January 25, 2024

2:18 pm

BKX, our liquidity proxy may have topped out its retracement at 96.66.  Should it remain beneath its Cycle Top resistance at 96.35, it may create an aggressive sell signal.  Confirmation of the sell signal lies beneath Intermediate support at 94.16.  Should that occur, the Cycles Model implies a decline through the end of February.  It looks like the “free money” arbitrage has just been cut off, as well.

ZeroHedge observes, “The Fed just tweaked its BTFP programme. It’s still being phased out on 11 March, but effective immediately the adjusted rate for borrowing will ”be no lower” than that of reserve balances. This prevents markets arbitraging the BTFP’s typical 4.88% rate vs. the 5.40% rate on reserve balances, with this gap widening due to the market expectation –read ‘salivation’– of rate cuts. In short, Wall Street was making money thrice: first, via lower bond yields (“because rate cuts”), second on higher everything else (“because rate cuts”), and third because of arbitrage: markets always exploit those variations rather than lending consumer savings to businesses for productive investment, as economics textbook wrongly teach. So, that’s one blow vs. easy money. Another is this morning’s chatter that the BoJ might raise rates before the Fed cuts following the strong US PMI data seen yesterday. If the looming Fed meeting doesn’t clearly open the door for that magical March rate cut, then it looks likely yields can travel significantly higher again, short term.”

 

8:00 am

NDX bounced to 17546.00 but did not make a new high.  Both the Wave structure and Cycle are complete.  It has overshot the Cycle Top at 17137.69 and must decline beneath it to trigger an aggressive sell signal.   The Ending Diagonal trendline and Intermediate support lie at 16664.29 and may offer a confirmed sell signal.

Today’s options chain shows Maximum Investor Pain at 17490.00.  Long gamma may start at 17500.00 while short gamma begins at 174890.00.

ZeroHedge gives some common wisdom, “NASDAQ is overbought…

…but we can stay in overbought land for longer than most can “endure” (see May – August last year). Use that 21 day moving average as the medium term “compass”.

 

SPX futures rose to a morning high of 4877.00, but now maintains a lesser gain.  Both the Cycles Model and Wave structure strongly suggest the rally may be over on day 273.  The Cycle Top support is at 4819.90, where an aggressive sell may be made.  The 1987 trendline is at 4780.00 while the Diagonal trendline is at 4740.00 and Intermediate support is at 4733.74.  Both of these levels may confirm a sell signal.  SPX is in throw-over, which makes it more difficult than usual to get good signals.

Today’s op-ex shows Max Pain at 4870.00.  Long gamma may begin at 4880.00 while short gamma rules beneath 4850.00.

ZeroHedge reports, “After the S&P eeked out modst gains yesterday despite an intraday swoon, which helped it close for a 4th consecutive, the question is whether we can get a five-peat: for now, it’s on the fence, with S&P 500 futures flate ahead of a slew of US economic data and a meeting of the European Central Bank.while Nasdaq 100 futures inched up 0.1% as the market tried to shake off the gloom from Tesla’s disappointing earnings late on Wednesday. While shares in the electric carmaker dropped 8% in US premarket trading, those in IBM gained 7% after it delivered a positive revenue outlook. American Airlines Group Inc. and Blackstone Inc. also rose after reporting profits.”

 

 

 

VIX futures rose to 13.31 this morning, above the 50-day Moving Average at 13.13 and on a buy signal.  The Cycles Model proposes today as a day of trending strength.  There may be another two weeks of rally left in this Cycle..  It’s target may be the Cycle Top resistance at 19.70.

The January 31 op-ex shows a small short gamma layer at 14.00.  however, it may be overridden by a crowd of calls at 13.00.  If long gamma doesn’t’ start there, it certainly takes hold at 15.00 and runs to 30.00.

ZeroHedge remarks, “Perpetual motion machines shouldn’t exist. Yet the stock market seems to have found one. After initially striking turbulence when the Federal Reserve began hiking rates in 2022, equities have stabilized and are in a seemingly unshakable uptrend. Credit, volatility, option speculation and well-behaved inflation expectations are in a virtuous circle, keeping the market grinding higher.

Stocks are navigating the thin aperture of the Panama Canal.

Either a return to a low-and-stable inflation regime, or a re-acceleration in price growth — which unanchors inflation expectations and decimates the real value of stocks — would leave them in a precarious spot.”

 

The Shanghai Composite has risen above its Cycle Bottom resistance at 2852.60 and closed at 2906.79.  Serious resistance now lies at the 50-day Moving Average at 2952.64.  This may be a level at which motivated sellers step back in as they did in August and November of 2023…and January 2024.  Remember, the Chinese authorities have banned short selling, which eliminates motivate buyers at lows.  Now, despite government intervention, there are only motivated sellers until the market completely exhausts the sellers.  After all, why would anyone buy into a falling market where there is no rationale for selling at a profit.

ZeroHedge remarks, ““Fool me once, shame on you; fool me 11 times… you can’t get fooled again.”

‘W’ would be proud of the efforts that Beijing’s plunge-protectors have made over the past few months – all to no avail – in staunching the blood-letting from Chinese stock markets…

Source: Bloomberg

But, amid the apparent panic of the last few days (broader short-selling restrictions, a multi-trillion-yuan rescue package, and a RRR cut), a number of Wall Street traders are asking “is this China’s inflection point?”

 

 

TNX opened above the 50-day Moving Average at 41.57 to a high of 41.86, then pulled back.  It may seek support at the 200-day Moving Average again at 40.86.  The Cycles Model suggests trending strength may return as early as today or tomorrow.  The Cycles Model contends that the uptrend may continue as far as mid-April.  The Treasury Auction calendar shows 7-year notes on the block this afternoon.  This may be creating jitters as the 5-year note auction yesterday was a bust.

ZeroHedge reports, “After yesterday’s solid 2Y auction, many were confident (certainly Bloomberg’s Market Live commentators who are the kiss of death for auctions) that today’s sale of 5Y paper would be smooth sailing. They were once again dead wrong, because the just concluded sale of $61 billion in 5Y paper, the highest amount for sale in this maturity since 2021 and matching the record high…”

 

 

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