September 5, 2023

8:10 am

Good Morning!

SPX futures consolidated between 4516.10 and 4495.10 over the holiday weekend, exceeding the Thursday and Friday lows.  It has completed a 5-week shallow Master Cycle, leaving a Head & Shoulders formation to inform us as to the possible outcome of the new Master Cycle.

Today’s op-ex shows Maximum investor Pain at 4515.00.  Long gamma starts at 4535.00 while short gamma begins with a wall of puts at 4500.00.

ZeroHedge reports, “Futures are lower, tracking European bourses and Asian markets, but well off session lows as a brief burst of China-linked optimism promptly following a Monday surge in property stocks and hopes of a Chine recovery turned to bust, as China reported the slowest service sector monthly growth so far this according to the August PMI survey, adding to a series of disappointing data. As of 7:50am ET, S&P futures were down 0.1% to 4,517 reversing the 0.2% gain during the Monday Labor Day holiday session; Nasdaq 100 futures dropped 0.4%. The US currency gained as much as 0.5% against its Group-of-10 peers, touching the highest level since March, sending commodities, gold and bitcoin lower. 10Y Yields are up to 4.22% and once again approaching the key resistance level of 4.25%, pressured not just by oil trading near 2023 highs but also in anticipation of a surge in corporate bond sales this week. Also, UK and euro-zone yields rose Monday and are extending that move. Today’s macro data focus is Durable Goods/Cap Goods plus Factory Orders. Later in the week we receive ISM-Srvcs and Jobless Claims.”

 

 

VIX futures ramped up to a weekend high at 14.46.  VX may have found its “floor” on Friday at 13.02, much deeper than I had anticipated.  It also extended its Master Cycle to day 273 in a super-extension.  (Day 275 is the upper limit.)  Note that Wave [B]s tend to be rogue Waves, stretching both time and length.  That is the nature of the market we are in.

Tomorrow’s op-ex shows Max Pain at 14.50.  Short gamma has a weak showing, while long gamma does a breakout above 15.00.

ZeroHedge comments, “A strategy of betting against equity market volatility has survived the summer doldrums with its status as a top-performing trade intact.

The August pullback in stocks in Europe and the US had pushed volatility readings higher, especially as investors braced for a burst of sentiment-testing central bank speeches in Jackson Hole. But while the VIX Index — Wall Street’s “fear” gauge — spiked to the highest since May, traders were quick to sell it again as the need to hedge against market risks quickly faded.”

 

TNX leaped above its Cycle Top support/resistance at 42.28.  Traders have not anticipated this, while the Cycles Model has been indicating a continued rally through mid-September.  The Head & Shoulders formation is active.

ZeroHedge remarks, “With stock markets in a bit of a “no man’s land” territory after a soggy August which saw the S&P suffer its biggest monthly drop since February (yes, believe it or not, the modest 1.8% drop in August was a hard stop to the 5 consecutive prior months of gains), the latest note from BofA CIO Michael Hartnett is not only somewhat shorter than usual (everyone has to take a break sometimes) but also focuses more on the rates market which was much more exciting in August than stocks.

As Hartnett points out in the “Biggest Picture” segment of his latest weekly Flow Show (available to pro subscribers), the 10-Year US Treasury is on course for a 3rd consecutive loss (after -3.9% in ’21, -17.0% in ’22 and -0.3% in ‘23), something which has not occurred once in the 250-year history of US republic since 1787.

 

 

USD futures consolidated between 104.06 and 104.80 over the holiday weekend, leaving Friday’s high of 104.85 as the probable Master Cycle high on day 261.   The Cycles Model offers room for a final probe higher this week.  However, the correction lower may be shallow and short-lived.

 

 

 

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