SPX has given up its morning gains. There is no signal yet, but here are some levels to consider: (1) A decline beneath 4600 may produce a Key Reversal which is considered a reliable sell indicator by many traders. (2) A further decline beneath Short-term support at 4571.30 may offer an aggressive sell signal. Further declines to supports beneath that may confirm the sell signal. Aggressive signals are subject to blowbacks, but may eventually prove correct. The rally is only sitting on a one-legged stool (retail buyers) as CTAs and corporate buy-backs have left center stage.
ZeroHedge remarks, “Back on Oct 17, almost to the day the market hit its lowest level since May, we wrote that “CTAs Are Now Buyers In Every Scenario“, a bullish thesis which was further underscored by the arrival of massive stock buybacks a few days later once the buyback blackout period ended (see “Here Comes The Surge In Stock Buybacks As Goldman Models A Record $142BN In CTA Buying“) not to mention a huge short squeeze among the hedge fund community (see “After “Record 14 Weeks Of Shorting”, Hedge Funds Steamrolled In Epic Meltup Squeeze“). What has followed since then is what The Market Ear called “one of the biggest vol adjusted rallies ever”, which only makes sense a few weeks after Michael Wilson said to “forget” about a year-end rally, arguably the worst call in recent history.”
NDX futures continued their relentless march higher, to 16393.70 thus far. The intended target may be the Cycle Top at 16638.79. It may have a structural limit not to exceed 16660.00. Today is day 275, which is an outer boundary of the time allotted to the Master Cycle. What comes next may be a violent reversal.
Today’s options chain shows Max Pain at 16340.00. Long gamma begins at 16350.00, while short gamma is in short supply. A reversal today may be a total surprise.
ZeroHedge observes, “All I want for Christmas
Everyone apparently needs to have more Tech. Most inflows into the S&P Tech Sector (XLK) yesterday in the last 5 years…
Source: GS sales
Terrific Tech Tuesday
Themes / sector performance yesterday somehow feels bullish. Everything tech / AI / growth did well. And the mega-caps are back at doing what they do best after a litte well-deserved rest.”
SPX futures also maintain their climb to 4652.10 thus far. The apparent upper limit may be the Cycle Top at 4677.43. A rough calculation of the 1987 trendline places it at 4705.00, which ay be an alternate limitation to the rally. A normal decline from here may target the Cycle Bottom at 3992.42.
Today’s op-ex shows Max Pain at 4590.00. Long gamma starts at 4600.00. Short gamma begins at 4575.00.
ZeroHedge reports, “S&P 500 futures continued to grind to fresh 2023 highs, quickly approaching all-time highs ahead of the Federal Reserve’s last interest rate decision for 2023, after Tuesday’s cash close was at highest level since January 2022. As of 7:45am ET, S&P futures rose 0.12% while Nasdaq futures continued their relentless ascent, adding another 0.2% as investors looked ahead to the Federal Reserve’s interest-rate decision, bracing for any warnings from Chair Jerome Powell that market expectations of policy easing are overdone (our full FOMC preview is here). European stocks are also ahead, with the Stoxx 600 rising 0.2%. Asian stocks fell, with Chinese equities leading declines on disappointment over a lack of more stimulus from a key economic leadership meeting, while European stocks rose, with the Stoxx 600 rising 0.2%, and touching fresh 2023 highs. Sterling tumbled after UK GDP printed -0.3%, contracting more than the lowest consensus estimate while the Bloomberg Dollar Index rose 0.2%. oil prices are little changed, with WTI trading near $68.70. Spot gold rises 0.1%.Bitcoin traded just above $41,000. Today’s macro focus is on PPI and the Fed. The Fed is expected to make no changes to its policy, Powell is expected deliver a hawkish press conference, and for the dot plot decline by 50bps. For markets the keys will be the dot plot and whether Powell discusses a pathway for cuts.”
VIX futures are bouncing off yesterday’s low at 11.81 to a morning high at 12.27 thus far. A rising VIX in tandem with a rising SPX is a sign of danger ahead, since on or the other is wrong. Yesterday was day 274 in the Master Cycle, stretched to its outer limits. Should VIX move lower, the Cycle Bottom lies at 11.18.
Today’s options chain shows Max Pain at 16.00. Short gamma runs from 12.00 to 15.00. Long gamma may start at 21.00 to 23.00.
ZeroHedge remarks, “Vol keeps resetting lower into this Spot Equities Index rally (VIX at levels which would be a fresh “post COVID closing low”)…
…and as is so often then the case, a “virtuous feedback loop” ensues: the persistent absolute wreckage in realized Vol allows for mechanical “VaR-up”, as Exposures are bought back and price-momentum / trend re-builds to the Upside…
Nomura’s Charlie McElligott estimates a cumulative $notional of Equities purchased across “Systematics” Vol Control + CTA Trend ~+$104B since early November as a proxy.
This all fits with his warning of an “equity upside pain-trade scenario into year-end”.
TNX is revisiting the trendline at 41.50 in a normal retracement, testing the support there. Once the rally resumes, it may continue to the first week of January. The target for this rally may be the Cycle Top at 49.58. The ultimate target for Wave (5) may be near 5.3% or higher.
ZeroHedge observes, “he Federal Reserve’s dot plot is likely to push back on the notion of deep rate cuts priced in by the markets for 2024, spurring a selloff in Treasuries.
The median of policymakers on Wednesday may show the funds rate for next year at 4.9%, implying 50 basis points of rate cuts. That would fly in the face of market pricing for a reduction that has swung between 110 basis points and 125 basis points over the past few days.
The yield on two-year Treasuries climbed more than 12 basis points at the end of last week after the jobless rate for November, defying predictions, headed lower to 3.7%, hovering near the lowest it has been in decades. A dot plot along the lines portrayed above would send two-year Treasury yields higher toward 5%.”
USD futures plunged to 103.28 this morning. Mid-Cycle support may act to reverse this probe, since the Cycles Model suggests the rally may resume to the end of the year. The Cycle Top at 106.86 may be the target.
Crude oil futures continue tis decline this morning to 67.72. The Cycle Bottom at 66.21 may be the intended target. However, the trendline at 63.57 may be at risk of being broken, which may change the near-term outlook.
ZeroHedge comments, “Oil plunged again today, on pace for its longest weekly losing streak since 2018, after inflation data prompted some fears that The Fed will not be cutting rates as soon as many hoped.
Traders are worried that the Fed does not have inflation under control and will have to keep the foot on the accelerator when it comes to interest rates, said Phil Flynn, an analyst with the Price Futures Group.
The oil market shrugged off reports from The BBC that Yemeni’s Iran-backed Houthi rebels hit a Norwegian tanker with at least one missile, leading to a fire.
“Add a drop off in China’s crude imports to 5-month lows to our current lull in refined products demand, we’re seeing an increasingly well-supplied crude market,” said StoneX’s Kansas City energy team.”
Gold futures dropped even lower to 1988.00 this morning as the decline continues beneath Intermediate support/resistance at 2002.00. The decline may continue to the year-endwith the neckline at 1823.50 in sight. Should that be brokien, further declines may be in store.