The Practical Investor

1:13 pm

VIX is challenging its 50-day Moving Average at 18.46.  However, there is a triple resistance in very close range (18.74) that must be overcome to confirm the buy signal.   A breakout here would be nice, but there is usually a pullback from which a successful attack on resistance may be launched.  We are very close, but a pullback to 16.00 may be warranted.

1:00 pm

SPX is testing the trendline, currently at 4670.00.  Unfortunately, the structure may allow a probe higher, should the trendline not be broken.   Be aware that the decline in TNX may be a tool to push stocks higher as a last ditch effort to keep the markets liquid.  Remember, this is day 250 in the Master Cycle.  There may yet be some life in this rally.

ZeroHedge observes, “Until this morning’s little interruption, markets over the past week are evidencing a scramble for upside (created by single-name “Growth” stocks i.e. TSLA), as the persistent “wall of worry” of the past 1.5 yrs is again being hurdled and leading us to fresh Index all-time-highs.

As many freshly-minted stock trading gurus look on speechless as TSLA craters (finally) – which , rhymes a bit with last August’s broad Retail “gamma squeeze / Nasdaq Whale” phenomenon into the September “Delta unwind” crash thereafter (as “Gamma cuts both ways”) – Nomura’s Charlie McElligott has some thoughts on the current risk environment…”

12:54 pm

TNX has nearly gone the limit by mid-day.  Be prepared for a reversal.  Today is 257 of the Master Cycle, so the reversal may happen momentarily.

1:15 pm

ZeroHedge may have pointed out the turn, “With 10Y yields sliding all day, and painfully squeezing near-record duration shorts, as the market aggressively prices in the Fed’s upcoming policy error, today’s 10Y auction provided a brief respite for duration bears as the sale of $39BN in ten year paper was plain and simple ugly.

One day after a solid 3Y auction, the high yield on today’s benchmark auction stopped at 1.444%, well below October’s 1.584%, however it also tailed the When Issued by 1.2bps, which was the first tail since April.

The bid to cover was also ugly, dropping from 2.58 in October to 2.35, the worst print of 2021 (the lowest since Dec 2020), and well below th six-auction average of 2.54.

The internals, like yesterday, were a bit better with Indirects taking 71.0%, virtually unchanged from yesterday’s 71.1%, and with Directs taking down 13.8%, the lowest since August, Dealers were left holding 15.2%, or the most since July.”

8:00 am

Good Morning!

SPX closed again above the Cycle Top support at 4696.24.  However, the SPX futures appear to be challenging that support with a decline to 4687.60.   There is a minute trendline (shown in the 2-hour chart) under the last three weeks of rally ay 4675.00.   Should that trendline be crossed, the outcome may be a swift decline to the October 4 low.  That would be our aggressive sell signal, sinve the decline may be likely to also cross the larger, one year trendline.

Tomorrow’s options expiration are positive down to 4680.00, verifying the short-term trendline.  Friday’s options expiration is also positive at 4680.00 with 26,709 net call contracts at 4700.00.  Today is day 250 of the Master Cycle, leaving us in the reversal window.

ZeroHedge reports, “For the second session in a row, S&P 500 futures reversed earlier losses and traded flat after falling as much as 0.3% earlier in the run-up to today’s PPI report – the first of a couple of readings on inflation this week – as investors weighed the Federal Reserve’s warning that stock prices are “vulnerable to significant declines should investor risk sentiment deteriorate, progress on containing the virus disappoint, or the economic recovery stall.” US Treasury yields fell and the dollar index slipped for a third consecutive day following a late Monday report that Joe Biden interviewed uber-dove and Hillary Clinton fan Lael Brainard for the central bank’s top job, although prediction markets were not impressed. European stocks advanced for a ninth day, the longest streak since June while Asian shares drifted.”

VIX futures remained range-bound after a positive day yesterday.  The Cycles Model suggests growing strength with a possible “slingshot move” over the next 8 days.

RealInvestmentAdvice counsels, “As investors rush to pile into the stock market, there are 5-signs they may be getting too bullish. Such was a point we touched on in this past weekend’s newsletter:

“Every week it feels like we get a new headline about financial markets doing something unusual. Just this week we’ve had:“

• A “squid game” crypto token falling 99.99% in a few minutes.
• Tesla adding hundreds of billions of dollars in value over a deal with Hertz that hasn’t even been signed.
• US stock markets hitting fresh all-time-highs.

“All of which begs the question: are we in a bubble?”

TNX is threatening Friday’s low at 14.50 this morning.  The Cycles Model suggests it may go as low as the 100-day Moving Average at 14.00.  Today is day 257 of the Master Cycle, suggesting the low may come in within the next two days.  Stay on the alert, as the reversal may be sudden and strong.

9:08 am

ZeroHedge reports, “US Treasury yields are tumbling across the curve this morning (despite a record high PPI print) with the long-end outperforming (30Y -6bps, 2Y -2.5bps)

ZeroHedge reported yesterday, “Unlike recent fireworks in the 2Y repo market which, pushed the note super special as traders scrambled to obtain physical cash against which they could deliver their shorts, and which led to an absolute blockbuster 2Y auction if for all the wrong reasons (as traders rush to cover their shorts into the auction) there was no such repeat action into today’s $56 billion sale of 3Y paper, and as a result today’s auction represented a far more accurate representation of demand on the short-end.

Here’s what we got: the 3Y auction priced at a high yield of 0.75%, the highest since Feb 2020, more than 10bps above the 0.635% last month and a 1 basis point tail, the biggest since April 2020.

The Bid to Cover was also disappointing, sliding from 2.356 last month to just 2.326, the lowest since April and well below the 2.441 six-auction average.

USD futures made an overnight low of 93.87, testing Intermediate-term support at 93.81.  However, it may go lower.  Today is also day 257 in the Master Cycle, which suggests the coming reversal in Treasury yields may also have the same affect on the USD.

7:50 am

Good Morning!

SPX futures are positive, but no new high was made this weekend.   SPX closed Friday above its Cycle Top support at 4690.03, leaving it capable of going higher.  Today is day 249 of the Master Cycle which began at the March 4 l0w.  While the SPX is in the turn window, there may yet be time for another high this week.

ZeroHedge reports, “US futures rebounded from a modest overnight selloff as big industrial firms were supported by Friday’s passage of a $1 trillion infrastructure bill, while Tesla fell on Elon Musk’s plan to sell about a tenth of his stake after an impromptu Twitter poll suggested he “should” do what he likely already planned to do anyway. Oil, Bitcoin and treasury yields all rose while the dollar fell. At 745 a.m. ET, Dow e-minis were up 64 points, or 0.2%, S&P 500 e-minis were up 1.50 points, or 0.03%, and Nasdaq 100 e-minis were down 1.25 points, or 0.01%.”

ZeroHedge observes, “Thinking about options…

We are experiencing a “gamification” of options trading by retail. Few of the new “punters” understand derivatives, but they understand that things move quickly.

So far so good, but things could get nasty from an aggregate risk point of view. With options trading exploding again, there will be a lot of unmanageable options risks to consider, irrespective if the market moves higher or lower.

Poor liquidity and “gamma holes” could become a problem for dealers trying to manage “the other side” of the retail options trade.

Below are some of our recent posts on the current options (calls) trading mania.

Options mania is real

Retail is extremely active, and they love punting options. Below are a few stunning facts via Goldman’s Scott Rubner:

1. single stock option notional (140%) now exceeds single stock shares notional

2. over 70% of options traded have an expiry of two weeks or less (more in the 2,3,4 day range)

3. $904bn (Thursday stock option notional). This is largest single stock option notional traded of all time.”

Today is also day 249 for the VIX.  VIX futures probed to a weekend high of 17.28 and remains mildly positive.  The 50-day Moving Average may be coming within range at 18.40, with yet the mid-Cycle resistance at 18.78 to be overcome.  Virtually no one is buying puts, keeping the VIX at very low levels, so the VIX may be seen at lower levels this week.

ZeroHedge remarks, “Three weeks ago, when stocks were holding on to dear life – and key support levels – amid a wave of bearish sentiment which threatened to drag risk below its July lows, Goldman took the other side of the trade and said it expected a huge market meltup in the coming weeks, a call which it doubled down on one week later. In retrospect, the vampire squid was absolutely correct, with the S&P soaring by 400 points in the past month…

… in the process demolishing the wall of worry, even if the meltup was widely missed by professional speculators – many of them crushed by the turmoil in bond markets – who according to Bloomberg, were going risk-off in stocks, cutting leverage at the fastest pace in months as many bearish bets backfired.”

TNX ventured beneath the mid-Cycle support at 14.83 and the 50-day Moving Average at 14.65.  The next support appears to be the 100-day Moving Average at 14.00.  I have identified this move as an Intermediate Wave (B), often known as rogue waves.  Today is day 256 of the current Master Cycle.  This suggests that the 10-year yield may be rising again by the end of the week.

10:00 am

The GSCI Ag Index is in a pullback, which is counter-intuitive while equities are melting up.  The 43-week Moving Average at 410.55 puts a baseline under the uptrend, limiting potential pullbacks.  The 50-day Moving Average is at 417.17, giving intermediate-term support.  The chart is telling us that we could see food prices doubling in the next year.

ZeroHedge remarks, “In October, global food prices continued climbing higher for the third straight month, hitting fresh decade highs, led by vegetable oils and cereals. Higher food costs contribute to more inflationary pressures for the working poor, central banks, and governments.

The UN’s Food and Agriculture Organization’s food price index, which tracks a basket of food commodities, averaged 133.2 in October, up 3.9 points (3%) from September and 31.8 points (31.3%) from October 2020. The index has risen three consecutive months and is now at a new decade high (could hit record highs in 2022).

World vegetable oil and cereal prices were the two biggest movers in the index. Edible oils jumped 9.6% on the month to set a record high. Cereal prices rose 3.2%, within the basket, wheat jumped 5%. ”

9:40 am

BKX, our liquidity proxy, is also in its final stage of Primary Wave [5].  The Cycle Top is at 147.33 which may be reached imminently.  In the daily chart, it will have the appearance of a throw-over, a final panic rally for those who have waited for the “sure thing.”

8:30 am

Good MOrning!

Sometimes the big picture is helpful in determining where we really are in the markets.  The Weekly chart shows several items.  First, we are now within reach of the weekly Cycle Top at 4736.00.  One of the Cycle rules is that the index always reaches for the Cycle Top in its final probe.  The daily chart shows a throw-over due to the steep final rally, so I went to the weekly chart to gain perspective.  Second, the weekly chart illustrates the magnitude of the rally.  This is a Primary Wave [5] that can only fit on a weekly chart.  Third, the Orthodox Broadening Top formation shows that the markets have a long way to decline.

SPX futures reached a morning high of 4703.40.  Keep in mind the weekly Cycle Top should you be tempted to go long this morning.  Today is day 246 in the current Master Cycle.  A bit early but within the parameters of a reversal.

ZeroHedge reports, “US index futures continued their relentless meltup on the last day of the week, before today’s jobs report which is expected to bounce strongly from last month’s disappointing print (exp. 450K, up from 194K), and could set the pace for the Fed’s taper into 2022 if it is too much of an outlier in either direction. At 730am, e-mini S&P futures were up 8.25 or 0.18% to 4,681.5, a new all time high; Nasdaq futures rose 48 points or 0.29% and Dow futures were up 35 or 0.1%. 10Y yields were flat at 1.53% and the dollar index jumped, while Brent traded just above $80 after yesterday’s rout.”

VIX futures remained range-bound just above its three-year trendline.  A back-of-the-napkin calculation shows that it may go to the vicinity of 14.50 before reversing.  An Intermediate Wave (C) of a Primary Wave [3] will be a powerful Wave that may reach as high as 175.00 in the next 4-6 months.  Your eyes aren’t deceiving you…175.00.  At that point, the powers that be are likely to declare the VIX broken.  The VIX isn’t broken.  The system is.

TNX is now challenging Intermediate-term resistance at 15.43.  Today it is capable of a breakout to new highs as we begin the final two weeks of its Master Cycle.  It is noteworthy that I mentioned that this retracement should approach the October 11 low at 15.07.  Although the treasury shorts have had their weaker hands taken out, those that remain may be vindicated.  The current Master Cycle runs through November options expiration.

ZeroHedge observes, “After two months of dismal job reports, the BLS finally redeemed itself when moments ago it reported that in October the US gained some 531K jobs, well above the 450K consensus exp and above the 500K whisper number. The gain in payrolls was also bigger than all but 10 of the 75 forecasts in Bloomberg’s survey.

Remarkably, the private payrolls print was a stellar 604K, with government jobs shrinking by 73K in October. Just as importantly, the Sept print was revised solidly higher, from 194K to 312K, as was August, up from 366K to 483K. With these revisions, employment in August and September combined is 235,000 higher than previously reported.”

USD futures ran up to 94.64 this morning, just short of a second breakout above the Cycle Top.  This is the mark of a Wave 3.  The current Master Cycle has a week to go and may show unusual strength.

8:15 am

Good Morning!

Just when the market reaches its upper trendline (Cycle Top) it has a throw-over.  SPX futures hit a new all-time high of 4667.70 this morning.  Today is 31 calendar days from the October 4 low.  The market is due for a “rest” very soon.  There are two possible outcomes for a decline.  Should it stay above the trendline at 4475.00, the SPX may soar to new all-time highs ending at the next Cycle interval in late January/early February.  A decline beneath the trendline opens the possibility of a major Cycle low at that time.  I have marked the chart as if the November Master cycle low will remain above the trendline.  The last turn interval was September 2 at 17.2 months.  The next turning point may be 21.5 months from the 2020 low.

ZeroHedge reports, “US equity futures plowed on to record-er highs overnight, propped up by a slew of stellar earnings reports and as investors shrugged off the Federal Reserve’s first steps to begin paring its pandemic-era support as Powell reiterated that the central bank can be patient on raising interest rates (even if rate hikes odds pricing in lliftoff in July were virtually unchanged after Powell’s announcement). The Fed Chair announced Wednesday that the central bank will start reducing bond purchases, adding that officials won’t flinch from action if warranted by inflation. The U.S. dollar and Treasuries advanced. “There was no dramatic Hulk-like metamorphosis from the Fed last night as they kept close to expectation,” DB’s Jim Reid said in a note. At 730 a.m. ET, Dow e-minis were down 7 points, or 0.02%, S&P 500 e-minis were up 6.75 points, or 0.15%, having earlier tagged a record high 4,662.5, and Nasdaq 100 e-minis were up 61.25 points, or 0.39%. The U.S. dollar and Treasuries advanced.”

VIX futures declined to an overnight low of 14.87, nearly taking out the October 22 low of 14.84.  Unfortunately, the VIX may make a new low today, as it would be day 267 of the Master Cycle.  Cycles are organic and may be stretched or shorteened, depending on their inputs.  We are all aware of the Fed and its liquidity pump.  However, there are other inputs that we may be lwss aware of.  For example, I warned on Sepember 20 that the new volcanic eruption at Las Palmas in the Canary Islands offers a very different kind of threat.

ZeroHedge reports, “Lava flows from Cumbre Vieja volcano on the Spanish island of La Palma have been ongoing for the seventh week, which began around Sept. 19. The volcano is now spewing what scientists call “lava bombs.”

At the end of October, geochemist Harri Geiger visited Cumbre Vieja and captured a video of a large molten rock known as a “lava bomb. These molten rocks are rare and don’t occur with every volcano. According to the USGS, molten rocks only develop during an explosive eruption.

The one Geiger found measures 3.2 feet across with an estimated weight of half a ton. Once ejected from the volcano, these projectiles can be extremely dangerous. ”

TNX has pulled back from yesterday’s high.  It may be testing Intermediate-term support at 115.38.  However, it is due for a breakout and possible new highs by November monthly options expiration.

ZeroHedge reports, “As noted earlier, today’s FOMC meeting did not surprise and announced the start of tapering. Balance sheet expansion will slow to USD 105BN as of mid-November and USD 90BN as of mid-December, and – absent material changes – is expected to end mid-June at which point the market sees the Fed beginning a rate hike cycle (odds of a July rate hike were virtually unchanged today at 0.946%, barely down from 0.97% before the FOMC) even thought Powell today tried to characterize inflation as more persistent than expected, but still transitory.

As Curvature’s Scott Skyrm notes, the tapering announcement was generally as expected, but at the same time, a little different: “Yes, the FOMC announced the Fed will purchase $15 billion fewer securities beginning in November. Basically, as expected. However, here’s the interesting part. The Fed pre-announced a second tapering of $15 billion in December. That means that beginning in January, tapering is still a “wild card.” We will expect another cutback of $15 billion in January, however, it’s not guaranteed. Theoretically, they could stop tapering in January or they could increase the pace of tapering. Overall, it looks like the December FOMC meeting will be important for the markets.”

USD futures are on the move higher, hitting 94.33 this morning.  The USD Cycle currently matches the TNX Cycle, within days.  The Cycles Model shows exceptional strength rising into options expiration.

10:50 am

Crude Oil futures slipped beneath the Cycle Top support at 81.93 this morning.  This would be considered an aggressive sell signal.   The Cyclse Model projects a possible low occurring the week after options expiration.

ZeroHedge reports, “Oil prices have plunged overight after a bigger than expected crude build reported by API and further pressure from The White House on OPEC+ to start spewing more deadly, poisonous, existentially-threatening fossil fuels into the world to bring down gas prices for Americans.

Despite the pressure from the U.S. and other importers, the cartel is expected to stick to a plan to raise output by a modest 400,000 barrels a day at its meeting.

“OPEC+ staying the course is largely baked in, but the market will watch out for surprises,” said Vandana Hari, founder of energy consultancy Vanda Insights.

Oil is likely weaker today ahead of The Fed’s anticipated policy-tightening today.”

8:38 am

Good Morning!

SPX peaked precisely at the 21.5-market-day marker, possibly completing a Minor Cycle A.  SPX futures are flat near the high.  The Model suggests a possible 13-day decline into the week of November 15.  The anticipated decline is likely to stay above the lower trendline currently at 4360.00.  The September 2 high had all the signs of a major top, but was superceded by the continued liquidity flush through the system.  The next major Cyclical turning point may be between mid-January and early February.

ZeroHedge reports, “US stock futures were flat ahead of today’s Fed meeting, where the central bank is widely expected to announce the reduction of asset purchases with a majority of analysts expecting the Fed reducing its monthly purchases of Treasuries by $10 billion and mortgage- backed securities by $5 billion. Nasdaq 100 futures climbed 0.1% while S&P 500 and Dow Jones futures were little changed. Oil fell as the U.S. ramped up pressure on OPEC+ to boost supplies (which will bear zero results). The two-year Treasury yield was steady, while the 30-year rate shed two basis points. European stocks struggled for direction and the dollar fell less than 0.1%.

Despite turmoil in the bond market which sent the MOVE (or bond VIX) index to post-covid highs…

… stocks remain complacent and are likely not under stress “because we all think we know what will come out from today’s meeting: a gradual start of the tapering of the bond purchases program,” said Ipek Ozkardeskaya, senior analyst at Swissquote. A “taper announcement will likely be seamless, what may be less seamless is the rate discussion,” she wrote in a note.”

VIX futures remain range-bound as investors wait for the taper announcement.  A rally above 19.00 will clear all of the resistance points overhead.

ZeroHedge remarks, “Key Macro Week – Equity Vol Ignoring Rates Vol

As we have been pointing out lately, the MOVE vs VIX gap continues to trade very wide levels. BofA shows that the divergence is trading at unusual levels vs history:

“…equity vol and rates vol have decoupled recently is without precedent over the past 10 years”.

Will equity people, as they have so many times, chase VIX post the Fed?”

TNX futures challenged the revious low, but the cash market does not reflect it.  There is a possibility of a lower low today as the Cycles Model indicates a possible Trading Cycle low in the making.  However, the reversal to higher yelds is just around the corner.  This has all the earmarks of a classic short squeeze that may erupt into a breakout by mid-month.

ZeroHedge observes, “Heading into today’s Treasury refunding announcement, consensus expected Janet Yellen to trim the size of the coming quarterly debt sale by roughly $2 billion per tenor, the first such cut in long-term debt sales since Feb 2016. And, with the Fed set to announce a taper later today, its joint-venture partner in Helicopter Money, the US Treasury did precisely as expected (and precisely as one would expect in a time of tapering), when it said it would sell $120 billion of long-term securities at auctions next week, down $6 billion from the record $126 billion level seen over the past three so-called quarterly refundings, as it plans to reduce coupon auction sizes across all maturities.

Specifically, the Treasury will sell:

• $56BN of 3-year notes on Nov. 8, down from $58BN
• $39BN of 10-year notes on Nov. 9, down from $41BN
• $25BN of 30-year bonds on Nov. 10, down frrom $27BN.

The Treasury said the auctions will raise about $44.1BN in new cash.”

USD futures are edging higher this morning as the Master Cycle may run hot into new high next week.

9:20 am

Good Morning!

SPX futures reached an overnight high of 4617.70, not wanting to giv up its perch near Monday’s high.  Wednesday’s options are very light, but bullish above 4595.00.  Options gamma may not influence the SPX as strongly until monthly options expiration in November.

As to the Cycles, it appears that the Master Cycle came early, on October 4.  I have been preoccupied with my mother’s death and missed the signs of the early ending.  On Friday I mentioned that the door slams shut for the old Master Cycle.  Since a new high was made on Monday, I have to recognize that I missed the turn in early October, day 248.

The new Cycle has a possible termination date of November 17, two days before the monthly options expiration.  We may be anticipating a shallow low at that time.

ZeroHedge reports, “US futures and European bourses retreated slightly from record highs as investors weighed the ever worsening supply crunch and virus curbs in China against strong earnings with all eyes turning to the conclusion of the Fed’s 2-day meeting tomorrow, when Powell will announce the launch of a $15BN/month taper. At 7:20 a.m. ET, Dow e-minis were up 7 points, or 0.02%, S&P 500 e-minis were down 0.50 points, or 0.01%, and Nasdaq 100 e-minis were down 28.75 points, or 0.18%. Iron-ore futures tumbled on shrinking steal output in China. Tesla led premarket losses in New York.

Investors paused to reflect on a rally that’s taken U.S. and European stocks to record highs. With a post-pandemic supply crunch stoking inflation and pushing central banks to tighten monetary policy, they have begun to question valuations. Economic recovery is also under strain as countries from China to Bulgaria report rising Covid cases. Both the S&P 500 Index and the Dow have been scaling new peaks as U.S. companies post another stellar quarter for earnings. Of the 295 companies in the equity benchmark that have reported results, 87% have either met or surpassed estimates.”

7:30 am

I will not be blogging on Monday, November 1.  I will be attending my mother’s funeral.

Good Morning!

SPX futures came down to a morning low of 4567.50.  Today is day 275 in the Master Cycle, after which the door my be shut to new highs.  MAx Pain in today’s expiring options appears to lie at 4575.00, so the dealers and hedge funds are doing their best to pay out the least.  In SPY (closed yesterday at 458.32) options, Max Pain appears to lie at 455.00.  Should SPY go beneath that level, a gamma storm may ensue.

ZeroHedge reports, “US equity futures fell along with European and Asian stocks on Friday after tech giants Amazon and Apple and Starbucks sank in premarket trading after their earnings missed expectations, signaling a possible drop of around $180 billion in combined market value when the U.S. reopens, while dizzying bond-market gyrations sparked by surprise central bank announcements amid concerns over inflation and monetary tightening left investors scrambling to guess what happens next. A failure by Biden and the Democrats to pass their massive Build Back Better stimulus package added to the bearish sentiment. At 7:15 a.m. ET, Dow e-minis were down 45 points, or 0.12%, S&P 500 e-minis were down 22 points, or 0.5%, and Nasdaq 100 e-minis were down 138 points, or 0.88%. 10Y yields rose 3bps to 1.61%; the dollar rose while bitcoin was flat at $61,000.”

NDX futures sold off to a morning low at 15607.50 before a small bounce.  Yesterday’s new all-time high in the NDX brought in more retail investors, confident of a never-ending bull market.  It doesn’t appea that NDX will pull another rabbit out of the hat as the curtain closes for this Master Ccle.

Zerohedge observes, “With the bulk of the FAAMG stocks – which is now GAMMA following Facebook’s rebranding to Meta – reporting solid results, investors were keenly looking to Amazon earnings, where the biggest question for Amazon is how sustainable are the growth trends that boosted its performance during the pandemic. The Internet giant was one of the biggest beneficiaries of shifts in consumer and business behavior last year while continuing to grab market share in cloud.

Many consumers flocked to buy things online as they wanted to avoid infection at physical stores, with the recent Delta wave scare likely providing a further boost to Amazon. Further, Amazon Web Services revenue soared on back of rising usage from Internet digital services – including remote-working software, videostreaming and gaming. But with the wider availability of vaccines and as employees start to return to physical offices, the risk is some of these trends may start to reverse. Investors will be also looking for any commentary on the future prospects for regulation and antitrust legislation.

That said, Amazon is lapping last year’s blockbuster pandemic boost, and investors are aware it can’t match last year’s growth. Analyst estimate third-quarter sales growth of 16.3% to $112 billion – the high end of the company’s own guidance for Q3 of $106-$112BN – less than half the pace of growth of the same period a year ago. While slowing growth is anticipated, 16.3% for a company the size of Amazon is still remarkable.”

ZeroHedge further comments, “Moments after a very ugly quarter from Amazon, which missed on the top and bottom line and guided far lower than consensus, investors held on to hope that at least the world’s largest company, Apple, would somehow pull a rabbit out of its magic hat of tricks and report solid earnings pulling the Nasdaq out of its after hours slump. Alas, it did not and after reporting a miss on the top line (and matching the EPS), AAPL is also tumbling after hours and dragging Nasdaq futures down with it.

Here are the ugly details from the just concluded Q4:

• Rev. $83.36B, missing est. $84.69B, this was the first revenue miss since 2017!
• EPS $1.24, matching est. $1.24″

VIX futures leaped to a new Cycle high at 18.06 this morning.  There is a triple resistance to overcome at 18.95.  Once accomplished, the VIX Model appears to have growing strength to mid-November where a potential Master Cycle high awaits.

Investing.com informs us, “I have been trading options and coaching / mentoring other new options traders for years. I have seen new traders who were lucky and ended up with some winning trades and others who were so frustrated and on the verge of giving up. I have seen it all. One of the things I have noticed is that very few people understand the CBOE Volatility Index, the fear gauge to the markets.

Many know that it is a measure of fear but they don’t really understand what it is and how it is constructed. If you are an options trader, I would argue it is very important that you as a trader understand what the VIX is and how it works.”

TNX futures soared to an overnight high at 16.17 before easing back at the open.  As mentioned earlier this week, TNX  is now in a period of strength.  This may kick off a new rally that may extend until November monthly options expiration.

Zerohedge remarks, “Ahead of today’s sale of $62BN in 7Y paper, we tweeted that unlike this week’s previous absolutely stellar 2Y and 5Y auction which were only superb because traders were short cash bonds heading into the auction and needed paper to satisfy their short obligations, today’s auction was not at all special in repo suggesting the short overhang was far less which in turn meant that the auction would proceed purely on its fundamental, inflationary merits. I.e., it would be ugly.

We were right, and while it wasn’t nearly as ugly as the infamous February 2021 7Y auction which sparked the March market swoon and the surge in yields, it was still far uglier than this week’s previous coupon sales both of which stopped impressively through their When Issue,”

USD futures are higher this morning, testing Intermediate-term resistance at 93.66.  The Cycles Model calls for the next two weeks of rally with growing strength in Wave [iii], usually the strongest in the series of motive Waves.

ZeroHedge observes, “Americans’ income was expected to drop modestly (-0.3% MoM) in September and, of course, spending rise (+0.6% MoM) but incomes actually fell significantly more than expected, dropping 1.0% MoM (while spending rose 0.6% MoM as expected).

Source: Bloomberg

On the income side, wages for private workers dropped from 10.8% to 1.7%, the lowest since March 2021, while, wages for government workers rose to 7.2% from 6.8%.”

10:01 am

BKX, our liquidity proxy, has fallen beneath its Cycle Top at 139.91, putting it on an aggressive sell signal.  The tightening trading bands suggest a strong move down should the Cycle Top resistance hold.  This is the one indicator that supports the everything bubble.

ZeroHedge gives us a potential catalyst for a liquidity drain, “Last night we noted the Czechs had the dubious honor of suffering the first yield curve inversion of this cycle…

Then overnight saw the stress spread to Australia’s bond market, as a massive move higher in 2Y Yields undoubtedly triggered chaos in risk control departments.

And that VaR shock is now spreading to the US, where for the first time ever the yield on the 30Y UST is below the yield on the 20Y UST…”

ZeroHedge remarks further, “What a day on so many fronts! Let’s start with the staid world of bond markets. The last 24 hours have seen huge swings in yield curves: in Australia, due to a slight overshoot in two of three official CPI measures (all the way to 2.1% y/y!); then the UK, due to the Budget, more on which later; then Canada, due to the BOC winding down QE and talking about a rate hike; and then the US, on further filleting of the Biden fiscal proposal: at this stage, so much has been taken out of the “$3.5 trillion” package we are no longer sure what is in it.

Short yields up, long down sharply, and curves flattening like a pancake is a reminder that raising rates against a structural inflation supply-shock and high energy prices, and without fiscal support in the US, is not a good idea. At least not for an asset-based, financialized ‘economy’. (Indeed, Q3 US GDP today is expected at only 2.6% q/q annualised.) You can make a valid argument it’s time to raise rates: just not do that and prop up our current idiotic system. As such, expect further market swings on a scale that are capable of wiping out those with strong, levered views on matters. And wait until we see a real central bank surprise!”

9:55 am

Crude oil futures dropped to a low of 80.67 this morning, crossing beneath the Cycle Top support at 81.01 and giving an aggressive sell signal.

TheEpochTimes reports, “The White House on Tuesday promised to put pressure on members of the Organization of the Petroleum Exporting Countries (OPEC) to increase production amid declining supplies and rising energy prices.

Press secretary Jen Psaki told reports at a press briefing that the president is “mindful” of the increased prices consumers are facing when it comes to their energy bills and that he “reserves a range of options,” to combat the situation.”

9:42 am

The GSCI Ag Index is beginning to show strength as it lifts off its cluster of supports.  This weekend shows a triple whammy  on GKX, suggesting a huge rush to stockpile ag products.  I have no idea what the catalyst may be.  Perhaps the following news release may shed some light.

OilPrice.com observes, “Oil and gas prices have risen dramatically this year as a result of underinvestment and recovering demand.

Join Our Community

8:30 am

Good Morning!

SPX futures made an overnight high at 4570.60 before easing down.  Tuesday’s high at day 270 remains the topof the Master Cycle .  The potential closing of the window for a new high is likely to be Friday (day273).  Friday’s options expiration remains modeately bullish above 4530.00, but turns negative quickly beneath it.  We have an aggressive sell signal beneath  the Cycle Top resistance.

ZeroHedge reports, “US equity futures rebounded from yesterday’s late-day selloff when a collapsing yield curve sent recessionary/policy-error shockwaves across market, as investors pointed to solid earnings to indicate that a slowdown is nowhere near. Nasdaq 100 futures led gains among other key U.S. gauges after setting an intraday record on Wednesday. Dow Jones and S&P 500 futures gained too. The 10-year Treasury rate was flat, while the two-year yield added five basis points. Oil was lower and the dollar was steady, while Bitcoin rebounded after the liquidity-draining Shiba Ina meltup finally cracked overnight.”

NDX futures made an overnight high at 15702.00 before easing down, leaving yesterday’s high as the Master Cycle top.

Charles Hugh Smith remarks, “While Corporate America is focusing on preserving its precious profits, its customers and workforce are rebelling by walking away.

We all see shrinkflation on a daily basis: the 16 ounce container is now 13 ounces, the breakfast cereal box is now so narrow it topples over, and so on.

More subtly, the quality of ingredients is also diminishing: sharp-eyed consumers note that salt, sugar and “artificial flavors” are increasingly used to mask the decline of quality as producers scrape the bottom of the barrel to eke out a profit.

A recent NPR article proposes another form of untracked inflation: Skimpflation, the decline of services as prices march higher. Meet Skimpflation: A Reason Inflation Is Worse Than The Government Says It Is (via C.A.).”

VIX futures consolidated at the upper range of yesterday’s highs and lows.  A buy signal may be generated at the confluence of the mid-Cycle resistance at the 50-day Moving Average at 18.97.  Hedge funds are buying protection despite the high elevaion of stocks.

The NYSE Hi-Lo index closed at 43.00 yesterday, beneath the 50-day Moving Averagae at 69.18.  We await a decline beneath 0.00 to produce a sell signal in equities.

TNX began its first day of stength by rebounding from yesterday’s Trading Cycle low.   However, there may be antoehr short squeeze at today’s 7-year note auction.  This market is getting shook up by sudden reversals.  Who or what is generaing these short squeezes in highly suspect, as there is a larger than usual treasury note auction today.

USD futures declined benath Intermediate-term support at 93.64 this morning, possibly touching the 50-day Moving Average at 93.35.  Once this move is accomplished, we may see strength return as it is due for a Master Cycle high during the second week of November.

3:45 pm  A website outage occurred shortly after this was posted.

6:00 pm, TNX futures dropped to 15.20 before bouncing to 15.50 this evening, possibly completing its Wave [ii] correction.  This prepares it for the burst of strength tomorrow and the follow-through that may bring it to a new high by the monthly options week in November.   Nothing like a short-squeeze to find money for the 5-year treasury auction.

ZeroHedge observes, “Similar to yesterday’s stellar 2Y auction, which many were worried would see a drop in demand only to be silenced by the burst in demand due to a furious scramble for physical paper on the back of a record front-end short (which we previewed earlier in the week), so a quick look at just how special the 5Y TSY had become ahead of today’s $61BN 5Y auction hinted that we would see another blockbuster sale.

That’s precisely what happened moments ago when the Treasury announced that demand for today’s 5Y auction was absolutely off the charts.

The high yield of 1.157%, while well above last month’s 0.99% and the highest since Jan 2020, stopped through the When Issued 1.182% by a whopping 2.5bps, which is the biggest stop through since we started compiling the data in 2015. It may be the biggest stop through in history.”

7:50 am

Good Morning!

SPX futures are hovering within 10 points of 4575.00, the Max Pain level for today’s expiring options.    Cycle Top support/resistance is at 4577.00 as the Master Cycle begins day 271.00 of an aging rally.  The Wave structure appears complete

ZeroHedge reports, “One day after US equity futures hit an all time high, rising to a record 4,590, risk sentiment has reversed and overnight index futures fluctuated and stocks in Europe retreated from a near-record on Wednesday after a flare up in U.S.-China tensions, signs of further regulatory crackdowns from Beijing, a decline in commodity prices, renewed concerns about economic growth and a rise in short-dated U.S. Treasury yields doused the equity market rally on Wednesday. At 7:45 a.m. ET, Dow e-minis were up 27 points, or 0.07%, S&P 500 e-minis were down 2.50 points, or -0.06%, and Nasdaq 100 e-minis were down 15.5 points, or 0.09%. Bonds and the dollar gained and bitcoin stumbled.”

NDX futures stumbled to a low of 15520.10 this morning on China woes.  QQQ (close: 379.12) futures are currently near 378.00 with Max Pain at 381.00.  At 380.00 there is open interest in puts at 14,602 while open interest in calls are at 5,629.

ZeroHedge mentions, “Risks, A Few, But Then Again, Too Few To Mention…

Markets will probably never go down again in our life-time. Stocks have of course reached a permanently high plateau. You know the drill…However, at fresh all-time-highs it is always prudent to re-visit the “risks” to the market. Please see a quick run-down of what the consensus risks to the equity bull are right now.

COVID Comes Back

Seems pretty clear that COVID “is coming back” again in some form over the next few weeks. Questions is, to what magnitude and will there be new restrictions? UK was early in the Delta wave. Now the number of UK Covid-19 hospital patients is highest since early March. And new restrictions are being discussed.”

VIX futures are consolidating inside yesterday’s trading range.  The decline to Friday’s low appears complete.  The current Cycles Model suggests further consolidation, but strength reappearing with a vengeance next week.

Businessinsider proclaims, ”

• The stock market could still have more upside ahead if Wall Street’s fear gauge falls below a key technical level.
• If the VIX undercuts 15, Katie Stockton of Fairlead Strategies expects a continued low-volatility environment for stocks, according to a Monday note.
• The volatility index fell half a percent to the 15.34 level on Monday.

The stock market’s record-setting year could continue into year-end if Wall Street’s fear gauge falls below a key technical support level, Fairlead Strategies founder Katie Stockton said in a Monday note.

The CBOE Volatility index, known as the VIX, helps gauge the level of fear among investors and recently traded at 15.29 Monday morning.”

TNX slipped lower, increasing the probability of a low near 15.07, its Wave (a) low.  Yesterday’s 2-year auction turned out favoring the bulls.  However, the trend is up, and the current Master Cycle is due to end during the week of November 15.  The Cycles Model also suggests a dramatic increase in trending strength starting tomorrow.  Perhaps a failed 5-year or 7-year note auction (due at the end of the month) may set off a reversal higher.

ZeroHedge observes, “Amid growing concerns that today’s 2Y auction could be a disaster as a result of the recent push wider in short-dated yields, yesterday we noted that demand to borrow 2022-2024 maturities spiked since last week, while investor demand to get hold of cash securities to be short either outright or against futures has made specified collaterals more expensive, and the decline in those financing rates has trickled into the general collateral market.

In other words, everyone wanted to be short bonds but few had actual physical locate to short against.

Which brings us into today’s 2Y auction when the tenor was trading super special in repo, suggesting there would be major squeeze come the auction. That’s precisely what happened because contrary to fears of a disappointing auction, demand for 2Y paper was absolutely stellar (if for all the wrong reasons).”

11:44 am

VIX did not make a new low this morning and does not appear to agree with the ramp in the SPX.  Wave (C) of Primary Wave [3] are wonders to behold, paraphrasing from Robert Prechter in Elliott Wave Principle (page 78).  “Third Waves are strong and broad, and the trend is unmistakable.”

ZeroHedge observes, “Realized Volatility Is Low

S&P 500 5-day realized volatility is below its 10th percentile since 1970. S&P 500 5-day realized volatility since 1970.”

10:35 am

SPX may have completed its rally at 4598.53 this morning.  If not, round number resistance at 4600.00 appears to be a strong reversal point.  It may be a fight to see if the Wednesday call options at 4600.00 will amount to anything.  Dealers may be resisting it.

ZeroHedge remarks, “Yesterday, we highlighted the ‘gamma bomb’ that sent TSLA stock soaring above $1000 and the company’s market cap above $1 trillion as total options volume of 3.55mm contracts in TSLA was also a single-day record.

However, as Nomura’s Charlie McElligott notes, most stunning was the fact that 54% of yesterday’s record options volume / flow was concentrated in the 10/29 weekly options, including 1.2mm Calls for just this Friday’s expiration… while the $5.11B of total Call premium vs the $279mm of total Put premium was an unheard of 18 :1 ratio.”

8:15 am

Good Morning!

SPX futures rose to a new all-time high at 4589.10 this morning as it stretches into day 270 of the Master Cycle.    The Elliott Wave structure suggests a Wave [v] of C of (5) may have begun with a potential target of 4650.00.  Wednesday’s options expiration shows little conviction with Max Pain near 4550.00.  Should the SPX rise above 4600, it may trigger positive gamma, since there at a net 3100 calls there.   It is possible that this trend may be over at Wednesday’s close.  Volume in this rally is declining, showing some skepticism about this leg higher.

ZeroHedge reports, “The wall of worry that preoccupied traders just weeks ago has melted away, and has been replaced with a global market melt up (just as Goldman predicted again this weekend), which pushed US index futures to a new all time high this morning when spoos hit 4,580.75, while propelling European and Asian stocks higher as corporate earnings helped boost sentiment amid lingering concerns about inflation and growth. As of 715am ET, US equity futures were up 0.42% or 19.25 points, Dow Jones futures were up 126 points or 0.35% and Nasdaq futures jumped 0.61%, extending cash market gains boosted by Tesla’s rally to a $1 trillion market value on a big order and Facebook’s results announcement revealing strong user growth and a $50 billion stock buyback. 10-year Treasury yields dropped by 1 basis point while the dollar slid to session lows. Bitcoin traded around $63,000.”

NDX futures rose to 15625.00 this morning.  There is still the real possibility of non-confirmation of the DJIA and SPX, especially should the reversal happen in the next 24-36 hours.  The Wave structure appears complete at the September 7 high.

ZeroHedge reports, “A powerful earthquake struck Taiwan Sunday and reportedly knocked some of Micron Technology Inc.’s facilities offline, according to Bloomberg.

On Sunday, an earthquake of magnitude 6.5 struck northeastern Taiwan. The quake was large enough to affect Micron’s facilities in the northern Taiwanese city of Taoyuan.

Micron is still evaluating the impact and “determining the appropriate steps to return to full production.” The statement by one of the top computer memory and computer data storage companies was vague and didn’t detail what exact product lines were impacted.

Micron is a top producer of semiconductor chips, and the ongoing shortage in the industry and new developments arising from Taiwan could darken the outlook for chips. Expectations for the chip shortage to normalize could be at least another year. ”

Charles Hugh Smith opines, “When the wreck is recovered, witnesses will wonder why they took such heedless, foolish risks.

You’re in the back seat wedged between tipsy revelers, the driver is drunk and heading into Deadman’s Curve at 90 miles per hour. Nobody’s worried because the driver has never crashed. Before they slid into euphoric incoherence, the other passengers answered your doubts with statistics and pretty charts showing that the driver had never had an accident, so there was nothing to worry about.

They also said that the driver’s Uncle Fed had rigged the vehicle with an anti-accident device, so a crash was impossible. One passenger blurted out that a fellow named Goldy Sacks said the driver could easily “melt up” and take Deadman’s Curve at 120 miles per hour without any trouble.

You see the problem here: the risk of crashing and expiring is soaring but the giddy occupants are completely confident there’s no risk, and this confidence is the source of the danger. If you’re sure Uncle Fed’s device can protect the vehicle from any crash, then why not take Deadman’s Curve at 90 miles per hour?

And if Goldy Sacks says you could actually take it at 120 miles per hour, then taking it at 90 MPH is actually quite prudent and cautious.”

VIX futures hovered above Friday’s low, briefly touching 14.90.  Today is day 258 for the current VIX Master Cycle, so it is possible for a new low.  Should it occur, the foray to a new low may be brief.

Bloomberg reports, “Two infamous stock volatility strategies on Wall Street look set for a comeback — with protective buffers this time round.

The U.S. Securities and Exchange Commission has approved rule changes that pave the way for a pair of ETFs from Volatility Shares LLC to list and trade. The two products will offer leveraged bets on the Cboe Volatility Index, or VIX.

The first will allow investors to short VIX futures — a popular way to bet on calm markets. The second is an amplified wager on the opposing trade: a jump in volatility.”

TNX may be in its final leg of a “running correction.”  A normal correction may revisit the Wave (a) low at 15.07 for completion.  However, this trend is strong enough to truncate Wave (c) at today’s low.  The reason is a burst of trending strength due today in the TNX Cycles Model.  In addition, Thursday and Friday also indicate potential stength.  TNX may be the runaway train that crashed the equities markets.

CNBC reports, “U.S. Treasury yields moved lower in volatile trading on Monday to start the final week of October

The yield on the benchmark 10-year Treasury note fell nearly 2 basis points to 1.636%. The yield traded as high as 1.673% earlier in the session. The yield on the 30-year Treasury bond slipped less than 1 basis point to trade at 2.086%. Yields move inversely to prices and 1 basis point is equal to 0.01%.”

USD futures appear to be consolidating above Intermediate-term support at 93.57.  The correction appears to be over and the rally may resume imminently.  There are two weeks left in this Master Cycle with strength surging in the second week of November.