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.
1:05 pm
This morning’s 10:40 commentary mentioned the neckline at6575.00 as a limit to the bounce in error. I had overlooked the massive wall of puts at 6600.00. The bounce crossed above the put wall in order to shake out the contracts or to allow the options sellers to short that level. Most investors think of put options as “insurance” against a loss. They are not. Dealers must daily front-run the options chain to maintain their ability to pay off an in-the-money put at the end of the day. In other words, the risk of a loss does not disappear. It is merely transferred to the seller of the option. The SPX may resume its decline as the options sellers have to “double down” with their own short sale.
10:40 am
SPX has ended its bounce sooner than expected and has declined beneath yesterday’s close. The Head & Shoulders neckline resisted the bounce and, should the bounce repeat, may cap the effort again. This is not a dip to be bought. The Head & Shoulders target may be realized in a matter of days.
7:45 am
Good Morning!
SPX futures made a 5:00 am low at 6507.90, then began ramping higher to meet the AM $1.3 trillion options expiration in the SPX. This may be the largest November options expiration, ever. Various reasons were given for yesterday’s disaster. However, one important reason was missing…short gamma. Thursday’s gap open may have been a play by the dealers to rise out of short gamma beneath 6700.000. Having hit the right shoulder resistance of the Head & Shoulders formation at 6770.35, selling began again in earnest, declining 232 points at the close. Unless dealers can rise to Max Pain (least option payout) at 6650.00 at today’s open, dealer options pain (payout) may be enormous. Dealers have had a cushy ride during the bull market, since 30-40% of all options expire worthless, while 50-60% are closed out prior to expiration, leaving a very small payout by the dealers. This may be changing. The Cycles Model calls for a possible bounce, followed by a resumption of the decline by mid-morning, with strength, through the weekend.
Today’s options chain shows Max Pain (least payout) at 6650.00. Long gamma begins above 6700.00, while short gamma strengthens beneath 6640.00 with a put wall at 6600.00.
ZeroHedge advises, “10 Things You Shouldn’t Miss This AM…” (A must read.)
VIX futures consolidated beneath yesterday’s high, preparing for the largest momentum spike since April. A possible target for this move may be the April 7 high.
The November 26 options chain shows short gamma beneath 19.00 while long gamma is now firmly ensconced above 20.00 with significant long holdings as high as 50.00.
TNX is pulling back beneath the 53-day Moving Average at 40.83 this morning in a minor Trading Cycle low. The pullback may be due to a rotation out of stocks into bonds as equities may be shaken again today. It is not anticipated to last, as trending strength may surge by early next week, sending yields higher.
Bitcoin investors panicked again last night as speculators have lost their confidence that a bottom has been made, making a new low at 80562.00. The Head & Shoulders target is in view as the Cycles Model suggests the Master Cycle may be complete by mid-week. Be aware that bitcoin may be an international proxy for liquidity, the effects of which may spill over into the US markets.
USD futures rose to 100.40 this morning as foreign investors come to the USD as a safe haven. The Cycles Model calls for a surge in trending strength starting today and lasting to early December as the Yen and Euro weaken. It is possible to see the USD rise to its Cycle Top resistance in the next two weeks.