4:00 pm
At the last minute SPX did something I had anticipated for a long time. It made a Key Reversal by 21 ticks. In this case, an inch is as good as a mile.
ZeroHedge comments, “Well, once again the majority – make that the vast majority – of “economisseds” were dead wrong, and as we noted earlier, 105 of 114 economists predicted a 25bps cut… and were wrong. But don’t blame them: it really is the Fed’s fault – again – because while odds of a 50bps rate cut were only 10% as the Fed entered its “blackout period”, these surged after an unprecedented media leak campaign in the past week pushed 50bps odds to 70% (and yes, we can now confirm that Powell used Nick “Nikileaks” Timiraos not once but twice in the past few days to ease the blow of the 50bps cut), which brought us to today, when the Fed shocked with a 50bps rate cut, and slashed its expectations for the 2025 rate cut…”
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!
NDX futures are consolidating within a very narrow range this morning between 19413.00 and 19483.00, on day 257 of the Master Cycle. We may see a reversal within the next two days as this Cycle draws to a close. There has never been so much confidence in a .5% rate cut, mainly supported by a couple of dealers and media chatter. These are considered trial balloons and not reliable, since the Fed has left us with a multitude of confirmations that the cut may only be .25%. Of course, the NDX is the most interest-sensitive of all the indices. The vast majority of economists polled by Bloomberg are keyed in on the .25% rate cut. Nevertheless, positioning has surged, expecting the jumbo rate cut, leading to huge potential losses should the Fed cut only .25%.
Today’s options chain suggests Maximum Investor Pain (minimum payout to investors) at 19350.00. Long gamma may begin at 19400.00 while short gamma may start at 19300.00.
SPX futures are trading in a very narrow range between 5633.00 and 5648.00. The surprise factor may swing the SPX as high ats the Cycle Top, but a sell signal awaits beneath the 50-day Moving Average at 5515.00. The FOMC release will be examined in great detail to catch any nuances that may affect the outcome of future rate cuts, as well.
Today’s options chain shows Max Pain at 5590.00. Long gamma may gain ascendancy above 5625 while short gamma may gain control beneath 5550.00.
ZeroHedge reports, “It’s finally Fed day, and futures are up up small with Tech in line and small-caps lagging having largely priced in a 50bps rate cut already (the risk clearly is to the downside if Powell goes 25bps). As of 8:15am, S&P futures are unchanged and less than 1% from all time highs, with the cash index rising for 7 consecutive days, while Nasdaq futures gain 0.2% with Mag7 mixed, and Semis weaker with NVDA -40bps; GOOG +70bps and MSFT +29bps.”
VIX futures probed to 17.90, above the 50-day Moving Average at 17.82. A buy signal hovers above the 50-day. however, there is a high probability of one last probe lower, possibly to 16.00 in the next couple of days. Today is day 251 in the Master Cycle. This Cycle may end near the FOMC announcement.
There are multiple events that turns seasonality negative for stocks and increase volatility. (1) Mutual fund tax loss selling occurs at the end of the third quarter. (2) Tax payments due by corporations in September and individuals in October. (3) Corporate buyback window closes until mid-October. (4) The drums of war are louder. (5) Worry about the upcoming election.
The September 25 op-ex shows Max Pain at 17.00. Short gamma is concentrated at 15.00-16.00. Long gamma is amply distributed from 18.00 to 30.00.
TNX is challenging the Cycle Bottom resistance at 36.77 this morning. A close above it gives a TNX buy signal (UST sell). The bond market is telling us that the 50 basis points cut is unlikely, especially when rates may be breaking above resistance. Mortgage applicants should lock in their rate today.
ZeroHedge remarks, “After last week’s solid auction which saw stellar demand no doubt on the expectation that the Fed will soon be slashing rates, moments ago we got the results of this week’s sole coupon offering: a $13 billion reopening of 19Y-11M cusip UD8, where we learned that demand for 20Y paper was far weaker than expected.
Stopping at a high yield of 4.039%, the 20Y reopening yield was down from 4.16% in August, and even though this was the lowest 7Y yields since July 2023, it was the auction this month to still yield above 4% (thanks to the infamous 20s-30s kink, the 30Y trades at 3.96%). Notably, it also tailed the When Issued 4.019% by 2.0bps, the biggest tail since February’s catastrophic – and record – 3.3bps tail, and followed 6 consecutive stop throughs.”
The Japanese Yen has begun a possible 2-week pullback that may set the stage for another run higher. This morning it retested its Cycle top at 71.00. Should it not exceed resistance at 71.00, it may retrace as much as 50% of the the breakout Wave. This would be a good time to unwind the carry, but most will simply heave a sigh of relief and ignore the signs.