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
7:30 am
Good Morning!
SPX futures declined to 6890.90 in the overnight session, a retest of the Intermediate support at 6897.17. You may recall the mention of that same support being taken out by the SPX yesterday before its bounce back to Max Pain at the close. In my options discussion, yesterday, I mentioned that the dealers would be highly motivated to claw back their losses before the close, above 6930.00. In fact, the took the SPX back to 6969.01, within 6 points of Max Pain (the smallest dealer payout) at 6975.00. Studies show that over 90% of all options either expire worthless or are sold at a loss. Yesterday’s action possibly shows the machinations of Wall Street to make that happen. After careful study of yesterday’s action, I have concluded that my closing comments may have been understated. Today’s target may be the support levels constituted by the 52-day Moving Average at 6847.84 and straight line support at 6825.00. An afternoon bounce may ensue, setting up a possible panic decline on Monday.
Today’s options chain shows Max Pain has been lowered to 6930.00. Long gamma rises above 6950.00 while short gamma begins beneath 6920.00. Dealers are expecting a loss, but may be underestimating the amount.
ZeroHedge reports, “US futures slumped, the dollar rallied sharply, the Treasury curve steepened with 10Y yield rising as high as 4.28% and gold and bitcoin tumbled on what was at first speculation and then confirmation, that President Trump is nominating Kevin Warsh – widely viewed as the most hawkish of the handful of candidates – as the next Fed chair.”
The premarket VIX rose to 19.27 this morning before pulling back to 17.71 thus far. It regained the ground above above the 52-day Moving Average at 16.90. The Cycles Model suggests wild swings may occur in the VIX until a breakout above the Cycle Top and trendline at 21.93 occurs.
The February 4 options chain shows short gamma between 14.50 and 16.00. Long gamma becomes firmly established above 17.00. Calls are heavily concentrated between 17.00 and 22.00. However, there are growing commitments as high as 60.00.
The 10-year US Treasury yield has moved above the mid-Cycle support at 42.26 this morning. The Cycles Model suggests a burst of trending energy today followed by a continued rally to the week of February 16. The Head & Shoulders formation targets a minimum target at 44.61, while the Cycle Top at 45.23 remains the possible ending price for the current Master Cycle. Meanwhile, hedge funds exposure to Treasuries has been rising over the last two weeks.
ZeroHedge reports, “After a solid 2Y, and a dismal 5Y auction, moments ago the Treasury completed the sale of the week’s final coupon, and today’s sale of $44BN in 7Y paper was appropriately enough, mediocre at best, not terrible, not great, in the parlance of our times.”
USD has reversed out of its Master Cycle low on January 27 and is building up strength for a breakout above the Cycle Bottom resistance at 96.75. The Cycles Model suggests the breakout may occur over the weekend. Rising above the Cycle Bottom offers an early buy signal. Most traders won’t recognize the change in trend until it surpasses the 52-day resistance at 98.50 or a breakout above its last high at 99.49. The Cycles Model calls for a rising USD until the week of March 16. A breakout above the November 21 high may spark a huge short-covering rally, possibly starting in mid-February.
Bitcoin may be testing its November low at 80562.00 this morning. The Cycles Model suggests a week may be left to complete its decline to (or possibly beneath) the Head & Shoulders target. However, the following week also appears to be chaotic.
Silver broke beneath 100.00, making a low at 95.20 this morning. Its wide-ranging move yesterday spoke of rising volatility and thinning liquidity. The Cycles Model suggests a possible 2-month unwind that may go to the mid-Cycle support, currently at 49.33.
Zerohedge remarks, “Always
Parabolic moves don’t fade, they always break. We warned in Silvergeddon earlier this week that silver was morphing into a GameStop-style momentum squeeze, built on leverage and late chasing. That setup is now unraveling, with the ongoing crash inflicting huge P/L pain.”
Gold is in full retreat after making a high at 5595.61 (futures show 5645.60 due to backwardation) yesterday, with a possible bounce at the trendline near 5000.00. A sell signal awaits the decline beneath 5000.00.