August 3, 2023

12:00 pm

The bounce came a little sooner than expected, suggesting investors are buying the dip.  Should SPX bounce to 4530.00 or higher, then SPX may rise to the trendline near 4580.00.  However, should the bounce fail to overlap Thursday’s decline, that may take the SPX down to test 4400.00 or  the 50-day Moving Average at 4381.49.

 

8:00 am

Good Morning!

NDX futures declined to 15249.60 this morning, crossing beneath Intermediate support at 15289.90.  NDX is now on a confirmed sell signal.  The next level of support and a potential bounce is the 50-day Moving Average at 14934.07.  The Cycles Model suggests a decline which may last to the end of August.

Today’s op-rx shows Maximum Pain for options investors at 15475.00.  Long gamma begins at 15500.00 while short gamma starts at 15420.00 and runs to 15000.00.

ZeroHedge remarks, “Two weeks ago, we were the first to point out something deeply concerning: while the Biden admin was poundings its chest, pointing to the surging S&P500 (not to mention seasonally-adjusted jobs and GDP numbers) which is just 5% from all time highs and at levels not seen in over a year, an index that was a proxy of hedge fund exposure (long the hedge fund VIP basket of companies and short the most popular shorts) had just suffered staggering losses after reaching a level that was identical to the pre-Covid crash.

Coming at a time when, contrary to what one would assume is pervasive euphoria as a result of the surge in the S&P, L/S managers “had experienced 9 consecutive days of negative alpha, the longest period since Jan 2017” and July was on course “to be the worst month in terms of alpha since May last year”…”

 

SPX futures made a morning low of 4488.10, above Intermediate support at 4468.92.  It remains on an aggressive sell signal, but soon may change to a confirmed sell signal beneath Intermediate support.  Beneath that lies the 50-day Moving Average at 4386.35 which is commonly looked upon as a market sell signal when breached.  This is a very difficult market for many to sell into, because it is so extended.  The Cycles Model does not indicate trending strength through the month of August.  However, monthly options expiration (August 18) shows increased hedging which may propel the decline faster and with more volatility than most would expect.

Today’s op-ex shows Max Pain at 4535.00.  Long gamma may begin at 4575.00 while short gamma starts at 4500.00.

ZeroHedge reports, “US equity futures are weaker for a second day amid a global stock sell-off sparked by a rout in US Treasuries which  accelerated overnight when the BOJ “unexpectedly” stepped in with unlimited bond buying for a second time this week after the benchmark 10-year note yield touched a fresh nine-year high of 0.65%, confusing markets about what it wants to do: keep a cap on yields or strengthen the collapsing yen. European stocks fell 0.6% and Asian markets suffered their worst two-day drop since February  as the S&P 500 was set to extend yesterday’s losses. As of 7:45am ET, S&P futures were down 0.3% while Nasdaq futures dropped 0.4% after several very disappointing earnings after the close yesterday. Tech gigacaps were mixed pre-mkt ahead of AAPL (-38bps) and AMZN (+34bps) earnings. ”

 

 

VIX futures climbed to a morning high of 17.42, breaking above the July 6 high as it may seek to overcome the trendline at 18.00.  VIX is on a confirmed sell signal as it probes higher.  The apex of this month’s moves may be near the monthly options expiration.

Wednesday’s op-ex sows Max Pain at 15.00.  There is a last remnant of short gamma at 14.50.  Long gamma starts at 19.00 and reaches to 40.00.  However, long gamma is not well populated.  That may soo change.

ZeroHedge observes, Stressed VIX futures

Regular readers of TME are familiar with the VIX 2/8 months futures spread. In times of “stress”, most investors go for the shorter term maturities in order to hedge “quickly”, leading to the spread between shorter and longer dated maturities spiking. We are seeing the VIX 2/8 months futures spread moving sharply higher today again…showing increased stress.

Source: Refinitiv

The bid for downside

The crowd continues to pay up for protection after moves kick in. If the sell off today is the start of something bigger is to be seen, but the SDEX index is spiking big today.”

 

 

TNX futures ventured to a morning high of 41.82, while the cash market remains just beneath it.  It has breached the neckline of the Head & Shoulders formation on day 260 of its Master Cycle.  The Model shows today as a possible day of strength with a possible pivot later today.  Should TNX turn down, it may revisit the trendline near 38.00.

 

USD futures have risen to 102.65, above the 50-day Moving Average at 102.29.  While many would consider this a buy signal, today is day 261 in the Master Cycle.  The Model shows a possible day of strength on Friday with a potential pivot, as well.  These items would negate any signal.

 

 

 

 

 

 

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