December 5, 2023

10:45 am

GKX appears to be on a buy signal, but with only 1-2 weeks left in the current Master Cycle, there is a risk of another low.  Liquidity is becoming rarer and some domestic agricultural commodities are still declining.

ZeroHedge observes, “Corn prices tumbled to a three-year low as mounting supplies from the US and Brazil collided with sliding demand. This downturn helped push down the Bloomberg Grain Spot Subindex, which tracks near-term futures contracts for soybeans, corn, and wheat, leading to its largest annual decline in a decade.

Bloomberg Grain Spot Subindex records the worst yearly slump since 2013.

Ag traders are waiting for a US Department of Agriculture’s monthly WASDE report on Friday to gauge the status of foreign and domestic harvests.”

 

10:20 am

BKX may have begun its descent today, on day 256 of the current Master Cycle.  The Cycle Top at 88.50 has not bee reached, leaving room for a small probe higher.  However, it may not be profitable waiting for the last tick, should there be one.  It appears that, should the reversal be in effect, the decline may last to the January options expiration.  The Head & Shoulders formation is in effect.

 

8:00 am

Good Morning!

NDX futures are lower, but within yesterday’s trading range, having bounced at 15732.00.  It is beneath the Short-term support at 15836.00, giving it an aggressive sell signal.  The next level of support where the confirmed sell signal lies is at 15287.67.  The Cycles Model suggests new strength may be added to the decline today.

Today’s options chain shows Max Pain at 15830.00, where both types of investors have the least gain.  Long gamma starts at 15900.00 while short gamma begins at 15800.00.

ZeroHedge comments, ” While we have discussed the various micro drivers and catalysts behind the “November to Remember”, which included record buying by CTAs, record stock repurchases by corporations (more than $5bn per day), record dealer gamma, a brutal hedge fund short squeeze, a flood of retail buying of meme stocks, favorable seasonals and a Q3 earnings season that came in stronger than expected and ended the earnings recession of the past year, one may as well just forget about all of these and simply consider the macro elephant in the room, by which we mean the monster liquidity injection by central banks – and especially the Fed – last month.

According to Goldman calculations (available to pro subs in the latest must read Global liquidity update” report), with $350BN added in November, liquidity (in USD terms) from the G4 central banks + the PBOC was nothing short of a fire hose.”

 

SPX futures are trading at the lower end of yesterday’s trading range.  It remains above the Short-term support at 4512.00.  One may consider an aggressive short position beneath 4525.00-4537.00.   The Cycles Model suggests a bit of strength may add to the decline today.  The 100-day Moving Average lies at 4421.00, where the sell signal is confirmed.

Today’s options chain shows Max Pain at 4565.00.  Long gamma starts at 4580.00 while short gamma begins at 4530.00.

ZeroHedge reports, “US stocks were set to extend Monday’s drop into a second day after hitting 20-month highs, as the recent rally looks increasingly stretched and traders scale back rate-cut bets while Chinese stocks tumbled to fresh five year lows after Moody’s downgraded China’s credit outlook to negative on soaring debt. As of 7:40am ET, S&P 500 futures slid 0.4%, trading at session lows, after the benchmark rose last week to its highest since March 2022 on bets the Fed would soon pivot to monetary easing; Nasdaq 100 futures dropped 0.5%. Bond yields eased as did the USD; 10Y TSY yield dropped 2bps to 4.22%. Commodities were seeing a bid within Ags and Energy while metals underperformed on China weakness despite better than expected PMIs. Bitcoin held near a 19-month high, just below the $42,000 mark. Today’s macro data focus is on JOLTS job openings and ISM Services (52.3 consensus vs. 51.8 prior).”

 

 

VIX futures are also consolidating.  An aggressive buy signal (apart from the Cycles indicator) lies above 14.30.00.

Wednesday’s options chain shows Max Pain at 14.50.  Short gamma resides between 12.50 and 13.50.  Long gamma rises at 20.00, but not much conviction to 30.00.

ZeroHedge comments, “The perfect flow Tsunami

We have had a perfect flow Tsunami over the past few weeks where “everyone” needed to buy equities. This has played out now and, more than on the margin, things will get incrementally less supportive from here. Our experience is that inflection points like these are normally a good time to put on short term tactical shorts. And guess what, doing it via options is record cheap & attractive.

Holding out for the last $20bn…?

Do you fade the CTAs here after close to $100bn of fast buying in US equities or do you wait for them to go back to historic max longs that would imply a $20bn or so of more buying?”

 

 

TNX made a new Master Cycle low at 41.99 on day 264.00.  An extension such as this is not unusual, being less than 1 standard deviation from the mean.  Once the reversal is complete, we may see TNX rally to the first week of January.  The ;target may be 53.00 or higher.

ZeroHedge remarks, “Front-end Treasuries have rallied big in the past month, but labor market data will pose a key test for traders this week.

Yes, Federal Reserve Chair Jerome Powell did reiterate on Friday that the central bank is prepared to tighten policy further, but was just jawboning against the recent loosening of financial conditions rather than a statement of real intent given the clear disinflationary momentum we have seen of late.

The two-year Treasury yield, which was hovering around 5% before softer-than-inflation readings for October, has since shed some 40 basis points. While the decline has made the maturity look rather rich on the curve, some optimism is justified by comments from Governor Christopher Waller who became the first Fed official to explicitly open the door to rate cuts.”

However, ZeroHedge observes, “Expectations of rate cuts in the US are liable to come unstuck as easing financial conditions raise the risk the Federal Reserve returns to the fold with another hike…

Be careful what you wish for.

The market’s increasing zeal for lower rates has rekindled the so-called everything rally. But if it persists it contains the seeds of its own destruction as it ultimately pushes the Fed to recommence raising rates, wrongfooting growing expectations of rate cuts, and leaves stocks and bonds prone to selling off.”

 

USD futures are consolidating in the high end of yesterday’s trading range.  It made a buy signal on Friday and is expected to continue rising to the end of December.  The likely target may be the neckline of the Head & Shoulders formation near 107.50.

 

 

Gold futures are even lower today, at 2033.55 after a Key Reversal made yesterday.  Last Friday I had a private conference on gold, where I opined that it could not make a new high.  I was wrong on that count.  However, my reasoning was that gold was due for a strong reversal early this week, which did take place.  The Cycles Model suggests the decline may last to the end of December.  The tow targets may be the mid-Cycle support at 1965.00 or the 50-day Moving Average at 1957.00.

 

Crude oil futures made a new low at 72.18 before a slight bounce.  The sell signal remains in effect until the end of the month.  The Head & Shoulders target is in effect with strong support at the Cycle Bottom at 65.08.  A drop beneath 63.57 may forecast a further decline.

 

 

 

 

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