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.
8:00 am
Good Morning!
SPX futures have pulled away from the eight-month trendline to a morning low at 6790.60 thus far. The high-to-high mini-cycle was 21.5 market days, 34.4 calendar days. The next mini-cycle may encompass another three weeks from high-to-low. The decline may test the 1987 trendline near 6000.00 during this portion of the Cycle. An aggressive sell signal may be taken beneath 6800.00. Confirmation exists beneath Intermediate support at 6745.00. Prior to the holiday there were concerns that the American consumer but early shopping data has allayed those fears. Despite market fragility, analysts believe that the market may go higher.
Today’s options chain shows Max Pain at 6830.00. Long gamma may strengthen above 6875.00 while short gamma dominates beneath 6810.00. Massive short gamma positions have the ability to force the market lower, despite improving conditions, as speculators attempt to lock in 2025 gains.
VIX futures rose above their diagonal trendline near 17.00 to a morning high at 18.33. Once above the 52-day Moving Average at 18.35, the VIX may rocket higher, as today is a particular day of strength.
The December options chain shows short gamma between 16.00-19.00. Long gamma is growing between 20.00 to 25.00.
The 10-year bond yield has jumped above the Intermediate support/resistance at 40.51 this morning, creating a buy signal for TNX. Until today, the market has been quite sanguine about yields, expecting continuously lower rates to maintain price stability. The Cycles Model anticipates much higher rates over the next several weeks. A possible target for yields may be the Cycle Top at 45.53. However, should it break out above that level, it could go as high as 48.00-50.00 in short order.
ZeroHedge comments, “The Two percent inflation target—monetary policy’s sacred commandment for three decades—has become structurally impossible to achieve. Not because central bankers lack skill, but because every attempt to hit the target destroys the financial architecture that previous monetary expansion built. This is the endgame of central planning: a system that cannot tolerate its own success criteria without collapsing.”
Bitcoin was crushed overnight as liquidity has dried up dramatically due to expectations that the Bank of Japan may raise borrowing rates their highest rates in 17 years. The BOJ has been the source of ultra-low borrowing rates, fueling the growth of monetary assets through the Yen carry Trade. Bitcoin is a prime example of a liquidity proxy, since there are no assets backing its shares. It rises and falls based on the availability of excess liquidity. The Cycles Model infers that liquidity may dramatically decrease through the end of December, propelling Bitcoin to its Head & Shoulders target and possibly lower.
ZeroHedge remarks, “After an ugly November (the worst since 2018), December is continuing that trend with a big drop overnight that shook what had appeared to be a stabilizing market.
Hawkish BoJ
The overnight plunge appeared to be triggered by Japanese government bond (JGB) futures tumbling on expectations that the Bank of Japan would raise borrowing costs at its December meeting.
Japan’s 2-year government bond yield briefly touched 1.01 percent, the highest since 2008, as traders bet the Bank of Japan’s long era of near-zero rates is ending. ”
Japanese Yen futures have risen to a daily high at 64.65, above the Cycle Bottom at 64.36, creating a buy signal. This is a warning to those participating in the Yen carry trade, as yields may go considerably higher over the next 2-3 weeks. The reason its that loans taken out against the yen (creating a put) must be paid back in appreciated yen, collapsing the value of the transaction. In the past seven months, the yen has declined as much as 11%, creating a profit from the loan transaction itself. The reversal may erase the transaction profits to the point of creating a massacre in the carry trade. Hedge funds, banks, insurance companies and asset managers have been using the Yen carry trade as a means of juicing yields.
Gold futures broke above the Cycle Top at 4212.00 on Friday and may have broken above the November 13 high at 4245.27 over the weekend. The Cycles Model allows approximately three more weeks of expansion to a possible target at 4500.00. Inflows to gold ETFs and mutual funds has increased, while Bitcoin has had outflows.