field have not trickled down to the consumer.

ZeroHedge reports, “Despite the Biden administration’s cheerleading that ‘Bidenomics’ is the economic savior of the middle class — most Americans will disagree there has been an economic revival amid the worst inflation storm in a generation that has sent negative real wage growth negative for more than two years, forcing consumers to deplete personal savings and rack up record amounts of credit card debt in a high-interest rate environment.

We have shown many households are in rough financial shape. Dollar Tree executives confirmed weeks ago that mid/low-tier consumers are trading down from other more expensive retailers to their stores for groceries. This means Walmart has become too expensive for some consumers. ”


10:15 am

BKX is attempting to make a new retracement high and extend the Master Cycle above the July 3 high at 82.12.  It must do so immediately in order to succeed, as today is day 271 in the (former) Master cycle.  The probability is slim, but must be allowed under these circumstances.  Once BKX declines back down beneath Intermediate-term support at 79.92, then all bets for an extended rally are off.

ZeroHedge comments, “Last month, when both revolving credit (i.e., credit card debt) and interest charged on credit cards hit a record high, we said that this trajectory was unsustainable and it was only a matter of time before the debt-funded US consumer hit a brick wall. One month later, the brick wall is finally here, because according to the Fed’s just released consumer credit reportin May US consumer credit grew by a paltry $7.24BN, down more than 50% from the downward revised $20.3BN in April

…. and a huge miss to the consensus forecast of $20 billion. In fact, this was the 4th miss in the past 6 months.”

ZeroHedge now states, “After a ‘holistic review’ of capital for large banks “to enhance their resilience and ability to serve communities, households, and businesses,” Fed Vice-Chair of Supervision, Michael Barr said in a report this morning that he’s leading a multi-year effort to increase capital requirements for banks.

Barr managed expectations by explaining that the focus of the review was on building resilience rather than attempting to address every conceivable risk, as the financial system is complex and constantly evolving.

“The proposed rules would end the practice of relying on banks’ own individual estimates of their own risk and instead use a more transparent and consistent approach,” he said.”


8:00 am

Good Morning!

NDX futures are backing away from an overnight high at 15095.00 this morning.  It is challenging its Cycle Top resistance at 15040.00.  Should it go higher, the next probable resistance is at 15210.00.  The next period of strength hovers around monthly options expiration on July 21.  The current Master Cycle also ends there and it isn’t giving any indication of direction.  Today’s action may give resolution to that issue.

Today’s op-ex shows 15050.00 (Max Pain for investors) hotly contested.  Long gamma begins at 15075.00 while short gamma at 15000.00.  The monthly op-ex shows Max Pain drifting down to 15000.00 with massive call interest at 15100.00 and above.  There is currently little short interest on that expiration.

ZeroHedge observes, “In a day when the S&P rose and non-profitable (small cap) tech companies soared yet megacap tech companies sank (partially answering the question we posed last week)…

… Goldman trader Mike Washington writes that there was a lot of client focus on the Nasdaq 100 special rebalance which was announced late last week on the back the “magnificent seven” dominance, and which plans to address overconcentration in the index by redistributing the weights (no adds/deletes) on Friday (7/21) after the close, effective prior to open Monday, July 24th.”


SPX futures are trading in a range from 4404.00 to 4421.00.  The Cycle Top is at 4407.00 with an aggressive sell signal beneath it.  The next FOMC meeting is on July 25-26, shortly after the monthly op-ex on July 21.  There is a high probability of a flat market until the op-ex as SPX hovers near its Cycle Top.

Today’s op-ex shows Max Pain for investors near 4400.00.  Long gamma starts at 4425.00 while short gamma may begin at 4370.00.

ZeroHedge reports, “For the second day in a row, S&P futures are largely unchanged following a muted overnight session, reversing an earlier loss around the start of the European session and trading around session highs. In a reversal of yesterday’s tech/small cap drubbing sparked by fears about the upcoming Nasdaq special rebalance (see here). As of 7:30am, S&P futures were up 0.2%, trading at 4,450, and building on Monday’s modest gains with sentiment boosted after China signaled that more economic aid measures will come to support its ailing property market along with measures to boost business confidence; Nasdaq futures were also in the green as tech stocks see a lift while bond yields fall ahead of growing expectation that tomorrow’s CPI will surprise dovishly (in large part on the back of yesterday’s Manheim used car index collapse).”



VIX futures drifter lower, to 14.87 this morning.  Support may be found at Friday’s low of 14.33.  Unlike the SPX, which anticipates an ending Master Cycle on or around July 21, the VIX is merely showing a period of strength.  One may infer a possible new low in the SPX, while the VIX forges higher.

Wednesday’s op-ex shows a grey area between 14.00-15.00, possible the Max Pain area.  Short gamma is practically non-existent, while long gamma may occupy the area from 16.00 to 33.00.  On the other hand, the Monthly op-ex on July 19 shows Max Pain at 17.00 with massive short gamma below that level and massive long gamma above that level to 35.00.  It promises to be a volatile op-ex week.


TNX has dropped beneath 40.00 as it retraces the previous Cycle high.  The breakout is real, but typically a three-week retracement/consolidation follows.  The Cycles Model suggests TNX may go lower until the first week of August.  Presently, the trendline or possibly the 50-day Moving Average at 36.96 may be the target for the pullback.  However, it would not be beyond the range of possibility tha the Cycle Bottom at 32.56 may be the ultimate target.

ZeroHedge remarks, “Fixed-income traders may be considerably underestimating how long price pressures will persist in the developed economies.

The breakeven curve in the US has gone from being inverted six months ago to pretty flat now. The change in the slope of the line isn’t as much a surprise as is the level of the points on the curvature: to the extent a central bank tightens policy and restores market confidence that it is acting decisively on inflation, the curve would “normalize”.

ZeroHedge explains, “It is rare to have an indicator that works every single time; this is one of those rare instances.

That is the warning from Bank of America’s HY Credit team as rates surged back into play in a big way last week.

Specifically, the 10yr UST back over 4% for the first time since Feb; the 2yr touched on 5.12% – the highest level since June 2007. In the UK, the 10yr has breached 4.64% level – the peak achieved during the LDI crisis last Oct.

The rate risk is back as the front and center driver of volatility in credit… and as goes credit, so goes the rest of the market.

BofA’s core view here remains that the full extent of damage from tight monetary policy is unknown until the peak in policy tightening is behind us.

We are clearly not at that point yet.”




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