February 1, 2024

10:23 am (amended)

BKX has crossed beneath the Diagonal trendline and Intermediate support at 95.38, putting BKX on a confirmed sell signal.  The January 30 Master Cycle high indicates a reversal is being made.  Many analysts may recognize the sell signal beneath the 50-day Moving Average at 91.81.  Now that the sell signal is confirmed, BKX may go into serious decline to the end of the month.

ZeroHedge comments, “Several months ago, we predicted that the “Next bank failure will be in Japan.”

It looks like we may be right again.

Following a profit warning from New York Community Bancorp on Wednesday, largely attributed to continued turmoil in the commercial real estate sector (which led the bank to slash its dividend and bolster reserves leading to a 38% plunge in its shares and triggering the largest drop in the KBW Regional Banking Index since the collapse of Silicon Valley Bank last March) Japan’s Aozora Bank slashed the value of some of its US office tower loans by more than 50%, according to Bloomberg. ”

 

8:10 am

Good Morning!

NDX futures bounced from yesterday’s closing low to an overnight high at 17267.00.  However, the Cycle Top at 17249.00 weighed heavily as the bounce moderated back down beneath resistance.  It is on an aggressive sell, subject to short-term blow-backs, but most profitable after the Master Cycle has turned (January 24th).  Further confirmation of the decline lies at the Ending Diagonal line with Intermediate support at 16875.00.  Most analysts may recognize the trend change beneath the 50-day Moving Average at 16555.99.

Today’s options chain shows Maximum Investor Pain at 17175.00.  Long gamma lies above 17200 while short gamma rules beneath 17150.00.

ZeroHedge weighs in, “A bit too euphoric

BofA writes: “…forward returns when sentiment hits euphoria are not appalling in a bull market. Especially when the market breadth is running at healthy levels, such as today’s.”

Source: BofA

Finally

SPX starting to pay attention to VIX finally. SPX vs VIX inverted.”

 

 

SPX futures bounced from the closing low to an overnight high at 4873.30.  It, too, has come down from the high, but remains above the Cycle Top at 4865.00 as I write.  It is on an aggressive sell signal beneath the Cycle Top.  The Ending Diagonal trendline and Intermediate support are at 4779.47, beneath which confirms the sell signal.  Once it has been made, the sell signal may remain in effect until the end of February.

Today’s op-ex shows Max Pain at 4855.00.  Options are tightly grouped with long gamma beginning at 4860.00 while short gamma may begin at 4850.00.

ZeroHedge reports, “US equity futures rebounded after the worst day for stocks since September, as investors prepared for the next wave of megacap tech earnings while resetting expectations for the timing of Fed rate cuts, which have been pushed back from March to May at the earliest (unless of course there is a new banking crisis). As of 7:50am, S&P 500 futures gained 0.5% following a 1.6% plunge on Wednesday after Powell unleashed Hawkamania on the market during his press conference. Nasdaq 100 climbed 0.6% and awaiting earnings from Apple, Amazon and Meta.It’s the latest update from members of the “Magnificent Seven” stocks that have soared amid aggressive expectations from investors for earnings growth fueled by artificial intelligence applications and easier policy from the Fed. Meanwhile, the epicenter of the new banking crisis, New York Community Bancorp rallied following its record plunge. Interest rates reversed some of Wednesday’s losses with 10Y yields rising 2bps to 3.93% while the dollar was flat, reversing earlier gains.”

 

 

VIX futures pulled back to 13.87 in the overnight market, then rebounded above 14.00.   It is on a buy signal.  There are possibly four days left in the current Master Cycle.  Its target may surprise you.

The February 7 options chain shows Maximum Pain at 14.  There is no short gamma.  Long gamma may begin at 15.00.

 

The Shanghai Composite Index declined to a low of 2752.78 today, with a slight bounce into the close.  Odds are best that the decline may continue for another week before a more significant bounce develops.  The bottom may lie near 2650.00.

ZeroHedge remarks, “Evergrande – once China’s largest real estate developer – was forced to liquidate on January 28th. It was yet another strike against the country’s now flailing real estate market, adding to a growing list of China’s economic worries.”

 

TNX is testing the rising trendline at its low this morning at 38.95.  This decline is considered to be a 1/2 Trading Cycle low and may not decline much further.  As a general rule, they are considered to be short-term corrections of a larger trend.  The US Treasury is auctioning $185 billion of 4-week and 8-week bills today.  The world will be watching, as $121 billion of Notes and Bonds will be on the block next week.

ZeroHedge explains, “The rot caused by easy money will only become fully visible when the hollowed out institutions start collapsing under the weight of incompetence, debt and hubris.

We have yet to reach a full reckoning of the consequences of the era of easy money, but it’s abundantly clear that it ruined us. The damage was incremental at first, but the perverse incentives and distortions of easy money–zero-interest rate policy (ZIRP), credit available without limits to those who are more equal than others–accelerated the institutionalization of these toxic dynamics throughout the economy and society.”

ZeroHedge comments, “Banking sector problems are a prescient reminder that elevated rates are cumulatively inflicting mounting damage across the economy. Ironically, that ultimately means yields are heading higher.

The probability of deeper and perhaps sooner Federal Reserve rate-cuts and an earlier end to quantitative tightening has – even following Wednesday’s FOMC statement – risen at the margin after New York Community Bancorp’s dividend was cut and its equity fell by over a third. This will stoke already-burgeoning inflation pressures, ultimately leaving the US household sector as the buyer of last resort for Treasuries — and it will extract a much higher yield to do so.”

 

USD futures declined to the 200-day Moving Average at 103.32 this morning as it consolidates its gains thus far.  The rally may continue to early March as it emerges into the upper half of the 258-day trading range.

 

 

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