Today may be the beginning of the reversal in BKX. The Head & Shoulder may still be in effect, forecasting a powerful decline. Be prepared for what that may entail.
ZeroHedge remarks, “The exodus from The Fed’s reverse repo facility accelerated this week with a $54BN decline just today, back below $800BN, lowest since July 2021…
The Fed’s balance sheet expanded last week by $2.2BN. The first weekly expansion since August 9th and biggest weekly increase since June 7th…”
NDX futures rose to 16603.00 thus far this morning in another attempt ot test the Cycle Top at 16674.35. Yesterday’s high fell short of that resistance and there is a strong likelihood that it might try again. Tops and bottoms are often made at support and resistance points based on the Cycles. In this case, the bullish attern is complete, subject to verification by the marketplace. In this case, the rally has been helped by multiple sources of liquidity that may now be exhausted. Of course, we cannot rule out the political background.
Today’s options chain shows Max Pain at 16500.00 with long gamma above that. Short gamma rules beneath 16400.00.
AS ZeroHedge observes, “So the picture that emerges is a puzzling one: on one hand with weaker data in hand, the Fed Chair said it was “premature” to talk about rate cuts, yet less than two weeks later, with stronger data in place and with hotter than expected inflation, Powell suddenly flip-flopped 180 degrees, shocking even veteran traders, when supposedly the Fed now was looking at precisely those things (PPI) which it went to great lengths to avoid when inflation was soaring.
Or maybe there is no puzzle at all: maybe what that happened in the past two weeks had nothing to do with economic data, the state of the US consumer, or how hot inflation is running and everything to do with… phone calls from the increasingly angry White House, the same White House which after seeing the latest polling data putting Biden at the biggest disadvantage behind Trump despite the miracle of “Bidenomics”…”
SPX futures rose to 4736.70 this morning in another test of the 1987 trendline. See yesterday’s afternoon memo. The current Master Cycle is already stretched to its limit, so the ability to maintain this condition may be constrained. The Cycles Model calls for a decline into mid-January, so be warned that all is not well on Wall Street. The trip wire for a possible aggressive sell signal lies at 4685.00.
In today’s morning options chain, calls dominate the entire range down to 4400.00. This suggests that the SPX may maintain its buoyancy during the morning expiration. However, the afternoon expiration is decidedly bearish beneath 4715.00.
ZeroHedge reports, “2023 is almost in the history books (the last two weeks of December are usually a volumeless, skeleton crew formality), and the S&P is set to close out the year just shy of all time highs hit in January 2022, largely thanks to the dovish Fed pivot this week and to a relentless buildup (well ahead of said pivot) in Fed reserves which are also closing out the year at 2023 highs…
… and are set for 7 consecutive gains in a row, the longest such stretch since 2017.”
VIX futures are consolidating again this morning above Wednesday’s Master Cycle low. There is a threat of a new low today, as stock options expire. Once the morning optons expire, there may be a release of the VIX to move higher.
Wednesday’s (monthly) options chain shows short gamma between 11.50 and 14.50. Long gamma dominate from 15.00 to 45.00. There may be an explosive move out of the low.
ZeroHedge observes, “Leave no stock behind
The “everyone” rally…..89% of S&P 500 stocks are trading above their 50 day moving average, the highest percentage of the year. Chart showing the percentage measure vs the SPX.
Clients chasing upside…
“Incredibly busy day on the vol desk as calls made up 58% of the tape, one of the highest levels ytd. We saw significant demand for upside with client chasing via single names and same-day options at the index level. With the outperformance in Russel, IWM call volumes stood out with 1.35mm on the tape (3rd highest of all time)”
TNX is rising off its Master Cycle low made yesterday. The Cycles Model suggests that rates may be rising into the first week of January. While a rally off the Master Cycle low may be a buy signal, rising above the mid-Cycle resistance at 40.60 may offer confirmation.
ZeroHedge attempts to explain, “WTF was Powell thinking?
They are trying to front-run (errrr, “will”) the soft-landing through the outright adoption of the now legendary “Waller Doctrine,”…
…and moving from the prior “Nominal Rate” policy regime instead to a “Real Rate” one in “anticipatory” fashion…
…all in order to “reduce restriction on the economy well before 2%”…
which preemptively reduces the left-tail risks from running “overly-tight”…
,,,“fattens” the right-tail probability that they can “land the plane”.
The massive easing in financial conditions is shocking (especially in light of the fact that The Fed kept its “financial conditions are tightening” language in the statement) as it is now at its ‘easiest’ since before the June rate-hike in 2022!
USD futures are consolidating after yesterday’s strong bounce out of its Master Cycle low. Higher treasury rates means the USD becomes more attractive to foreign investors. The Cycles Model suggests a rising USD to the end of the year.