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.
2:42 pm
BKX has reversed down from its Master Cycle high made on Wednesday, December 24. It is hovering very near its upper trendline at 168.00, beneath which an aggressive sell signal may be obtained. This comes after two FOMC rate cuts in 2025. What gives? Normally, a rate cut means more profits for banks by lowering their cost of money. Normally, banks borrow from each other to meet their liquidity needs. However, under periods of stress, confidence is lost and banks may apply at the Federal Reserve Discount Window (REPO).
Today troubled banks are being propped up financially through REPO. The Secured Overnight Finance Rate (SOFR) is at 3.69%. However, the reserves used to fund REPO have been drawn down as bank deposits have been withdrawn, the economy slows and more banks approach the REPO window. Normally healthy banks deposit excess cash to the Federal Reserve to fund the REPO. However, a major institution has withdrawn $158 billion from the Fed reserve account, causing the funding of the REPO account to become scarce. That is why the Fed ended QT. Then it lowered interest rates twice. Finally, it had to begin QE a month earlier than previously announced to keep the funding available for REPO. Banks will start reporting earnings the second week of January. Paraphrasing Warren Buffet, we may find out who has been swimming naked when the tide rolls out.
7:30 am
Good Morning!
SPX futures rose to 6939.70 sometime after the Christmas Eve closing, then eased down near 6930.00, where it remains this morning. This week’s spike to a new ATH was done on the thinnest volume of the year, on Christmas Eve, when traders had already walked away from their desks, anticipating the Christmas holiday. A solitary trader working for his employer at the Eccles Building may have been busy making sure that the holiday would not begin on a sour note, pushed the SPX from 6914.00 to 6937.00 in the final hours of trading by purchasing less than 5 million shares on the NYSE.
The Cycles Model indicates that the old Master Cycle was due to end by Monday. The low volume of trading has allowed the Master Cycle to extend, but not for long. The pre-holiday spike may make it difficult to spot a reversal, as traders are used to seeing wide-swinging moves lately. A close beneath 6904.00 may produce a key reversal. The support level at 6825.00 provides the clearest level beneath which lies a probable sell signal.
ZeroHedge reports, “US equity futures are little changed in thin trading with most traders away from the screens, while the bulk of overnight actions was once again in gold and silver as precious metals soared to a new record high driven by feverish Chinese demand.”
VIX futures surged to 14.22 this morning, which may be an early indicator of a reversal on the NYSE. A breakout above the trendline at 15.20 may be the first indicator of a probable buy signal. A rally above the 52-day Moving Average at 18.11 gives confirmation of the buy signal, which is commonly recognized.
TNX is testing Intermediate support at 41.16 this morning. While it may go lower, it has fulfilled its retracement requirement and may be ready to resume its uptrend. A breakout above 42.04 may be commonly recognized as a confirmation of the new uptrend.
ZeroHedge remarks, “After two poor, disappointing coupon auctions earlier this week, when global yields were surging thanks to the circus that is Japan, we have come to the final note auction of the year, and yes… this one was not quite as bad.”
USD futures have bounced from Wednesday’s low. However, there may be another week for the USD to find a bottom. A Master Cycle low at the Cycle Bottom at 96.79 appears possible.
Bitcoin is still consolidation between the Cycle Bottom at 85661.00 and Intermediate resistance at 89280.00. A breakdown beneath the Cycle Bottom support signals the decline toward the Head & Shoulders target.
The Japanese Yen has pulled back from testing its Intermediate resistance on Wednesday at 64.22.It may go as far as the Cycle Bottom at 63.44 before attempting a breakout. There may be another week of bottom-testing before the surge higher.