7:45 am
Good Morning!
SPX futures declined to a morning low at 5814.50 thus far. SPX is now beneath the Ending Diagonal trendline and Short-term support at 5820.00, reinforcing the aggressive sell signal in the past week. An aggressive sell implies a lightening of the long exposure and a seeking hedges while they are inexpensive. The Cycles Model suggests that the decline may intensify over the next few days, leading into a month-long rout for stocks.
Today’s options chain shows Max Pain at 5835.00. Long gamma may begin above 5850.00 while short gamma dwells beneath 5820.00
ZeroHedge reports, “Futures are down small, reversing a modest overnight gain with small-caps underperforming. As of 8:00am ET, S&P futures are down 0.1%, near session lows, while Nasdaq futures are fractionally higher on the session with Mag7 names mixed while GOOG is higher ahead of earnings and semis are seeing a slight bid despite NVDA -60bps. The yield curve is bear steepening with the 10Y yield at 4.30%; the USD is flat. In commodities, oil prices climb along with industrial and precious metals after Reuters reported China is weighing approving over 10 trillion yuan ($1.4 trillion) in additional borrowing in the coming years to shore up the economy and address local governments’ debt risks. WTI is up 1% near $68 a barrel while copper rises 0.9%. Today’s macro data focus will be on JOLTS, Consumer Confidence, and Housing prices. GOOG is the first of 5 of the Mag7 that report this week which may present an inflection point for the group given the reduction in exposure since the summer which has not yet been offset by recent purchases.”
VIX futures have risen to a morning high at 20.10. A potential breakout from the recent trading range lies above 20.50. Note the potential Triangle formation, which offers a potential continuation signal. It remains above the 50-day Moving Average, which is recognized as a confirmed buy signal. However, few investors, with the exception of professional traders, have taken advantage of the rising VIX. While the SPX has not made a new high since October 17, it is still perceived to be rising, leaving investors asleep at the wheel. Commentators don’t know what to make of it. That may be about to change today.
The October 30 options chain shows Max Pain at 19.00. Short gamma resides at 17.00-18.00. Long gamma begins at 20.00 and is populated to 30.00 with a couple outliers above.
The Shanghai Composite Index has declined today, resting on its Cycle Top support at 3281.44. A breakdown beneath that support gives a confirmed sell signal, with a projected decline to early December. The implied target may be the Cycle Bottom at 2700.38. However, there is a substantial probability of declining beneath that level, triggering a massive Head & Shoulders formation. H&S formations are very reliable, especially in the position shown in the chart.
TNX futures reached a morning high at 43.14, suggesting the cash market may be going higher today. This correction is called an “expanded” formation, implying that the trend is too powerful for a normal pullback. The Cycles Model suggests another possible week of expanded correction. An alternate view suggests a possible “phase transition” which implies that a corrective pullback may be skipped altogether as TNX explodes higher. Trouble is brewing in bonds and may begin to affect interest-sensitive stocks. In the meantime, the Treasury is putting lipstick on the pig by trimming debt issuance in the fourth quarter and deferring it to the 1Q 2025.
ZeroHedge reports, “Back in July and exactly one quarter ago, when the US Treasury published its debt issuance forecast for the balance of 2024, we said that the “anticipated numbers came close to our estimates for Q3, but well above our forecast for Q4” with the highlight being the Q4 debt issuance number which the Treasury estimated at $565 billion, $115 billion above our estimate of $450 billion (in part due to the Treasury higher TGA estimate of $700 billion vs our assumption of $650 billion).”
Meanwhile, ZeroHedge comments, “90 minutes an ugly 2Y auction this morning, moments ago the Treasury sold its second coupon offering for the day, this one $70BN in 5Y paper in an auction that was even uglier.”
The Japanese Yen declined to 65.18 thus far this morning, on day 259 of the Master Cycle. A normal Master Cycle would have ended at the mid-Cycle support at 66.06, but in times of high volatility, that support may be exceeded. A potential rate hike may send the Yen soaring, with negative consequences for the Yen carry trade.
