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 rose to a weekend high at 5899.20, in line with expectations set out last Friday. I had expected the SPX to complete its high on Friday, but there wasn’t enough participation prior to the Memorial Day holiday. Thus, the target was made during light trading over the weekend. The 61.8% Fibonacci retracement level it 5891.25, also in line with expectations. The Cycles Model suggests the rally may not last the morning session. The implosion of the Japanese bond market, second only to the US bond market, may have staggering consequences for market liquidity. Stay tuned!
Today’s options chain shows Max Pain at 5830.00. Long gamma begins above 5850.00 while short gamma starts beneath 5800.00.
ZeroHedge reports, “US equity futures are higher on US/EU trade optimism as well as global bond yield stabilization after the BOJ is reportedly looking to reduce domestic bond vol following last week’s historic selloff which led to record losses on Japanese life insurers and other financial firms. As of 8:00am, S&P futures are up 1.5%, and Nasdaq futures gain 1.6% after Trump said he would extend the deadline for the European Union to face 50% tariffs until July 9; Stocks look like an ‘Everything Rally’ led by TMT in premarket trading with multiple Mag7 names are up more than 2% including NVDA +2.8% ahead of earnings tomorrow, buoying Semis, and Cyclicals over Defensives. The yield curve is bull flattening amid USD strengthening, perhaps setting the stage for US outperformance. 30Y yields fell six basis points to move below 5% as Japanese long-end bond yields plunged after reports that Japan’s finance ministry asked market participants for their views on the appropriate amount of debt issuance, suggesting Japan’s MOF is looking to bring calm to a market where relentless selling had pushed yields to record highs and left demand for fresh supply floundering. The dollar rose 0.3%, setting the currency on track for its biggest gain in more than two weeks. Today’s macro data focus in Durable/Cap Goods, Housing Prices, and Consumer Confidence with the critical catalyst being tomorrow’s NVDA print.”
VIX futures consolidated above the mid-Cycle support at 19.79 over the weekend. The support given at that level should tell us that something may be afoot. Trending strength may make an appearance today giving the VIX a boost higher.
USD futures made a weekend low at 98.68 as it may have completed its retracement to test the Cycle Bottom support at 98.12. The USD may be at a crucial turning point that allows it to rally to the Cycle Top at 110.74. I hate to say this to the shorts, but we may be in for a panic rally in the USD.
Japanese Yen futures have pulled back to the Intermediate support at 69.33 this morning. The Cycles Model suggests another week of rally with growing strength as the Yen challenges the Cycle Top at 71,21 and possibly rises through the lip of the Cup with Handle formation. Should that happen, it may be a triggering event that could lead the Yen toward its its formation target near 80.15 by mid-July. The Japanese bond market is rife with staggering losses, especially for their insurance companies, who primarily invest in long bonds. Currently there seems to be an impasse, as no one is selling, yet no one is buying, either. Should insurance companies be unable to meet their liquidity needs from the JGBs, there may be a liquidation of other assets to fill the void.
Gold futures declined to 3314.54 over the Memorial Day weekend, then bounced. It has given a preliminary sell signal by declining beneath the Cycle Top at 3344.63. The next level of support is at the trendline at 3300.0, beneath which confirms the decline. Should the liquidity dam burst in Japan, one of the first assets to be affected would be gold, since it has international acceptance and may be the most profitable asset to sell at this time.