2:40 pm
Today’s SPX high is two points beneath yesterday’s high. The NDX high is 34 ticks beneath its prior high and is receding. Should today’s SPX/NDX not go any higher, equities may begin to sink like a rock. Although the BOJ backed off from its rate hike, the TNX (10-year treasury notes) is back above 40.00. In addition, the NYSE Hi-Lo Index shows only 1 new 52-week high out of 3300 listed companies. That is not healthy. The 100-day Moving Average is at 5310.00. Beneath that level may be a confirmed sell signal.
ZeroHedge remarks, “Back in 2000, when technology stocks hit the wall, one of Gavekal’s first clients told us: “It’s OK. Bear markets serve an important purpose: they return capital to its rightful owners.”
Behind this cynicism lies an inherent truth.
Bear markets do tend to shake out “weak hands,” clean out retail investors, and punish those who operate with too much leverage. Another key function of bear markets is to transfer leadership from one country or sector or asset class to another.”
8:00 am 2 Chronicles 7:14
“If my people, which are called by my name, shall humble themselves, and pray, and seek face, and turn from their wicked ways; then will I hear from heaven, and will forgive their sins, and will heal their land.”
Good Morning! The Website has been recovered and working normally. Thank you for your patience.
SPX futures remained flat overnight, leaving investors on a knife’s edge of decision. Should the SPX remain above the 1987 trendline at 5119.27, equities may begin to rally again to new all-time-highs. The crux of the matter is that the Cycle low may have come early. Should the former Master Cycle extend another two weeks to its normal pivot date, we may see a totally different outcome. Perpetually bullish dealers have raised their odds of a bear market from 15% to 15%.
Today’s options chain shows Maximum Investor Pain at 5225.00. Long gamma is scarce, but short gamma starts at 5200.00.
ZeroHedge reports, “After three rollercoaster days of wild, brutal swings, futures are flat ahead of the Thursday open, erasing overnight losses if still below the all-important CTA threshold level of 5255 which trigger billions in sales by systematic funds. Asian and European stocks declined, prolonging the soaring volatility that has gripped global markets for days after the BOJ effectively steamrolled the carry trade last week when it unexpectedly hiked rates, only to U-turn just days later when the Nikkei suffered its biggest one day crash since Black Monday. As of 7:4am S&P futures were unchanged at 5,228 while Nasdaq futures were fractionally in the green, with Mag7 and semis providing support despite the continued selling by Supermicro. Treasuries yields are lower ahead of US jobless claims data, with US 10-year yields falling 2bps to 3.93% as European bonds also gain. Keep an eye on bonds as yesterday’s 10Y auction was weak but that could have been negatively impacted by elevated Credit issuance; today is the 30Y auction. The USD is weaker and commodities are lower across all 3 complexes as WTI dips below $75, but precious metals catch a bid. Today’s macro data focus is on jobless claims; a spike there preceded a weaker NFP that coincided with the carry unwind so the market may have heightened sensitivity to the print. Elsewhere, both Goldman and JPMorgan raised their recession odds, from 10% to 25% and from 25% to 35%, respectively.”
VIX futures have also remained relatively flat. While the VIX appears more “normal” near 25.00, the VVIX (VIX Volatility Index) remains stubbornly high near 150.00.. This indicates the VIX may move higher. You may recall, I had mentioned that the probable target for this rally is the 2020 high at 85.47. The Cycles Model suggests that the VIX has another two weeks of rally. Should the VIX Cycle prevail over the SPX Cycle, the SPX may see a surprising “dip” beneath the 1987 trendline in the next two weeks.
The August 14 options expiration shows a weak short gamma between 13.00 and 22.00. Long gamma appears to be weaker still, suggesting no conviction of a VIX blowout. However, the situation is ripe for exactly that.
ZeroHedge observes, “Did VIX Really Hit 65 on Monday?
Without a doubt, the official VIX calculation reported a level of 65.73 on Monday at 8:34 am EST. That level was posted and is now being used by many people to justify long positions in equities. The theory seems to be that we had an “epic” spike in volatility indicating panic, and that panic has since receded – hence creating a buying opportunity. Notice, that we chose to use the word volatility here, partly because many seem to use VIX and Vol interchangeably – which is not accurate.”
TNX has pulled back fro the trendline at 39.20 after a brief challenge this morning. It is likely to pull ack to the Cycle bottom at 38.47, or possibly the 50% retracement level at 38.00.
ZeroHedge reports, “Amid all the chaos in markets over the past few days, it is perhaps no surprise that ‘demand’ for bonds would be somewhat weaker. However, today’s 10Y auction was very ugly.
The sale stopped at 3.96%, tailing by a little more than 3 bps…
…as bid/cover of 2.32 was the lowest since December of 2022.
