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.
3:03 pm
SPX bounced off the 50-day at 5575.00. giving the dip-buyers hope. While that may cause the SPX to close in positive territory, it does not eliminate the overbought condition that is found there. Once beneath the support of the 50-day and the 1987 trendline there is a long way down before meaningful support may be found.
ZeroHedge remarks, “With no actions taken and no SEP to discuss (although the statement clearly hints at stagflationary uncertainty), all eyes (and ears) are now focused on every word that Powell says for hints about whether prices (inflation) or jobs (growth) are more of a worry (both are lower recently)…
.. and why he cut rates before the election when financial conditions briefly tightened but refuses to do so now…”
7:45 am
Good Morning!
SPX futures ramped to 5669.10 yesterday evening with no particular reason…well, there is a reason. The powers-that-be did not want to see the SPX drift beneath the 50-day Moving Average at 5584.52 overnight. In bull or bear markets it is a rare event to see stocks lower before a FOMC announcement. The April jobs report took away any reason for easing. Calls for a rate cut have been pushed back to July. The NYSE Hi-Lo Index closed yesterday at -12.00, suggesting the rally is already winding down. The markets are likely to be held in suspense until 2:00 pm when the FOMC announcement becomes public. The Cycles Model anticipates a decline to mid-June.
Today’s options chain shows Max Pain at 5615.00. Long gamma may begin above 5625.00 while short gamma gasins ascendancy beneath 5590.00.
ZeroHedge reports, “US equity futures are higher while global market are mixed ahead of the FOMC decision later today, following news tariff talks between the US and China will begin, and after a surprise stimulus by China. As of 8:00am, S&P and Nasdaq futures are 0.6% higher (though off the highs) on reports Bessent will meet Chinese Vice Premier He Lifeng in Switzerland this weekend in the first confirmed talks between the two superpowers. Bessent later said on Fox News that the meeting will be more about de-escalation than any sort of big trade deal. In premarket trading Mag7 names and Semis are leading the markets higher while RTY appears to be squeezing into outperformance. Cyclicals are poised for a strong session, too. Overnight China’s PBOC cut its reverse repo rates and lowered lender reserve ratio to help stimulate growth. India conducted military strikes in Pakistan in which Pakistan said it shot down five Indian jets. Attention shifts to the Powell and the FOMC at 2pm which is expected to yield no surprises as the CB preaches patience. Focus during the 2:30pm press conference will be on any commentary on how long Powell intends to wait for further clarity re tariffs/impacts (reminder no SEP). Bond yields are higher alongside a stronger USD which snapped three days of declines as the Taiwan Dollar slid for a second day. Commodities are bid higher led by Ags and Energy; gold/silver are modestly lower after another powerful breakout earlier this week.”
VIX futures eased down to 24.15 in response to the overnight surge in the SPX. The Master Cycle low was put in on Friday in a timely fashion. While the VIX shows relative calm, the VVIX may have made a buy signal yesterday. The March 2020 high at 85.47 may be the minimum target for the VIX in the upcoming surge.
TNX may be easing lower to test the 50-day Moving Average at 42.79 before resuming its rally. The Cycles Model calls for a continued rally to the first week of June. The intended target of this rally may be the Cycle Top at 48.03 and beyond. Mid-May appears to be a particular hotspot for bonds. Today the FOMC is expected to sit on their hands and do nothing, despite the Bank of China unleashing liquidity to jumpstart their own economy. The Fed’s quandary is that the inflation outlook is clearer than the growth outlook.
USD futures are in suspension pending the Fed outlook. The Cycles Model suggests a minimum decline to 89.90 with the possibility of reaching the Cycle Bottom at 98.32 in the next couple of days. However, the trend is higher, with the rally resuming by the end of the week, extending to mid-June. This would be a good place to exit, as the USD is heavily shorted and a squeeze may provide fuel for a significant rally.
The Euro has come down from its April 21 high and may be retesting its Cycle Top resistance at 114.48 before turning down next week. The Cycles Model anticipate a further decline through mid-June, ending near the Cycle Bottom at 101.27. Should a war develop between NATO and Russia, the decline may extend to August.
Bitcoin rose to 97647 in the overnight session, leaving the Friday high at 97939.99 as the Cycle Top. The uptrend appears intact, but may be weakening. Many investors misinterpret this action as a potential safety net in the event of a stock market decline. However, the Cycles Model suggests otherwise, as the loss of liquidity may affect Bitcoin even more.
Crude oil is consolidating this morning after an abrupt rally off its Monday low at 56.46. The rally begun on Monday may resume its upward course imminently. The Cycles Model suggests the rally may continue to the end of May.
ZeroHedge remarks, “Oil pries pumped and dumped back tro unchanged ahead of this morning’s official inventory and supply data after hopeful (demand) signs of US-China trade talks battled with fearful (supply) signals from OPEC*+.
“There is a fear that the trade negotiations in Switzerland with China could backfire and turn into a demand destruction event,” said Robert Yawger, director of the energy futures division at Mizuho Securities USA. Building market sentiment that a rate-cut is not in the cards anytime soon is also weighing on prices, he added.”
Gold futures rose to 3448.50 overnight, prompting some investors to proclaim a new all-time high. Although the retracement has been steep, it has not exceeded its April 22 high at 3500.00. I have to admit that the Cycles Model has not slammed the door shut on a new ATH, so we stay neutral until the end of the week.