9:07 am

$2.2 Trillion In Options Expire Today: Here Are The Stocks That Will Move The Most

ZeroHedge remarks, “t’s not the biggest option-expiration Friday, but it is big with $2.2 trillion in index and single-stock options, split between $820TN in early settlement and $1.3TN in afternoon settlement.

Heading into today’s opex, there has been an unprecedented surge in purchases of downside protection, with Goldman calculating that put volumes as a proportion of total single stock options notional is up to the highest level since April 2020.”

6:45 am

Good Morning!

I will be clearing snow for a couple of neighbors this morning and leaving on a road trip this afternoon.  Thus, the early commentary.  I hope I have it right.

SPX futures rose to an overnight high at 4416.60, then drifted down to 4400.00, where short gamma begins today.  Options expiration is loaded with puts all the way to 4475.00 (Max Pain), making it imperative that the dealers hold the line here.  However, should one or more blink, the downward slope becomes very slippery.

The NYSE Hi-Lo Index closed at -135.00, offering no support for the bulls.

ZeroHedge reports, “U.S. stock index futures staged a modest bounce on Friday, recovering a portion of losses from Thursday’s rout after late news of a planned meeting between U.S. and Russian officials “late next week” spurred hopes of a diplomatic solution to the Ukraine standoff, signaling an upbeat end to a week in which investors shunned risky assets on geopolitical and tightening monetary policy concerns. Nasdaq 100 futures were up 0.7%, while S&P 500 futures rose 0.5% by 7:15 a.m. in New York with traders bracing for a potentially volatile session due to option expirations. Both indexes are headed for a second straight week of declines with investors nervous about Moscow’s military buildup near Ukraine and prospects of sharp Federal Reserve rate hikes. Treasury yields were unchanged at 1.97%, gold and the dollar were flat and bitcoin traded just above 40,000 after plunging about 10% on Thursday.”

VIX futures challenged the 50-day Moving Average at 26.99, bottoming out at 26.35.  However, it has now recovered to the 50-day  as I write.  Most analysts view 25.00 as the breaking point for the VIX, so the efforts to control it appear to have failed.

Long gamma begins at 25.00 with 15,885 calls contracts and only 885 puts.  Barring an intervention by a very large player, the likelihood is that the VIX may continue its rally.

TNX futures made a new overnight low at 19.46 as it continues to test the Cycle Top support at 18.99.  TNX is only a week away from its Master Cycle completion, suggesting that it may be a low.  If so, a possible target may be  the lip of the Cup with Handle at 17.00.

West Texas Intermediate Crude is testing the Cycle Top support at 89.81.  A close beneath that level confirms a sell signal.  The Broadening Wedge trendline is at 67.00.  Should WTI fall beneath that level, the target may be near 50.00.  This is very close to a 50% retracement of the rally from the April 2020 low.  The next Master Cycle low is anticipated in the week of March 21.

The GSCI Ag Index is in a correction mode after its Master Cycle high on February 10.  The correction may last another week or so with a probable target at the Intermediate-term support at 462.68.  An extension to the 50-day at 456.95 is also probable.  A counter-trend pullback is often 2-3 weeks in duration.  Trending strength may reappear after the end of the month.

2:00 pm 

Shocker From Fed Repo Oracle Zoltan Poszar: Powell Must Crash The Market

ZeroHedge reveals, “Back on November 7, just one day before the Russell, cryptos and most risk assets peaked for the year and perhaps this cycle, we asked a simple question yet one which the “expert punditry” immediately dismissed as it was – what else – just more conspiratorial thoughts, to wit: “Did The Fed Just Set The Stock Market Up For A Crash?”

10:17 am

BKX is challenging Intermediate-term support at 140.00.  A close beneath that level confirms the aggressive sell signal made when BKX failed at  the Cycle Top resistance.  The Cycles Model anticipates a Master Cycle low for Intermediate Wave (3) on March 3-4, similar to the SPX.  The February 10 high at 146.26 marks the end of the 12.9-year Cycle that began in March, 2009.  This may also be the end of an era for banks.

ZeroHedge remarks, “Days after Canadian Prime Minister Justin Trudeau said he would invoke emergency orders to crack down on demonstrators by freezing their bank accounts, five major Canadian banks went offline on Wednesday night, as customers reported their funds were unavailable, according to technology website Bleeping Computer.

Royal Bank of Canada (RBC), BMO (Bank of Montreal), Scotiabank, TD Bank Canada, and the Canadian Imperial Bank of Commerce (CIBC) were all hit with unexplainable outages on Wednesday evening. Users began reporting issues with banks around 1600-1700 ET, Downdector data showed.

Canadian Twitter users reported they couldn’t access their funds at the ATMs. One user took a photo of an error message at one of RBC’s ATMs that read, “Tap transactions aren’t available for this card.”

10:10 am

The reversal came a few hours early.  Wave B is complete and Wave C may be underway.  SPX is testing the short gamma zone at 4400.00.  Once beneath that, the decline may become self-reinforcing.  In addition, the margin desks may become very busy should the SPX decline beneath 4300.00.  Note:  the low on January 24 was made at 2:30 pm, just as the margin desks became active.   The SPX closed that day at 4327.23, just above the margin call line.  Had there been a close beneath that level, accounts in negative margin would have been liquidated overnight.

9:00 am

Good Morning!

SPX futures declined to 4436.60, but did not make a new low.  This decline may be a fake-out.  The Cycles Model allows Wave B to extend to the 2-hour mid-Cycle resistance at 4551.08.  Formerly I had calculated a 17.2-day decline from the Wave (2) high at 4595.31.  I have since recalibrated Wave (3) to be a 21.5 day decline.  Today is day 11, allowing a pivot to the downside mid-way through the day.  March 3 is day 21.  It may extend another 1/2 day to March 4, as this will be a powerful decline.   The SPX Master Cycle appears to be complete on March 3, day 258.

However, the NYSE Hi-Lo Index (-94.00) is targeted to make its Master Cycle low on March 14-16,  suggesting a bottom for Wave (5) of Primary Wave [1] of Cycle Wave c.

ZeroHedge reports, “It was a relatively quiet overnight session until just before 11pm ET on Wednesday, when Russia’s RIA Novosti news agency reported that Russian-backed separatists claimed Ukrainian forces had violated cease-fire rules in four places with a message posted on the self-proclaimed Donetsk People’s Republic (DNR)’s  Telegram channel claiming that “the situation on the line of contact has sharply escalated. The enemy is making attempts to unleash active hostilities.” This was followed promptly by the Ukrainian government returning the accusation and pointing the finger at separatists as being behind the shooting. Amid the he fired, she fired confusion, monitors from the Organization for Security and Cooperation in Europe (OSCE), which has been observing the situation in eastern Ukraine, recorded numerous shelling incidents along the line of contact in Donbas on Thursday morning, a diplomatic source told Reuters. The breathless reporting was enough to send US equity futures tumbling 30 points in just a few seconds…

… while Treasury yields also collapsed…”

“Update (0900ET): Adding further to tensions, RIA reports that Russia has expelled the Deputy US Ambassador, and that has legged stocks down further to overnight lows…

The Ruble is also sliding…

10Y Treasury yields are bid, trading back below 2.00%.

*  *  *

Here we go again…

After a roller-coaster overnight session, driven by headlines about various attacks in Ukraine, US envoy to UN, Linda Thomas-Greenfield, told reporters (and anyone who’ll listen) that “Russia is moving towards imminent invasion,” adding that “this is a crucial moment.”

VIX futures  rose to 26.57, testing the Cycle Top resistance at 26.82.  Today may be more volatile, bringing the VIX down to the 50-day Moving Average at 22.04.  The game here is to shake out as many weak hands (longs) as possible just before the rocket launches.

TNX is pulling back this morning, as anticipated.  Should it stop at the Cycle top at 19.00, it may reverse back to a Master Cycle high next week.  However, it may continue down to the Lip of the Cup with Handle formation for a Master cycle low, instead.  Those long on yields should be aware of the increasingly likely decline to the trendline.  Once accomplished, the target for Wave (C) of [5] remains near 30.00.

8:30 am

Good Morning!

SPX futures appear to be range-bound between the 200-day Moving Average at 4454.58 and the daily mid-Cycle resistance at 4478.53, awaiting the FOMC minutes to give rate guidance.  Today’s expiring options show the Max Pain zone at 4465.00 with options turning negative at 4450.00 and positive at 4500.00.  This dealer-driven pain management exercise is due to failure at some point, although it is possible that the market may stay flat through Friday’s options expiration.

The Cycles Model shows 8.6 days of a probable 17.2-day decline have elapsed.  A potential Master Cycle low may be due the first week of March, followed by an attempt to “rescue” the quarter.  However, the FOMC conducts its meeting in March , ending on the 16th.  This may be a very choppy quarter.

ZeroHedge reports, “The global rally stalled on Wednesday, and U.S. index futures were flat, treading water after a quiet overnight session, ahead of today’s FOMC minutes which some hope will unveil more detail on the Fed’s upcoming rate hike and QT, while also weighing the risks from the Ukraine tensions against inflation and tighter monetary policy. S&P 500 futures were flat and Nasdaq futures were little changed by 7:15 a.m. in New York, trimming earlier gains after NATO Sec. Stoltenberg pushed back on claims of Russian troop withdrawals, adding he is yet to see signs of a de-escalation. Treasury yields, bitcoin, gold and the dollar were also all flat.  Oil recovered after the biggest one-day loss this year as worries about potential disruptions to commodity supplies eased.”

VIX futures are positive, but inside yesterday’s trading range.  It is possible that yesterday’s 50% retracement is sufficient to spark another probe at the Head & Shoulders neckline.

The NYSE Hi-Lo Index closed at -147.00 yesterday.

ZeroHedge reports at 8:56 am, “Once again the algos are watching every word on Russia and this morning its SecState Blinken’s turn to trigger the swings:

*BLINKEN: NO EVIDENCE OF RUSSIA PULLBACK

And that sent stocks downb…

…and bond yields…

TNX pulled back this morning, with the likelihood of retesting the Cycle Top at 18.90 in the  next few days.  Trending strength may reappear in the latter half of next week with a probable Master Cycle high at or near the end of the month.

ZeroHedge reports, “After December’s gravely disappointing drop in retail sales, analysts are convinced January will see all that pent-up demand come flying back and expected a 2.0% MoM jump (despite a collapse in consumer confidence, especially buying attitudes and financial well-being expectations). In fact the analysts under-appreciated the rebound as headline retail sales exploded a stunning 3.8% MoM

Source: Bloomberg

That is the biggest MoM surge since March 2021’s stimmy-driven surge in spending.

The rebound was mostly driven by a huge jump in non-store retailers (e.g. online, Amazon etc) and in autos…”

3:05 pm

Waves (1) and (2) took 21.5 days. This afternoon’s high marks 8.6 days from the secondary high at 4595.31.  The Hi-Lo Index is at -75.00.  It may close near the Max Pain zone at 4465.00 for tomorrow’s options expiration.  the 50% retracement value is 4477.36.  There may be an attempt to hold SPX steady through tomorrow’s expiration, but any bad news may set off a panic.

11:10 am

SPX may be approaching a Cyclical Pivot point at 1:00 pm.  Should it remain under 4500.00 and preferably Short-term resistance at 4487.09 in the next two hours, we may have a reversal down.  Technicians are concerned that the bearish gamma may lead to a melt-up just to clear the decks of all the bearish players.  However, bad news may also bring short gamma into play with a potential panic melt-down.

ZeroHedge remarks, “Hopeful signs of a lowering in tensions on the border of Ukraine have sparked a ‘risk-on’ push higher in markets, which will now likely prompt significant Equities “squeeze” flows from the Options space and covering from dynamic hedgers.

Add to the news that Putin is pulling back the fact that China injected a net 100B Yuan into the banking system via the MLF, sending CSI 300 +1.1%, as a further signal of liquidity- and credit- pumping after January’s already all-time record $626B of new Yuan loans offered showed the extent that which Chinese authorities are willing to go to stifle the economic- and market- crunch in the country.

All this combined to a strong session as cash-trading begins and as Nomura’s Charlie McElligott warns, “virtuous” second-order Greeks look set to take-over and further accelerate the spot rally / vol compression into expiration.”

7:45 am

Good Morning!

NDX futures have risen overnight to a high of 14585.90, over 2% higher than the close.  There is a potential Cyclical pivot this morning that may allow it to resume its decline.  However, there are indicators that suggest the bounce may go higher.  The pattern indicates a possible rally to 16000.00 to retest the bottom of the old trading channel.  Wave C equals A at 15592.00.  In addition, the next two days show trending strength.  Tomorrow’s options expiration show calls dominating above 14400.00 and possible long gamma at 14500.00, so be prepared for more positive activity.

SPX futures rose to an overnight high of 4474.40, just beneath the mid-Cycle resistance at 4477.09 and Short-term resistance at 4485.22.  Should the bounce stop near there this morning, the decline may resume.  However, there are indicators that the bounce may extend to test the trendline of the old trading channel near 4750.00.  In this case, Wave C equals Wave A at 4738.00.

Tomorrow’s expiring options show Max Pain at 4465.00, while options turn positive at 4475.00.  Long gamma begins at 4500.00.

ZeroHedge reports, “With less than 24 hours to go until the Feb 16 CNN and CIA-leaked Putin “invasion day” – because if you are Russia you always leak to the US intel agencies when you are going to invade a sovereign nation – this morning markets got a welcome surprise when just after 3am ET, Interfax reported and Russia’s Defense Ministry later confirmed that some troops are starting to return to their regular bases after completing drills. Markets welcomed the positive signals from Moscow, which included Russia’s top diplomat saying that diplomacy with the West could succeed, as US equity futures surged, bond yields were lifted and and oil, gold and other safe havens were slammed amid continued optimism that geopolitical tensions in Ukraine may be easing.

As of 715am, emini S&P futures were 1.6%, or 72 points higher, and trading at 4,464 while Nasdaq futures rose 2.2% and Dow futures were 1.2% higher. 10Y Treasury yields bounced above 2.02% after dropping as low as 1.90% yesterday after the US deep state sparked fresh groundless panic about an imminent invasion. The dollar, oil and gold tumbled while cryptos jumped. Meanwhile, iron ore tumbled as China ramped up a campaign to stop prices from overheating.

VIX futures challenged the Cycle Top with a decline to 25.82 this morning.   Additionally, it may test the 50-day Moving Average at 22.30.  The Cycles Model indicates the VIX may resume trending strength on Wednesday or Thursday.

The NYSE Hi-Lo Index closed at -462.00 yesterday.  Should it remain below -300.00, the decline is likely to resume.  I am amazed that SPX did not decline even more yesterday under these conditions.

TNX moved higher this morning, as US PPI ran hotter than expected.  The Cycles Model suggests the Master Cycle may be complete at the end of next week.  In the meantime, TNX may fall back for a very short time, before running higher (in strength) next week.

ZeroHedge remarks, “anuary saw US producer prices rise 1.0% MoM (twice the expected 0.5% jump) and is the 21st straight month of MoM rises. This sent prices up 9.7% YoY (record highs and well above the expected +9.1% YoY)…

Source: Bloomberg

Goods costs are accelerating faster than Services still with Energy and Food prices the biggest drivers…

USD futures tested support at the the 50-day Moving Average at 96.01.  It appears to be consolidating prior to another strong run-up later this week.

Crude Oil futures are down over 4% this morning and on a provisional sell signal.  The Signal is confirmed beneath the Cycle Top support at 88.96.  I had warned last week and again yesterday that the top was very near.  In fact, the reversal was late.  Yesterday was day 272.  Last week had a double dose of trending strength which delayed the reversal.

Gold is another commodity that reversed down yesterday precisely on day 258 of its Master Cycle.  Gold futures declined to a low of 1845.55 before a small bounce.  Gold ma go into a two-month decline according to the Cycles Model.

8:00 am

Good Morning!

SPX futures dipped to a weekend low of 4631.00 before bouncing back.  Some of the buying is coming from the European Markets, but the bounce may be primarily from dealers and hedge funds trying to elevate the SPX above the short gamma zone at 4400.00.  The 38.2% retracement value is 4475.49 while the 50% retracement is at 4495.72.  The mid-Cycle resistance is at 4475.76.  Today’s expiring options are predominantly short all the way to 4475.00.  Call volume is lackluster up to 4500.00.

This is a market that requires one to sell the bounce.  The current Master Cycle anticipates a low on or near March 4.  The Cycles Model currently anticipates a retracement to one of the levels mentioned above.  However, bad news may have stocks testing new lows.

ZeroHedge reports, “Having sunk near session lows ahead of the US open, futures suddenly spike higher, pulling 10Y yields and the Russian ruble alone for the ride, when comments from Russian foreign minister Sergey Lavrov who was addressing the press alongside Putin, eased investor nerves for an “imminent” – in the words of the US deep state – invasion.

Speaking across what may be the longest table in the world…”

VIX futures rose to a weekend high of 32.04 before settling back, still in positive territory.  Wednesday’s options expiration shows Max Pain at 25.00.  Long gamma kicks in at 30.00, although call buyers predominate above 25.00.

The NYSE Hi-Lo Index closed Friday at -308.00.  

ZeroHedge comments, “The panic in credit protection – SPX edition

Credit protection continues moving one way, higher. CDX IG has taken out new recent highs, while SPX remains above the lows we saw in late January. The CDX IG (inverted) vs SPX chart needs little commenting. Credit protection is priced in a rather fearful way at the moment and the “pairs” trade vs SPX looks interesting.

Source: Refinitiv

The panic in credit protection – what about VIX?

VIX is trying to catch up to CDX IG, but VIX is still below the late January levels (although it is up 10% in early Monday trading). Both credit and equity protection are now pricing in a lot of fear. Unless you believe in a full blown world war and Fed hikes killing the economy, protection here is getting expensive.

NDX futures made a weekend low of 14039.50 before bouncing back.  It is deep in short gamma territory and may have difficulty pulling itself out of the hole.  Short gamma begins at 14100.00.  An inability to climb above that level condemns the NDX to a possible limit down day very soon.  True capitulation in a Wave (3) or (C) may only happen after multiple limit down days.

ZeroHedge advises, “With many expecting/hoping for the usual ‘walk-back’ by St,Louis Fed’s Jim Bullard this morning – after unleashing some chaos with his reality check on inflation fighting last week – his interview with CNBC this morning did anything but, rather reiterating the need for quick aggressive action to raise rates and his efforts to persuade the rest of the committee of the need to act decisively and soon.

• *BULLARD: FED MUST REASSURE PEOPLE IT WILL DEFEND INFLATION TGT
• *BULLARD: INITIAL RATE HIKES, BAL-SHEET RUNOFF RELATIVELY CHEAP
• *BULLARD: HAVE BEEN PUSHING CMTE TO MOVE FASTER SINCE SUMMER
• *BULLARD: COULD HAVE MOVED ASSET BUYS UP FASTER IN RETROSPECT
• *BULLARD: I’M A LITTLE MORE WORRIED WE’RE NOT MOVING FAST ENOUGH
• *BULLARD: HAVE A LONG WAYS TO GO IF WE WANT TO BE RESTRICTIVE
• *BULLARD: WOULD WANT TO START PASSIVE BAL-SHEET RUNOFF IN 2Q

Stocks sank back after the rebound on Russia comments…

ZeroHedge further observes, “I’ve got a feeling that a limit down capitulation style morning is still on its way, as I first asserted about a week ago – here’s why.

Last week’s CPI number coming in at 7.5% ratchets up the temperature not only for the Fed to not change course, but also to act sooner and more decisively.

As I have written about, inflation is the kryptonite that won’t let the Fed off the hook easy anymore. There can’t be anymore Powell pivot, because the inflation numbers absolutely have to be addressed.

Make no mistake about it, the Fed has stuck their foot into the shit. The days of inflation being a “mystery” that somehow magically fixes itself are over.

We are in a situation unlike any situation we have been in over the last 25 years.

TNX pulled back this morning, but not to new lows.  Instead, it appears to be riding the uptrend pretty aggressively.  The Current Master Cycle ends in the last week of February, so there are another two weeks to possibly reach the Cup with Handle target shown in the chart.

USD futures have reached a weekend high of 96.34 and is on a buy signal above the 50-day Moving Average at 96.01.  The new Master Cycle appears to have another six weeks to completion with the 61.8% Fibonacci level at 98.30.  As a Primary Wave [2], it may reach 100.00 in that time period.

Gold has ben bid to 1869.55 over the weekend, but it is fast approaching the completion of its Master Cycle.  Today is day 258 of its current Master Cycle.  Those who are long should consider consider hedging/taking profits.  Tomorrow may be the last possible day of strength in this rally.

West Texas Intermediate Crude hit a Friday high at 94.66 and may have completed its Master Cycle on day 262.  The weekend high in the futures hit 93.62, so it appears that oil may be pulling back.  A decline beneath the Cycle Top support at 88.56 may give an aggressive sell signal.

ZeroHedge reports, “A bout of profit-taking ensued last week as seven-year highs in crude oil and middle distillates prices intensified concerns about inflation and the possibility of countermeasures from central banks.

Rapidly escalating prices for oil and other commodities have become a central problem for macroeconomic policymakers in advanced economies. Unless inflation in oil and other commodities starts to decelerate on its own, the U.S. Federal Reserve and other central banks will be forced to raise interest rates to slow growth and bring prices back under control.”

7:30 am

Tomorrow I am leaving to consult on another business and will be away for the remainder of the week.  I plan to return next Monday to resume the blog.

Good Morning!

SPX futures drifted in a tight range between 4479.90 and 4512.30 over the weekend after retracing 61.8% pf Thursday’s decline on Friday.  The Cycles Model suggests we may have entered a panic Cycle that may last through early March.  Should that occur, the 1987 trendline at 4000.00 may be broken.  Most analysts view fair market value at or near 4000.00 at 20 times earnings.  However, that is a relative valuation, since anything over 4000.00 may be considered to be a Super Cycle throw-over .  The 51.5-year Cycle shows valuations in 1932 and 1974 at 3.5-3.7 times earnings.

Today’s options expiration show expiring puts outweigh calls below 4520.00 with probable short gamma beginning beneath 4500.00.  4450.00 may be the point of no return.

ZeroHedge reports, “U.S. index futures swung around in a volatile, illiquid overnight session, and at last check were flat despite traders’ concerns about growing fireworks in the European bond market where Italian and Greek bond plunged amid fears of ECB rate hikes as soon as October, while waiting for Thursday’s key CPI data and further corporate earnings. S&P 500 futures were up 2 points or 0.05%, Nasdaq futures were up 26 points or 0.18% and Dow futures were up fractionally as markets now expect more than five quarter-point Federal Reserve interest-rate hikes in 2022 to keep inflation on check following a strong U.S. jobs report. Treasury yields and the dollar were stable, while the euro snapped a six-day strengthening run. WTI crude fell after last week’s rally. Chinese shares climbed on their return from a weeklong holiday. Bitcoin extended its recovery surge.”

VIX futures are higher, but have not yet broken out of Friday’s trading range.  As of Friday, they are on a buy signal and may remain so through mid-March.  In Wednesday’s options expiration, calls prevail above 22.00 and gamma turns positive at 25.00.

The NYSE Hi-Lo Index closed Friday on a sell signal at -198.00 after readings above 0.00 on Tuesday and Wednesday.

NDX futures are positive, having reached a weekend high at 14772.20.  However, the 200-day Moving Average is at 15030.20.  There is nothing positive about this chart, especially going into a panic Cycle through mid-March.

ZeroHedge remarks, “If you’re a fan of American football, this year’s playoffs were some of the best in the sport’s history. The last six contests were all decided by the narrowest of margins, often at the last second. It was a good reminder that you need to stay until the end.

I mention this because between lunchtime on Wednesday January 24 and this past Wednesday, there was a distinct feeling of ‘we made it’. Yes, inflation has surprised to the upside. Yes, key data were weak. Yes, central banks are pivoting more hawkishly. Yes, yields are rising. Yet, thanks to good earnings and fund inflows, global equities are only down 3%. Well done.

It’s tempting to think that this is the end of the story: the test arrived early this year,and the markets passed. But the reality is likely to be more complicated. This is just the start of the game. A record amount of stimulus is about to be withdrawn from the global economy. It begins.

Part of the withdrawal will come through monetary policy. That shift has two parts: reversing the lowest policy rates in history, and reversing the largest central bank bond purchases in history. You know, simple stuff. From May 2022 to May 2023, Morgan Stanley economists expect G4 central bank balance sheets to shrink by US$2 trillion, four times the largest 12-month decline ever, from 2018-19.”

TNX is taking a pause this morning after a blow-out performance on Friday.  The Cycles Model call for rising rates through the month of February.  The next resistance lies at 19.71, the November 2019 high.

ZeroHedge observes, “Average hourly earnings ran at a +9.2% annualized pace in Friday’s employment report,” said the Oracle. “On a three-month annualized pace, wages grew +7.0%,” he said, alone in the desert.

“For those hoping that the US will avoid a wage-price spiral, this report was no quaalude.” But the past was not what I’d called to explore. Of all my sources, only the Oracle foresaw 7% inflation back in early 2021. And my hope was to glimpse what the future holds.

“This year’s path is hazier with the Fed now in play. But it is difficult to see inflation below 7% for this year, and it is within the range of reasonable outcomes to see 10%.”

Special Report

I thought I’d share my views on the Cycles as they appear on the SPX chart.  The actual Cycles are within a week or two of the depictions.  You can see that all the Cycles are divisible by 4.3.  I have only mapped out the Cycles since the year 2000.  Prior to that, Cycles appears in approximate 17.2-year periods. 1932, 1948, 1965. 1982 and 2000 appear to be pivotal points along the way.  Prior to that, from the peak in 1929 to the trough in 1932 was 34.4 months.  I am seriously debating whether the new decline may last 2.58 years (31 months) to September 2024 or 34.4 months to December 2024.  Considering the presidential election in 2024, I wonder whether the market decline may not run itself out until the latter date.

1:55 pm

SPX is approaching its 50% retracement value at 4623.00.  Expiring options favor calls over 4500.00.  Options are sort beneath 4450.00.  This may be a “sell the rally” event today if it cannot hold above 4500.00..

ZeroHedge comments, “As we detailed last night, yesterday’s BoE and ECB did not disappoint still-surging global ‘Hawks’, who continue steering future policy-rate pricing into levels which Nomura’s Charlie McElligott notes just a week ago would have been perceived as an impossibility and into “overshoot” territory, as it pertains to lif-off progressions which would jolt financial conditions “tighter” (ECB implieds in particular, where they now price the deposit rate to rise to zero by YE)… but, when mkt expectations are provided so explicitly, with such vigor, and inflation is over-target, with (energy) commodity prices still surging – these CBs will simply have to comply with what the market is giving them at this juncture.”

8:00 am

Good Morning!

SPX futures bounced to an overnight high of 4536.20, a 50% retracement, before easing back down to a flat profile.  The market awaits the monthly BLS jobs survey at 8:30 am.

As for today’s options expiration, gamma is positive above 4500.00.  While options favor puts at the current level, gamma goes  short below 4450.00 and seriously so beneath 4400.00.

ZeroHedge reports, “We warned last night that the surge in futures following the huge bounce in Amazon stock wouldn’t last (simply because a closer read of the company’s earnings left a lot to be desired) and sure enough, in the overnight (extremely illiquid) session, 500 futures erased gains of as much as 1.3% to trade 0.1% lower, or 10 points, to 4,460 as European stocks extend their decline as inflation and monetary tightening outweighed earnings optimism.  Meanwhile, Nasdaq 100 futures pared much of their gains, trading just 0.5% higher after earlier rising more than 2%, one day after the index had the worst day since September 2020. The VIX increased for a third day Friday, hovering just below 26.

VIX futures rose to an overnight high at 26.12, just beneath Cycle Top resistance.  Breaking that resistance allows a further probe to the neckline.   Normally the Head & Shoulders formation offers the potential target for a Wave three, as well.

The Wednesday, February 9 options favor calls at 25.00 and above, while gamma goes long at 30.00.

8:40 am

NDX futures declined into new lows after the BLS report after rising as high at 14837.30 in the overnight session, a 50% retracement.  Gamma is short for NDX/QQQ and appears to be getting shorter.  Margin calls may also be on the agenda at 2:30 as banks call in their loans on a sinking market.

ZeroHedge observes, “All the exuberant AMZN-driven gains overnight in US equity futures have evaporated after the much-better-than-expected payrolls print sparked ‘good news is bad news’ selling pressure this morning…

And with the last big hurdle ahead of Fed hikes now lifted, bond yields are also spiking…

8:51 am

TNX broke out above previous highs as its trending strength rises.  The Cycles Model calls for three more weeks of rally to the next Master Cycle pivot.  The Cup with Handle formation has been activated and may prove to be the target for this phase of the Cycle.

ZeroHedge observes, “So much for all those hoping that January payrolls would be a huge miss (due to Omicron or not) and perhaps slow the Fed’s rate hike intentions: moments ago the BLS unleashed a two-for-one shock when it unveiled that not only did January payrolls print at a huge 467K, almost four times higher than the 125K expected (and as a reminder, Goldman expected -250K)…

… but the BLS also revised December payrolls from 199K to 510K. And there’s more: as part of the BLS’s annual revisions, November was revised from 249K to 647K. This means that the previous two months revisions were 709K higher! A quick look at the historical adjustments shows that covid may have never happened with every month rising on average about 500K!”

USD futures bounced to 95.64 this morning.  A Master Cycle low appears to be imminent (early next week).  That suggests the USD may resume its rally through mid-March.

9:50 am

SPX gapped down this morning to begin Wave (3) or (C).  The Head & Shoulders formation shows the minimum decline, which may be underway through the first week of March.  Friday’s options expiation shows the Max Pain zone near 4525.00.  Gamma turns short below 4500.00.   The 100-day Moving Average is at 4569.77.  The SPX is on a sell signal beneath that level.

ZeroHedge exclaims, “Facebook – or Meta now that it’s in the witness protection program – is making record after dismal record this morning after its catastrophic earnings and guidance last night: not only is the company’s 22% drop the biggest in its history…

… but according to Bloomberg, the one-day crash ranks as the worst in stock-market history: the Facebook crash has erased some $195 billion of its market cap. That would make it the biggest collapse in market value for any U.S. company.

9:45 am

VIX rallied above the 50-day Moving Average at 22.35 and is on a buy signal.  Yesterday’s warning of an extreme dose of strength was prophetic.

7:00 am

NDX futures have declined beneath the 200-day Moving Average at 15028.29, creating a Cyclical sell signal.  Coming up  (or down?) is a Wave (3) or (C).  Both are destructive in their intensity.  The Cycles Model suggests the decline may last through the first week of March.

I am on my way to an early appointment.  I may be back after 9:00.

11:45 am

NDX has declined beneath mid-Cycle resistance at 15131.52 and the 200-day Moving Average at 15027.90, issuing a sell signal.  QQQ is at 365.03 where options turn neutral.  Today’s expiring puts dominate beneath 364.00 and gamma turns short beneath 360.00.  This appears to be the tipping point of a probable panic Cycle.

ZeroHedge notes, “Everything ‘was‘ awesome…

But now it appears things are going just a litte bit pear-shaped (and no obvious headline driven or technical catalyst yet).

US Equity indices are rapidly erasing the overnight exuberance, with even Nasdaq’s Alphabet-driven spike fading fast. Small Caps are deep in the red and Dow is back to unchanged…

Notably The S&P and The Dow (far left and far right respectively) are clinging to their 100DMAs…

10:05 am

The GSCI Ag Index may have reached its Master Cycle high today at day 266.  The retracement may not last/may extend beyond today’s high due to a surge of strength due next week.  Things are getting out of hand with food prices and the next Master Cycle (high) is not due to mid-March.

ZeroHedge reports, “An uncontrolled fire burns at a North Carolina fertilizer plant early Wednesday as there is still a risk of an explosion, forcing thousands of people to evacuate their homes in surrounding communities, according to local news WXII-TV.

Winston Weaver Co.’s Winston-Salem plant caught fire Monday night and continues to burn days later. The plant produces ammonium nitrate and has more than 500 tons of potentially explosive chemicals in storage.

“There has been no improvement on scene, conditions have not improved,” a spokesperson for the city of Winston-Salem said during a press briefing at 0430 ET. “The potential for an explosion is still there.”

This follows a prior ZeroHedge article, “The information that I am about to share with you is extremely alarming, but I have always endeavored to never sugarcoat things for my readers.  Right now, there are shortages of certain items in grocery stores across the United States, and food supplies have gotten very tight all over the globe.  I have repeatedly warned that this is just the beginning, but I didn’t realize how dire things have already gotten until I received an email from a farming insider that I have corresponded with over the years.  I asked him if I could publicly share some of the information that he was sharing with me, and he said that would be okay as long as I kept his name out of it.

According to this farming insider, dramatically increased costs for fertilizer will make it impossible for many farmers to profitably plant corn this year.  The following is an excerpt from an email that he recently sent me…

“Things for 2022 are interesting (and scary). Input costs for things like fertilizer, liquid nitrogen and seeds are like triple and quadruple the old prices. It will not be profitable to plant this year. Let me repeat, the economics will NOT work. Our plan, is to drop about 700 acres of corn off and convert to soybeans (they use less fertilizer, and we also have chicken manure from that operation). Guess what? We are not the only ones with those plans. Already there is a shortage of soybean seeds, so we will see how that will work out. The way I see it, there will be a major grain shortage later in the year, especially with corn. I mean, we are small with that. What about these people in the midwest who have like 10,000 acres of corn? This will not be good.”

8:30 am

Good Morning!

SPX futures rose in the overnight session to 4588.20, nearing the 61.8% retracement value at 4590.00 and achieving Wave Equality between Waves [i] and [v] of Wave C at 4578.00.  Wave C may achieve 125% the value of Wave A, as well.  The Cycles Model calls for a Trading Cycle high today with 30 days to the next Master Cycle low.

Today’s expiring options may be driving this rally, forcing the dealers and hedge funds to buy high, chased by the positive gamma above 4540.00.  However, gamma turns short at 4480.00, leaving a narrow window within which they must close, or risk a bloodbath.

ZeroHedge reports, “US equity futures and global stocks from Europe to Asia were headed for the biggest four-day rally since November 2020, supercharged by blockbuster earnings AMD and Google, which hit an all time high overnight after rising 9%. As of 745am, Emini S&P futures traded at session highs, up 40 points or 0.9%…

… while Nasdaq futures were up roughly double, some 252 point to 15,247 or 1.7% higher…

… and the Dow was roughly flat. Oil fluctuated around a seven-year high as OPEC+ agreed on just a 400Kb/d increase in output, as expected to discuss increased supplies. Treasury yields, the dollar and Bitcoin were marginally lower.

VIX futures made a low of 21.19 this morning, but may be bouncing back.  Short gamma starts at 21.00 for today’s expiring options.  Max Pain is at 24.00, but gamma turns positive at 25.00.  The Cycles Model calls for a Trading Cycle low today, with (upward) trending strength immediately returning.

NDX futures rose to 15277.00 before retreating beneath 15200.00.  Wave [v] of C = Wave [i] of C at 15190.00.   Mid-Cycle resistance is at 15122.73.  A decline beneath that level triggers a sell signal.

In today’s options expiration, gamma turns negative beneath 15000.00.  In the QQQ (price: 365.52) options, gamma turns positive at 368.00 and goes short at 360.00.  Max Pain level is indeterminate.

ZeroHedge remarks, “The anatomy of short gamma

The past correction and the following squeeze has killed short gamma players. In case you missed our explanation of gamma see here. When sudden volatility kicks in, short gamma traders have to delta hedge the books as their deltas tend to rise quickly (and hit risk limits many times). One thing they don’t do is sit back and relax. When the market started puking, their long deltas exploded as they became more and more long deltas. The sudden mini rips were painful as well, as they needed to buy back sold deltas. You have to understand that short gamma traders are not “allowed” to speculate when it comes to deltas, these must be mechanically hedged. Add to it the remarking of the short options implied vols, and you understand the huge p/l pain. The chart below is the most probable hedging behavior among the aggregate short gamma dealers in NASDAQ. You understand why they have been magnifying the moves…

TNX tested its Cycle Top resistance at 18.12 this morning, then pulled back.  The Cycles Model calls for a new surge of strength by the end of the week, with three weeks to go to a new Master cycle high.

Zerohedge reports, “Just in time for the Fed’s taper and upcoming QT, which will reduce demand for US paper for the foreseeable future, in its quarterly refunding statement the Treasury cut the notional size of long-term debt as government spending slows now that Biden’s Build Back Better plan is dead.

Specifically, in its refunding statement, the U.S. Treasury announced refunding debt sales next week totaling $110BN, down from $120BN in February and, as previously noted, plans to reduce nominal coupon auction sizes across all maturities for the second straight quarter, while increasing the April 5-year TIPS auction size to $20BN. The Treasury will refund approximately $54.8 billion of privately-held Treasury notes and bonds maturing on February 15, 2022.  This issuance will raise new cash of approximately $55.2 billion.