The Ag Index made a lower low in my absence. The current Master Cycle may have another day to run out, as tomorrow may be a final day of strength and a reversal at the same time. This has been a strange pattern, but no rules have been violated. Get ready for a reversal.
ZeroHedge remarks, “As Morgan Stanley writes in a report (available to pro subs) that is a must-read not only for weather-watchers but also traders (especially those who read our April note El Nino Watch Initiated As Ag-Industry In Crosshairs), developing countries around the world are facing another “inflation shock” as they grapple with floods and heatwaves fueled by the weather phenomenon known as El Niño. The shift to a warming phase from the cooler La Nina has sparked trouble for emerging market economies, which tend to be the most exposed to large swings in energy and food prices and production and usually have limited fiscal buffers to shield from an inflationary storm.
According to Morgan Stanley’s Rajeev Sibal, a moderately strong El Niño has a 90% chance of impacting weather patterns and “would be a significant headwind for EM economies, with high inflation and fiscal pressures two key risks.”
BKX declined to its lowest point since June after making a Master Cycle high on September 14. The downside structure is unfinished so we are unlikely to see a bounce before new lows are made. If the Head & Shoulders pattern is correct, BKX may decline another 50% over the next month.
ZeroHedge comments, “In his latest Flow Show note, BofA CIO Michael Hartnett – the most vocal bear at Bank of America – made an important observation, pointing out that at a time when virtually everyone – including the Fed – is expecting a soft landing, the hard landing “tells” are lining up: the yield curve is steepening from -110bps to -67bps, unemployment rate up 3.4% to 3.8%, personal savings rate up 3% to 4-5% YTD, and maybe most importantly, HY defaults are up 1.6% to 3.2%, credit card delinquencies are jumping from 0.8% to 1.2%, while auto delinquencies are surging up 5.0% to 7.3%.”
My trip was cut short and I’m not unhappy about it. Glad to be back.
SPX futures made a morning low of 4303.40, near yesterday’s low. It has triggered the Head & Shoulders neckline at 4335.00 and has another three weeks of decline. Watch out below! Should it decline below the October low in the next week or so, then there is a chance of an even deeper low by the end of October. I will speak on that later.
In today’s Options expiration, Maximum investor pain is at 4335.00. This is a tightly wound market with long gamma starting at 4340.00 and short gamma beginning at 4330.00. The 0DTE traders will likely push SPX into short gamma today. The point of no return is beneath 4300.00 withy a wall 0f 4646 put contacts.
ZeroHedge reports, “US equity futures are weaker, reversing Monday’s modest gains amid a global risk-off tone that has sent European and Asian markets sliding, and which JPM’s market intel team says is “a trend that may continue throughout the week.” As of 7:30am, S&P futures were down 0.4%, off the worst levels of the session, while Nasdaq 100 futures are down 0.5%. Yields on TSYs and European govvies dropped after hitting decade highs even as the Bloomberg dollar index extended gains following its strongest close since December. Oil retreated as the impact of a rising dollar sapped demand. There is a $48bn auction for 2Y bonds today; this likely requires some concession to be digested and is the first of several auctions this week that are larger than normal size. Today’s macro data focus includes housing prices, new home sales, regional Fed activity surveys, and consumer confidence.”
VIX futures made a morning high at 18.14, just beneath the trendline at 18.50. A breakthrough may set a Cup with Handle formation in motion, likely to challenge the Cycle Top at 23.58. The Cycles Model suggests it may be possible by the end of this week. Should it do so, there is a much higher target to be reached by late October.
TNX may have made a Master Cycle high yesterday, but the structure appears incomplete and the morning futures made a new high at 45.69. In addition, this week shows another period of strength in the latter half. It is possible for TNX to go higher before the current Master Cycle runs out.
ZeroHedge observes, “TLT -50%
Bond tracking ETF, TLT, closed at its lowest level since February 2011. The ETF is now officially down 50% from its high just 3 years ago in 2020. Good times for new bond investors, bad times for existing bond investors.”
ZeroHedge further advises, “Bonds’ diminishing ability to act as a hedge for stocks jeopardizes the concept of the standard 60% equities, 40% bonds approach to portfolio design.
A lack of viable alternatives for bonds may lead to increased stock exposure, threatening long-term financial and economic stability.
TINA is coming back, but this time with a vengeance. In the salad days of zero rates and fast-expanding central bank balance sheets, stocks were the only game in town. Nothing – not bonds, commodities or real estate – offered higher returns. TINA – There Is No Alternative – really was it.
One pandemic, multi-decade-high inflation and over 500 bps of rate rises later, the investing landscape has changed fundamentally. Equities entered a bear market and have yet to re-take their January 2022 highs, but still, owning them might start to look even more unavoidable than before.”
USD futures took a rest from its inexorable climb as it has consolidated inside yesterday’s range. There is no further doubt that the USD is heading higher, along with yields.
Crude oil futures declined to 88.20 in the overnight session, testing the Cycle Top support at 88.13. Crude made its Master Cycle high on the 19th and is currently on a sell signal. A break beneath the Cycle Top adds confirmation to that signal. Be aware that WTIC may be in decline for the next two months, despite the Cushing reports. There is something else going on which may be evident soon..
ZeroHedge observes, “Crude prices will likely get a fresh boost this week, as stockpiles at the key US storage hub in Cushing, Oklahoma, risk collapsing to the lowest level (aka “tank-bottoms”) in almost a decade.
Such a move would embolden those aiming for a return of $100 oil by year-end.
Cushing matters. Being the delivery point for the WTI futures contract, the rise and fall of the holdings is among the market’s most closely followed trends. So far in 3Q, inventories have slumped by ~47% to 22.9m barrels. That’s the lowest since July 2022 and that’s not far away from the 2014 lows.”
ZeroHedge makes a further comment, “Oil’s trend perfection
Oil continues trading inside the perfect trend channel that has been in place since June. We reversed off the channel highs with the perfect shooting star as we mentioned in our “Oil reversing” email 6 days ago. We are approaching the first supports, coming in at the 21 day moving average ($1 lower).”
Gold futures hit a new low at 1919.05, just above the Lip of the Cup with Handle formation. It made a Master Cycle High on Sept. 20 and has fallen back beneath the 50-day Moving Average at 1954.27. It is on a sell signal that may last for the next three weeks. A decline beeath the Lip at 1910.00 would have bearish consequences.