SPX may be nearing completion of its final probe in this series at 4 degrees of trend. Should it be so, the reversal may come overnight. Looking at this as the end of a trend, we are in day 272, which barely leaves another day to go. At the minimum, consider taking long profits. An aggressive short may be taken beneath the two-month trendline at 4450.00. Earnings season will start tomorrow and analysts are unfazed.
ZeroHedge remarks, “On Friday, Q2 earnings season kicks off when JPM reports just before 7am followed by WFC, and C, while MegaCap tech reports earnings in two weeks (Jul 26). 82% of S&P 500 firms (80% of market cap) will have reported by August 7th, and the bulk of reporting takes place during the week of July 24, when 48% of S&P reports.”
ZeroHedge further observes, “As discussed in our CPI preview, Wall Street expectations were for a soft CPI. The final number ended up being a dovish bomb with a rounded-up 2-handle, sending the dollar tumbling and stocks soaring to respective 52 week lows/highs.
Wall Street, which has been extremely bearish for most of 2023, pretended as if it hadn’t been dead wrong for the duration of the post-October bull market, and spun the CPI data as the all-clear for continued gains.”
The Ag Index may have hit its Master Cycle low today, on day 253. It did not venture to its 61.8% retracement at 387.76. However, the pattern appears complete, or nearly so. It may be time to accumulate shares of Ag businesses.
BKX may have completed its Master Cycle at day 272 yesterday. It completed a 32% retracement of its February-to-May decline. The banking crisis maybe about to resume. The key is that the banks’ earnings season starts tomorrow.
NDX futures rose to 15429.80 this morning. The next resistance is at 15500.00 as it remains above the Cycle Top at 15123.80. This is a rare phenomenon, as the Cycle Top is usually the final resistance in a Wave 5. It shows ample liquidity for stocks in a market that is known for its illiquidity. The question is, Where is the liquidity coming from? Today is day 252 in the latest Master Cycle, so this matter may be resolved in the next week.
Today’s op-ex shows Maximum Pain for options investors at 15330.00. Long gamma begins at 15350.00, while short gamma starts at 15300.00. The domestic (daytime) market is clearly driven by long gamma, which may be the origin of the aforesaid liquidity.
RealInvestmentAdvice observes, “A recent whitepaper by the Federal Reserve warns of “significantly lower profit growth and stock returns in the future.” In his article, End of an Era: The coming long-run slowdown in corporate profit growth and stock returns, Michael Smolyansky explains how the interest rate and corporate tax rate trends for the last thirty years provided a strong tailwind for corporate profits. As a result, stocks performed better than would have otherwise been the case.
Understanding why corporate profits and, ultimately, stock prices outperformed in the past is important. However, more critical for investors is the future and assessing how interest rates and tax rates will affect earnings growth and stock prices.”
SPX futures rose to a morning high at 4491.80, on its way to 4500.00. It continues to use its Cycle Top at 4415.12 as support. Again, a highly unusual circumstance at this late in the rally. As mentioned earlier, today is day 252 in the current Master Cycle. That leaves the market a possible week to rally further. However, the formation may lead to a sudden collapse, catching many investors unawares. An aggressive sell signal may be invoked beneath the Cycle Top at 4415.12.
Today’s op-ex shows Max Pain for options investors at 4475.00. Long gamma begins at 4495.00 while short gamma starts at 4450.00.
ZeroHedge reports, “For the second day in a row, US equity futures are higher as part of a global risk-on move one which has sent spoos to fresh 52 weeks highs, and fast approaching the Jan 2022 all time high. Tech is again outperforming led by the “magnificent 7″ megacaps following the unexpectedly soft CPI print which sparked expectations that after the July hike the Fed is done, and has accelerated the dollar tumble. As of 7:45am ET, S&P futures were 0.3% higher to 4,522 while Nasdaq futures rose 0.6%. Bond yields and the USD continue their move lower, with steepening in the belly of the curve. The DXY has made a 52-wk low today. The plunge in the dollar means that commodities are bid with strength across all 3 segments; keep an eye on Ags as India may move to restrict rice exports and the Black Sea Grain Initiative expires next week. Today’s macro data focus is on PPI, which will boost confidence that yesterday’s CPI print was not a fluke. Keep an eye on PPI in the future as China’s negative PPI and the lack of money supply growth may put accelerating downward pressure on input costs. Bank earnings kick off tomorrow.”
VIX futures made a new retracement low at 13.29 this morning. While VIX may go down to, but not below, the June 22 low, the reversal may be imminent.
Wednesday’s op-ex shows the strike at 17.00 to be hotly contested and the locus for Max Pain. Short gamma starts at 16.00 and is strong to 13.00. Long gamma begins at 20.00 and appears strongly held to 60.00.
I have endeavored to find the source of liquidity for our supposedly illiquid equities market. It appears that the SPX, measures in Japanese Yen, rallied nearly 30% since the March low banking crisis, nealry matching the 32% rally in the NDX. We know that the Fed injected $300 billion into the banking system, but that was used to band-aid over their own solvency issues. Banks have raised their lending rates and tightened their credit requirements since then, so it was not the banks that gave the stock market the extra juice.
Instead, it may have been the Bank of Japan, which has been known to buy equities at the drop of a hat. The Bank of Japan now owns approximately 80% of all the stock ETFs issued in Japan and is a major player in all the Japanese indices. It should not surprise us to know that the Bank of Japan may have been been the “big player” in the most recent rallies in the SPX and NDX.
USD futures are challenging the lower trendline at 99.65 this morning. Should it hold, we may see a reversal by the weekend.
TNX is testing its trendline at 37.95 this morning. It may bounce today, but subsequently decline beneath the trendline to the 50-day Moving Average at 36.98. The Cycles Model suggests that this correction may last to the end of the month, so the likelihood of a lower correction is high.
ZeroHedge remarks, “In a recent podcast, Peter Schiff warned that we could be on the verge of a further breakdown in the bond market and that a bear market in bonds could also maul US stocks and the dollar.
Financial commentator and investment guru Jim Grant has similar concerns. In a recent interview on Odd Lots Podcast, Grant said he thinks we’re at the beginning of a long-term trend of a weak bond market with higher interest rates that could last decades.”