9:50 am
BKX is hovering above its 50-day Moving Average at 110.15 this morning. Beneath that level is a confirmed sell signal. While stocks are beginning to show the effect of the unwinding of the Yen carry trade, the banks are lagging behind, even as the carry trade is now causing losses. Warren Buffett, of all people, is keenly aware of this condition. Thus, the unloading of Bank of America stocks. Yen carry baskets are fundamentally unattractive and may become more so as the Yen rises. Coupled with deteriorating loan portfolios due to a recessionary economy, the outlook looks bleak for banks on a forward looking basis. The Head & Shoulders formation is there for a reason that is becoming clearer as time goes on…
3:00 pm
BKX has declined beneath the 50-day Moving Average, confirming the sell signal. Banks are not talking about the Yen carry trade, but the effects are there. Note how net interest income has fallen for JPM.
ZeroHedge notes, “The stock of the largest US bank is tumbling this morning after Daniel Pinto, JPMorgan’s president, said that analysts were too optimistic in projecting next year’s expenses and net interest income, sending the shares down more than 6%, and tumbling to 1 month lows..
The current NII estimate of $89.5 billion is “not very reasonable” given interest-rate expectations, Pinto said at the Barclays annual financial services conference Tuesday. The figure “will be lower,” he said, which is surprising because the bank’s own latest outlook just two months ago forecast $91 billion in net interest income.”
ZeroHedge further states, “Yesterday we said that the latest consumer credit numbers, which saw a bizarre surge in credit card debt as consumers – their savings now depleted and at record low levels – now have to charge their credit card for every day staples, were the “last hurrah” for consumption in the US.”
8:15 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.”
NDX futures completed its retracement slightly higher after the close at 18708.50. However, it could not hold that elevation and is now back to a flat line position at present. Should the NDX attempt a further bounce, the 38.2% Fibonacci retracement lies at 18986.00. The bounce thus far has been weak and has done nothing to relieve the oversold condition. That may lead to another 1-2 days of rally toward Intermediate resistance at 19038.00. The alternate view is that , not having escaped short gamma, the NDX may continue in an oversold decline, a very dangerous condition.
Today’s options chain shows Max Pain at 18710.00 Long gamma may begin at 18750.00. Short gamma may start with a bang at 18700.00. This is a “must do” level for the dealers who may be overwhelmingly long.
ZeroHedge comments, “After the worst week for the S&P since the March 2023 bank crisis…
… which sent the Nasdaq to one of the most oversold levels since the covid crash…
… and with the market starting off September in typical “whimper” style: deep in the red as the following chart from Bespoke shows…”
SPX futures rose to 5485.00 thus far this morning thus far. The 38.2% Fibonacci retracement level is at 5497.50. The 50-day Moving Average is at 5504.54, where there is heavy resistance. The SPX is not as oversold as the NDX, so there is room for a further decline, as well. The Cycles Model allows another possible 1-2 day bounce. However, that may depend on the condition of the options market.
Today’s options chain shows Max Pain at 5475.00. Long gamma may begin at 5500.00. However, short gamma threatens at 5450.00. It appears that the dealers are attempting to to keep the SPX out of short gamma.
ZeroHedge reports, “US equity futures rose, trading near session highs after they rebounding off overnight lows as markets head into a crunch period, with key inflation data on Wednesday followed by the Fed’s interest-rate decision next week. As of 8:00am ET, S&P futures were up 0.1% trading in a narrow range after the underlying gauge rose 1.2% on Monday, rebounding from its worst start to the month in data going back to 1953; Nasdaq futures were down 0.2% as Mag7 and Semis are weaker while Financials rise following a Bloomberg report of lower capital requirements. Treasury yields rose a second day, higher by 1-2 bps while the USD held Monday’s gains. Commodities are mixed with metals up, energy down, and Ags mixed. The macro data in focus is on the Small Biz Optimism print (which dropped to 91.2 from 93.7, missing estimates) and the Presidential Debate.”
The NYSE Hi-Lo Index shows the NYSE in a positive light. Selling has not yet overtaken net purchases. As a result there were 85 net new 52-week highs yesterday due to the continued rotation out of the NDX into mid- and small caps. What is amazing is this is after last week’s selling. What is missing is that this index is not cap weighted, which ignores the tech sell-off.
VIX futures have declined modestly beneath the Cycle Top at 21.07. What is interesting is that the VIX refuses to go lower, despite the heavy short gamma in the options market. Smart money (longer-term) is positioned for the SPX to decline and VIX to rise further. The retail trade is still stuck on (short-term) 0-DTE trades.
Tomorrow’s op-ex shows Max Pain at 22.00. Short gamma resides from 15.00 to 20.00. Long gamma may begin at 25.00. However, there is not much conviction on the long side this week. However, the monthly op-ex on September 18 shows Max Pain at 17.00-19.00. Long gamma is positioned above 25.00 with over 3 million long positions. The right conditions may trigger a runaway train in the VIX.
TNX has pulled back in a retest of trendline support near 36.50. Today is day 257 in the (former) Master Cycle. There may be a couple of days needed to gain strength to push higher. The Cycles Model suggests rising rates may take center stage to mid-October. Despite lower 10-year rates, credit card rates are at an all-time high. That may be due to the unwind of the Yen carry trade, which banks may have used to encourage no-and low-interest loans. That may be coming to an end as the carry trade backfired over the last two months.
ZeroHedge remarks, “One month ago, when multiple discount retailers (here and here) were lamenting the sudden collapse in US consumer purchasing power, we observed the reason this unexpected hit to US consumption: as the US personal savings rate had collapsed, the growth in consumer credit was slowing, and in July, credit card debt growth posted its first decline since the covid crash, just in time for another month of record high credit card rates.
But fast forwarding just one month later, when in a stunning reversal, July consumer credit growth unexpectedly reversed the dramatic June slowdown, and soared more than $25 billion, to a new record high of $5.093 trillion.
The Japanese Yen broke out to a new high on Friday. This has been forcing the great carry trade unwind in stocks, which may be why the SPX declined last week, despite low 10-year treasury yields. Today’s pullback in the Yen may also explain the bounce in stocks. The Cycles Model brings more bad news for equities investors as the pullback may not last more than a day or two. The trend may be higher in the Yen through the end of September.