The Practical Investor

3:39

On day 257 we may see a reversal within 24 hours.  Draw your own conclusion.

A very frustrated NorthmanTrader reiterates, “Following all time highs last week markets actually also got to within an inch of a complete breakdown. Again. And again they were saved in the nick of time with the predictable Fed cave on tapering to unfold this week during Jackson Hole and looking to make new highs again this week. 10 weeks in a row. 10 months in a row. If markets seem to have a programmed consistency about them it is because they do. The rally has gotten to persistent and steep that failure is not an option. Indeed markets MUST make new highs every week or risk the break of the trend.

Failure is not an option.”

7:33 am

Good Morning!

SPX futures rose over the weekenf to a high of 4458.50, testing the short-term trading channel trendline near 4460.00.  The retracement had already reached a 61.8% retracement by mid-afternoon when a panic bid hit the tape in the final hour.  Of course, being monthly options expiration, it took on a life of its own as gamma pressure is self-reinforcing.   This may have caused the dealers to buy in the weekend futures to pay for options that settled on Saturday morning.  Today is payoff time (T+2).  We may see the panic bid reverse after the open as a possible top-to-top 4.3-day Cycle completes in hour 2 of the cash market.

The NYSE Hi-Lo Index closed at -17.00 on Friday, clearly on a sell signal.  It would take a lot to reverse that signal.

ZeroHedge reports, ” US stock-index futures gained along with global equities as concerns about China’s crackdown faded and as investors sought to take advantage of last week’s market weakness after Dallas Federal Reserve President Robert Kaplan said on Friday he’s open to adjusting his view that the central bank should start tapering its asset-purchase program sooner rather than later if the delta variant persists and hurts economic progress. Bond yields rose as demand for havens eased. Commodities also rallied after China announced no new cases suggesting the Delta scare is ending; The dollar was weaker and Bitcoin surged above $50,000, the highest level since mid-May. At 7am ET, Emini S&P futs were up 15 points or 0.34% to 4,452; Dow futures rose 158 points or 0.45% and Nasdaq futures were 40 points higher or 0.27%.

NDX futures hit a weekend high of 15155.40, less than 30 points away from its all-time high.  Should it go higher, it may reach its Cycle Top at 15253.92 sometime today.  Today would be day 257 of the current Master Cycle, so my comment about a possible Cycle Top early this week may have been prescient.  This fits the Cycles Model calrendar for a Master Cycle low in late October.

The NDX Hi-Lo Index closed at -195 on Friday.  neverthless, the  NDX itself may still rise due to a handful of mega-tech companies.

ZeroHedge warns, “US firms and Wall Street understand that today’s market conditions of easy money, low bond yields, and euphoric Wall Street Bets traders buying anything under the sun is the perfect time to ramp up equity issuance. In fact, stock issuance has just surpassed Dot-Com levels to record-highs.

Country western star Kenny Rogers, famous for singing the “The Gambler,” one said:

You’ve got to know when to hold ’em

Know when to fold ’em

Know when to walk away

And know when to run

A new client note from Grantham Mayo Van Otterloo & Co. LLC (GMO) investment advisors outlines that US main equity indexes are screaming to new highs, and an inconvenient truth has just emerged for bulls:

“Stock issuance in 2021 is also setting a new record, blowing away the last high set in the run-up to the Tech Bubble. This is a dubious item to celebrate if history is any guide.” 

VIX futures have held steady with a low of 18.51 over the weekend.  The 61.8% Fibonacci retracement value is at 18.34.

ZeroHedge remarks, “Back in late 2017, Bank of America’s derivatives strategists made a remarkable, if hardly original, observation – the bank said what everyone knew but was afraid to voice namely, that “In Every Market Shock Since 2013 Central Banks Have Stepped In To Protect Markets.”

Since then, the market’s Pavlovian response to unconditional central bank intervention has gotten so embedded in the collective trader psyche that neither fundamentals, nor adverse news matter any more as everyone is convinced that central banks will step in the moment there is another dip in risk assets. In fact, on Friday another BofA strategist, Michael Hartnett, wrote that in the past 18 months “the Fed has bought $4 trillion bonds, twice the amount the US spent on War in Afghanistan past 20 years as it, and other global central banks, have spent $834 million every hour buying bonds since COVID.” Add to this that the US government has spent $875 million every hour in ’21 and one gets a staggering number of $1.7 billion spent between central banks and the US government to prevent even a modest market correction.

As Hartnett put it, “little wonder everyone believes in TINA & BTD.”

TNX is holding steady beneath Intermediate-term resistance at 12.78.  The Cycles Model suggests strength returning tomorrow and possibly lasting for the next week or so.  This may be one of the leading indicators of a falling stock market.

USD futures are in a pullback from its new breakout high.  USD is due for a short-term low this week before regaining its strength in September.

10:25 am

I appears that the retracement may attempt a retest of the shoprt-term trading channel trendline near 4460.00, although Short-term resistance at 4436.00 may be tough with the 61.8% Fibonacci retracemennt at 4437.19.  What happens after that is a likely decline back to 4400.00 and below.   Final nsupport is at 4495.81 along with the one-year tDiagonal trendline.   This may be a good place to add short positions.

7:10 am

Good Morning!

SPX futures have ventured down to 4376.10 before a small rebound.  As in the past months, options expiration appears to be dictating the markets.  The AM settlement (at the open) shows the calls dominate by a net open interest of 4000 calls at 4400.00 while somewhat neutral territory goes down to 4375.00 (MAX PAIN), where there is an open interest of 18,243 calls and 18,631 put contracts.  As you well know, virtually 99% of all options contracts expire worthless.  The market makers (dealers and hedge funds) try to make sure that the least amount is paid out at expiration.  It’s a virtual money machine for them until an event that drives the market out of those parameters.

The PM settlement is more bearish with open interest in 5046 calls and 7180 put contracts at 4400.00.  This is where it gets interesting, since the SPX must open beneath 4400.00 but close above 4400.00 for maximum pain to both sets of option holders and the smallest payout by the market makers.  You can almost read their (collective) minds.  Keep in mind that trenndline support at 4400.00 may now be lost, giving a downward cast to market sentiment.

ZeroHedge reports, “Another ugly day for risk assets with US equity-index futures dropping alongside global stocks, as faltering growth and China’s regulatory curbs compounded risks before the Federal Reserve’s Jackson Hole symposium next week. Fears about economy-linked sectors put the Dow and the S&P 500 on course for their worst week since mid-June. The dollar extended its rally to a fresh 10 month high, oil slumped and bitcoin surged after Coinbase announced it bought $500 million in crypto would reinvest some of its profits in digital currencies. At 745 a.m. ET, Dow e-minis were down 125 points, or 0.36%, S&P 500 e-minis were down 15 points, or 0.34%, and Nasdaq 100 e-minis were down 19 points, or 0.13%.”

VIX futures remained between 22.64 and 23.90 during the overnight session.  The top trendline of the Ending Diagonal may now be support going forward.  The neckline at 24.74 may now be the immediate target, especially should the SPX fail to hold above 2375.00.  VIX is on a confirmed buy (SPX sell) signal.

The NYSE Hi-Lo Index closed at -71.00, adding further confirmation to the sell signal.  The market internals stink, but the market makers still have a (temporary) hold on things.  We may wish to check this at mid-day to see if there is further erosion.  This may indicate whether the SPX may close above 4400.00.

USD futures rose to 93.68, ending a strong week of gains.  It has broken out above the two previous highs and may be due for a modest pullback next week.

The Shanghai Composite Index took a nosedive to 3394.97, a new low, before a modest bounce in the overnight session.  It appears that the Shanghai may be gaining downward momentum next week as it approached the Head & Shoulders neckline.  This Master Cycle may last to mid-October and it may exert a heavy influence on the NDX.

ZeroHedge remarks, “Hong Kong stocks tumbled into a bear market, with the Hang Seng index sliding more than 20% from it February high on Friday after Beijing approved a new privacy law to prevent data collection by domestic technology companies.

China’s most powerful legislative body, the Standing Committee of the National People’s Congress, passed the Personal Information Protection Law that will go into effect on Nov.1, according to FT.  The move sent tech stocks plunging and leaving investors bewildered over the intensity of Beijing’s regulatory crackdown that has slammed countless sectors.

NDX futures consolidated within yesterday’s range while waiting out options expiration.  However, the internals stink of avoidance with the NDX Hi-Lo closing at -246.00.  The dealers may have a hard time keeping the NDX in a tight range.  NDX option are sparse, but Open Interest turns bearish beneath 366.00 (closing price: 363.96) in QQQ.  It may be a struggle to keep the NDX above the 50-day Moving Average at 14684.67.

TNX is sinking, showing a flow of liquidity toward treasuries.  Today may be the last day of weakness in TNX as next week ushers in two weeks of strength.  The Fibonacci calculations show the 61.8% retracement at 12.25.

10:55 am

The NYSE Hi-Lo Index opened at -23.00 in a decline, but has bounced, though in the negative.  The sell signal remains intact.   The NDX Hi-Lo Index declined to -97.00 and may be triggering another sel signal.

10:45 am

The SPX bounce stopped near its daily Ending Diagonal trendline at 4400.00 and is declining again.  It is hard to say whether the correction may  be prolonged or not.  Howeer, once finished, Wave (v) of [i] equals Wave (i) of [i], a common relationship) at the 50-day Moving Average.   Should the decline stop there we may see another retest of the trendline near 4400.00.  As mentioned earlier, negative gamma progressively worsens beneath 4400.00 and may accelerate beneath the 50-day.

ZeroHedge remarks, “Well that de-escalated quickly…

US equity markets have got back to ‘even’ after ramping violently at the cash market open on what smells like more of a gamma spike than any real buying…

It appears the bounce is off some critical technical levels (Nasdaq at 50DMA and Russell 2000 at 200DMA).”

7:30 am

Good Morning!

SPX futures are  gapping down through the Ending Diagonal trendline as they approach the 50-day Moving Average at 4340.48.  There may be a bounce as it reached the 50-day, but the rebound may be limited by the trendline at 4400.00.  The 50-day has marked the lows since March, so that may be considered the “Maginot Line” for a larger decline.

However, the new Master cycle is not due to find a bottom until mid-October with a possible bounce to “save” options expiration in mid-September.  Therefore, support may crumble, especially as gamma hedging may now turn negative.  Tomorrow’s options are bearish beneath 4400.00, progressively more so at 4325.00, with a net open interest of nearly 4000 net put contracts.  Should the SPX slip beneath the 50-day, dealers may be forced to sell longs and go short as the decline becomes self-reinforcing.

Investors should be net short at this time, with a bouncy ride until the 50-day breaks.

ZeroHedge reports, “In a perfect storm of adverse developments suddenly sweeping the complacent and calm sea of manipulated global markets, overnight futures plunged, global stocks slumped, commodities tumbled, as investors rushed to the safety of Treasurys, sending yields sharply lower and pushing the dollar to the highest level since November,  amid concern the Federal Reserve may start tapering stimulus this year even as the delta virus variant undermines global growth. At 730 a.m. ET, Dow e-minis were down 0.92%, S&P 500 e-minis lower by 0.80% and Nasdaq 100 e-minis off 0.63%.”

VIX futures have surged to an overnight high of 24.74, testing the Head & Shoulders neckline at 25.00.   It launched above the 50-day Moving Average on Tuesday and overcame mid-Cycle resistance at 20.23 on Wednesday, clearly a Model buy signal.  Once above 25.00, VIX options and futures may likely be at a premium as sentiment dramatically changes.

ZeroHedge warns, “In the new normal world of ‘Correlation 1’ risk-on, risk-off trading, the only thing that matters is the rise and fall of the Equity vol flows.

This is why, as Nomura’s Charlie McElligott explains, with all the pre-warning warnings and expectations management, the current sudden slide in stocks is “not a taper tantrum”, adding that “yesterday’s minutes were a non-event, where the market has already price Q4 official announcement anyhow.”

Instead, the Nomura MD notes that US Equities Realized Vol is finally trueing-up to the incessant CRASH -signals from Implied Vol / Skew / Term-Structure / “Vol of Vol” signal extremes we’ve been hammering-on the past few weeks… and it’s causing a risk management / “crash” slide / stress issue around the Street now which is being traded around, ahead of the ever-critical monhtly options expiration cycle as an “accelerant” risk.”

The NYSE Hi-Lo Index gave a sell signal on Tuesday, closing at -13.00.  Yesterday’s close was sufficient to keep it on the sell signal, which appears justified this morning.  The Cycles Model suggests the next Master Cycle low (not confirmed by the SPX nor the VIX) may come in mid-September, but the final (c0nfirmed) low appears due in mid-October.  So, it appears that the Hi-Lo is a bit more nuanced during this bear market.

The Shanghai Composite Index made an overnight low at 3446.01 before a bounce.  China’s heavy handedness appears to be driving sentiment down.  The spill-over is now reaching European stocks as well as the NDX.

ZeroHedge reports, “European luxury stocks slumped, and were among the worst performers in Europe’s Stoxx 600, after Chinese state media this week said President Xi Jinping offered an outline for “common prosperity” via “wealth redistribution” – who know that China was communist after all – that includes income regulation and redistribution, putting China’s wealthiest citizens on notice. Among the biggest losers were Richemont -5.6%, Kering -5.3%, LVMH -4.2%, Swatch -3.6%, Burberry -2.7%, Hermes -2.2%. Hong Kong-listed Prada plunges 10%.”

NDX futures made a new low at 14714.90 this morning, nearing its 50-day Moving Average at 14621.67.  Investors who took last week’s sell signal had to wait through choppiness until yesterday, when it finally paid off.  There is likely to be a bounce at the 50-day, or possibley lower, at the Cycle Bottom support at 14577.75.  However, the bounce may be tied to options expiration and may dissolve by early next week.

The NDX Hi-Lo Index bounced to -1.00 in early trading yesterday, but tailed off to -96.00 at the close.  The sell signal remains confirmed.

TNX futures slid to 12.20  this morning, but may have found support and may be on the mend, with the cahs market opening at 12.32.  Dynamic strength may return early next week after being in the doldrums this week.  This may be viewed as another selling opportunity for treasuries.  The Fed ma be “led” by arket forces to begin tapering much sooner than anticipated.

ZeroHedge observes, “Dovish Fed minutes note ‘substantial further progress’ not yet been made, but most see conditions being met later this year

• The FOMC July meeting minutes provided dovish offset from some of the hawkish Fedspeak that has been heard recently.
• The minutes suggested that participants generally judge that the standard of “substantial further progress” had not yet been met, particularly with respect to labor market conditions, and that risks to the economic outlook remained, although most judged that it could be appropriate to start reducing the pace of asset purchases this year because they saw the Committee’s “substantial further progress” criterion as satisfied with respect to the price-stability goal and as close to being satisfied with respect to the maximum-employment goal — all dependent on progress towards the Fed’s goals.”

The BKX, our liquidity proxy, is showing signs of stress again.  It has declined very near the 50-day Moving Average at 124.72, where a sell signal lies.  Crossing the lip of the Cup with Handle at 115.00may be the “kiss of death” for market liquidity.  The next Master Cycle low may be accomplished by the end of August.   All it takes is one bank failure to set off a firestorm in the markets.

ZeroHedge observes, “With the Fed’s reverse repo facility hitting a new all time high today, rising to a record $1.116 trillion among 82 counterparties…

… the manager of the Federal Reserve’s open market operations, Lorie Logan, was quoted in the FOMC minutes as saying that “market participants were beginning to focus on the potential effects of changes in the Treasury General Account at the Federal Reserve and Treasury bill issuance over coming months in connection with the debt ceiling.” She then said that “if a number of counterparties reached the per-counterparty limit on their ON RRP investments and downward  pressure on overnight rates emerged, it may become appropriate to lift the limit.”

3:00 pm

With a new all-time high in the making, it’s time to reassess the Cycles.  The last Master Cycle bottomed on July 19 (day 252).  Today is day 250 of the current Master Cycle.  The amazing thing is that 17 months from the 2020 low will have elapsed on day 257, next Monday.

I have been invited to spend a couple days with one of my sons, so I may not return until Thursday.

7:30 am

Good Morning!

SPX futures challenged the August trading channel trendline at 4450.00 this morning, declining to 4446.80.  This puts us on the alert for an aggressive sell signal with further chart confirmation at Short-term support at 4425.00.  Ultimately, the uptrend isn’t broken until the SPX declines beneath the two-month trendline at 4300.00.  However, the VIX and Hi-Lo Indx may give us an earlier confirmationof the decline.

Today’s options exiration in the SPX is at Max Pain at 4455.00 where there are 1933 net open interest favoring puts contracts.  The dealers will start feeling pain at 4435.00 where they will need to gamma hedge by shorting the SPX.

ZeroHedge reports, “US equity index futures fell and the dollar rose after the latest Chinese data missed expectations and confirmed a sharp slowdown in the 2nd largest economy, while the spread of the coronavirus delta variant sparked worries the global economic rebound is faltering. Investors also awaited a town hall by Federal Reserve chair Jerome Powell on Tuesday for clues on policy following a report from the WSJ that the Fed was weighing ending taper by mid-2022. As of 730am S&P eminis were down 12.50 or 0.28% to 4,450 after hitting an all time high on Friday; Dow Jones futures were down 101 points or 0.28% and Nasdaq futures were 42.75 lower. Commodities declined after Chinese retail sales and industrial output data showed activity slowed. Alibaba slid in premarket trading again after China’s state media criticized the online-game industry.”

VIX futures challenged the 50-day Moving Average at 17.20 by rising to 17.54 in the morning session.  This puts us on high alert for a buy signal in today’s cash market session.  Friday was day 259 in the VIX Master Cycle, which may be labelled “on time” for the low  The new uptrend may last until late October.

USD futures have risen off Intermediate-term support at 92.52 this morning.  It may very quickly show signs of strength as the day goes on, building up during the entire week.

TNX declined beneath Intemediate-term support at 13.05.  It may find support at the 61.8 Fibonacci retracement at 12.25.  The Master Cycle shows rally strength returning after options expiration on Friday.  Apparently some big investors are long in treasuries.

8:50 am

The GSCI Ag Index broke out above its previous high at 427.51 yesterday, indicating the rally is in full swing.  The Cycles Model suggests it may continue to the week of August 23.  The next resistance is at the Wave [1] high at 474.12 with additional resistance at the Cycle Top at 478.04.  Shortage-driven inflation reigns in the Ag sector.

ZeroHedge reports, “The U.S. Department of Agriculture’s World Agricultural Supply and Demand Estimates (WASDE) report was released Thursday afternoon and pointed to declining grain supplies that sent grain futures prices higher and will keep food inflation in focus.

The closely watched supply and demand report slashed estimates for corn yields and stockpiles. World inventories for wheat were reported near a five-year low.

Grain and oilseed futures soared to a near-decade high earlier this year but have been in a holding pattern for the last month, awaiting new reports on the outlook for upcoming U.S. harvests. A megadrought and back-to-back heat waves have plagued the corn belt and the U.S. West for much of the summer. 

December corn futures were up more than 2% to $5.7150 a bushel on the Chicago Board of Trade, soybean futures popped on the report and are now flat at the end of the U.S. cash session, wheat futures rose more than 3%, hitting a fresh eight-year high.”

7:40 am

Good Morning!

SPX futures rose to a new all-time high 4465.30, then eased back to the flat line.  The open interest in calls is a net 3600 at 4450.00, a net 3758 at 4460.00 and a net 2400 at 4465.00.  MAX PAIN is at the trendline near 4440.00, beneath which the puts rule.  The objective for options expiration is to close at MAX PAIN.

ZeroHedge reports, “S&P 500 futures celebrated Friday the 13th with a brand new record highs on Friday boosted by Walt Disney’s forecast-beating results, while signs of cooling inflation and a strong recovery in corporate earnings kept the indexes on track for a second straight week of gains. But the real party today was in Europe, where stocks headed for the 10th consecutive record high, the longest winning streak since 1999, as bullishness swept across markets after a blowout earnings season and economic recovery out of lockdowns. Asian markets, Treasury yields and the dollar dipped while cryptos surged with both bitcoin and ethereum up around 5%. At 730 a.m. ET, Dow e-minis were up 46 points, or 0.13%, S&P 500 e-minis were up 1.5 points, or 0.06%, and Nasdaq 100 e-minis were down 3 points, or 0.01%.”

VIX futures remained flat during the overnight session with a low of 15.53.  It is currently positive but not near the 50-day Moving Average at 17.25.  The Master Cycle appears to be complete at day 258.

ZeroHedge comments, “We live in fascinating times. Today, we have a unique opportunity to observe one of the biggest speculative bubbles ever, and to understand how financial markets evolve towards critical points.

While Western central banks have lost control in March 2020, flooding the system with absurd amounts of liquidity, a scary number of participants are now convinced that monetary illusion will make them rich.

Unfortunately, historical analysis of capital markets shows us that the exact opposite is likely to happen. But no one really cares about empirical evidence. People are even becoming more aggressive – especially on social media –, whenever someone tries to warn of an incoming tail risk event.

The question is, why? If people are so comfortable with their “stock only go up” scenario, then why worry?”

NDX futures topped out at 15096.50, then resumed their decline.  Short-term support lies at 15029.10, beneath which lies a confirmed sell signal.  The NDX Hi-Lo Index closed at -23.00 yesterday, giving condirmation of the decline while the VXN/VIX both hover beneath their respective 50-day Moving Averages.  Breaking support is likely to punch volatility over resistance.

ZeroHedge cautions, “Back in early February of 2020, I noted that, even as the major stock market indexes had pushed to new highs, a number of Hindenburg Omens had been triggering on the NYSE and the Nasdaq pointing to a significant deterioration in breadth:

“While an individual signal has very little value in forecasting a stock market crash… a cluster of signals can be valuable in that it signals a pattern of dispersion that is not compatible with a healthy uptrend.”

The Shanghai Composite fell through Intermediate-term suport at 3513.20 to 3500.50 before bouncing.  This is confirmation of the sell signal and may offer a heads-up to developments in the NDX in the coming weeks.  SSEC also put in a Master Cycle high on Wednesday, indicating a potentio decline that may last through mid-October.

ZeroHedge observes, “The semiconductor space has long been viewed as one of the best leading indicators of the modern technological economy (and capital markets), and with good reason: it was the first sector to bottom in March 2020 when it became apparent that China and various western central banks would inject trillions into the global economy, and had enjoyed a nearly relentless upward climb since then peaking just over a week ago on August 4, but then something snapped…

… and as shown in the next chart, the Semi Index is broadly lower again, having dropped for six consecutive sessions – the longest such streak since the October 2018 Fed “policy error” when stocks cracked after Powell threatened to tighten far more than markets expected, only to end his hiking cycle prematurely just two months later, resulting in the first bear market in a decade.”

USD futures have pulled back this morningand may test support at 92.50.  It may regain its strength next week as it resumes its rally.

TNX pulled back from the 50-day Moving Average at 13.82.  It did not find support at mid-Cycle support at 13.44, so the decline may continue no lower than Intermediate-term support at 13.13.  Any pullback may be used as an accumulation phase for the next surge higher in about two weeks.

ZeroHedge reports, “After yesterday’s blockbuster, record-setting 10Y auction which saw many buyside metrics print at the strongest levels on record (nearly 4bps stop through, record high indirects), traders expected today’s last refunding auction – when the Treasury sells $27BN in 30Y paper – to be a more muted affair. According to Bloomberg, investors should go for the $27 billion bonds auction with yields above the round threshold of 2% and there is likely to be a smattering of short covering at the 1 p.m. NYT deadline with 30Y paper trading special in repo.

“The 30-year auction will not have a bid from central banks, in our view,” wrote Padhraic Garvey, head of global debt and rates strategy at ING Groep NV, noting that yields on the long bond are about 2% and broadly in the same area as last month’s sale. “It’s in a similar boat this time around.”

12:17 pm

In the meantime, the NDX has made a partial retracement of its decline and appears poised for the next (most powerful) phase of its decline.  Because its peaked on August 5, its decline may take 12.9 days.  NDX has a tentative target at 6503.00, a potential 67% decline.  Short-term support is at 15024.00 for a confirmed sell signal.

2:30 pm

The NDX Hi-Lo Index fell to -7.00 this afternoon.  A close beneath 0.00 is a sell signal.  The VXN is still beneath its 50-day Moving Average.

12:05 pm

It appears that I got what I wished for.  SPX rose to 4450.21 thus far and appears to be making the final (finally!) probe to as high as 4455.00.    Today is day 276 of the Master Cycle.  It appears that, due to the spill-over of this Cycle, the next Master Cycle may only last until August 24-25 (8.6 market days).  That may be one of the shortest Master Cycles on record, but don’t let that fool you.  It could be a monster.  Sell below 4435.00.

10:26 am

SPX appears to be constrained by tomorrow’s options expiration.  4450.00 and below are skewed toward puts, while 4455.00 and above are skewed toward calls.  There appears to be a reluctance to push higher.  SPX futures, which track closely with the cash market, topped out this morning at 4449.80, just above yesterday’s high.   But the cash market gapped down at the open and is only now back in the MAX PAIN zone.   No technical damage was done by the decline, but the chances of a new high are diminishing by the hour.   Honestly, I would rather see a quick run above 4450.00, then the revesal will be more obvious.  Neither the VIX nor the Hi-Lo are supporting a sell signal yet.

There may be an aggressive selling opportunity beneath 4435.00.

8:00 am

Good Morning!

The Shanghai Composite Index was rejected at the 50-day Moving Average, declining to Intermediate-term support at 3510.24 before a bounce.  This tech-heavy index exerts a lot of influence on the NDX.  We may consider a further decline beneath the Intermediate-term support as a confirmed sell signal.

ZeroHedge reports, “One month ago we observed that after tumbling for much of 2020 and even turning negative early Q2, China’s credit impulse had finally troughed with significant consequences for global reflation. But with China’s economy rapidly slowing and Beijing considering what is the best way to stimulate the economy without leading to another overheating, the latest Chinese credit data released overnight which missed every consensus expectation, confirmed that Beijing’s latest attempt to reflate the local (and global) economy will not be a walk in the park.”

NDX futures remain anchored near 15000.00, where it has bounced.  Short-term support is at 15008.00, where a confirmation of the trendline sell signal lies.  NDX internals are weaking.  The NDX Hi-Lo closed at 7.00 yesterday, just above absolute zero, which confirms the sell signal.  I will keep you posted.

SPX futures hugged the flat line during the overnight session.  If my observations are correct, there may be a final push to 4455.00, or somewhat higher.  It would not surprise me to see this move in the first hour of trading in the cash market.

ZeroHedge reports, “Another day, another all time high in US equity futures with spoos trading at the nice, round 4,444 on Thursday morning, while Dow futures also hit a record high on Thursday ahead of earnings reports from companies including Walt Disney and data expected to show a jobs market recovery was on track.

Yet while nothing can stop the relentless juggernaut in US stocks, global equity markets fluctuated on Thursday, with European shares taking a pause after an eight-day rally of record highs on a mixed batch of earnings as Asian shares failed to follow a strong close on Wall Street with fears about the spread of the Delta variant of the coronavirus weighing on sentiment even as tame U.S. inflation eased fears the Federal Reserve would rush to reduce its economic support. As of 715am S&P futures were up 4 points to 4,444, Dow futures traded up 43 points or 0.12% and Nasdaq futures were 4.75 higher or 0.03% to 15,024. Treasury 10Y yields rose as high as 1.36%, reversing the drop after yesterday’s stellar 10Y auction as a 30Y auction looms; the dollar nudged higher while copper prices jumped after workers at a mine in Chile threatened to strike. Bitcoin dropped to $45,000.

VIX futures rose above yesterday’s low at 15.87, which appears to be the Master Cycle low.  This morning’s low was 16.04.  It doesn’t have far to go to the 50-day Moving Average at 17.27 to make a buy (SPX sell) signal.

TNX appears to be approaching the 50-day Moving Average at 13.88, where it may be due for a test today.  A pullback is due where long TNX (short UST) positions may be taken.

10:25 am

Now that SPX has risen to a new high, it appears to be aimed directly at the Cycle Top resistance at 4468.30.  The triangle formation tells us that this is the final move to the peak.

The VIX made a new (Master Cycle) low this morning at 16.08 in an all-out effort to keep equity momentum high.  Unfortunately, at day 275 in the SPX, the Cycle may be totally exhausted.

7:30 am

Good Morning!

SPX futures challenged yesterday’s low at 4430.00 by declining to 4427.60 this morning.  The (cash) low may act as a trigger point for a short position.  Yesteray’s high at 4445.21 did not even achieve the minimum move out of a triangle at 4446.82.  Time has run out on the 274 day-old Cycle.   The Cycles Model suggests the new Master Cycle (low) may occur on August 26 after 12.9 days of decline.

ZeroHedge reports, “Another day, another extremely tight range of overnight futures trading – with spoos stuck in a 1% range for the past two weeks, it feels as if nothing can push the index away from its massive gamma gravity around 4,400, although today’s CPI – if it shocks either higher or lower relative to expectations – may be just the trigger that breaks this boring rangebound market. 10Y Yield rose as high as 1.375% as the dollar tracked the move higher.

Amid muted trading volumes, S&P futures dipped slightly lower from a fresh record ahead of data out today showing U.S. consumer prices probably jumped again in July; Nasdaq futures fell on Wednesday, while Dow indicators rose slightly as investors swapped heavyweight technology stocks with economically sensitive sectors following the approval of a U.S. infrastructure bill. At 745am ET, Dow e-minis were up 2 points, or 0.1%, S&P 500 e-minis were down -5 points, or 0.11%, and Nasdaq 100 e-minis were down 31points, or 0.2%.”

NDX futures are still attracted to round number support at 15000.00.  However, it has broken the Ending Diagonal trendline leaving Short-term support at 14976.24 as the final confirmation of the uptrend.

VIX futures rose to the 2000 gap trendline at 17.08 in the overnight session.  The 50-day Moving Average at 17.39 gives us the buy signal for the VIX after last Friday’s Master Cycle low.

USD futures made a new high at 93.19 before pulling back, still in positive territory.  The Cycles Model offers a triple dose of strength next week, so we may see a further pullback in anticipation of that robust momentum.

Gold Futures probed above the Broadening Wedge trendline at 1730.00 today.  Monday’s low at the Head & Shoulders neckline may not be the final low.  We will know further in the next week.  Unfortunately, “buy the dip” will be heard all the way to the bottom, where there will be silence.

ZeroHedge observes, “Below we unpack the implications behind central bank gold purchases (rising), negative real yields (falling) and Stanley Fischer’s Fed-speak (cringing).

What Bankers Do, Rather Than Say

By now, the open farce as to “central bank transparency” has been made abundantly clear; looking for plain-speak honesty in such circles is akin to looking for an honest man in parliament.

Thus, rather than just follow what central bankers say, it’s often far wiser to watch what they do.

Central Bank Gold Purchases

Toward this end, it’s worth noting that central banks have been buying gold lately, and at significant levels.”

TNX futures rose to a new high at 13.78, suggesting the cash market has further to run.  The next resistance is the 50-day Moving Average at 13.93.  The next Master Cycle (high) may terminate during the week after the September options expiration.

ZeroHedge observes, “While nerves may be rising ahead of tomorrow’s CPI print which – if it comes in hotter than expected – could ensure a taper announcement is coming as soon as this month, that was not on exhibit during today’s first of the week refunding coupon auction, in which the Treasury sold $58 billion in 3Y notes to surprisingly strong demand.

The high yield of 0.465% stopped through the 0.468% When Issued by 0.3bps, the biggest stop through since March and followed last month’s 0.2bps tail. The yield was modestly higher than last month’s 0.426%.

The bid to cover of 2.541 also came in strong, rising from last month’s 2.411 and also above the six-auction average of 2.450. In fact it was the highest since March 2021.

The internals were quite solid too with Inidrects awarded 55.4%, well above both July’s 53.2% and the six-auction average of 2.450. And with Directs taking down 18.4%, a number in line with recent auction and the highest since Dec 2019, meant that Dealers were left with just 26.2% which was the lowest since August 2017.

Altogether a very strong start to the week’s coupon issuance however it appears to have been priced in as 10Y barely shrugged in response. Tomorrow’s $41 billion 10Y auction will be another story, however the solid demand for the front-end today suggests that worries over tomorrow’s CPI print may be exaggerated.”

The GSCI Ag Index has another week or more to break out above the Wave (B) high and re-esablish the uptrend.  It is above the 50-day Moving Average at 410.41 and on a buy signal. but the trend is still uncertain.  With the drought, heat and wildfires in the US, processing plants in Canada on strike, drought and cold in South America and floods in China and Europe, the fundamentals indicate food demand may outstrip supply very soon.

ZeroHedge advises, “Brazil’s top producing regions for coffee, oranges, and sugar have been devastated by the worst weather in decades and could leave a lasting impact on prices, according to Bloomberg.

The South American country is one of the world’s leading coffee, sugar, and orange producers experienced a cold snap and drought this growing season in the Center-South area that has significantly damaged crops.

We have focused on coffee and orange markets and how prices are sloping higher after harvest output will likely come in well below average.

Now we’re setting our eyes on the sugar market, where losses in production, exacerbated by an already tight global supply, is fueling higher prices that may be sticking around for the next 18 months. ”

11:07 am

NDX may be challenging its trendline at 15050.00.  You may either use the trendline as an aggressive sell signal or wait for a cross beneath Short-term support at 14967.00 for confirmation.

In addition, SPX appears to have declined beneath Point e of its Triangle pattern,indicating a sell signal may not be far off.  Keep alert for a decline beneath 4430.00 for an aggressive sell signal.

7:50 am

SPX futures dipped to 4426.50 before coming back to the flat line.  Those of you with sharp eyesight can see a Triangle formation for Wave (iv) of [c].  This always preceeds the last move in a Wave pattern.  The minimum target is 4446.00 while it may go to the Cycle Top resistance at 4463.36.

ZeroHedge reports, “There was a bit of a glitch in the matrix overnight when shortly after 10pm ET, spoos suddenly hit an air pocket, sliding 0.2% lower on a spike in volume, although the move was nothing like the flash crash in gold one day earlier. However, a few hours later it’s as if nothing had happened as futures drifted higher and were back near all time highs as traders awaited fresh progress towards the passing of a much-anticipated infrastructure bill on Tuesday morning despite media concerns that the delta variant is straining some hospitals across Florida and Texas. At 715 a.m. ET, Dow e-minis were down 17 points, or 0.06%, S&P 500 e-minis were unchanged, and Nasdaq 100 e-minis were up 21.5 points, or 0.14%. Treasury yields were also unchanged while the dollar drifted higher.”

VIX futures remained flat in the overnight session, just beneath the 50-day Moving Average at 17.39.  Friday’s low appears to be the Master Cycle low.  The new Master Cycle may progress until late October.

NDX is also poised to make its final probe to the Cycle Top resistance at 15310.09.  NDX futures are positive this morning and are likely to make a top in the next 24-36 hours.

This is reminiscent of a conversation I had with Sir John Templeton on March 20, 2000.  He had gone short the NDX in mid-January with a $2 million stake.  The morning I talked with him he was down $600,000.00.  I aske him what he was going to do.  He said, “I just added another $600,000.00 to my short position and I am considering more.”  Less than a month later, the NDX was down 65%.   I estimate a high probability of a similar move in the NDX at this time.

The Shanghai Composite Index rose to 3529.93 in the overnight market.  While substantial, it still remains beneath the 50-day Moving Average at 3536.46.

TNX futures made an overnight high at 3.36, above the Intermediate-term support/resistance at 13.25 and mid-Cycle support/resistance at 13.26.  The cash market opened at 13.22and remains there for the time being.  A move above 13.00 is a shot across the bow of the stock market.  The new Master Cycle is aimed firectly at September options exiration, very likely a high near 20.00.  The magnituted of this move may be devastating.

USD futures rose to 93.10 in the overnight session.  The new Master Cycle is also due to continue rising through option expiration in September.  This is indicative of money flowing into the US due to higher interest rates.  The EU still has a negative rate.  The European economy will be the first to collapse.  That is why the great reset is taking place.

7:45 am

Good Morning!

SPX appears to have completed Wave iii of (c) in Wave [v] of 5.  You may be viewing 8 of the 9 degrees of trend and the 9th may be on its way.    I am still anticipating a rally to or near the Cycle Top at 4460.83.  SPX futures are down this morning in a corrective position, but ready to make the final probe to the Cycle Top resistance.

Today is the 21.5 year anniversary of the top of the market made on March 23, 2000.  So, should today or tomorrow bring in the high, it may be an exact replica of the SPX double top made in 2000.

ZeroHedge reports, “S&P futures fell (although Nasdaq futs rose) and commodities – especially gold and oil – tumbled as investors fretted over concerns about stimulus tapering and a resurgence in the fast-spreading delta virus variant. Yields dropped tumbled and the dollar steadied. S&P 500 E-minis were down 6.25 points, or 0.14%, Dow E-minis were down 112  points, or 0.32%, while Nasdaq 100 E-minis were up 22.5 points, or 0.15%.

S&P 500 contracts dropped after the underlying index closed at a record on Friday.  Expectations that the Federal Reserve may soon start paring back its massive monetary stimulus were fanned by comments from Dallas Fed President Robert Kaplan. In U.S. premarket trading, cryptocurrency-exposed stocks such as Bit Digital (BTBT) and Riot Blockchain (RIOT) soared after Bitcoin and Ether prices spiked over the weekend. Future Fintech (FTFT) also jumped 15% after the blockchain e-commerce company was touted on Reddit and StockTwits. Other cryptocurrency-exposed stocks.

VIX futures rallied to 17.37 before pulling back to the trendline.  It has made a “flat” correction, terminating near the bottom of Wave (a) of 2 at 16.33, as suggested last week.  VIX may be back in the uptrend now.  The Cycles Model suggests tha VIX may continue rising through late October.  This may be a powerful rally.

NDX futures continue to be “anchored near the 15000.00 level.  However, its mainstay, the Shanghai Composite Index, rallied this morning, giving the NDX a potential boost to its final high near the Cycle Top resistance at 15314.52.

USD futures may be consolidating with a small pullback to 92.73.  There appears to be a growing pattern of strength over the next two weeks leading to a breakout.  The knock-on rally may last through late September.

TNX appears to be in correction mode for the time being.  However, the rally may continue through mid-September after a brief pullback.  The minimal target appears to be 19.71, but it may go to 20.00 in a strong push.

2:54 pm

I’m finding this hard to believe, but it appears that Wave v of (c) may have truncated.  In other words, all of the components are there, but it has fallen short of its target beyond this morning’s high at 4440.82.  We may get confirmation should the SPX decline beneath 4429.00.  Remember, the dealers want to take the SPX to MAX PAIN at or just below 4400.00.  That leaves them with the least payout on the expiring options.  This may also incite a panic sell-off ino the close and the start of the new bear market.

You may consider that action as a probable aggressive sell signal.  The VIX and Hi-Lo Index are not likely to confirm today.

10:40 am

NDX may have completed its Master Cycle high yesterday.  The structure appears complete.  A decline beneath the trendline at 15000 confirms the reversal.   Short term suport lies at 14933.36, which adds additional confirmation.   NDX may be taking its cue from the Shanghai Composite Index which closed in the red this morning.

10:30 am

The morning surge to 4440.82 was not the final high.  SPX still has one last probe after this to the Cycle Top at 4459.25 or a few points higher.  Today is day 270 of the Master Cycle which makes it very stretched indeed.  The snap back may be fierce.  Remember, in order to hit MAX PAIN for the options market, it must decline back to 4400.00 or just below it at the close.  An aggressive sell signal lies at Short-term support at 4397.17.

7:35 am

Good Morning!

SPX futures ventured into new all-time high this morning, making a new high at 4432.20.  There is some reluctance by the dealers to go higher, as these same shares must be sold after expiration at a possible loss.   There is very little liquidity in the cash market.  All of the new money is buying options.

There is a strong pull to 4450.00, where ther is a net open interest in 10,191 calls.  The SPX may go there, but the trick is to decline back down to 4400 by the close of the session where there are only a net open interest of only 2087 calls.

ZeroHedge reports, “US equity futures rose 0.1% to a new all time high of 4.425 in a subdued session which saw European shares steady and Asian dip slightly ahead of the last payrolls report before the Jackson Hole symposium. After a busy week of earnings and discussions on when the Federal Reserve should begin stimulus cuts amid concerns that rising cases of the Delta coronavirus variant could hurt the economic recovery, the dollar climbed about 0.2%, oil traded at $69 a barrel, and the 10-year Treasury yield rises back above 1.25% on whisper expectations that today’s jobs report will show a 1MM+ print and trigger a tapering announcement by the Fed. At 740 a.m. ET, Dow e-minis were up 29 points, or 0.09%, S&P 500 e-minis were up 2.5 points, or 0.06%, and Nasdaq 100 e-minis were down 18.5 points, or 0.12%.

ZeroHedge follows up, “Well that escalated quickly…

Treasuries are being sold immediately after the big payrolls beat with 10Y Yields above 1.28%…

Source: Bloomberg

Demand for cyclicals and rotation away from growth is the immediate reaction as Nasdaq tumbles and Small Caps surge…

TNX rallied strongly, confirming Wednesday as the Master Cycle low (day 257).  Investors were beginning to believe that falling interest rates were a “given.”  All of a sudden, TNX is climbing to a potential target of 20.00.  The Cycles Model suggests this may happen as early as mid-September.

ZeroHedge observes, “If you make a conscious choice to ignore all long-term consequences, managing your personal finances can be a lot of fun.  For example, instead of rationally evaluating what sort of mortgage payment you can actually afford, why not take a plunge and buy a $600,000 house?  You only live once, right?  And instead of making your current dumpy vehicle last another year or two, why not take out a huge loan on a brand new $60,000 SUV?  You know you deserve it.  While you are at it, why don’t you go on another huge spending spree and max out all of your credit cards again.  Paying off those credit cards will be very painful in the long run, but nobody thinks much about long-term consequences these days.

Just look at the federal government.  They are 28 trillion dollars in debt and yet our politicians continue to throw money around like a bunch of drunken sailors.

Of course the federal government is far from alone.  State and local governments have never been so deep in debt, we are in the midst of the greatest corporate debt binge of all time, and U.S. consumers are certainly doing their part.  In fact, last quarter we witnessed the largest increase in consumer debt since just before the last financial crisis…

VIX futures have broken beneath the trendline in an all-out effort to keep the momentum going in the SPX.  I had been pondering how a Master Cycle low would occur at this point in the calendar.  Now it is clear.  Support for the VIX now lies at 16.33.