July 25, 2023

8:00 am

Good Morning!

NDX futures have bounced to 15516.10 this morning, beneath the Cycle Top support/resistance at 15520.00.  It is on an aggressive sell signal.  The sell signal becomes a confirmed sell signal beneath Intermediate support and the smaller Diagonal trendline at 15080.00 – 15083.83.  The Cycles Model suggests that declining strength may get a boost today with continuance through the rest of the week.

In today’s op-ex, Maximum Pain for options investors appears at 15410.00-15420.00.  Long gamma first appears at 154550.00 and strengthens at 15480.00.  Short gamma appears at 15400.00.

Investing.com reports, ”

  • The Nasdaq 100 index is set to undergo its third rebalancing in history
  • It will reduce the weight of the top seven stocks in the index
  • Could that induce selling pressure from ETFs that track the index?

Back in 1998 and 2011, the Nasdaq 100 index faced a similar problem it faces today. First, with Microsoft (NASDAQ:MSFT) making up more than 25% of the entire basket, and later with Apple (NASDAQ:AAPL) taking up 20% of the index.

Interestingly, although Apple’s market capitalization was similar to that of Microsoft, its impact on the index was five times stronger due to a previous correction. In both cases, they decided to do a ‘special’ rebalancing to solve funds’ diversification issues.”

 

SPX futures rose to 4564.70 in the overnight market.  An aggressive sell signal awaits beneath support at 4500.00-4530.00.  Further support of the aggressive sell signal lies at the Cycle Top at 4471.23.  The Cycles Model puts us on the alert, suggesting declining strength may arise today and continue through the rest of the week.

Today’s op-ex shows Max Pain at 4545.00.  Long gamma may start at 4550.00, while short gamma may begin at 4540.00.  The options market is very tightly wound this morning.

ZeroHedge reports, “US futures are higher with bond yields also rising higher in quiet, cautious trade ahead of a barrage of earnings including MSFT and GOOGL later today, as well as central bank announcements tomorrow (the FOMC meeting begins today) and Thursday from the ECB and BOJ. S&P futures were fractionally higher, rising 0.1%, as a surge in Chinese stocks spilled over; Nasdaq 100 futures rose as much as 0.4%, after a weak session Monday, with Microsoft Corp. and Alphabet Inc. due to report their first earnings since artificial-intelligence fever broke out. Shares in both companies were about 0.5% higher in New York pre-market trading as investors waited to see if the results justify the companies’ hefty year-to-date share gains. Treasury yields climbed across the curve, while the dollar and oil both reversed earlier losses; iron ore prices climbed while gold reversed modest gains. Today focus will be on MSFT and GOOGL earnings after the close. On macro, we get Case Shiller, Consumer Confidence and Richmond Fed at 10am ET.”

 

 

VIX futures remain flat as the markets await a barrage of reports and earnings, as well as the FOMC statement tomorrow.  The Cycles MOdel suggests the VIX is likely to continue probing higher, with the 50-day Moving Average the next probable target at 15.03.

Tomorrow’s options expiration shows Max Pain at 13.00-14.00.  There is no short gamma, while long gamma begins at 15.00 and remains strong to 40.00.

ZeroHedge observes, “Speculation is driving the VIX lower but mid-summer seasonals are very positive for equity volatility, coinciding with an upcoming week of central-bank meetings and earnings announcements as potential vol catalysts.

We’re in the dog days of summer, but it’s never quite felt like you can let your guard down completely market-wise. Still, if your only gauge was the so-called “fear” index, aka the VIX, then you might have concluded we’ve already been in the doldrums for several months – last week, the index closed only smidge above where it was early 2020.

But that might be about to change. August and September are typically the months that see the most upside for the VIX. Seasonals should never be looked at in isolation. But nor should they be ignored when they show such a strong skew.”

 

TNX futures rose this morning to 39.16 (39.06 in the cash market).  The Cycles Model leaves us with a puzzle…  Today is day 251 in the current Master Cycle, leaving us an approximate week to determine the final outcome.  Should the probe higher continue, TNX may show a breakout above the Cycle Top at 40.80.  The alternate view is that The Master Cycle may have ended at the low of 37.35 on July 19 (day 245).  To make things even more interesting, the FOMC meeting starts today and announces at 2:00 pm tomorrow.  You can see why I am withholding judgement until the outcome is clearer.

Yesterday ZeroHedge reported, “Moments ago the Treasury concluded the week’s first sale of coupon paper when it sold $42BN in 2Y paper in what was a solid, if not stellar auction.

The auction stopped at a high yield of 4.823%, which was above last month’s 4.670% and the highest yield since June 2007. The auction tailed the When Issued 4.820% by 0.3bps, ending the brief streak of two stopping through 2Y auction.

The bid to cover of 2.782% dipped below last month’s 2.860% but was above the recent average of 2.74%.”

 

USD futures rose to 101.36 this morning as the new Master Cycle takes hold.  The Cycles Model suggests the rally may continue through the end of August.  USD is on an aggressive buy signal but may see confirmation above resistance at 101.98-102.36.

 

Crude oil futures pulled back to 78.30, leaving yesterday’s peak as the potential Master Cycle high on day 259.  The Cycles Model suggests a potential month-long decline to its 61.8% retracement of the 2020-2022 rally at 53.87.  Poor liquidity and seasonals may help channel crude oil to its target.  The rise above the 200-day Moving Average may be a red herring to cover shorts.

ZeroHedge comments, “Oil – taking out the 200 day moving average

Haven’t seen oil close above the 200 day moving average since Q3 2022….

Source: Refinitiv

Oil momentum

Brent momentum thresholds (short, medium & long term) are about to be triggered, and Brent positioning is still net short. (GS)”

 

 

Gold futures declined beneath the 50-day Moving Average, giving a confirmed sell signal.  The signal becomes twice confirmed beneath Intermediate support at 1951.83.  Gold often reaches its seasonal low in August and this may also be happening, but later than usual.  Should the decline persist during the month of August, iit may challenge the 2022 low.

 

 

 

 

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