SPX is challenging the 200-day Moving Average at 4233.000 this afternoon. Should it break through, the next support may be the declining trendline near 4150.00. Dealers may be desperate to hold the line here, since there is a very large wall of puts (37,333 contracts) at 4200.00. The final hour may tell just how far it may go. Fear of an escalation of the Middle East War also weighs heavily. An onslaught of selling may begin after 3:30 pm as mutual funds and other institutions fulfill their orders.
BKX is on its way to a potential waterfall event. The Cycles Model suggests the decline may last another seven weeks. This is no joke. A lot can happen in that period of time. The main target may be dictated by the Head & Shoulders formation. KRE (the regional banking ETF) may go to zero.
NDX futures probed lower, to 14694.10 in the overnight session. It may bounce to short-term resistance at 14880.00 to 14900.00, but is likely to close lower today. The Cycles Model suggests a strengthening of the decline, a possible panic, starting today and extending through early next week. There may be another 4 weeks of decline to follow. The next support may be the trendline at 14350.00. The potential target over the next month may be the October low.
Today’s option expiration shows Maximum Investor Pain at 14940.00. Long gamma begins at 15000.00 while short gamma begins at 14925.00. There is a wall of puts at 14800.00 and again at 14710.00.
ZeroHedge comments, “No more sub 20
VIX managed breaking the latest sub 20 close record today…but we still lack “real” panic. The short term gap between SPX and VIX remains rather wide.
NASDAQ saw the rates chart?
The short term gap shrunk by some into the close…”
SPX futures tested the mid-Cycle support overnight at 4254.55. A bounce may bring it back to Short-term resistance at 4295.00-4310.00 with a maximum of 4340.00. As mentioned earlier, a panic may ensue with today’s monthly op-ex. Short gamma may be a force of its own, forcing the dealers to short the SPX to cover a massive number of puts. An approximate month of decline may still follow.
Today’s op-ex shows Max Pain at a hotly contested 4350.00 which may be difficult, if not impossible, to reach. Long gamma starts at 4400.00. Short gamma begins at 4325.00-4335.00. The panic may begin when the dealers realize they cannot boost the SPX out of short gamma.
ZeroHedge reports, “Global stock dipped and US equity futures traded lower as crude oil extended the weekly advance for a 4th day, rising above $90 on concerns Israel and Hamas war could widen into a regional conflict and as the DOE announced plans to refill the largely drained SPR with another $6 million barrels (good luck doing that with the proposed purchase price of “$79 or below”). As of 8:00am, S&P and Nasdaq 100 futures were down 0.3%; Europe’s Stoxx 600 was down 0.7% to a seven month low and on course for a fourth day of declines. Meanwhile, Treasuries rose, led by gains in 10-year debt which briefly topped 5% yesterday for the first time since 2007, after Fed chair Jerome Powell suggested the US central bank is likely to hold interest rates steady at its next meeting. Asian equities also fell, on course for their worst week since August; China Evergrande Group is revising the terms of its proposed restructuring plan and Country Garden’s default on dollar bond interest payment still looms. A burst of buying among cryptocurrencies sent bitcoin above $30K, the highest since August.”
VIX futures receded to a morning low of 20.73 after yesterday’s breakout. Today may be a day of trending strength with even greater gains over the next week. The Cycles Model suggests the rally ay last until mid-November.
Next Wednesday’s op-ex shows Max Pain at 18.00-19.00. Short gamma is practically non-existent. Long gamma begins at 20.00 and extends to 50.00.
ZeroHedge advises, “The VIX closed above the “magical” 20 level for the first time in 105 sessions. The most recent record goes back to 2018. GS, however, on flows: “Flows primarily consisted of rolling protection down and out; no real panic.”
The VVIX panic
VVIX trading at 116 is basically “light” panic in a pic. We reached slightly higher levels during the SVB crisis, but this is getting rather extreme. The gap vs VIX is very wide. Don’t forget that despite the most recent rise in fear, markets have not moved much…
TNX futures hit a morning high of 49.99, fulfilling its Head & Shoulders target. While 50.00 appears to be a “magical” number drawing fresh investor interest in treasuries, it may not last more than a few days. The Cycles Model may allow a short-term pullback lasting no more than a week.
ZeroHedge observes, “On a day when the 10Y TSY yield briefly topped 5%, here is a remarkable stat from DB’s Jim Reid: as the DB strategist writes in his Chart of the Day note, after this week’s latest bond sell-off, there is now no fixed income asset that has outperformed USD cash amongst the main assets DB uses in its monthly performance review.
The last holdout was US HY and with this week’s bond sell-off, the return of the iBoxx US HY index has dipped below the return of US T-bills YTD. While US junk had until recently been seen as a strong performer this year, the returns show how difficult it is for any duration to perform in a sell-off, especially in a heavily inverted curve environment where carry is negative for government bonds relative to cash.”
ZeroHedge also comments, “With yields soaring exponentially higher, 30Y paper peeking above 5% and 10Y yields about to do the same…
… some banks are quietly drawing a line in the sand, and according to Morgan Stanley Investment Management (not to be confused with the bank’s Rates strategist Matthew Hornbach who has been one of the last bulls standing on TSYs as most of his Wall Street peers turned bearish), if 10-year US Treasury yields hit 5% or higher, that’s a good entry point for investors.”
USD futures declined to an overnight low of 405.95, on its way to test Intermediate support at 105.60. There may be a test of the 50-day Moving Average, but considering the tenuous markets, may pass for the higher target.
Crude oil futures probed higher to 89.84as it attempts to reach the Cycle Top at 90.58. Today is a potential reversal day, so due care is advisable. The downtrend may resume shortly.
Gold futures rose to 1997.55 this morning on day 260 of its Master Cycle. Today may be a reversal day, so caution is advised. Should the new Master Cycle begin, it may extend in a decline to the year-end.