December 20, 2023

3:35 pm

SPX has made a stunning reversal, declining beneath the 1987 trendline at 4743.00 for an aggressive sell signal.  The next support is the Cycle Top at 4702.00 (not shown) which adds confirmation to the aggressive sell.  Regardless of declining beneath the second support, today is a key reversal day.

ZeroHedge remarks, “Acrophobia?

Some people are starting to get a bit afraid of “heights”. The latest rise in the SDEX is telling us the crowd is “long enough” and they need to start paying up for downside protection.”

 

1:56 pm

BKX, our liquidity proxy, is hovering near its high after a 36% rally from the October low.  However, instead of making new all-time highs, BKX has only retraced 55% of its decline from its February 2 high.  We may never know exactly what prompted the Fed to pour on the liquidity, but you can see why there was a threat.  The Head & Shoulders formation is truly ominous.  Should 70 be broken, we may see BKX reach its target by summer.

 

8:10 am

NDX futures are lower this morning, to 16754.40.  The Cycle Top support is at 16738.05.  Beneath that level is an aggressive sell signal.  Once beneath it, an entire year’s gains may evaporate in just a few weeks.  Buybacks are finished for this quarter and earnings reports start on January 8, with an uptick in volatility.

Today’s options chain shows Maximum investor Pain at 16850.00.  Long gamma begins  at 16875.00.  Short gamma starts ay 16830.00 with a bangg followed by large layers of puts at 50-point intervals.

ZeroHedge remarks, “One more, just one more…

Can we say it….? “It’s so bullish that you almost have to get bearish…”. Ok we said it. But seriously, have you ever seen such a one-sided market where everything is interpreted bullish and it is an “everything up” type of tape. Futures cannot even go red on a FedEx profit warning…..To stay on theme we hereby provide you with a couple of more bullish observations. Enjoy!

Brontosaurus buyback bid

Largest weekly corporate buybacks in BofA data history (since‘09). And guess what, this bid a) never gets tired and b) never cares about your bearish feelings.”

 

 

SPX futures are testing the 1987 trendline support near4740.00..  This marks a potential sell signal for SPX.  Beneath that is the Cycle Top support at 4699.00, the next layer of support.  The dynamic sell signal may be confirmed at that level.  There may be a structural resistance at 4795.00 where an attempt at that level may be met with a reversal.

Today’s options chain shows Max Pain at 4765.00.  Long gamma begins at 4790.00 while short gamma starts at 4750.00.

ZeroHedge reports, “US equity futures and global markets reversed their torrid rally as bonds rallied and the dollar gained after a fresh batch of soft inflation data in the UK boosted the likelihood of interest-rate cuts, but also underscored the risk of an economic downturn. As of 7:45am, S&P eminis dropped 0.2% after the index notched a record high for the third successive session, with European and Asian stocks in the red. Germany 10-year yields dropped below 2% for the first time in nine months after a report showed producer prices fell more than expected in November. Meanwhile, British 10-year borrowing costs slid as much as 11 basis points as slower-than-expected inflation boosted the case for multiple rate cuts next year. Treasury yields slid four basis points to 3.9%, down more than 40 this month. Brent jumped above $80 to a 3 week high after the US considered possible military strikes against Houthi rebels in Yemen, in a recognition that a newly announced maritime task force meant to protect commercial ships in the Red Sea may not be enough to eliminate the threat to the vital waterway. US economic data includes 3Q current account balance (8:30am), November existing home sales and December consumer confidence (10am).”

 

 

VIX futures climbed to 12.73 so far this morning, in an attempt to overcome its one week trading range at 12.74.  The Master Cycle low is also one week behind us reinforcing the change in trend.  Pressure for a breakout above 14.31 is growing and trending strength may re-appear early next week.

Today’s (monthly) options expiration may bring a bit of volatility of its own.  Max Pain is at 14.50.  Short gamma is crowded between 11.00 and 14.00.  Long gamma starts at 18.00 and is well populated to 45.00.  This may be where the action is today.

ZeroHedge remarks, “Usually when markets break out from a given range, there are various market speed brakes – usually in the realm of derivatives – which act as a natural decelerator to any rapid move either higher or lower. Dealer gamma is one such buffer, as it is traditionally positive around prevailing levels or “big large numbers” (where it provides what is known as “gamma gravity”), and forces dealers to step into the direction of aggressive order flow so as to avoid major losses.

However, on certain rare occasions, when countertrend fund flows are too powerful, Dealers are forced to reprice gamma higher or lower, ending up in a “negative gamma” position, one where they are forced to chase – not lean against – any one market move. That was the case in February (discussed here “Here Comes The Negative Gamma Flip“). That’s also the case today.”

 

TNX yields are drifting lower today to 38.75 (38.70 in the futures).  Tomorrow the Treasury announces its final 2023 auctions in the 2-year, 5-year and 7-year notes, all taking place next week.  The current Master Cycle is approaching its reversal in the next week as well.  Janet Yellen may be deliberately trying shoehorn as much as she can into these auctions while rates are low.  The Cycles Model indicates a surge in trending strength reappearing after the New Year.

ZeroHedge reports, “With secondary market yields tumbling in recent days following the Fed pivot, traders were closely watching today’s 20Y auction to see if demand for paper would suffer in the primary market. We got the answer moments ago when the Treasury sold $13 billion in 20Y paper in what was a rather ugly auction.

Starting at the top, the auction priced at a high yield of 4.213%, which was more than half a percent below last month’s 4.780% and was the lowest yields since July. It also tailed the When Issued 4.198% by a remarkable 1.5bps, the first tail in the tenor since August, and the biggest tail since October 2022.

The 2.56 BId to Cover was on the low side of recent auctions, down from 2.58 last month, and below the 2.67 recent average; it was also the west btc since March.

The internals were also quite ugly, with Indirects sliding to 66.4%, far below last month’s 74.0% and the lowest since September. And with Directs awarded 20.7%, Dealers were left holding 12.9%, the highest Dealer take down Since October 22.”

 

 

 

 

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One Response to December 20, 2023

  1. Puravive says:

    I loved you even more than you’ll say here. The picture is nice and your writing is stylish, but you read it quickly. I think you should give it another chance soon. I’ll likely do that again and again if you keep this walk safe.

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