October 25, 2023

8:00 am

Good Morning!

Please Note:  This will be my last entry for the week, as family concerns take precedence.  I will return on Monday with more updates.

NDX futures are consolidating this morning after a completed 38.8% retracement.  While there may be room to go higher, a decline beneath 14600.00 may confirm the reversal.   A further decline beneath 14200.00 establishes a new downtrend.

Today’s options expiration shows Maximum Investor Pain at 14875.00.  Long gamma may begin at 14900.00.  Short gamma starts at 14850.00.

ZeroHedge notes, “Microsoft shares are soaring after hours following a top- and bottom-line beat

• Revenue was $56.5 billion (better than the expected $54.54 billion) and increased 13% (up 12% in constant currency).
• Diluted earnings per share was $2.99 (better than the $2.65 expected) and increased 27% (up 26% in constant currency).”

ZeroHedge comments, “The big question into Alphabet’s earnings was what, if any, progress they had made on monetizing the AI promise without cannibalizing the company’s main moneymaker – search advertising; and just how much capex they blew on NVDA chips to feed the LLM-processing beast.”

SPX futures may be consolidating after making a 34.3% retracement.  Despite the energy consumed to make this correction,  mid-Cycle resistance at 4259.00 appears to be holding.  A decline beneath 4219.00 suggests the correction may be over and the decline resumed.

Today’s op-ex shows Max Pain at 4265.00.  Long gamma begins at 4275.00.  Short gamma may begin at 4260.00 but strengthens beneath 4225.00.

ZeroHedge reports, “US equity futures are sliding – but off the lows of the session- setting up Wall Street for a lower open, with underperformance driven by Alphabet, whose shares have tumbled premarket after its cloud unit revenue disappointed. As of 8:00am ET, S&P futures were down -0.3% while Nasdaq futs drifted -0.5%, after Microsoft and Google delivered a mixed picture of big tech earnings, setting the stage for peers still reporting this week. The dollar is stronger for a second session tracking Treasury yields which also rose, while oil was little changed and there was a bounce for iron ore following the Chinese stimulus measures. In Europe, stocks reversed earlier losses as a 55% drop for French payments firm Worldline offsetting a gain for Deutsche Bank. Asian markets were also broadly higher on hopes that a new 1 trillion yuan in debt issuance will provide a fiscal stimulus for China’s struggling economy. Today’s macro data focus is on new home sales and mtge applications”

VIX futures dipped to a morning low of 18.86, remaining above the trendline at 18.60.  The Cycles Model allows the VIX to decline to its mid-Cycle support at 17.20 from which the next probe higher may be launched.  Otherwise, a breakout above 23.07 confirms the rally higher.

Today’s op-ex shows Max Pain at 18.00.  Short gamma is in short supply while long gamma begins at 20.00 and extends to 50.00.

ZeroHedge remarks, “Stress remains elevated

VIX and MOVE have “parked” at rather elevated levels.

Source: Refinitiv

Mexican butterflies

Risk is global, and watching some of the more risk sensitive FX pairs, such as the MXN, is a must. The short term gap vs SPX remains very wide…

TNX futures have risen to 48.93 this morning and appear to have resumed their rally after a brief respite.  The Cycles Model indicates a return of trending strength by the weekend.  If correct, the rally is rates may continue to the end of November.

ZeroHedge observes, “US households are becoming the buyer of last resort in Treasuries, meaning yields may need to rise by as much as 1.5 percentage points to meet the sector’s elevated and rising inflation expectations.

The world is once again having to acclimatize to higher rates. US 10-year yields this week rose above 5% for the first time since 2007. But they may need to climb even further to clear the market as other sectors continue reduce their Treasury exposure, leaving households as the only net buyer.”