8:15 am
Good Morning!
NDX futures remained flat overnight, as the 4-day rampage loses steam. The Cycles Model suggests the retracement is nearly over, as visible targets (the 50-day Moving Average) have been met. The time element of the Cycle has also been met, or is about to be fulfilled. NDX may have the capability to probe as high as 19575.00 this morning. Whether it makes it that far is uncertain, since it is in a high resistance zone in both price and time. The 50-day support/resistance is at 19364.00, beneath which lurks a possible sell signal. The possibility of higher interest rates are a dark cloud on the horizon for the NDX. Last night, investors were dreaming of a .50% rate cut. Reality may strike this morning.
Today’s option chain shows Max Pain at 19500.00, suggesting dealers have the least payout there and prefer the NDX close at that level. Long gamma may begin at 19530.00 and is reinforced at 19600.00. Short gamma may start at 19460.00.
ZeroHedge observes, “2024 was the year when the runaway US budget deficit was supposed to gradually normalize, and after two crisis-years, the US was supposed to end its drunken sailor spending ways. And for a while there, it seemed touch and go, with the cumulative US deficit initially overtaking 2023 – forget about the batshit insane 2021 and 2022 when the deficit hit a mindboglilng 18% of GDP…
… before slowly easing back for a few months, only to sprint ahead of 2023 once more in August…
… when THIS happened: an August budget deficit of a staggering $380 billion, up more than 50% from the $243 billion in July, and up more than 55% from July, and up 66% from last August… oh, and almost $100 billion more than the median estimate of $292.5 billion, which may be why the Treasury quietly snuck the number out by leaking it after 5am ET when everyone was sleeping, not at its regular time of 2pm ET.”
SPX futures rose to 5613.10 thus far this morning. Few realize there may be a possible limit on this retracement near 5623.00. Once the realization that a .50% rate cut may be out of the picture the market may throw a tantrum. It may mark the end of the current Master Cycle today on day 252. Should the SPX reverse today, it may do so forcefully, as trending strength may be powerfully launched over the next week. Remember, the market makes big moves when investors are all wrong-sided.
Today’s options chain shows Max Pain at 5570.00. Long gamma may start at 5600.00 while short gamma tentatively begins at 5550.00.
ZeroHedge reports, “US futures pointed to modest gains after a rally that lifted the Nasdaq 100 more than 5% this week thanks to Nvidia, and the S&P 500 by 3.5%. As of 8:00am ET, S&P futures rose 0.2% led by small-caps which rose 1% as hopes of a jumbo 50bps rate cut jumped overnight; Nasdaq futures were 0.1% higher, with GOOG, META, and NVDA the top performers in megacap land despite a plunge by Adobe on poor guidance. Treasuries yields fell with the 10Y trading at 3.65% and the policy-sensitive 2Y yield down 5bps, while the dollar continues to slide, dropping for a third day, and retreating 0.3% after an article by the WSJ’s Nick Timiraos and comments by Nevertrumper Bill Dudley restored speculation that a 50bps rate cut is possible next week. The yen soared to a fresh 2024 high. Commodities are higher. Today, the data focus will be on Michigan Sentiment and inflation expectation. The consensus is at 68.5 vs. 67.9 prior.
VIX futures made a new low overnight at 16.80. Volatility may be about to rise significantly starting this weekend (possibly today).
The September options chain shows Max Pain at 18.00-19.00. There are over 1.2 million put contracts between 13.00 and 17.00. However, there are over 2 million call contracts scattered between 20.00 and 35.00. Volatility may become violent next week.
TNX futures ventured as low as 36.22 last night, but had recovered to 36.51 this morning. Yesterday it challenged the Cycle Bottom by rising to 37.04. Today TNX may stage a breakout, rising above the Cycle Bottom at 36.95. Bond volatility has been low. However, the Cycles Model shows increasing volatility/strength in the following week.
ZeroHedge reports, “After two stellar auctions, where both Tuesday’s 3Y and yesterday’s 10Y sale may have been two of the best auctions in history for the respective tenors, moments ago the Treasury concluded the week’s coupon issuance when it sold $22BN in 30Y paper in a decidedly uglier sale.
The auction stopped with a high yield of 4.015%, 30bps below last month’s stop and the lowest since July 2023, but the auction also tailed the When Issued 4.001 by 1.4bps, the 3rd consecutive tail in a row.
The bid to cover was 2.376, a modest rebound from last month’s 2.31 but below the six-auction average of 2.39.”
The Yen futures rose to 71.24 this morning, throwing the Yen carry trade into crisis mode. Since July, the value of the Yen in US dollars has risen 15%, wiping out any savings that borrowers may have expected with the .1% annualized loan rate. The Yen carry trade is most visible in the NDX, where the inverse of the Yen (price) closely matches the rise and fall of the Magnificent 7. The effects of the Yen carry trade are unreported by the banks as net interest income (interest earned on investments minus the cost of money) is being pressured for those banks involved in the carry trade. The largest banks may have been involved in the carry trade as the Yen is the world’s third largest currency.