7:45 am
Good Morning!
NDX futures are hovering near yesterday’s intra-day high as they struggle against overhead trendline resistance. Today is day 258 of the Master Cycle. It is time to anticipate a reversal as the Cyclical structure may be complete. An aggressive sell signal awaits beneath 15696.44.
Today’s op-ex shows Max Pain at 15825.00. Long gamma may begin at 15850.00, while short gamma starts at 15800.00.
ZeroHedge remarks, “There was a fascinating chart in today’s Fund Manager Survey report from Bank of America: it showed that while financial institutions are bearish (or at least deeply underweight stocks), US individuals – as measured by the AAII (American Association of Individual Investors) are very bullish: in fact there are only a handful of times when they have been more bullish.
But while it remains doubtful that institutions are truly “waiting for the moment to go short” or even merely underweight stocks, despite what their profess to the BofA Fund Manager Survey which, as we have lamented before, nobody ever tells the truth…”
While this is not absolute proof, the gains in the NDX for the past month may be explained by participation by the Bank of Japan. Japan’s dirty little secret is that the BOJ owns virtually 80% of all Japanese-issued ETFs and the devaluation of the Yen has given Japan an artificial boost in their US stock holdings. So, our equities markets have prospered even during stock buyback blackouts and low domestic liquidity. No wonder that institutions remain bearish and are being dragged reluctantly into the markets by retail investors. Until now, the Bank of Japan has their back…
SPX futures remain flat just beneath yesterday’s high. The Cycles Model suggests that SPX is on target for a reversal. The 2-hour trading chart shows the Cycle Top at 4553.00, beneath that may lie an aggressive sell signal. The Diagonal trendline lies at 4500.00, where a short-term sell signal may be confirmed.
In today’s op-ex, the 4550.00 strike is being hotly contested with over 5700 call contracts and over 4000 put contracts. Long gamma begins at 4565.00 while short gamma may begin at 4540.00.
ZeroHedge reports, “Futures were just barely higher, having erased earlier small gains following yesterday’s frenzied meltup that sent spoos just shy of 4600 to a fresh 52-week high. Sentiment was boosted by sliding Treasury yields after UK inflation came in weaker than expected, sending the pound sharply lower and UK bonds led a global fixed income rally, while the USD rose as the Japanese yen resumed its slide as markets reassessed the likelihood of BOJ YCC intervention. At 7:30am ET, S&P futures were up 0.01% at 4588, following mixed results from Goldman Sachs (more details in a follow up post). Bond yields are lower and the USD is higher as pound and yen slide. Commodities are bid in both Energy and Ags; corn and wheat are up more than 3%; oil is also higher while Bitcoin trades just above $30K, erasing much of yesterday’s loss.”
VIX futures probed marginally lower to 13.25 this morning as today is the monthly options expiration day. The Cycles Model does not anticipate a new low, but there is room for a further decline as short interest in VIX options is very high. Note that the majority of these short contracts will expire at today’s close.
Today’s monthly options expiration shows Max Pain at 17.00. Short gamma is strong from 16.00 to 13.00. Long gamma is strongest from 18.00 to 36.00.
ZeroHedge comments, “Index implied vols continue to drift ever lower, tracking realized vols ever lower…
But, many expect today to be a local/short term “low” in volatility due to VIX expiration tomorrow, and equity OPEX on Friday.”
RealInvestmentAdvice explains, “The volatility index is so low it has to go higher eventually. Such seems obvious, but this year, despite the banking crisis, higher interest rates, and slowing economic data, investors continue to abandon hedges amid bullish optimism.
But what exactly is the volatility index, more commonly called the “VIX,” and why does it matter?
“The Cboe Volatility Index (VIX) is a real-time index representing the market’s expectations for the relative strength of the S&P 500 Index (SPX) near-term price changes. Because it is derived from the prices of SPX index options with near-term expiration dates, it generates a 30-day forward projection of volatility. Volatility, or how fast prices change, is often seen as a way to gauge market sentiment, particularly the degree of fear among market participants.”
TNX continues its decline, approaching the 50-day Moving Average at 37.22. There may be a bounce to test Intermediate-term resistance at 37.94 before a further decline, possibly to the Cycle Bottom at 32.67. An alternate view is that TNX may test its mid-Cycle support at 36.88 and may be capable of an early Master Cycle low in the next few days.