The Practical Investor

2:47 pm

TNX rose to 15.37 this morning until short covering came in before the 10-year Treasury auction.  The Cycles Model shows strength of trend continuing through the weekend, suggesting TNX may breakout above the 50-day Moving Average at 15.9 in the next few days.

ZeroHedge remarks, “Similar to yesterday’s 3Y TSY action, the 10Y note was trading special in repo overnight ahead of today’s $36BN auction.

However, unlike yesterday’s 3Y auction, which stopped through generously, today’s 10Y auction did not do as expected and tailed modestly, as yields dropping sharply seconds after our tweet…

… expecting a big stop through did not help.”

10:00 am

Good Morning!

SPX futures may have taken another stab at the resistance at 4700.00 this morning, altering the structure of the correction.  Corrective moves are often hard to follow, since they can morph into different structures.  There is still a chance of attempting to overcome round number resistance as it completes its course.  The next hourly Cyclical interval is due shortly, so we may not have long to wait.  Should it do so, a new high may be in the offing.

ZeroHedge reports, “Much of the overnight session was a snooze fest with stocks drifting first higher then lower after surging on Tuesday, as the narrative meandered from “omicron fears ease” optimism to “vaccines won’t work” pessimism, before futures took a sudden leg lower, dropping into the red just after 530am ET, following news that UK’s Boris Johnson would introduce new restrictions in England to curb Omicron spread, sparking fears that Omicron is more dangerous that expected (and than futures reflected). However, this episode of pessimism proved short-lived because just an hour later, the WSJ confirmed that Omicron is really just a pitch for covid booster shots when it reported that even though the covid vaccine loses significant effectiveness against Omicron in an early study, this is miraculously reversed with a booster shot as three doses of the vaccine were able to neutralize the variant in an initial laboratory study, and the companies said two doses may still protect against severe disease.

Futures quickly shot up on the news, spiking above the gamma “all clear” level of 4,700 in a move best summarized with the following chart.”

VIX has made a 68% retracement of Wave 1.  Its Cycle matches that of the SPX, so a turn may be imminent.  The open gap poses an obstacle for traders who anticipate the VIX declining further.  However, the VIX remains on a buy signal.  A reversal (higher) here may be very chaotic.

The NYSE Hi-Lo Index closed above its 50-day Moving Average yesterday and continues to trade in that area this morning.  This may be a buy signal, but not one we can put a lot of confidence in.

TNX is trading above its mid-Cycle support at 14.87.  The Cycles Model puts TNX on a buy signal to the third week of February.  It suggests that TNX may be well over 20.00 by then.  In fact, the weekly charts show the next major resistance near 33.00.  In the meantime, rising rates pout more pressure on equities.

ZeroHedge reports, “Update (2010ET): Senate Minority Leader Mitch McConnell (R-KY) is hitting friction within his own party over Tuesday’s debt deal announcement – which would essentially hand Democrats a blank check to continue raising the debt ceiling in exchange for ‘owning’ whatever negative effects it may have.

“There are always very diverse points of view within our conference on these types of issues,” said Sen. John Thune (R-SD), the #2 Senate Republican.

Republicans were describing the measure Tuesday as setting up a one-time exception to the filibuster. Though a GOP aide noted that the Senate routinely has a fast-track process for other issues like arms sales and trade deals, the debt agreement was drawing criticism from conservatives who don’t want to lift a finger to help Democrats extend the nation’s borrowing limit. –The Hill.”

USD futures have pulled back to the Cycle Top support at 95.97 this morning as prepares for the next move higher.  The Cycles Model suggests the uptrend may last to the second week of January.

10:55 am

SPX has spent 10 hours in the short squeeze rally instead of the 8.6 that I had proposed.  The reason is that the structure of the rally is an A-B-C correction, which generally does not follow Cycle structure as closely.  However, it has its own structure.  C equals A near 4700.00.  That, plus round number resistance, may put an end to the squeeze.  You can see that most investors and hedge funds wend short between 4675.00 and 4700.00.  f this is indeed a squeeze, the rally may run out of steam imminently.

ZeroHedge observes, “The massive short-squeeze continues with “Most Shorted” stocks now up almost 9% from yesterday’s post-open plunge lows…

Source: Bloomberg

That sparked a near-vertical ramp at the cash open today…”

8:45 am

SPX futures rose to an overnight high of 4657.90, just above the 61.8% Fibonacci level of 4648.82 and a complete retracement of Minor Wave C.  The Wave C of (B) rally may take 8.6 hours should it complete in the first hour of the morning after an 8.6 day decline from the top.  The overlapping Waves gave away the structure, although Leading Diagonal first waves may also overlap.

ZeroHedge reports, “U.S. index futures rallied, led by gains for Nasdaq 100 contracts, amid waning omicron worries and a booster shot of Chinese stimulus lifted world stock markets and oil on Tuesday and left traders offloading safe-haven currencies and bonds for the second day in a row. Emini S&P futures were up 61 point to 4,650.75 or about 120 points higher then where Gartman said “stocks are headed lower” some 24 hours ago. Nasdaq futures were up 1.8% and Dow futures rose 1% in premarket trading. In fact, futures are now just 50 points away from where they were below the Black Friday Omicron panic plunge.”

VIX futures declined to a low of 23.49 this morning, very near the 50% retracement level at 25.03.  A possible further retracement may be to the 61.8% Fib level at 22.60.  Note that the gap may remain unfilled.

ZeroHedge remarks, “When looking at the latest Goldman Prime Broker data, our collective jaws fell to the floor: while perhaps not a huge surprise, Goldman writes that the last two weeks saw that “largest 10-day net selling in US equities since Apr ’20 led by Macro Products as well as Info Tech/Consumer Disc stocks” with the bank elaborating that “North America and to a lesser extent EM regions were the most net sold, while DM Asia was net bought driven by short covers.”

But what was stunning was Goldman’s drilldown into the flow, where GS Prime found that the selling of US stocks – which made up more than 85% of the global $ net selling (-1.4 SDs) – was driven almost entirely by short sales and to a lesser extent long sales (9 to 1).”

The NYSE Hi-Lo closed above its Cycle Bottom support/resistance  at -116.00.  The Hi-Lo may open positive this morning, but there is no confirmation of a rally in the SPX or the VIX.

TNX opened higher this morning, having crossed above the 100-day Moving Average at 14.23 yesterday.  It may have made a buy signal and appears to confirm the early (day 247) Master Cycle low made on Friday.  Confirmation of the buy signal comes above the mid-Cycle resistance at 14.98.

USD futures rose to 96.59 this mornig, approaching a breakout above the prior peak.  The Wave structure is complex and the Cycles Model suggests a continued uptrend through mid-January.

2:47 pm

SPX finally reveals its structure as it completes a Wave (c) of [ii].  I have been warning of a coming panic and now it is time.  The Decline to Friday’s low was 8.6 days.  The Cycles Model suggests another 4.3 days from Friday’s low may be needed to complete Wave (1).  The Hi-Lo swung back and forth this morning, but remains stuck at -40.00.

ZeroHedge observes, “While the hard de-risking of Friday has seen a calming overnight (thanks to a ‘meh’ China RRR cut), The Fed’s recent coordinated messaging-shift to “inflation fighter” remains top of mind for most investors.

A smorgasbord of Fedspeak late last week made it clear that The Fed has:

1. a clear desire for an accelerated taper (double-up to complete by March) in order to…
2. …liftoff the policy rate sooner (commence June?)

For now it’s working as the market is fully pricing-in a rate-hike by June…

Nomura’s Charlie McElligott warns that the sudden flip-flop jawboning has risk-assets “stuck” in a deleveraging and exposure reduction cycle, particularly for a market parked in crowded “easy-policy” trades (like leveraged “bond” proxies of “Secular Growth” profitless Tech)…”

7:35 am

Good Morning!

SPX futures rose to a weekend high of 4573.80. a 70% retracement of Friday’s decline, before pulling back.  It is currently hovering near the 50-day Moving Average at 4540.03.  At Friday’s close it bounced from the 100-day Moving Average at 4491.13.  Crossing the Ending Diagonal trendline at 4500.00 puts the SPX on a sell signal with a potentially complete reversal of the rally from March 2020.  A violation of the 100-day simply confirms the sell signal.

While lighter than the past, today’s SPX options expiration shows positive gamma a 4560.00 and higher, while negative gamma starts at 4550.00.  Max Pain appears to be near 4555.00.  Wednesday’s options expiration is very light, but Max Pain rises to 4580.00.

ZeroHedge reports, “&P futures and European stocks rebounded from Friday’s selloff while Asian shares fell, as investors took comfort in reports from South Africa which said initial data doesn’t show a surge of hospitalizations as a result of the omicron variant, a view repeated by Anthony Fauci on Sunday. Meanwhile, fears about a tighter Fed were put on the backburner.

Also overnight, China’s central bank announced it will cut the RRR by 50bps releasing 1.2tn CNY in liquidity, a move that had been widely expected. The cut comes as insolvent Chinese property developer Evergrande was said to be planning to include all its offshore public bonds and private debt obligations in a restructuring plan. US equity futures rose 0.3%, fading earlier gains, and were last trading at 4,550. Nasdaq futures pared losses early in the U.S. morning, trading down 0.4%. Oil rose after Saudi Arabia boosted the prices of its crude, signaling confidence in the demand outlook, which helped lift European energy shares. The 10-year Treasury yield advanced to 1.40%, while the dollar was little changed and the yen weakened.”

VIX futures challenged the neckline by declining to 28.54, but has bounced back since then.  VIX has tripped its Head & Shoulders trendline, with follow-through on its way.  A month ago volatility was considered boring.  Despite the rally in VIX, analysts are gearing up for a Christmas rally instead of a further sell-off.

MarketEar comments, “Recently realized volatility has exploded. The 1 month realized SPX vol is now well above the 3 month. Moves have picked up. Add to it imploding market depth, as well as the overall dealer gamma picture and you understand why things have been slightly chaotic. Recall, all of these factors work both ways…”

The NYSE Hi-Lo Index closed a bit lower on Friday than the prior day.  I have marked last Tuesday as a possible Master Cycle low on day 250.  Today is only 6 days later, so we are still in the timeframe for a much deeper low this week.  While equities appear to be “on the edge” of the Christmas rally, a move in the wrong direction may develop into a panic decline.  The Hi-Lo remains on a sell signal.

USD futures consolidated within Friday’s trading range, albeit with gains from the close.  The next Master Cycle turning point is in mid-January, so the uptrend is likely to continue.

TNX appears to have made a bounce from Friday’s low (day 247) this morning, but it may not indicate a true true reversal from a Master Cycle low.  Today is day 250, so there may yet be another probe lower, possibly as low as the Cycle Bottom support at 11.94.  The uncertainty may be short-lived, as the pattern may reveal itself over the next week or so.  A further equities sell-off would likely boost inflows into bonds.

3:45 pm

SPX is finally beneath the trendline this afternoon.   The VIX is above 32.00 and the hi-Lo is currently at -120.00.  The Decline is underway.   Panic next week?

ZeroHedge observes, “S&P 500 futures have a distinctly bearish tone after a week of whiplash trading, which began with the post-Thanksgiving Day meltdown.

Though it hasn’t been a one-way street lower, intraday bounces for the contract have been fading at lower peaks.

That is a clear enough signal for short-term traders to see if they are positioned for a declining asset.

And even though non-farm payrolls did miss forecasts, the Fed won’t be derailed from its path to tighter policy.

Moreover, the blackout period ahead of the Dec. 15 FOMC decision begins this weekend, which means there won’t be any walking back of the hawkish noises heard this week.”

9:42 am

There may have been an effort to get the SPX out of negative gamma territory, which extends to 1630.00.  However, it appears to have failed at the 12.9-hour Cyclical interval.  Should the decline re-establish itself, we may see a probable 300-point plus decline through Monday.  Instead of “buy the dip,” there appears to be a movement to “sell the bounce.”

ZeroHedge questions, “Why are CEOs and corporate insiders selling their stocks at a far faster rate than we have ever seen before?  Do they know something that the rest of us do not?  If stock prices are going to continue soaring into the stratosphere like many in the mainstream media are suggesting, these insiders that are dumping stocks like there is no tomorrow will miss out on some absolutely enormous profits.  On the other hand, if a colossal market crash is coming in 2022, then 2021 was absolutely the perfect time to get out.  As I have said countless times before, you only make money in the stock market if you get out in time.  Could it be possible that many of the richest people in the world have picked the absolutely perfect moment to pull the trigger?”

7:25 am

Good Morning!

SPX futures probed down to 4546.10 before rising back to the close.  Dips are still being bought, but on lighter volume while hedge funds, owners and institutions are selling.  There is yet another week of selling ahead before a probable hiatus going into options week.

ZeroHedge reports, “U.S. equity futures were flat, rebounding from an overnight slide following news that 5 “mild” Omicron cases were found in New York, and European stocks wavered at the end of a volatile week as traders waited for the latest jobs data to assess the likely pace of Federal Reserve tightening and accelerated tapering. Emini S&P futures traded in a narrow range, and were up 2 points or 0.04%, Nasdaq futures were flat,while Dow Jones futures were up 8 points. The dollar edged higher, along with the euro after ECB President Christine Lagarde said inflation will decline in 2022. Crude advanced after OPEC+ left the door open to changing the plan to raise output at short notice.

ZeroHedge observes the technical side, “Earlier today we observed that amid the market turmoil of the past month, hedge funds have been unwinding net exposure at a furious pace and selling (or shorting) to retail investors, who paradoxically have been buying at the fastest pace on record.

We got some incremental data this morning from Goldman, which noted that the bank’s prime book (hedge fund-facing) was heavily net sold to start December (largest 1-day $ net selling since September, -2.5 SDs vs. the average daily net flow of the past year), driven by continued short sales and to a much lesser extent long sales (9 to 1). The frenzied shorting, which occurred in the context of sharp net deleveraging…”

VIX futures continue to hover beneath the Head & Shoulders neckline at 28.79.  This appears to be a consolidation after the breakout as the VIX gathers strength for its next move.   The Cycles Model suggests enough of a boost in strength to hurl the VIX above the neckline and towards its intended target.  Indications are that the actual target for Wave [iii]  of 3 may be closer to 50.00.

The NYSE Hi-Lo Index opened at -43 yesterday and has gone lower into the close.  It is hard to see how the market can rally when so many stocks are making new lows.  What this is really telling us is that the rallies, though sharp, are facing lower and lower limits to their efficacy.

TNX futures are hovering just above the 100-day Moving Average at 14.20 in a consolidation, waiting for the next surge of strength that may come later today.  Whether this is enough to cuse a breakout in rates is unknown, but the Cycles MOdel points to a triple burst of strength starting mid-week and extending through the weekend.

USD futures are moving higher, having risen to an overnight high of  96.32.  The Cycles Model indicates a continued uptrend through the second week of January.

3:10 pm

SPX has taken 10 hours into the afternoon high from yesterday’s high.  It is said that both time and price requirements must be met to complete a Cycle.  the 61.8% retracement is at 4596.37.  Thus far, the bounce has gone to 4592.13.  The retracement pattern appears complete.

The Hi-Lo (-110.00) remains beneath its Cycle Bottom resistance at 101.70.  The VIX remains within a point of its neckline at 28.79.

12:55 pm

I spoke too hastily this morning.  SPX is now approaching the 61.8% retracement at 4596.37 and has spent 8.6 hours making the hourly Cycle from 4562.94 to 4588.81.  Whereas Minor Wave 1 – 2 took 43 hours (8.6 X 5), Minute Wave [i] – [ii] only took 8.6 hours.  It is likely that Wave [iii] – [iv] may elongate.  I suspect that Wave [iii] alone may take 8.6 hours, putting the low at mid-afternoon tomorrow.   Most onlookers view this pattern as chaotic.  I see a distinct rhythm.

The NYSE Hi-Lo Index rose to -108.00, but still very bearish.  VIX is consolidating at the neckline.  NDX has completed a 42% retracement of a nearly 685 point decline.

ZeroHedge relates, “While US equity indexes have been relatively stable despite the recent spike in volatility, what is going below the surface is sheer turmoil.

Take the Nasdaq: while the index remains just shy of all time highs, this is entirely thanks to the five or so gigacaps, the GAMMA (fka FAAMG) stocks, which has found solid support in recent days. Alas, the same can not be said for the rest of the tech-heavy Nasdaq where as the chart below shows, we have just seek the biggest spike in new 52-week lows since the March 2020 crash.

This, when coupled with the recent bloodbath observed in the median stock (as measured by the Value Line Geometric), is why yesterday we rhetorically noted that “they better not start selling the generals” or else everything will come crashing down.

10:33 am

SPX made a 43% retracement of yesterday’s decline, far less than the “worst case” scenario (61.8%) I painted near yesterday’s close.  It is clearly in negative gamma territory and bearishness may heighten at the crossing of the 50-day Moving Average at 4532.45.  Today and tomorrow may see a panic develop as equities complete their next 4.3-day Cycle (3rd Wave) late on Friday.

The 100-day Moving Average lies at 4489.03, of which traders may take note.  The 200-day Moving Average is near 4300.00.  The massive Orthodox Broadening Top trendline is near 4000.00.  Finally, the daily Cycle Bottom is at 3935.00.  All of these potential supports may be taken out in Wave (1), due to end late next week.

VIX has climbed to 30.39, above the neckline a 28.79 and the Hi-Lo has declined from an open of -43 to a low of -151.00.

NDX has made a new low at 15770.92, beneath yesterday’s close at 15877.72.

ZeroHedge advises, “This morning’s melt-up from the cash open was extremely technical, lifting the US majors above various key technical levels.

However, that surge of buying did not last long and now that Omicron has struck in a second place in the US, the S&P (back below its 50DMA), Nasdaq (back below its 50DMA), and Dow (back at 200DMA) are all fading fast…

So what really changed? 

Nomura’s Charlie McElligott explains:

It’s pretty obvious: the Fed has green-lighted an accelerated taper in order to pull-forward a dense-but-short “lift-off,” as Jerome Powell is clearly now much more concerned about inflation (which is no longer transitory) than about economic growth

And Nomura’s “Economic Quadrant” playbook highlights the fact that the current Equities risk-premium / thematic return profile very closely mirrors what they said it would do upon this the phase shift from “Expansion” into “Slowdown” being confirmed in the first week of October (and holding since)…”

8:15 am

Good Morning!

SPX futures rose to an overnight high of 4554.00, for the first time not overlapping its previous low.   This may be an indicator that Wave 3 of (1) is underway, as Wave 1 may overlap, but generally impulsive Waves do not.  Yesterday may have been the  half-way point of this decline and it may become much more impulsive as it progresses.  It currently sits just above the 50-day Moving Average at 4631.51.  It remains deeply in the negative gamma zone.  Should it open beneath the 50-day, all hell may break loose as dominoes start falling hard.

ZeroHedge reports, “U.S. index futures regained some ground alongside Asian markets while European stocks slumped to session lows in a delayed response to yesterday’s late Omicron-driven US selloff, as markets remained volatile following the biggest two-day plunge in more than a year, spurred by concern about the omicron coronavirus variant and Federal Reserve tightening. Investors await data for unemployment claims, as well as earnings from companies including Dollar General and Kroger. Tech is the weakest sector, dropping in sympathy after Apple warned its suppliers of slowing iPhone demand. Nasdaq futures pared earlier gains of up to 0.8% to trade down 0.1% while S&P futures are only 0.2% higher after rising as much as 0.9%.

While the knee-jerk reaction of stock investors may “continue to be to take profits before the end of the year,” there is “plenty of liquidity available to drive stock prices higher as dip-buyers enter the market,” Ed Yardeni wrote in a note. The U.S. economy grew at a modest to moderate pace through mid-November, while price hikes were widespread amid supply-chain disruptions and labor shortages, the Federal Reserve said in its Beige Book survey Tuesday.”

VIX futures dipped beneath the Head & Shoulders neckline at 28.99 but has recovered to rise back above it as I write.   The Cycles Model suggests trending strength may be growing over the weekend, indicative of a third Wave.  As mentioned before, the H&S target is a minimum.  There is also a Cup with Handle formation with a potential target near 50.00 for Wave 3 of (C).

The NYSE Hi-Lo Index closed at -202.00 yesterday,, the second lowest close of the week.  Dip buyers appeared in the morning, as it opened at 5.00., but it appears that hedge funds and institutions saw this as an opportunity to liquidate.

ZeroHedge observes, “Over the weekend, and then again on Monday we reported that It had been a catastrophic week for hedge funds: heading into Black Red Friday, losses were staggering with Goldman Prime reporting that many hedge funds were caught off-guard by news of the Omicron variant as they had bought Reopen stocks and sold Stay-at Home names in the past week. As a result, in the week ending Nov 25, GS Equity Fundamental L/S Performance Estimate fell -1.57% between 11/19 and 11/25, driven by alpha of -1.12% which was “the worst alpha drawdown in nearly six months” and beta of -0.45% (from market exposure and market sensitivity combined).

It only got worse on Friday and then again Monday, when Moderna – the 3rd most popular short in the hedge fund universe with some $4.5BN of the stock held short by the 2 and 20 crowd…”

TNX is challenging the 100-day Moving Average at 14.20 this morning, but has not yet broken beneath the previous low at 14.12.  Should it break through, the decline may continue for another week, according to the Cycles Model.  The next support level is the Cycle Bottom at 11.97.

USD futures consolidated, making an overnight low of 95.83, just above the Cycle Top Support at 95.71.  The Cycles Model suggests gathering strength over the weekend with possible new highs early next week.

BKX broke through its Ending Diagonal trendline on Tuesday and now its atop it mid-Cycle support at 128.75.  That, and the 200-day Moving Average at 127.86 are due to be skewered.  The Cycles Model suggests the decline may pick up intensity next week with the Cycle Bottom at 115.67 being the next potential support.

WTIC futures made a new low at 63.85 this morning, breaking through the Broadening Wedge trendline at 64.40.  The current shorting opportunity was made last week when the bounce was rejected at the 50-day Moving Average.  The Cycles Model suggests a Master Cycle low early next week, with a probable target at the Cycle Bottom support at 56.84.  From there we may expect another bounce lasting up to 2 weeks to retest the trendline.

ZeroHedge observes, “An earlier trial balloon of a smaller 200k b/d production hike was been popped as Russia moves with a formal proposal for OPEC+ to lift oil output by 400,000 b/d for January, sending oil markets crashing.

Energy Intel’s Deputy Bureau Chief & Chief Opec Correspondent Amena Bakr confirms that “All ministers appear to be in agreement with an increment of 400k for Jan (i.e. a rollover of the current policy)” according to sources.

This is what was planned by OPEC+ but not what the market was ‘hoping’ for.

WTI plunged further on the headlines, tumbling to a $62 handle.”

After a week-long consolidation, gold  futures made a new low this morning at 1768.40.  It is approaching its own Broadening Wedge trendline at 1760.00.  Should it break through, the next support may be the Head & Shoulder neckline at 1670.00.  The Cycles Model calls for a Master Cycle low in early January.  By then we may see gold near or below 1200.00.

4:10 pm

On a periodic basis I check the 2-hour, daily, weekly and monthly charts for consistency.  One of the problems with hourly and even daily charts is “drift,” where trendlines, formation outlines and even labels tend to become out of sync with their appropriate positions.  Today was one of those times where I found that the daily chart shows the 20-month trendline from March 2020 at 4510.00, where the bounce occurred.  I have remedied that error in the 2-hour chart.

This tells us to prepare for a potential bounce tomorrow morning.  If not, all the better, but SPX is in negative gamma territory all the way up to 4620.00.  The 61.8% Fibonacci retracement is at 4598.47, which still leaves it under the influence of negative gamma.

3:40 pm

SPX bounced off the 50-day Moving average at 4531.70.  It may save the move lower for the overnight session.   The NYSE Hi-Lo Index is at -131.00.  In addition, the SPX is in negative gamma territory (dominated by puts) beneath 4620.00.

ZeroHedge observes, “Update (1420ET): Reports that the Omicron variant has arrived in the US sent stocks and bond yields legging further down…

The Dow and Nasdaq just joined Small Caps in the red for the day…

And 30Y Yields are down 8bps from their intraday highs, back at yesterday’s lows…”

3:35 pm

VIX broke through the neckline of the Head & Shoulders formation.  Should start rocking over night.

12:30 pm

SPX rose above mid-Cycle resistance at 4627.00 due to a large call option position at 4640.00.  However, it appears that the “pull up” may not be strong enough to sustain the bounce.  Once the mid-Cycle support goes, the 50-day Moving Average at 4531.52 may be the next test.

VIX  is now rising from its Cycle Top at 23.17 and the Hi-Lo Index, which opened at 5.00 is now at -17.00.  There seems to be no confidence in this rally.

ZeroHedge explains, “As expected, yesterday’s bearish month-end rebalancing which saw over $8 billion in MOC for sale orders has given way to the traditional strong December equity inflows, sending futures sharply higher.

So now that reflexive fund flows have reversed and the narrative is quickly changing to one where both the bearish Omicron and Powell developments have been mitigated, at least according to today’s price action, the question is what comes next.”

8:00 am

Good Morning!

SPX futures bounced back to test Intermediate-term resistance at 4622.75as it establishes new support and resistance boundaries.  The decline thus far has been a stair-step affair with overlapping Waves.  Two nearby supports have yet to be challenged, the 50-day and the 20-month trendline.  The current Cycle has another 8 days to go, and the decline may be starting its panic phase, despite the steep retracements.

ZeroHedge reports, “Heading into yesterday’s painful close to one of the ugliest months since March 2020, which saw a huge forced liquidation rebalance with more than $8 billion in Market on Close orders, we said that while we are seeing “forced selling dump into the close today” this would be followed by “forced Dec 1 buying frontrunning after the close.”

And just as expected, despite yesterday’s dramatic hawkish pivot by Powell, who said it was time to retire the word transitory in describing the inflation outlook (the same word the Fed used hundreds of times earlier in 2021 sparking relentless mockery from this website for being clueless as usual) while also saying the U.S. central bank would consider bringing forward plans for tapering its bond buying program at its next meeting in two weeks, the frontrunning of new monthly inflows is in full force with S&P futures rising over 1.2%, Nasdaq futures up 1.3%, and Dow futures up 0.9%, recovering almost all of Tuesday’s decline.”

VIX futures declined to a low of 23.47, remaining above Cycle Top support at 23.14 as it prepares to vault above the Head & Shoulder neckline.  The current Master cycle may run to the end of December, so there is time for a breakout above the Head & Shoulders neckline.

CharlesHughSmith relates, “ne of the most famous examples of smart people being sucked into a bubble and losing a packet as a result is Isaac Newton’s forays in and out of the 1720 South Sea Bubble that is estimated to have sucked in 80–90% of the entire pool of investors in England.

Some have claimed that Newton did not buy early in 1711, sell in April 1720 for a nice profit and then sink the majority of his substantial fortune in the bubble as it peaked in summer, then suffering heavy losses as the bubble popped in September, but evidence supports this chain of events.

Newton “bought the dip” on the way up and then added to his position as the mania rolled over, making his final fatal purchase as a “buy the dip” just before the “last chance to exit” spike — which is precisely the point the current bubble has finally reached, when everyone is all in and “buying the dip” to increase the profits that everyone agrees are essentially guaranteed because the Fed.”

The NYSE Hi-Lo Index opened in the negative and became more so throughout the day yesterday.  The story being told here is that shares of a lot of companies are being distributed to eager speculators willing to buy the dip.  The Cycles Model suggests the Hi-Lo may see a bottom next week, which implies a bounce during options week.  However, there appears to be no corresponding Master cycle low in the stock indices or in the VIX.

TNX futures surged to 15.06 this morning, challenging the mid-Cycle resistance at 14.92 before puling back at the open.  It has begun an Intermediate Wave (C), which, by any standards, is coming on strong and fast.  The Cycles Model suggests a cotiued rally through the week of January 15.

USD futures consolidated above Cycle Top support at 95.64 in the overnight session.  By staying above that support, the uptrend is preserved.  The Cycles Model suggests a continued uptrend to mid-January.

BKX broke through its 13-month trendline yesterday, strengthening the sell signal already confirmed beneath the 50-day Moving Average.  The implication is that the entire rally from March 2020 is in danger of being retraced.  It is in day 224 of the 258-day Master Cycle, leaving more than a month to go for the next low.

Gold futures bounced this morning to test the 50-day Moving Average at 1790.26.  The decline is still underway with a Master Cycle low anticipated during the week of December 13.  The Broadening Wedge trendline at 1760.00 is is under consideration to be broken with a possible support at the Head & Shoulders neckline at 1680.00 for the next Master Cycle low.

8:30 am

Good Morning!

SPX futures plunged beneath back beneath Intermediate-term support at 4616.50 this morning  to an overnight low of 4586.10 as the bear market resumes.   SPX completed a 4.3-day (top-to-top) Cycle at 1:00 pm yesterday and possibly set the pattern for the next Cycle high on Monday morning.  This decline is likely to take out the 50-day Moving Average at 4626.65 and challenge the trendline just above 4400.00.  Wave 3 may be a multiple the size of Wave 1.  Experts are still calling for a Christmas rally later in December.  However, the Cycles Model may not agree.

RealInvestmentAdvice opines, “Last week, we asked if there would be a market correction before “Santa visits Broad and Wall?”

“Investors’ ‘wish lists’ are hung by the chimney with care, hopeful the ‘Santa Claus rally’ will soon be there. While they remain ‘snug in their beds, the historical data dances in the heads.’ The chart below from @themarketear shows the annual “seasonality” from 1985 through 2019.

It certainly seems there is little to worry about. However, notice that dip at the beginning of December.“

VIX futures rose to an overnight high of 27.58 as the level of fear rises again.  Commentators suggest that VIX is trading more line February 2020 than a mere correction.

The NYSE Hi-Lo Index is not offering any support for the bulls.  Although at a higher low, the Hi-Lo Index Cycles Model doesn’t call for a low until December 8-10.  That’s nearly 2 weeks of negative market to look forward to.

TNX has declined to a morning low of 14.24.   Wave (B)appears to be turning into an Expanded Flat correction that may find a bottom near 14.15.  The Cycles Model suggests that the bottom is near and an abrupt reversal may be at hand.

USD futures made an overnight low at 95.65, just above Cycle Top support at 95.58.  The Cycles Model also calls for a sharp reversal today in USD.

10:24 am

However, the NYSE Hi-Lo Index only briefly opened positive and has declined since then.  This is not conducive to a strong, sustained rally.  Should the rally not be able to sustain itself in the next few hours, we may see a downturn  by this afternoon.

11:10 am

The Hi-Lo declined even further to -50.00.  Things don’t look good for the rally.

ZeroHedge informs, “While Nasdaq continues to hold rebound gains, The Dow and Small Caps have erased all the weekend’s “Omicron’s not all that bad” gains since the US cash equity open…

Interestingly, there is some building anxiety under the hood as VIX calls expiring on Dec. 22 are among the most active options contracts in early Monday trading.”

10:17 am

SPX is at an interesting crossroad.  It may either go higher, with a possible target of 4680.00 (Short-term resistance) or the 61.8% retracement at 4683.00…

…or it may resume its decline from here.  There are two different Elliott Wave structures that may be indicated simultaneously.

ZeroHedge poses the dilemma, “A lot of investors finally have what they wished for: a chance to buy the dip. The problem is uncertainty is much higher now.

Friday’s selloff, fueled by the emergence of a new Covid-19 variant, brought a firm halt to the market’s exuberance of recent weeks. The Stoxx 600 Index is now more than 5% below its record closing high of mid-November, opening a window for those who have been awaiting weakness to add positions.

“Many investors had been complaining about ever-rising markets that give little entry opportunities,” says Martin Moeller, co-head of Swiss and global portfolio management at Union Bancaire Privee in Geneva. “Here is the next one shaping up, given that in 2022, the easing of supply chains and delayed execution of very strong prior order intake should be supportive for economic growth.”

8:20 am

Good Morning!

The expected bounce at mid-Cycle support came over the weekend with SPX futures rising to a high of 4646.00, just above the 50% retracement of Friday’s decline at 4644.00.  Pundits blame the decline on the Omicron scare, ignoring the fact that the uptrend may be finished.

ZeroHedge reports, “As expected over the weekend, and as we first noted shortly after electronic markets reopened for trading on Sunday, S&P futures have maintained their overnight gains and have rebounded 0.7% while Nasdaq contracts jumped as much as 1.3% after risk sentiment stabilized following Friday’s carnage and as investors settled in for a few weeks of uncertainty on whether the Omicron variant would derail economic recoveries and the tightening plans of some central banks. Japan led declines in the Asian equity session (which was catching down to Friday’s US losses) after the government shut borders to visitors. The region’s reopening stocks such as restaurants, department stores, train operators and travel shares also suffered some losses.  Oil prices bounced $3 a barrel to recoup some of Friday’s rout, while the safe haven yen, Swiss franc and 10Y Treasury took a breather after its run higher.”

VIX futures declined to 24.45, well above the Cycle Top support at 23.10.   VIX is behaving as it should in a new Master Cycle that may last another month.  Pundits refer to this as a contrived  “fearstorm.”  However, from a Cycles perspective, it was overdue.

The NYSE Hi-Lo Index made an even deeper low on Friday.  It is well into its sell signal.  It is likely that there may be a bounce back.  However, the Cycles Model suggests the decline in the Hi-Lo may last another two weeks, at a minimum.

TNX recovered from its Friday swoon, having completed an irregular correction and beginning its strongest move higher, Wave (C), in the series.  We may see a breakout in the next few days, with a high degree of strength growing in the rally the week of December 6.

USD futures began a consolidation, rising to 96.39 over the weekend.  It may rise out of the consolidation as early as this week.  If not, trending strength may return the week of December 6.

BKX is likely to retest its 50-day Moving Average at 136.33.  Wednesday may have been the last day of strength in the uptrend.  Trending strength may return the week of December 6, but may accentuate the downtrend.

11:42 am

SPX fell beneath Intermediate-term support at 4599.82 and is back-testing that support/resistance area.  Nearby higher resistance is at 4620.00 -4625.00.  Should the SPX fail to exceed that level, the decline may resume shortly.   VIX is still beneath the neckline at 28.79.  However, the NYSE Hi-Lo has fallen to -118.00, a new low.

ZeroHedge adds commentary, “It’s pretty clear that markets are not having a good day today, and all else equal, it’s likely they will only get worse for the simple fact that gamma is now broadly negative, and more put buying (and selling) will lead to more selling (and put buying).

As our friends at SpotGamma note, for those looking at market support (and resistance), the main levels remain similar to that of Wednesday: support at 4600 and resistance at that 4650 area which is also the gamma flip point. The bulk of positive gamma is positioned up into the 4675-4700 which is where we see major resistance. As gamma is negative we anticipate large directional swings in todays shortened session.”

See you on Monday.

10:50 am

Welcome to “Red Friday.”  I had expected this move on Monday, not today, due to light after-holiday trading.

ZeroHedge reports, “The Friday after thanksgiving is called black Friday because that’s when retailers finally turn profitable for the year. Not so much for market, however, because this morning it’s red as far as the eye can see. The culprit: the same one we discussed late last night – the emergence of a new coronavirus strain detected in South Africa, known as B.1.1.529, which reportedly carries an “extremely high number” of mutations and is “clearly very different” from previous incarnations, which may drive further waves of disease by evading the body’s defenses according to South African scientists, and soon, Anthony Fauci.”

VIX made nearly a 51% spike this morning on the news of the Nu Covid variant.  It appears that the Head & Shoulders neckline may be the next target to fall.  Note that, should the neckline be exceeded, a more likely target may be 48.00-50.00.

ZeroHedge warns, ”

BKX sliced through its 50-day Moving Average at 136.30, confirming its sell signal.

ZeroHedge interviews the bankers, “”Black Friday” has quickly mutated into red Friday for markets, where panicking traders sell first and only ask questions later if at all. So for those who are too pressed for time to read out primer on the “Scared Nu World”, but want to catch up to speed on consensus, here is a snapshot of analyst kneejrek reactions to the market’s latest obsession.”

WTIC futures, which had back-tested the 50-day Moving Average on Wednesday to confirm its sell signal, plunged below 70.00 this morning.

ZeroHedge observes, “The emergence of ‘nu’ has sparked demand anxiety in the crude complex and oil prices are collapsing.

WTI is down 12% testing below a $70 handle, the lowest in almost months as the smell of liquidation is in the air….

That is the biggest single-day drop since the day WTI traded in negative territory and is near 3 month low, and has broken a key technical level – the 200DMA…”

8:00 am

Good Morning!

SPX futures have declined to a morning low of 4670.80.  It has already tested overhead (Short-term) resistance at 4689.02 and has since reversed.  Should investors attempt to hold the line at 4652.66, there may be another attempt at Short-term resistance.  Few commentators are worried, although SPX made its closing high on November 18 (day 259) and it’s all-time intraday high on November 22.  From Monday’s high virtually all equities indices made a key reversal, also indicating a probable top.  The Cycles Model indicate a probable 2-month decline into the last week of January.

ZeroHedge reports, “For the third day in a row, US equity futures have been weighed down by rising (real) rates even as traders moderated their expectations for monetary-policy tightening after New Zealand’s measured approach to rate hikes where the central banks hiked rates but not as much as some had expected. Traders also braced for an epic data dump in the US, which includes is an epic data dump which includes an update to Q3 GDP, advance trade balance, initial jobless claims, wholesale and retail inventories, durable goods, personal income and spending, UMich consumer sentiment, new home sales, and the FOMC Minutes The two-year U.S. yield shed two basis points. The dollar extended its rising streak against a basket of peers to a fourth day. At 730am, S&P 500 e-mini futures dropped 0.3%, just off session lows, while Nasdaq futures dropping 0.34%.”

The NYSE Hi-Lo Index made a new low not seen since March 2020.  The Orthodox Broadening Top formation is now being activated to decline to Point 8.  Its average target indicated as many as 80% of all NYSE stocks may make a new 52-week low, possibly by the end of January.  The Cycles Model shows a potentially complex decline with a possible Master Cycle low near December 8.  A potential Christmas rally into options expiration on December 17 is also indicated.  The SPX Cycles do not confirm the Master Cycle low in December, but both agree on the second Master Cycle low in the last week of January.

VIX futures consolidated inside yesterday’s trading range, with a positive result.  VIX peaked 13 (12.9) days from the Master Cycle low and may be due for a pullback to retest resistance (turning to support) at 18.37.  VIX is on a buy signal.

TNX beat yesterday’s high at 16.69 by a point, but may decline for the rest of the week.  We may see TNX revisit the 50-day Moving Average at 15.30 before marching higher next week.

ZeroHedge reports, “After two ugly auctions to start the holiday-shortened week on Monday, when both the 2Y and 5Y auctions tailed badly amid overall poor demand, traders were understandably nervous about the outcome of today’s $59BN sale of 7 year paper: after all, it was the catastrophic 7Y auction back in February that started a cross-asset rout in both bonds and stocks which lasted for weeks and led to billions in losses across various macro investors.

In retrospect, there was no reason to be nervous because moments ago the Treasury announced that the 7Y auction priced at a respectable 1.588%, which while the highest since Dec 2020 as expected, stopped through the When Issued 1.598% by 1 basis point – this was the first stop through since June, and followed four consecutive tailing auctions.

The Bid to Cover was just as solid, rising from 2.245 in Oct to 2.424, the highest since August 2020, and well above the recent average of 2.305.”

USD futures made a new high at 96.88 in the overnight session.  There may be a brief revisit of the Cycle Top support at 95.34 by the weekend as activity takes a breather in the markets.  However, new strength emerges new week that may last to the middle of January.

The GSCI Ag Index continues its rise toward its April high at 474.12.  A breakout is likely, as the Master Cycle may continue higher until mid-December.  A possible minor pullback over the next few days may be indicated.  However, strength may return in early December through the end of the Master Cycle.

ZeroHedge observes, “The real trouble will start when this year’s energy crisis morphs into next year’s food inflation problem.

We’ve all become armchair inflation experts. And why not? It’s almost impossible for anyone to keep getting it as systematically incorrect as professional economists have done this year.

It’s time for the conversation to move beyond the current obsession with eye-catching headline numbers. That we’re in a global inflation regime of a kind not seen for decades, is beyond doubt.

Interest in supply chains is at a 17-year high, according to Google Trends, but it has become a red herring when it comes to forecasting the persistence of inflation.”

Gold futures are taking a breather after two days of nastiness.  We may see a retest of the 50-day Moving Average at 1793.61, or possibly Intermediate-term resistance at 1805.01.  However, a reaction to this decline may arrive on Friday that will indicate whether a change in sentiment is due, or will the bear continue?  The Cycles Model indicates that the trend may continue until the first week of January.