December 22, 2023

9:40 am

BKX has remained under its December 14 high, but seems hesitant to decline further.  There may be the possibility of an inversion, as the powers-that-be attempt to keep interest rates low and bank stocks elevated.  However, the probability of a massive accident in the Banking sector is very high.  The Cycles Model suggests a probable decline starting after the first of the year, with a panic developing in the third week of January.  There may be some arbitrage in rates that may keep the banks afloat…until rates start rising again.

ZeroHedge observes, “Usage of The Fed’s BTFP bank bailout facility soared again last week, jumping $7.5BN to $131BN…

Source: Bloomberg

But Regional Bank shares still don’t care…

 

8:10 am – Merry Christmas!

Good Morning!

NDX futures consolidated beneath the Cycle Top resistance at 16772.44 this morning.  The Cycle Top acts as resistance to further attempts at a new high.  The rising trendline beneath the 1 month rally lies at 16600.00, offering an aggressive sell signal.  The Cycles Model suggests the inversion was meant to reach the Cycle Top and no more.  Should the NDX decline beneath the trendline, the Cycle path is lower until mid January.

Today’s options chain shows Max Pain at 16725.00.  Long gamma begins at 16750.00 while short gamma lies at 16700.00.

ZeroHedge observes, “The market’s reflexivity was on full display in the latest monthly Bank of America Fund Managers Survey (full note available to pro subs in the usual place), in which BofA Chief Investment Strategist Michael Hartnett polled 254 panelists managing $691 billion in the period between Dec 8 and 14th, thus capturing sentiment after the unexpected dovish Fed pivot. Not surprisingly, Hartnett found that the Fed’s capitulation resulted in the most upbeat sentiment since Jan’22 (when stocks hit an all time high last) on what is now called “Goldilocks ’24”

…. as investors cut cash to 4.5% from 4.7%, a 2-year low…”

 

SPX futures are challenging the 1987 trendline at 4745.00 this morning in an attempt to make new highs.  Failure to do so may allow SPX to decline beneath the Cycle Top, giving an Aggressive sell signal with a decline to the next support level, Intermediate support at 4657.13.

Today’s options chain shows Max Pain at 4745.00, inadvertently trying to hold the 1987 trendline.  Long gamma starts at 4750.00 while short gamma may begin at 4740.00.

ZeroHedge reports, “US equity futures were slightly lower, bond yields dropped ahead of the release of a the Fed’s favorite inflation metric, the core PCE, which could cement the case for Federal Reserve interest-rate cuts as soon as March which in turn will unleash the biggest policy mistake since the Arthur Burns Fed, triggering much more inflation down the road. As of 7:55am ET, futures on the US Nasdaq 100 and S&P 500 were down -0.1% after a solid rebound yesterday from Wednesday’s 0DTE inspired selloff. The dollar dropped while oil was modestly higher, headed for a weekly advance as attacks in the Red Sea forced hundreds of ships to take longer routes.”

 

 

VIX futures are consolidating positively inside yesterday’s trading range.  There may be an effort to suppress the VIX prior to the Christmas Holiday.  However, the Cycles Model shows a potential surge in strength early next week.

Wednesday’s options chain shows Max Pain at 13.50.  The sole short gamma position lies at 12.50.  Long gamma may begin at 15.00, but long sentiment is still lagging.

ZeroHedge remarks, “Somebody is nervous

VIX continues moving higher today, despite the fact SPX has managed bouncing from yesterday’s panic. The sudden bid in volatility shouldn’t be dismissed. VIX hasn’t closed here since November 20. Chart shows SPX vs VIX inverted.

 

 

TNX is testing its low at 38.29 this morning.  The current Master Cycle is at day 247, which allows the decline to extend to the opening day of 2024.  Should TNX go lower during that time, it may go to the Cycle Bottom near 32.00-33.00.   This is not the end of rising yields.  On the contrary, the next target in 2024 may be 5.3%.

 

USD futures made a new low at 101.10 this morning.  The Cycles Model anticipates the Master Cycle low may arrive next week.  The possible target may be near the Cycle Bottom at 99.81.

ZeroHedge remarks, “The magnitude of last week’s dovish swing by the Federal Reserve now makes a rate cut next year highly likely.

Yet, as is so often the case with central banks focused on lagging variables, it could come at exactly the wrong time, with a profusion of indicators showing inflation will be rekindled later next year. Rate-cut expectations look overdone, but any repricing may not come until the whites of inflation’s eyes are seen — when that happens the move will be dramatic.

No analogy is perfect.

But history rhymes because there is one thing that is immutable through time: human nature.

The 1970s were different to today in several respects, but the immutability of human behavior makes it quite conceivable a similar inflation pattern could recur.”

 

 

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