8:30 am
The Lord’s Prayer
Our Father, who art in heaven, hallowed be thy name. Thy Kingdom come, Thy Will be done, on earth as it is in heaven. Give us this day our daily bread and forgive us our trespasses, as we forgive those who trespass against us. And lead us not into temptation, but deliver us from evil. Amen.
1:00 pm
The Fed may attempt to boost equities with their announcement. Resistance to a bounce lies at the 50-day Moving Average at 5044.65. Bounces may be sold/sold short.
ZeroHedge observes, “The December Fed meeting saw the Fed cut by 25bps as expected and signal a slowdown of easing ahead through changing the language in the statement and by lifting the 2025 dot plot to suggest just two rate cuts this year. ”
Good Morning!
SPX futures briefly retraced to 5930.00 this morning before resuming its decline to a new low at 5882.50. There may be another bounce to retest the 50-day Moving Average at 5944 .50 before declining further. Note the lack of overseas (Japanese and European) investors after yesterday’s pullback.
Today’s options chain shows short gamma beneath 5940.00 while long gamma is very strong at 5945.00-5950.00. This provides a juicy target for the dealers who are long.
ZeroHedge reports, “US equity futures were already rolling over following yesterday’s momentum-driven rout, when a the latest report out of CNN (a polar opposite to the just as fake news from WaPo earlier this week, but fake nonetheless) claiming that Trump was “considering declaring a national economic emergency to provide legal justification for a large swath of universal tariffs on allies and adversaries” sent the dollar surging, all other G-20 currencies plunging, and sparked a broad selloff across risk assets. As of 8:00am ET, S&P futures were down 0.2%, bouncing from session lows of -0.4%, and reversing a gain of 0.4% earlier in the session; Nasdaq futures were hurting more, sliding 0.6% as many of the recent best performers were sold off hard, and none more so than quantum computers which were down about 20% as a group in premarket trading; the Mag7 was also largely red )Apple -0.5%, Nvidia +0.1%, Microsoft -0.09%, Alphabet -1%, Amazon -0.07%, Meta Platforms -0.9% and Tesla -1%). Europe’s Stoxx 600 Index lost 0.4% and Asian stocks slumped, with China tumbling as usual. Meanwhile, bonds extended their ongoing selloff, with the 10Y rising to 4.72% and triggering Goldman’s VaR shock threshold of a 60bps increase in 1 month. In the UK, 10-year bond yields rose to their highest since 2008 and the 30-year inflation-linked note is now yielding more than 2%, the most since the Truss crisis of 2022 as fears spread that Keir’s spending plans will spark a fiscal disaster.”
USD futures surged higher this morning on the (fake) news from WaPo and CNN. The Cycles Model does not support a higher USD at this time but emotions are high, which have led to a probable fake-out. The Cycles Model suggests the USD may go lower through the end of the month, discouraging overseas investors in equities.
ZeroHedge relates, “It has not even been two days since the Washington Post published its attempt to manipulate the dollar lower by claiming, falsely, that Trump intends to water down his sanctions, when moments ago the dollar soared on what is most likely another piece of fake news – and also just as likely another attempt by hedge fund “sources” to manipulate the FX market – when CNN reported that Trump “is considering declaring a national economic emergency to provide legal justification for a large swath of universal tariffs on allies and adversaries.” And unlike the WaPo’s “three” so-called sources, in the quest for anonymous BS supremacy CNN went to cite a whopping “four sources familiar with the matter.””
VIX futures have risen to 19.50 this morning, threatening a breakout above the January 2 high. The Cycles Model suggests a rally through the end of April.
The April 15 options chain shows a cluster of puts at 15.00-16.00. Calls are sparse yet, showing a complacency in equities.
TNX futures rose to 47.33, approaching the Cycle Top resistance at 47.97. Today is day 258 of the current Master Cycle, suggesting the rally may be over, or very nearly so. The question remains whether TNX reverses now, or makes one more surge to breakout above the April 25 high at 47.37. Note that the 10-year rate has moved opposite the FOMC rate cuts, causing higher volatility and investor consternation. The Cycles Model suggests a correction of the rates rally may last through the end of the month with a possible target near the mid-Cycle support at 42.22.
RealInvestmentAdvice comments, “Outflows from bond ETFs, such as TLT, have been tremendous over the last two months. ETFs, unlike mutual funds, allow dealers to redeem shares for the underlying securities and vice versa. The exchanges most often occur when the demand to buy or sell the ETF is high, thus creating a small arbitrage for the dealer. Investors frequently associate strong inflows with higher ETF prices and outflows with weaker performance. While at times that is certainly true, other times, it’s a false indicator. For instance, as the graph of TLT below shows, fund inflows were at record-high levels in 2022 as TLT sold off precipitously.”
Bitcoin continues its decline, having made a confirmed sell signal beneath the 50-day Moving Average at 97685.27. The Cycles Model calls for the decline to endure through mid-February.