9:35 am
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BKX, our liquidity proxy, shows the need for a final probe higher, possibly to 111.50. Today is day 257 of the current Master Cycle. The final probe may be complete by Friday. The Fed rescue of the banking index in March 2023 and again in October 2023 tells us just how important this index really is. The Head & Shoulders formation does not overstate the risk of loss in the banking index.
8:15 am
Good Morning! Have you prayed yet?
SPX futures have declined this morning and may go beneath 5300.000. However, the structure of the rally has become more complex and may contain a bearish trap. A rare second Triangle formation (I’ll show you later in the 2-hour chart) has emerged. Wave E of the Triangle (A-B-C-D-E) tends to be a rogue Wave that may decline to 5283.00 or possibly lower, trapping any shorts. Should the Triangle formation reach its final conclusion, a rally that may rise to a minimum of 5400.00 may complete the final Primary Wave [5], which may go as high as 200.00 points. The Cycle Top at 5454.70 is a possible final target.
Today’s options chain shows Maximum Investor Pain at 5315.00 to 5320.00. Long gamma extends from 5325 to 5390.00. Short gamma begins at 5310.00.
ZeroHedge reports, “US futures are lower on Nvidia day; with the stock down 56bps in premarket trading, while Mag7 and semis are also all lower pre-mkt. As of 7:20am, S&P futures are down 0.1%, just off session lows amid signs of sticky inflation that dampened bets on early interest-rate cuts; Nasdaq futures drop 0.2% while Europe’s Stoxx 600 gauge slipped 0.3%, with energy shares among the big losers amid an earlier drop in crude prices. Bond yields are higher by 2-3bps in sympathy with Gilts where yields jumped on much hotter than expected inflation, or rather less than expected disinflation. The USD is higher and commodities are mixed: energy is higher, reversing earlier losses, while precious metals are lower with Ags outperforming. Aside from NVDA, the latest Fed Minutes are also released today, which should align with recent Fedspeak (hikes unlikely in 2024 and need more data to support cuts), as well as some consumer-sector earnings (Target tumbled 8% after guidance disappointed) which, in total, show a still solid aggregate consumer but continued deterioration in the lower income consumers.”
NDX futures have risen to 18737.00 this morning. While there may not be a triangle formation, as in the SPX, the rally may be incomplete. A surge to 19300.00 is not out of the question.
Today’s options chain shows Max Pain at 18670.00. Long gamma starts at 18700.00 and runs to 19050.00.
ZeroHedge remarks, “Falling volumes, crushed volatilities and record highs, equity markets seem to price nothing but a rosy outlook. While much has gone right for investors this year, some risks can’t be ignored and deserve attention.
It seems no one wants to be short in this market. Bears are falling like dominoes and positioning is increasing, leaving the market very much one-sided ahead of the Fed minutes and European PMI data, along with the results of the world’s most important stock Nvidia.”
VIX futures are consolidating this morning after making a 278-day Master Cycle low yesterday. The last time a VIX Master Cycle was this long was in March 2023, so it is not unusual for this to happen. The reason is that VIX is a small index in comparison to the SPX and may be influenced by either bullish or bearish sentiment in the larger index. In addition, VIX is at a Primary Cycle reversal, which may happen every two years . Nevertheless, I have not seen any VIX Master Cycles longer than 278 days.
Today’s options chain shows Max Pain at 15.50. Short gamma resided between 12.00 and 15.00. Long gamma starts at 16.00 and runs to 60.00. Hedgers are beginning to take protective positions, although today’s expiration is early.
ZeroHedge observes, “Zoom in…
…and you will see the SPY volume bar.
Source: Refinitiv
The death of volatility
VIX, VXN and VXTLT are all printing new recent lows, hitting levels not seen in years.”
TNX opened at 44.51, above the 50-day Moving Average at 44.35. The Cycles Model suggests a new trending strength pattern may be about to emerge this weekend that may lead to new highs. The new Master Cycle may proceed to early July.
ZeroHedge comments, “In January of this year JP Morgan CEO Jamie Dimon argued in an interview with Fortune Magazine that the record US debt ‘Is a cliff…and we’re going 60MPH towards it.” He claimed that the situation was a global market rebellion waiting to happen. His comments preceded reports that the national debt was increasing by approximately $1 trillion every 100 days due to the Federal Reserve’s interest rate hikes. US debt has climbed over $11 trillion since March of 2020.
It’s a problem that bankers should have been able to predict well in advance: The inevitable Catch-22 scenario in which the Fed must either raise rates to stop inflation but cause debt to skyrocket, or, the Fed must lower rates and return to QE to alleviate debts but also trigger an even greater inflation crisis.”
ZeroHedge further notes, “Aggregate bond indices are up in most countries on an annual basis. But the broadening commodity rally threatens to feed into global inflation and kickstart another bond selloff.
A year ago almost all aggregate (corporate + government) bond indices were on the back foot. But throw in a dash of optimism, a soupçon of disinflation and a helping of less hawkish central banks and almost all indices are up over the last year. Thailand and Israel’s indices are the only two real exceptions; the rest are higher by anywhere from 2% to over 10% in Poland and Hungary’s cases.”