October 12, 2023

8:15 am

Good Morning!

SPX futures have now reached a high of 4395.00, testing overhead resistance.  In play are  Intermediate resistance at 4392.25 and possibly the 100-day Moving Average at 4399.22.  Above that lies the 50-day Moving Average at 4417.49 and the declining trading channel trendline at 4425.00, all of which may also be in play.  This has been a very nasty short squeeze that is throwing investors off-sides.   The point in fact is that the Cycles Model still indicates more downside going into monthly options expiration.

Today’s options expiration shows Maximum Investor Pain at 4365.00.  Long gamma begins at 4385.00 while short gamma may start at 4350.00.

ZeroHedge reports, “US equity futures climbed rose for a fifth consecutive session – the longest winning streak since August – ahead of the September CPI report that’s expected to show further slowing in US inflation, which should cement the market’s conviction that the Fed’s hiking cycle is over. As of 8:00am, S&P 500 futures are up 0.4% and above Wednesday’s highs, following almost 1% gain for Estoxx 50, Nasdaq futures rose 0.3%. Treasuries were flat trading at 4.55%, while the dollar is slightly weaker ahead of key US consumer prices data. WTI crude futures are higher by 0.8%, paring Wednesday’s drop as commodities catch a bid with all 3 segments higher.



VIX futures made a new low this morning at 15.85, challenging the 50-day Moving Average at 15.97.  This may end up being a “flat” correction, stopping near the prior low at 15.83, originally designated as the probable target for this correction and a near 61.8% retracement.

Next Wednesday’s monthly op-ex is massive.  Maximum Investor Pain is at 18.00.  Short gamma begins at 16.00, while long gamma begins massively at 20.00 with over 250,000 call contracts.  Six-figure call positions extend to 40.00.

ZeroHedge observes, “Longer term protection

VIX is not overly cheap at current levels as markets aren’t realizing much volatility, but what about the longer term view? Below are a few charts showing how “dislocated” VIX is from various fundamental inputs. Nothing for the short term trading mind, but worth a review.

VIX vs the yield curve

The yield curve offers a very long 30-month lead on volatility, as tight credit conditions slowly disseminate through the economy and markets. We are at the biting point (nominal yield curve), writes Variant Perception.”



TNX has begun to spike higher after the hotter-than-expected CPI report.  This may lead to a final probe to 50.00 or higher by  month’s end.

ZeroHedge shows how the market got it wrong, “Treasuries are liable to being squeezed higher after today’s US inflation data as CTA funds cover their short position.

Bonds have begun to rally off their lows.

10-year yields are over 30 bps off their recent highs, while the Bloomberg Treasury Index is 1.4% off its recent low.

The set-up favors the rally continuing as commodity trading advisors start to cover their bond shorts.”

ZeroHedge also reports on yesterday’s treasury auction, “It wasn’t quite as ugly as yesterday’s 3Y auction, but it certainly wasn’t pretty: moments ago the Treasury sold $35BN in a 10Y reopening (9Y-10M technically), which priced at another cycle high of 4.61%, above last month’s 4.289%, and the highest since August 2007. The auction also tailed then 4.592% When Issued by 1.8bps, which was not only the biggest 10Y auction tail since April, but was the 8th consecutive auction without a stop through (last month’s was on the screws).

The bid to cover printed at 2.50, down from 2.52 last month and the lowest since June.”


USD futures made a new low at 105.30 this morning before beginning a sharp bounce after the CPI announcement.  It quickly reached 105.91 and may be due to break above the Cycle Top resistance at 106.14.





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