August 7, 2023

11:41 am

The Ag Index is hovering just above the July 13 low.  Despite the deteriorating conditions overseas, the U.S. markets are still sanguine and likely affected by declining liquidity and slower consumer demand.  The Cycles Model suggests the decline may persist another 2-3 weeks.  There are several downside targets.  The first is the 61.8% retracement level at 387.76.  The second is the Wave (4) low at 380.54.  The third is the Cycle Bottom at 366.52.  Investors should consider accumulating agriculture-related shares over the next few weeks, as the reversal may be sharp and strong.

ZeroHedge observes, “Global food prices increased the most in 1.5 years as trade disruptions from the El Nino weather phenomenon battered agricultural-producing countries, and Russia’s exit from a crucial UN-backed agriculture deal stoked supply concerns.

The Food and Agriculture Organization of the United Nations (FAO) reported Friday that the global food index, which tracks monthly changes in the international prices of globally-traded food commodities, averaged 123.9 in July, up 1.3% from the previous month.”

 

11:28 am

BKX is hovering in a neutral Wave structure.  Should it rise above 90.00 it may probe to the mid-Cycle resistance and Head & Shoulders neckline at 92.38.  A decline beneath 86.37  may spark a panic decline.  While the Elliott Wave structure may be neutral, the Cycles indicate a decline may be more likely through the end of August.  There may be some skullduggery involved in keeping the  neutral structure.  Read below.

ZeroHedge comments, “Usage of The Fed’s emergency bailout facility rose to a new record high last week and money-market funds saw further inflows, all eyes are once again on bank deposits

Seasonally-adjusted, total deposits rose by a de minimus $3.3 billion last week (the 2nd straight week on SA inflows)…

Source: Bloomberg

However, and not at all surprisingly, non-seasonally-adjusted total deposits tumbled $30 billion last week (the 3rd straight week of NSA deposit outflows)…

 

8:10 am

Good Morning!

NDX futures rose to 15388.60, a 49% retracement of Friday’s decline.  NDX may have unfinished business to the downside.  If so, the most likely route may be a decline to or beneath the 50-day Moving Average at 14991.57.  Allow me to point out the Ending Diagonal formation that, when broken, may retrace the entire rally from the March low.  In addition, Intermediate support at 15302.76 has been broken, giving a confirmed sell signal.

Today’s options expiration shows Maximum investor pain (Max Pain) at 15270.00.  Long gamma begins at 15300.00 while short gamma starts at 15250.00.

ZeroHedge remarks, “Sharp rates moves triggered violent equity sell off, as short squeeze dynamics fade and selling pressure intensifies on long duration and credit sensitive assets.

Fading the chase: Bears are pressing shorts again. The short covering dynamics appear to have come to its natural end after two months of aggressive risk unwind. HF Net exposure has reset back to 5y median from 10th %ile in May, with Gross still at highs, speaking of the magnitude of bear capitulation. Equities entered the week with over 90% of SPX constituents trading above 50d moving average, the 2m return spread between HF VIP GSTHHVIP stocks and most shorted names GSXUMSAL at 5y highs, and our beta factor pair GSPUBETA rallied +25% since May (99th %ile) – all pointing at downside asymmetry. This week’s reversal was sharp, with CTA thresholds getting hit and forecasted $32bn for sale on a flat tape in the next week and gamma positioning adding pressures on down moves.

 

SPX futures rose to 4502.90, a 43% retracement of Friday’s decline.  The Wave structure is conductive to further decline.  Should the SPX fall beneath Intermediate support at 4472.25, it may upgrade the aggressive sell signal to a confirmed sell signal.  The Cycles Model suggests the decline may last to the end of August.

Today’s op-ex shows Max Pain at 4535.00.  Long gamma may begin at 4550 while short gamma may start as high as 4525.00 and intensify at 4500.00.   In other words, short gamma may be in control.

ZeroHedge reports, “A selloff in treasuries and global government bonds returned with a vengeance on Monday as the threat of further rate hikes unsettled traders. With 10Y TSY yields jumping as much as 9bps from 4.03% to 4.12% overnight, the yield on 30-year German bonds surged nine basis points to 2.72%, the highest since early 2014. However, unlike Friday when stocks tumbled as yields spiked to a fresh 2023 high, on Monday US equity futures rose modestly – at least for now – alongside yields in subdued, listless trading, signaling a rebound from Friday’s rout. At 7:45am ET, S&P futures higher by about 0.2% although European stocks were in the red, following softer-than-expected German June industrial production data, and Asia was mixed. The dollar was a little stronger against G10 currencies while oil and iron ore prices are lower, despite a Ukraine drone attack on a Russian oil tanker, the first of many.”

 

 

VIX futures consolidated in a narrow range over the weekend and may open flat today.  However, should it rise above the trendline, the Cup with Handle formation suggests a rally to 22.00 may follow.

Wednesday’s op-ex shows Max Pain at 16.00.   While short gamma stretches from 15.00 to 13.00, long gamma  hardly exists up to 37.00.  Hedging through the VIX appears to be very cheap.

 

TNX may be consolidating near the Cycle  Top at 40.71 this morning.   Should it decline decisively,  TNX may decline over the next few weeks to the 50-day Moving Average at 38.35.  Strength may come back later this week.

ZeroHedge observes, “Friday’s jobs data sparked a relief rally in bonds and a flatter yield curve, but the pain trade is still for higher yields and a steeper curve – the lesser-spotted bear steepener – with this week’s CPI a potential catalyst.

Last week was a turbulent one for bonds, but the continued softening in payrolls data served to remind the market that supply and fiscal-profligacy fears have to be counter-balanced with an economy that’s in its late-cycle stages.

After the data, 10-year yields took the elevator back down to sub-4.05% after briefly going above 4.20%. They have since clambered back to 4.12%, but their next cue is likely to come from Thursday’s CPI report. Headline is expected to nudge back up to 3.3% (from 3% last month), mainly due to base effects, and core is expected to hold steady at 4.8%.”

 

 

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