January 15, 2024

8:00 am

Good Morning!

SPX futures have eased lower but remain above the 1987 trendline at 4772.00 thus far.    The Cycle Top is at 4781.82.  Being beneath that implies a provisional sell signal.  A commonly used focal point may be the diagonal trendline at 4750.00 where the uptrend may be broken.

Wednesday’s options chain shows 4780.00 to be a hotly contested Max Investor Pain zone.  Long gamma kicks in at 4800.00while short gamma begins at 4760.00.

ZeroHedge reports, “US equity futures were steady on Monday as investors were displeased by hawkish comments from ECB’s Holzmann , who said there may not be any rate cuts this year which pushed European stocks to session lows, while also bracing for more earnings later this week. With cash stock markets closed for Martin Luther King Jr. Day and global liquidity especially thin, S&P 500 and Nasdaq 100 futures were down about 0.1% and unchanged, respectively, as 8:00 a.m. ET, after both underlying benchmarks gained last week as the earnings season kicked off.”

 

VIX futures are on the rise, making a new high at 13.34.  It appears that the Master Cycle low may have been made on Thursday, day 255.  Confirmation of that event may be a probe above the 50-day Moving Average is at 13.37.  The VIX may be testing that resistance today.  Of course, a rise above that may create a buy signal for the VIX.

Wednesday’s options chain shows 13.00 offering the Max Pain to options investors.  Short gamma resides only at 12.50.  Long gamma begins at 14.00 and is well populated to 31.00.

 

The weekend TNX futures have risen to 40.04, closing in on the 200-day Moving Average at 40.57 and Intermediate resistance at 40.63.  This suggests that the Master Cycle may have made its low last Friday at 39.16 on day 253.  We will wait another day for verification due to the Martin Luther King holiday.    The opinion that March is too early for rate cuts is rising to the top.

ZeroHedge remarks, “One month ago, BofA CIO Michael Hartnett was just as shocked as everyone else, when Powell unexpectedly pivoted, ending the Fed’s tightening campaign (despite saying just two weeks prior that it was “premature” to even speculate on rate cuts), even though inflation remained above the unemployment rate.  As Hartnett said at the time, “on only 5 occasions in the past 90 years has the Fed cut rates when core CPI (now 4.0%) was higher than the unemployment rate (3.7%). Of those five occasions, the cuts were triggered by war once (Oct’42) and a recession four times (Oct’69, Aug’74, May’80, Jul’81).”

 

The monthly UST chart reveals something that no other analyst is considering…that rates may not be about to decline anytime soon.  The rally is Treasury notes and bonds in October may have been a welcome one.  However, in doing so, the rally may have created an even more bearish outlook on Treasuries.

The massive Head & Shoulders formation warns us that, should UST decline beneath the neckline at 105.86, the bond market may go into a waterfall event.  Whether the rally was contrived or not, the Fed has never been able to dictate interest rates since 1949.  They have always been late to the party, whether to raise or lower rates.  The rally in November provided Powell cover to make his reversal after denying even considering a change in rates only two weeks earlier.  Yet Powell claims his reversal is not political.

All analysis to date has been based on domestic issues.  The first and foremost is the upcoming election.  Historically, when the SPX is at a loss by the end of October, the incumbent party gets trashed, losing its majority in the House and Senate.  The presidency is also at risk of change.  No amount of contrived data is about to change the sow’s ear into a silk purse.

The second issue is that government spending is out of control.  The total deficit for fiscal 2023 was $2 trillion, the largest peacetime deficit in U.S. history.  2024 may be looking far worse.  Janet Yellen claims she can manage rates this year by auctioning off more bills and fewer notes and bonds. Good luck with that!

The third issue may be off everyone’s radar.  That is, the rule of law.  ZeroHedge notes that the Biden administration is “backing legislation that would let it seize some of $300 billion in frozen Russian assets to help pay for reconstruction of Ukraine.”   We are learning that economic sanctions are not working.  Sanctions are bad enough, but seizure of assets is a direct violation of international law.  Lesser countries would be accused of piracy.   It may be considered an act of war.

Consider this.  China is the second largest Treasury bond holder, after Japan.  Seizing Russian assets sends a clear message that China’s holdings in the US may no longer be safe.  Should China decide to sell out, Japan, the largest Treasury bond holder, may follow suit.  That may put $2.1 trillion of debt on the market in a very short period of time.

 

 

 

 

 

 

 

 

 

 

 

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