July 28, 2023

7:50 am

Good Morning!

NDX futures bounced from its 3-month trendline at 15425.00 to make a partial retracement to 15617.50, beneath the Cycle Top resistance at 15648.95.  It remains on an aggressive sell signal.   The Master Cycle high remains on July 19.  The Cycles Model suggests the decline may last through the end of August.

In today’s op-ex, Maximum Pain for options investors is at 15480.00.  Long gamma remains strong above 15500.00, while sort gamma begins at 15400.00 and strengthens at 15350.00.

ZeroHedge observes, “Optimism, not complacency

We are seeing a turn in psychology, but this is not complacency according to BofA. Their Global Equity Risk-Love indicator has surged from near-panic levels in March to the 78th percentile currently. They write that “everything” is optimistic but positioning. Such sentiment uplift, especially after a long stint in the panic zone, often suggests a shift in investor psychology, rather than complacency…You decide what to call it.

Source: BofA

Lot of “optimism”…

…or is this exuberant enough?

 

 

SPX futures rose to a morning high of 4565.60, just beneath its 2-month trendline at 4570.00.    The next lower support is the Cycle Top at 4495.58 where the aggressive sell is reinforced.  An aggressive sell is generated by a reversal/loss of supports within the current uptrend.  A widely used sell signal is usually generated after a decline beneath the 50-day Moving Average at 4353.00.

Today’s op-ex shows Max Pain at 4560.00.  Long gamma may start at 4570.00 while short gamma erupts at 4555.00.  Any slip may result in the SPX being dominated by short gamma.

ZeroHedge reports, “US equity futures reversed an earlier loss and traded at session highs even as bonds around the world fell, briefly sending the 10Y Treasury to 4.04% and JGBs to 0.57%, well above the previous 0.5% cap and the highest since 2014, after the Bank of Japan – the only major central bank not to have begun reversing ultra-easy monetary policy – surprised investors by tweaking its control of market rates, in a market test to how far it can go without explicitly starting normalization. But in the end, the tweak ended up being less hawkish than some feared and as a result, futures are now reversing much of yesterday’s sharpo losses.

Having previously capped bond yields at 0.5% in a bid to stoke borrowing and its economy, the central bank said today it now regarded that level as a reference point rather than a rigid limit, and instead of intervening to keep rates capped at 0.5% it would only do so firmly at 1.0%, while deciding whether and where to intervene in the 0.5% to 1.0% band (the BOJ graphic explaining the change is below).”

 

 

VIX futures regressed to 13.71 this morning, near its 30-day average.  Yesterday’s action broke above the 50-day Moving Average at 14.84, triggering a buy signal.  This morning’s pullback gives an opportunity to hedge one’s portfolio.  The Cycles Model suggests that the current Master Cycle may reach a crescendo during options expiration in August.

 

TNX has pulled back under 40.00 this morning, but may resume its rally for a few more days.  The risk is that TNX may stage another breakout above the July 7 high.  Doing so would solidify the uptrend for months to come.  The Cycles Model suggests the uptrend may persist at least until mid-September.  The view that the Fed is “effectively done hiking” is erroneous and soon to be challenged.

Yesterday ZeroHedge reported, “Moments ago, the Treasury conducted the week’s final coupon auction when it sold $35BN in 7 Year paper in what was another mediocre auction following this week’s just as medicore sales of 3Y and 5Y paper.

The auction stopped at a high yield of 4.087% which was the highest yield in the history of the 7Y auction; it also tailed the When Issued 4.074% by 1.3bps, the 7th tail in the past 10 auctions.

The bid to cover of 2.479 was below last month’s 2.653 and also below the six-auction average of 2.542, if smack in the middle of the long-term range over the past decade which has been between 2.25 and 2.75. ”

 

USD futures pulled back to 101.10 this morning after yesterday’s spike higher.  The pullback may persist through the end of the day.  However, the uptrend may resume (with strength) next week.

 

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2 Responses to July 28, 2023

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