The Practical Investor

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.

1:03 pm

This market may get crazy here.  The venue is bifurcating with the primary outlook is a rally to the Cycle Top at 4457.76 as the primary target.  (NDX has made a new all-time high today.  The DJIA has not.)  But at day 269, we are running out of time.  A lesser, but growing outlook may be a potential failure at this level.  Short-term support has risen to 4389.96.  Net open interest in calls is is 3994 at 4400.00, but drops off a cliff beneath that level.  Net open interest in puts is at 4571 at 4375.00.  A slip hare may cause the dealers to shift to the short side in a real hurry.

ZeroHedge remarks, “Earlier today we discussed the “incredible anchor” that has emerged around the 4,400 level in spoos and as more traders inquire what is behind this strange attractor, Nomura’s Charlie McElligott has followed up on this writing that the 4,400 strike continues to choke markets and dealers on “long gamma” at the money with $7.1B accumulated there (although in a sign that market will likely keep grinding higher, 4450  $5.7BN has been built up at 4,450 and another $4.6BN at 4500 and growing)…

… and as McElligott notes, “we simply cannot break the tractor-beam, as the “strangle seller” laughs his way to the bank…for now”… but in an ominous observations, the Nomura strategist notes that the US equity vol complex remains to “incoherent” or even “broken,” as SPX realized remains cratered (10 day @ 9.2), versus implied vols staying really firm / effectively the entire VIX futs strip ref mid- / low- 20s.”

12:53 pm

TNX is about to make its final plunge to 11.24 where Wave (v) equals Wave (i) of Wave 5 of (C).  This may happen in the next day or so.  Stay alert.  TNX may be jammed lower to boost the SPX.  Investors are beginning to think this is a new trend.  The reversal may be dramatic.

ZeroHedge observes, “Back in June, when the S&P was still trading in the mid 4200’s, Goldman’s chief equity strategist David Kostin published a cautionary note asking “what if we are wrong” in his assumptions, which was meant to provide cover in case stocks tumbled and/or rates spiked but which also had a prudent outlier loophole in case the meltup in markets accelerated and took out the bank’s year-end price target 4300. Specifically, falling back on the old faithful Fed model, Kostin – who was expecting yields to rise to 1.9% by year end, said that if – all else equal – interest rates remain roughly flat at around 1.3% (or lower) through the end of this year, “Goldman’s S&P 500 dividend discount model (DDM) would suggest a fair value of 4700, or 9% above the bank’s current baseline price target of 4300.”

7:46 am

Good Morning!

SPX futures rose to 4416.30 earlier this morning after closing at the MAX PAIN level of 4400.00 for options yesterday (day 268).  The Max Pain level dropped to 4395.00, but there are 9100 net calls at 4450.00 and 4571 net put contracts at 4375.00 for Friday’s expiration.  You can see that Short-term support lies at 4379.37 where our aggressive sell signal starts.  The Wave structure allows another probe higher, possibly as high as the Cycle Top resistance at 4459.34.  Note that resistance is beginning to decline.  The Cycles Model implies a Master Cycle low the week after August monthly options expiration.

ZeroHedge reports, “U.S. stock index futures rose on Thursday ahead of data expected to show fewer Americans filed for unemployment benefits, while investors looked to another busy day of corporate earnings reports. European stocks hit another all time high despite paring earlier gains on mixed corporate results. At 7:30 a.m. ET, Dow e-minis were up 94 points, or 0.13%, S&P 500 e-minis were up 10.25 points, or 0.23%, and Nasdaq 100 e-minis were up 30 points, or 0.20%. The Treasury 10-year yield eased back to 1.17% and the dollar slipped against a basket of major peers.”

The Shanghai Composite Index made a final probe to 3486.16, touching the Head & Shoulders neckline at 3486.00 before closing in the red this morning.   Mid-Cycle support/resistance is at 3483.62,, confirming the sell signal beneath it.  The Cycles Model infers a probable Master Cyclelow in mid-August.

NDX futures are rising above 15000.00 this morning with a probable challenge of the prior high.  Minor Wave C may top out as high as 15381.00 in a final momentum burst that may bring in the last dollars to the bull rally.

VIX futures are testing the lower trendline by declining to 17.43 this morning touching the 50-day Moving Average.  Critical support lies near 17.10.

The NYSE Hi-Lo Index closed at 122.00 yesterday, enough to keep the market rising for now.

TNX has risen from a possible Master Cycle low yesterday at 11.29 on day 257.  However, there is the possibility of going lower in the next two days that cannot be ignored.

USD futuresChallenged Intermediate-term resistance at 92.33, then pulled back.  It appears that the Master Cycle low was put in last Friday and a new Cycle may be  emerging.

8:00 am

Good Morning!

SPX futures have backed down to 4413.10 in a brief pullback.  The Wave pattern is much clearer and indicates a potential rally to the Cycle Top at 4460.44.  It may come in two more pushes higher and potentially may end on Friday, day 270.  The structure carries the shape of an Expanding Diagonal.

ZeroHedge reports, “US equity-index futures were little changed near all-time highs, as global shares rode earnings to a fresh record high boosted by easing concerns over China’s crackdown on gaming and technology industries, but worries about Covid-19 variants lingered. S&P futures were steady, trading 5 points lower or -0.11%, in the wake of a record S&P 500 close on robust earnings. Tech shares led a broad-based advance as the Stoxx Europe 600 index climbed for a third day to a fresh record. The 10-year U.S. Treasury yield held its retreat, and the dollar was steady against a basket of major peers in the wait for ADP employment data to provide clues to the pace of monetary tightening in the world’s biggest economy.. WTI crude oil hovered around $70 a barrel.”

The Shanghai Composite Index rallied just a few points beyond Monday’s high, testing the Head & Shoulders neckline.  This may signal the end of a period of strength allowing the retracement.  While the Lip of the Cup with Handle formation is somewhat permeable, the neckline of the Head & Shoulders is rarely recrossed.  We may see the resumption of the decline by the end of the week.

NDX futures are hovering just above 15000.00, unable to go higher, but not having crossed the trendline/Short-term support at 14900.00.  Should the structure be an Ending Diagonal as is the SPX, it may rise to the Cycle Top resistance near 15300.00 by the end of the week.  Friday calls dominate the options expiration above 15000.00 for the rest of the week.

VIX futures have been rising in the overnight session.  This is a typical pattern as stocks enter their final push to the top.  Note the rising trendline from the last Master Cycle low.  While this may not be the final trendline for the coming rally, it is likely to provide a “floor” for the VIX going forward.

TNX appears to be consolidating prior to making the last push to its Master Cycle low, due tomorrow.  While the decline in yields support rising stocks, the reversal from the Master Cycle low removes that support.  The timing of the low in TNX may explain the extension of the high in the SPX.

ZeroHedge reports, “All major US equity indices have dropped into the red after the massive miss in ADP’s employment report with Small Caps the hardest hit…

Extending the short-squeeze, bond yields plunged on the print to a 1.12% handle, testing the spike lows from July 20th…

USD futures made new lows this session as it appears to be declining toward the 50-day Moving Average at 91.53.  It may complete the decline by the end of the week and may enter a period of strength next week.

12:38 pm

While SPX remains above 4400.00, things could go south quickly.  This morning’s low at 4373.00 is testing Short-term support.  Tomorrow’s options lean towarde puts beneath 4400.00 with a critical mass being reached below 4375.00.  We are looking for a beakdown beneath 4373.31 to place short positions.  Open Interest indicates over 500 net puts at 4400.00 and the number grows at every strike lower with 1659 net puts at 4375.00 and 3651 net puts at 4350.00.  Beneath that, thing get really ugly.   Our confirmed sell signal lies at 4331.49.  It is amazing how the options market lines up with the Cycles Model.

ZeroHedge observes, “A choppy overnight session saw S&P futures test back up towards the key 4,400 level, which as SpotGamma notes is the major gamma strike on the board.

SpotGamma also notes that ‘The Call Wall’ has consolidated to the 4450 strike which is now the top end of our range on a larger time frame, with 4375 as intermediate support.”

8:30 am

Good Morning!

SPX futures rose to 4404.80 n th eovernight session, but have declined back beneath 4400.00.  Thursday’s high at day 262 is still holding, closing the door to new highs and making the decline more imminent.  Options players are getting more aggressive, with puts outnumbering calls beginning at 4415.00 for tomorrow’s expiration.  Friday’s expiration becomes bearish at 4375.00.  You can see Short–term support at 4370.93 which is our breakpoint to go short.

ZeroHedge reports, “US equity futures rebounded from the latest China regulatory scare which saw shares of Tencent plunge as much as 11% after Chinese state media criticized online gaming as “opium for the mind,” fueling investor concerns that the companies’ popular games could be swept up into a broader regulatory crackdown. As China watcher Victor Shih noted, this showed that “even when you comply with every party dictate, you can be labeled an ‘opium’ or ‘poison‘.” But even though Eminis dipped briefly below 4380 when the Tencent news hit overnight, they have since rebounded and were trading up 15.50 or 0.35%, rising to 4,395. Dow futures were up 160 points or 0.461% and Nasdaq futs added 0.08% or 11 points.”

The Shanghai Composite Index topped out at the Head & Shoulders neckline at 3470.66, then declined, closing in the negative.The demonization of certain tech companies has led to mixed reactions from investors.

ZeroHedge reports, “Update (0745ET): As CNBC’s Eunice Yoon reports, Beijing has now republished the original Economic Information Daily article with a much softer tone, including removing the phrase “spiritual opium”. Did Beijing perhaps underestimate how these new restrictions impacted the market?

* * *

China’s broad-based crackdown on perceived anti-social tendencies of its biggest corporations continued on Tuesday with a new industry being targeted: video games.

Beijing’s latest attempt to rein in the excesses of capitalistic development – and reassert the “primacy of socialism”, as Reuters described it – came Tuesday in the form of an article published by the Xinhua-affiliated “Economic Information Daily” which offered up a scathing critique of China’s video-game industry and its impact on minors. The article asserted (citing anecdotal reports from teenagers) are spending up to 8 hours a day playing the country’s most popular game: “Honor of Kings”.

NDX futures have been weakening, only briefly emerging above round number support/resistance at 15000.00, then declining beneath it.  Short-term support is at 14887.40 and just beneath it is the Diagonal trendline that gives us a sell signal.

ZeroHedge observes, “With asset prices so frothy, it is understandable that central banks would be wary of beginning to taper monthly bond purchases before it is clear that inflation has taken off. But they would do well to recognize that prolonging quantitative easing implies significant risks, too.

Inflation readings in the United States have shot up in recent months. Labor markets are extremely tight. In one recent survey, 46% of small-business owners said they could not find workers to fill open jobs, and a net 39% reported having increased their employees’ compensation. Yet, at the time of this writing, the yield on ten-year Treasury bonds is 1.24%, well below the ten-year breakeven inflation rate of 2.4%. At the same time, stock markets are flirting with all-time highs.

VIX futures dipped to 18.63 before rising back toward yesterday’s close.   While it appears hesitant to resume new highs, it has made successively higher lows, indicating a probable change in trend.  There appears to be a potential Head & Shoulders formation that gives a target well above the Ending Diagonal formation.  There is a good probability of meeting that target by the end of next week.

The NYSE Hi-Lo closed at 182.00 yesterday, well above the sell signal levels.

TNX appears to be consolidating inside yesterday’s range.   The Cycles Model suggests a Master Cycle low may be made by the end of the week, possibly in time to upset Friday’s options expiration in the SPX.

ZeroHedge observes, “Job growth at pre-pandemic levels is the key to the start of tapering, according to Fed Chair Powell. The good news for fixed income traders worried about higher rates and bond bulls is we’re not there yet.

A good gauge for when we do get there, take a look at the spread between the labor participation rate and job openings (JOLTS). It’s nowhere near pre-pandemic levels. Looking back at where labor and job openings were when the Fed announced tapering in December 2013 serves as a decent indication of what this relationship needs to look like before tapering is a more convincing option for the central bank.

7:40 am

Good morning!

SPX futures are higher this morning, but not making new highs.  Thursday’s high at 4429.97 remains the peak of this Cycle at day 262 but the breakdown has not occurred.  In the options market, the calls prevail at 4400.00 and higher, while the puts open interest dominate bneath that with 4350.00 as a breakpoint that may induce forced selling.  Today is day 266 of the old Master Cycle, should it revive.  The Wave pattern apears incomplete.

ZeroHedge reports, “Any other day, especially with traders so on edge over anything to do with China, futures would be deep in the red after Beijing reported another sharp drop in the Caixin manufacturing PMI, which slumped from 51.3 in June to 50.3, missing expectations of 51.0 and on the verge of contraction while the new orders sub-index did contract, sliding to 49.2 from 51.6, the first time below 50 since last May….

… but not today, and instead Chinese stocks surged by the most in ten weeks as traders rushed to buy everything from baijiu producers to construction firms on expectations of increased support for the economy after Beijing signaled it would intensify policy support in the second half of the year to bolster the country’s economic growth amid deceleration, China Daily says in a report on Monday and confirming what we reported two weeks ago in “China’s Credit Impulse Just Bottomed With Profound Implications For Global Economies And Markets“.

The Shanghai Composite Index rose back to its Head & Shoulders neckline after plunging to Cycle Bottom support at 3304.40 on Wednesday.  This constitutes a 50% retracement of the decline thus far.  There may be a further move to 3480.82 to meet the neckline and mid-Cycle resistance.   However, the retracement may be over or nearly so.   Wall Street makes up chatter to explain the moves in a cause-and-effect pattern.  The fact is that the social mood has changed and no amount of jawboning or stimulus will change the Cycle.

ZeroHedge reports, “We noted last week that the delta variant has finally arrived in China, causing one of the country’s worst outbreaks since the original wave of COVID that spread from Wuhan across China (and world). Well, despite authorities’ best efforts, the outbreak appears to have worsened over the weekend, and now officials are reimposing COVID-related restrictions in Beijing for the first time in months as questions about the efficacy of Chinese COVID vaccines multiply.

According to Bloomberg, the outbreak is now the broadest since the original outbreak in late 2019 as cases are being found in 14 of 32 provinces. The fact that delta has spread so widely across China – even if the case numbers, which are likely under-reporting (perhaps dramatically) the true levels of delta penetration, are still relatively low – is alarming government officials.”

NDX futures are back above 15000.00, but no new high here, either.  The Wave pattern also appears incomplete, but time is running out for a Master Cycle extension.  The trendline is at 14800.00 for a chart sell signal.  The NDX Hi-Lo Index closed at 33.00 on Friday so there is not much gas left in this tank.

VIX futures are on the  rise, but haven’t broken above Friday’s high at 19.72.  The trend is solidly higher, but VIX must break the trendline just above 22.50 or the prior high at 25.09 to convince traders that it’s time to panic.

TNX is entering its final week of the current Master Cycle.  Today is day 255 so the probability of an imminent new low and reversal is high.

ZeroHedge observes, “Citius, Altius,Fortius – the Olympic motto – which translates to Faster, Higher, Stronger, might as well be our current motto for Treasury yields. We think that the Treasury market will price in a faster pace of rate hikes, resulting in higher US 10-year yields, consistent with a stronger economy.

We think that 10-year yields are too low versus our fair value estimate at ~1.60%, in large part due to positioning unwinds in recent weeks that have magnified the impact of negative COVID-19 headlines. In our view, yields do not appropriately reflect the strong US economy, or the Fed’s stance. With cleaner market positioning, our economists’ expectations for strong labor market and inflation data, and our base case for a deficit-funded infrastructure package, we see yields rising in the coming weeks.”

2:00 pm

I have been invited by my  son to visit him and three grandsons at the lake.  I may be gone until the end of the week.  Short term suport is at 4350.00.  Stay alert.

9:00 am

Good Morning!

The Shanghai Composite Index fulfilled its Head & Shoulders target by declining to 3312.72 before the bounce back to close at 3361.59.  Investors heaved a sigh of relief that the Chinese “National Team” arrived to bail out the markets.  However, there is a potential new formation that suggests a further decline after the bounce.  More on that when the chart information becomes available.

ZeroHedge reports, “Earlier today we said that with Chinese stocks suffering historic losses, HK’s tech sector imploding..

… and liquidation fears spreading to other, more serious products such as bonds and FX, it was only a matter of time before China’s “National Team”, i.e., the local plunge protection team, came out in full force to preserve confidence in centrally planned markets.

Well, just a few hours later, we learned that sure enough, the local Chinese bat signal summoning the plunge protectors has been activated with local press Securities Daily reporting that “the plunge is unsustainable” and will gradually stabilize. And since the media is merely a propaganda outlet to local state and central planners, it is telegraphing what will come next: a massive ramp in Chinese stocks.”

SPX futures flattened out after reaching the 61.8% Fibonacci retracement vale at 4403.66.  While there is an oportunity to go higher, the SPX remains flat pending the Fed announcement this afternoon.

ZeroHedge reports, “With the rout in Chinese markets stabilizing after three days of mayhem following speculation that the Chinese “National Team” is set to start propping up the domestic market, on Wednesday stock-index futures rose along with European shares as investors digested a barrage of tech earnings earnings which saw Apple, Microsoft and Apple post $57 billion in combined profit, while Treasuries fell and the dollar was steady with traders reluctant to place large bets ahead of the outcome of the Federal Reserve meeting and Powell’s subsequent press conference at 2 p.m. EDT.

At 730 a.m. ET, S&P 500 e-minis were up 2.25 points, or 0.05% after falling as much as 0.3%, while Dow e-minis were down 54 points, or 0.18%. Contracts on the Nasdaq 100 led gains, rising 39.75 points, or 0.26%, as technology shares jumped in Europe, though Asian equities were weaker amid the market turbulence triggered by China’s regulatory clampdown.”

VIX futures pulled back to 18.56 this morning, remaining above the 50-day Moving Average at 17.74.

Investing observes, “Some investors appeared increasingly nervous in recent weeks, reflecting the market’s fragility, even as major U.S. stock benchmarks rose to fresh new peaks in recent weeks, according to BofA Global Research.

The Cboe Volatility Index, known as the VIX, has been rising despite the S&P 500 index posting new highs, BofA analysts said in an equity derivatives report Tuesday. The S&P 500 SPX, -0.47%, Dow Jones Industrial Average DJIA, -0.24% and Nasdaq Composite COMP, -1.21% each posted record highs Monday, though they were trading down Tuesday afternoon.”

TNX has bounced this morning after yesterday’s pullback.  The Cycles suggest the pullback may be over with another week or more of rally until the new Master Cycle is complete.   The Model suggests a very strong move higher starting today/tomorrow and going into the first week of July.

ZeroHedge observes, “There’s an asymmetric risk of U.S rates rising in response to Wednesday’s Fed meeting, given the extremely low current bond yields.

A baseline assumption would be for modest curve steepening if Powell remains dovish. However, it’s hard to identify sources of surprise, given Powell’s clear guidance from his Congressional testimony.”

USD futures are rising again after a brief 1 week pullback.  Normally pullbacks last up to 3 weeks, but the pattern may allow a breakout based on higher TNX rates causing the USD to strengthen.  This pattern is called a “running correction” as the pullbacks may not break the rising trading zone.

10:43 am

SPX has broken beneath 4400.00 where this Friday’s puts edge out the calls by 400 contracts.  A subsequent decline from here may tip the scales even further to the puts.  Beneath 4350 the options market likely tips the scales toward the bears and could become a aelf-reinforcing mechanism.

The NYSE Hi-Lo is at 61.00 after opening at 10.00.  Thus, it hasn’t given our sell signal confirmation.  My observation is that the Hi-Lo may turn negative beneath 4350.00, which is also Short-term support.

Today is day 260 of the old Master Cycle.  With that knowledge, we may begin taking aggressive positions with lower risk than usual.  I will attempt to keep you informed of confirmations.

7:20 am

Good Morning!

The Shanghai Composite Index fell to 3380.28 in the overnight session, leaving investors with a 5% loss in two days.  Today comes the realization that this may not be a one-off stumble.  It is likely that this decline may go further to the Cycle Bottom support at 3290.62 before bouncing, clearing the deck of all gains since the December low.  This action may have serious consequences for the tech-heavy NASDAQ.

ZeroHedge observes, “Right Out of the Red

It’s all about China again today in markets – and what we are seeing in some corners is just a reflection of what we could potentially see in many others ahead.

Chinese and Hong Kong stocks tumbled yesterday, while the Nasdaq Golden Dragon sub-sector trading Chinese tech did too, now down 15% since Thursday, the most since 2008. CNY hardly moved, however. After all, why should a currency and the structure of its economy have any relationship? (Which says so much about said structure.) US 10-year yields dipped as low as 1.22% on the general red before remembering “This is ‘Murica!” and adding white and blue to close back at the merely depressing 1.28% level.”

NDX futures dipped to 15062.30 in the overnight session before returning to the flat line, as I write.  It is clear that the decline was a knock-on reaction to the Shanghai decline, but it was quickly bought.  Is this the action of buy-the-dippers or the PPT?

The Nasdaq Hi-Lo Index shows a singular lack of new highs.  The NAHL is on a sell signal, waiting confirmation from the VIX/VXN.

SPX futures also took a dip to 4398.60 in the overnight markets, but have returned to green as I write.  Its as if the PPT is saying, “Nothing to see here.  We got you covered.”  While retail investors may not be aware of what is going on in China, it is probable that the powers-that-be want to keep it that way.

Nevertheless, today is day 260 in the Master Cycle.    The 21.5-year Super Cycle is complete.  Now for the recognition.

ZeroHedge reports, “Futures swung from all time highs to losses during the European session and then rebounded again as Asian stocks hit their lowest this year on a third straight session of selling in Chinese internet giants, while real bond yields hit another record low ahead of earnings from the most valuable companies on Wall Street and in the run-up to the two-day Federal Reserve meeting. S&P 500 E-minis were down 5 points, or 0.11%, at 07:15 am ET. Dow E-minis were down 77 points, or 0.22%, while Nasdaq 100 E-minis were up 3 points, or 0.02%.”

VIX futures rose to a high of  19.40, above the 50-day Moving Average at 17.98.  This puts VIX on a buy  (SPX sell) signal.  The NYSE Hi-Lo Index closed at 56.00 yesterday.  At this point, we await the NYSE Hi-Lo to decline below zero.

USD futures continue to consolidate in a tight range this morning.  There is good cause to believe that the rally in the US Dollar may be over.  The Cycles Model now posits a probable decline through late September.  Primary Wave [2] may be a flat correction.

TNX appears to be in correction mode.  It may decline to round number support at 12.00.  The Cycles Model suggests another week of correcting before the uptrend resumes.

7:45 am

Good Morning!

Please read yesterday’s blog to get a feel for what is about to take place.

SPX futures declined to 4383.70 this morning, but ave nearly recovered by this writing.   The urge to buy the dip is still strong, but the air is getting thiner, here.  While the NYSE Hi-Lo Index made an intraday high at 196.00 onFriday, it closed at 97.00, a 2.9% participation in new 52-week highs.  Today is day 259 of the Master Ccle, although I marked the high on Friday thus far.

ZeroHedge reports, “Futures started off the week on the wrong foot, sliding overnight from Friday’s record high before recovering some losses as Chinese stocks crashed on multiple parallel crackdowns by Beijing (more on this shortly), souring global bullish sentiment while cryptos exploded higher further kicking Keynesian apes in the groin. All of this is happening ahead of the busiest week of Q2 earnings season and Thursday’s FOMC meeting, while a majority of traders are rushing to catch some rays ahead of the next round of covid lockdowns/vote-purchasing stimmies. S&P 500 E-minis were down 11.00 points, or 0.25%, at 715 a.m. ET. Dow E-minis were down 131 points, or 0.37%, while Nasdaq 100 E-minis were down 21.75 points, or 0.14%. Treasuries pushed higher, with the 10-year real yield hitting a record-low -1.127%. The dollar fluctuated and oil declined below $72 a barrel.”

NDX futures declined to a low of 15049.70 before a partial recovery.  It is simply too early to tell whether Friday’s high marks the top.  Friday’s NDX Hi-Lo Index closed at 12.00, a mere .375% participation in new 52-week highs.  It is hard to imagine that Friday’s high was made by so few stocks.

The Shanghai Composite Index declined to 3424.74, violating all the trendlines before closing just beneath the Head & Shoulders neckline at 3485.05.  This massive “dump” in the tech heavy SSEC is likely to be the catalyst to the behavior in the NDX and US equities today.   The Cycles Model suggests a possible three-week decline from here.

ZeroHedge observes, “The crash in China continues. It all started with the cancellation of the ANT IPO a few months ago. Since then we have gotten used to new regulatory crackdown news on a weekly basis, mainly in tech, but lately even in areas like “edtech” which has been brutally punished.

It’s just a Chinese local issue?

Yes, this is a Chinese tech issue, but the contagion is starting to spread to other parts of the Chinese market. We saw this accelerate overnight.

Limiting the power of the big Chinese tech firms is potentially a good thing, but the value lost since mid February is huge.

The stress we are seeing in Chinese tech is now spreading to other sectors. Sure, for now this is a local problem, but it could potentially become a global problem, and we are referring to risks in terms of P&L. The value loss is significant, and the pain is felt globally.”

VIX futures rose as high as 19.39 this morning before pulling back.   The markets are now entering the most negative months of the year.  The current Master Cycle may end up as a high in mid-August, according to the Cycles Model.

TNX futures pulled back to 12.26 before the cash open this morning.  This is a normal retracement to absorbe the recent gains from th eMaster Cycle low.  We may expect TNX to decline to 12.00 or possible a bit lower.   This is a good time to accumulate shares in TNX or short UST.

USD futures appear to be sonsolidating within Friday’s trading range after Wednesday’s Master Cycle high  There is likely to be a short correction back down to the support areas between 91.30 and 91.89.