November 18, 2021

11:00 am

The Banking Index, proxy for market liquidity, has finally declined beneath Intermediate-term support at 138.44.  BKX declined beneath its Cycle Top support on November 3, but stayed glued to it for almost two weeks.  Today its departure signals a confirmed sell signal, suggesting liquidity may be draining out of the market.

ZeroHedge suggests that market observers are still caught in a “straight line” thinking process, “Being ‘rationally irrational’ one more time

It’s no longer a secret that markets are irrational due to central bank action, and where we see suggestions of less action, they are increasingly volatile. This is taken as a bad thing because we prefer markets under conservatorship, like poor old Britney Spears was until recently. (“Get out there and perform, stocks/yields!”) The establishment loves hearing “Oops, I did it again” and/or “Hit Me Baby One More Time,” and it is rationally irrational to do so given the money keeps flowing to them. Other headlines today also show the same rationally irrational thinking.”

 

10:55 am

SPX hsd broken away from the trendline, giving us an aggressive sell signal.  confirmation comes at the crossing of Sort-term support at 4672.93.

ZeroHedge observes, “As we contemplate next week’s ‘quiet’ Thanksgiving week, ahead of tomorrow’s options expiration, traders are bracing for the now ubiquitous volatility storm that occurs on the 3rd Friday of the month… and this one will be a doozy!

Bloomberg notes, the total number of outstanding contracts on equity, index and ETF options expiring stands at 95.5 million, a hair away from 95.6 million in July, data compiled by Susquehanna International Group’s Souhow Yao show. That was the most for any month ever, when excluding the expiration of quarterly options or the so-called long-dated options, or LEAPS, that have been listed for longer and accrued a higher open interest.”

 

7:50 am

Good Morning!

SPX futures rose to 4707.40 this morning without making a new high, but keeping the call options fully funded at maximum gamma.  Today is day 259 of the Master Cycle, the second highest “hit” after day 258 for the Master Cycle.

Tomorrow’s options expiration show the Max Pain zone in the SPX at 4650.00.  However, the index options implying institutional involvement are light, indicating a waning interest.  However, the (retail) SPY options show an open interest in 282,000 call contracts vs 99,000 put contracts above 467.50, its Max Pain level.  By the way, the number of (SPY) put contracts are rising, with less than 70,000 put contracts above 467.50 earlier this week.

ZeroHedge reports, “U.S. index futures rose again, trading on top of the massive 4700 “max gamma” level despite downbeat data out of Chinese tech names, as investors awaited the latest batch of unemployment data and taking comfort from signals that central banks will stay far behind the curve and keep pledges to overlook faster inflation rather than rush into rate hikes.”

 

 

The NYSE Hi-Lo Index closed below 30.00 for the first time since October 12 as institutional investors quietly leave the market.  While we await a reading below 0.00 to have a sell signal, this number raises the cautionary flag on market participation.

 

VIX futures eased down to 16.654 this morning as it consolidates (coils) beneath overhead resistance at 18.53.  Some traders will accumulate shares after the first breakout above resistance, as the probability of going higher is elevated.  Others wait for the “sure thing,” the second breakout above the resistance level.  The “failed” Master Cycle low on November 17 indicates the opportunity for accumulating shares at a lower level.

 

TNX (futures) made a low at 15.74, near Inttermediate-term support at 15.71 this morning.  It is possible that a Trading (short-term) Cycle may have been made, allowing TNX to continue its rally.  If so, TNX may have made a “running correction, where the bottom of Wave (c) is higher than the top of Wave (a).    The Cycles Model suggest a continued rally to January options expiration.

ZeroHedge comments, “In the usual post-FOMC meeting jawboning circus, today we had not one but two Fed officials discussing not the topic du jour – Fed policy errors and soaring inflation – but something far more ominous: the broken Treasury market. Just days after a catastrophic 30Y Treasury auction which may well be the harbinger of what’s to come as the market realizes that i) tapering is tightening and that without the buyer of first resort we will finally get some price discovery and ii) inflation, contrary to the latest Fund Manager Survey, is not transitory, both Cleveland Fed president Loretta Mester and NY Fed president John Williams warned markets that the Treasury market is “not as resilient” as it should be, and that even modest stress could break it. Unfortunately neither of them admitted that it’s entirely the Fed’s fault that what was once the world’s most liquid market has become a political tool to be abused by central planners and power hungry politicians.”

 

USD futures pulled back to 95.65 in a short-term consolidation.  The USD may continue to rise with treasury rates through the end of the year, per the Cycles Model.

ZeroHedge observes, “A basic tautology that economists consider when thinking about monetary policy is the velocity of money. MV=PQ translates into Money*Velocity=Price*Quantity. Of course, price*quantity is nominal GDP while “M” is the money supply (for example, M2) while “V” is velocity, or the number of times the money supply turns over. A prominent feature of the post-Great Financial Crisis period has been the persistent decline in velocity, which is why the Fed has had to pump so much money into the system for so long. Absent an increase in the money supply, the drop in the velocity, all else equal, would have likely been the backdrop for a long recession.

But, it appears that the decade of falling velocity may have ended. Bank loans have made a strong turn upward since June.”

 

The GSCI Ag Index continues its rally to a potential breakout above its May high to new highs not seen in over 8 years.  A potential overhead resistance level occures at 570.50, its March 2011 high.  It is possible that it may reach that level by mid-December, its next Master Cycle interval.

ZeroHedge reports, “Cargill CEO David MacLennan has changed his mind about “transitory” inflation and now believes it will be more persistent with higher food prices in 2022. He blamed elevated food prices on snarled supply chains, labor shortages, and adverse weather conditions, among other things.

MacLennan highlighted that labor shortages are a significant challenge for the food industry. He said food processing plants across the country operate at less than full capacity, which drives down food output and prices higher as demand remains robust.

“I thought inflation in ags and food was transitory. I feel less so now because of continued shortages in labor markets,” MacLennan said during an interview at the Bloomberg New Economy Forum in Singapore. “That’s one of the inputs to the supply chain that we’re watching most carefully.” 

ZeroHedge also comments, “The era of cheap meat is over.  For those that are carnivores, that is really bad news.  For decades, Americans have been able to count on the fact that there would always be mountains of very inexpensive meat at the local grocery store, but now those days are gone and they aren’t coming back.  As I was writing this introductory paragraph, it struck me that what is happening to meat prices actually parallels what I wrote about yesterday.  Just as the left doesn’t want us to use traditional forms of energy because they believe that doing so is “bad” for the climate, so they also detest that a lot of us like to eat a lot of meat because the production of meat causes levels of certain greenhouse gases to rise. ”

 

Gold futures continue to consolidate after making its Master Cycle high on Tuesday, day 253.  There’s nothing like a a pullback after a “breakout” to get the bullish juices roaring.  Unfortunately, as the USD rises into the new year, gold may be on the decline.  Sorry, Jim!

ZeroHedge comments, “This is getting ridiculous. And that’s a good thing.

By “this,” I mean the price of gold, and by “ridiculous,” I mean repetitive to the point of absurdity. That’s OK. The prospects for gold from here are highly positive.

By now, readers are tired of my description of gold trading as range-bound between $1,700 per ounce on the low side and $1,900 per ounce on the high side, with $1,800 per ounce as the central tendency. That’s completely accurate but also highly repetitive, since it has held true with only brief and minor exceptions for the past year.”

 

 

 

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November 17, 2021

3:10 pm

TNX has settled down to its session low after the Treasury auction this afternoon.  It may retest its Intermediate-term support at 15.67 before resuming its rally.

ZeroHedge observes, “After last week’s catastrophic 30Y auction, traders were keeping a close eye on today’s sale of $23BN in 20Y bonds to see if it too would suffer from lack of demand following last week’s historic CPI print.

As Bloomberg’s Alyce Anders wrote ahead of the auction, the Fed and the Treasury “have done everything they can to support the doggy 20-year sector. The lack of a concession today and a well advertised relative value set up might mean the $23 billion offering should go fine even if it tails. That’s because the government cut its issuance size and the Fed left its new purchase schedule for 10-year to 22.5-year Treasuries untouched despite tapering Treasury buybacks by $10 billion per month.”

 

3:03 pm

If this Wave count is correct, we should see some downside in the final hour.  An aggressive sell signal lies beneath Short-term support at 4669.79.

ZeroHedge observes, “Goldman’s quadrupling down on its year-end meltup call has been spot on so far, and the S&P overnight gravitated back up to the 4700 strike which continues to house the most $Gamma on the board at $8.8B, followed by the 4750 strike with $6.7BN.

And, as Nomura’s Charlie McElligott reminds us, heading into Friday’s op-ex, SPX/SPY Net Delta is 99.9%ile (since ’13)…”

 

8:00 am

Good Morning!

SPX futures made an overnight high of 4704.90 as it “stays in place” on day 258 of the Master Cycle.  Thus far, yesterday’s high at 6714.95 may be the best candidate for the Master Cycle high.  Today 4700.00 appears to be the Max Pain zone with calls dominating at 4710.00 and above and puts dominating at 4680 and below for options at the close of the day.

Friday, on the other hand, is a different problem.  Calls dominate the options expiry all the way down to 4600.00.   Max Pain is a 4595.00.  That would damage the technical landscape, since the Ending Diagonal trendline is at 4675.00 and Short-term support (aggressive sell signal) is at 4662.32.   The way I see it, a Friday close at 4700.00 would cause a lot of dealer pain, while a close beneath 4600.00 would give them an enormous profit.

While SPX is very close to making a new high, NDX and the DJIA are not, unless the enormous “pull” of the calls causes a melt-up to bring all the indices in line.  In March 2000, the SPX and NDX made new all-time highs while the DJIA limped along to a secondary high.  Today’s scenario could be compared to such a case.

ZeroHedge reports, “Price action has been generally uninspiring, with US index futures and European stocks flat after UK inflation climbed faster than expected to the highest in a decade, heaping pressure on the Bank of England to raise interest rates, while Asian markets fell as investors fretted over early rate hikes by the Federal Reserve after strong retail earnings dented the stagflation narrative.  Ten-year Treasury yields held around 1.63% and the dollar was steady. Cryptocurrencies suffered a broad selloff, while oil extended losses amid talk of a coordinated U.S.-China release of reserves to tame prices. Gold rose. At 7:30 a.m. ET, Dow e-minis were down 14 points, or 0.04%. S&P 500 e-minis were up 1.25 points, or 0.0.3% and Nasdaq 100 e-minis were up 24.75 points, or 0.15%, boosted by gains in Tesla and other electric car-makers amid growing demand for EV makers.

At 8:21 am ZeroHedge reports, “Too much of a good thing…

STIRs are continuing their hawkish trend, with the market now pricing a 19% chance of a rate-hike as soon as March 2022…

US Treasury yields are on the rise again this morning, with 30Y yields breaking out to one-month highs…”

 

VIX futures moves higher, but still within yesterday’s trading range.  Today is day 258 of the VIX Master Cycle and possibly the last day for a new low, due to monthly options expiration for the VIX.  MAX Pain in the VIX options is at 22.00 with puts dominating beneath that level.  This could be a very interesting day.

 

TNX moved higher this morning, setting off jitters in the equities market.  The Cycles Model suggests rising rates through Janusry options expiration.

Yesterday, ZeroHedge pointed out, “30Y Yields are back above 2.00% this morning, with rates having jumped notably in the last few days…

Nomura’s Charlie McElligott notes that, after the three week rolling squeeze in bearish fixed-income / underweight duration trades (helped by the epic global CB “rug pull” on prior hawkish rhetoric) has now allowed for resetting of shorts as the buy impulse fades…particularly from Systematic Trend.”

 

USD continued its melt-up to 96.27 this morning.  The Cycles Model suggests a continued rise in the USD through mid-January.

 

Gold futures made a partial retracement of yesterday’s decline on day 254 of the Master Ccyle.  This may set the stage for a definite change in trend after a complex sideways consolidation over the past year.  The Cycles Model suggests a decline through the first week of January.  The Triangle formation forecasts the final move before a reversal.  This may be the reversal, not a breakout.

ZeroHedge comments, “Gold’s huge break out

Gold broke out of the huge triangle like formation that has been in the making for a long time. Time for a technical thread. The first obvious observation is that the shiny metal is well above the negative trend line and that the 200 day moving average is not sloping downwards anymore. The short term move has of course been powerful and gold is now somewhat overbought, but the price action in the recent squeeze is nevertheless interesting. First support we have down at the 1830 level.”

 

 

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November 16, 2021

10:33 am

SPX is  in a tug-of-war between the bulls and the bears with the dealers attempting to keep it near Max Pain at 4685.00.  However, the Cycles Model implies a swift decline in the next week, which affords the least amount of pain and greatest profit for the dealers.   Stocks are approaching their next hourly turn by noon today.  A break of Short-term support at 4657.61 offers the 50-day Moving Average at 4495.55 as the next possible support, should a break take place.

 

8:15 am

Good Morning!

SPX futures rose to a morning high of 4692.40 before easing down.  The Max Pain zone in the SPX is between 4680.00 and 4685.00.  Index options for Wednesday and Friday are on the light side, suggesting little interest in puts or calls by institutions.  However, SPY (467.23) options are monstrous.  Max Pain in Wednesday’s options is at 467.00 with an abundance of puts at 466.00 (and below) and calls at 468.00 (and above).  So at day 257 of the Master Cycle dealers are walking the tightrope to stay at a limited payout at options expiration.  Friday’s options show Max Pain at 467.00 but with 20,000 net put contracts at 466.00 and 465.00 each.   There are 45,000 more put contractss than calls at 468.00, 17,000 more calls at 469.00 and an open interest at 101,802 calls and 34,597 puts at 470.00.  This is one for the record books.  A slip in either direction may engender massive losses.  Although tomorrow is day 258, it appears that the Master Cycle may not be completely over until the aftermath of options expiration is washed out early next week.

ZeroHedge reports, “US equity futures reversed earlier losses, trading slightly in the green, while bonds were lifted as traders awaited a decision from the White House on who the next Federal Reserve head will be amid speculation Fed policy tightening could be slowed down under Elizabeth Warren’s favorite progressive, Lael Brainard. At 730am, S&P futures were up 1.75 of 0.04%, Nasdaq futures were up 2.75 or 0.02% and Dow Jones futures traded 58 points higher or 0.161%. 10-year Treasury yield retreats back toward the 1.6% level after climbing for three days in a row; the dollar was flat and bitcoin tumbled, briefly sliding below $60,000 on no news, before reversing modestly.”

 

 

VIX futures consolidated inside yesterday’s range in the overnight futures.  It has already made a 72% retracement and may be ready for a move up.  The VIX has the same Master Cycle as the SPX, so we may see a high in the next 2-6 days.

 

TNX is moving higher in what may be one of the strongest rallies of the year.  The Wave structure suggests a minimum move to 19/71, its next overhead resistance.  TNX has 10 weeks left in its current Master Cycle, giving it plent of time to accomplish its goal.

ZeroHedge comments, “For all the kerfuffle in the bond markets last week, valuations are still astronomical.

Last Wednesday, we had a double whammy in the U.S. with inflation soaring and an auction of 30-year bonds seeing the ugliest tail in a decade.

Those factors led to a scrum in rates, but like a flop Broadway musical, it seems to have been a short-run performance.”

[ZH: yields extended today, with 30Y topping 2.00% and tagging stops on the FOMC Taper spike, before fading back below 2.00% into Asian trading.]

 

 

 

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November 15, 2021

2:27 pm

I made a statement in error this morning.  I claimed that there was no Master Cyce terminus in the next two weeks.  I was wrong.  I tagged the November 5 high as the end of the Master Cycle on day 246.  However, today is day 256 and the targeted date of a possible low is too near options expiration for comfort.  It is possible that the decline to the trendline from March 2020 may be tested on Wednesday November 17 or breached on or near day 262 or 263, early in the week after options expiration.  This implies massive pain for the bullish options punters and a possible $2.6 trillion of “low hanging fruit” for Wall Street.  If you are a trader, you may wish to go aggressively short until Wednesday and see how deep this decline may take us.

Another short seller bites the dust as ZeroHedge comments, “Up until now, “the big short” Michael Burry was best known for periodically and inexplicably nuking his twitter account before promptly restoring it. Now, we can also his investment portfolio to the list of things the famous subprime shorter tends to nuke every now and then.”

 

8:15 am

Good Morning!

SPX futures have risen to 4699.00 this morning as it completed its corrective phase of the decline.  The hourly Cycles Model suggests a reversal in the first hour of the day.  Otherwise, the SPX may rise to a new all-time high.  Today’s and Wednesday’s options expiration are light, but Friday’s opex is massive, with over 30,000 SPX call contracts at 4700.00.  In all, there are $2.6 trillion maturing calls by Friday, which Wall Street does not want to pay.  This suggests a Wave B decline down to the trendline at 4425.00, or possibly lower duirng and shortly after options expiration.  There is no Master Cycle terminus in the next two weeks, suggesting that the uptrend may be maintained. 

ZeroHedge reports, “US equity futures resumed their upward climb (after Goldman quadrupled down on its call for a massive, year-end meltup driven by $15BN in inflows every single day) as major technology stocks advanced, and as investors awaited a slew of retail earnings and economic data this week to gauge the health of consumer spending while keeping an eye on runaway inflation. Better-than-estimated profit growth has led to a rally in markets, helping ease recent concerns over the hottest U.S. inflation in 30 years. At 730 a.m. ET, Dow e-minis were up 94 points, or 0.26%. S&P 500 e-minis were up 9 points, or 0.20% and about 20 points from their all time high around 4,711; while Nasdaq 100 e-minis were up 30.5 points, or 0.19%.”

 

 

VIX futures are rising, suggesting a possible turn may be at hand.  All three overhead resistance levels appear to be converging at 18.85.  A breakout here would propel the VIX up to, and possibly above the Head & Shoulders neckline.  Despite the lack of an SPX Master Cycle, the VIX proposes a possible Master Cycle terminus early next week.  This introduces the idea of a recurring volmageddon, as described below.

CharlesHughSmith observes, “It makes perfect financial sense to crash the market and no sense to reward the retail options marks by pushing it higher.

An extraordinary opportunity to scoop up mega-millions in profits has arisen, and grabbing all this free money makes perfect financial sense. Now the question is: will those who have the means to grab the dough have the guts to do so?

Here’s the opportunity: retail punters have gone wild for call options, churning $2.6 trillion in mostly short-term calls–bets on gains now, not later. This expansion of retail options exposure is unprecedented not just in its volume but in its concentration in short-term bets (options that expire in a few days) and in mega-cap tech companies that are commanding rich premiums for options.”

 

TNX rose above its Intermediate-term support at 15.59.  However, the Cycles Model shows no strength until the end of the month.  That indicates either a modest rally or a possible further pullback to the 50-day Moving Average at 14.89 before resuming its rally.

ZeroHedge opines, “Un-Orthodoxy

“Rising inflation and growing government debt may not seem like the natural ingredients to lower longer-term real yields,” explained Marcel, our Head of Research, our investment team thinking through the opportunities that arise when the vast majority of people dismiss perplexing market movements as being illogical when in fact, they may reflect a paradigm shift. “Yet here we are – longer-term real yields set a historic low last week. It is not that the market has given up the idea of orthodoxy. To the contrary, inflation is imposing orthodoxy on people’s behavior. Despite low interest rates, high asset prices, and record job openings, consumers believe it is the worst time to buy a car ever and the least attractive time to purchase a home since 1982. Demand is strong. Supply is constrained. Prices gains are required to ration demand. This is orthodoxy, just not the variety we are accustomed to.”

 

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November 12, 2021

1:02 pm

The SPX has reached one of its possible retracement values where Minute Wave [c] is equal to Wave [a] at 483.00.  However, the Elliott Wave structure may not be complete and the 61.8% retracement is at 4685.02.  In addition, Wave (v) of [c] is not yet complete.  That calculation posits a top near 4687.00 sometime before 3:00 pm (hourly Cycle).  The next support appears at the 50-day Moving Average at 4495.00.  Good luck and good selling!

RealInvestmentAdvice observes, “Is cash a good hedge?” It’s a focus of a recent article discussing “fast” versus “slow” risk which examined the financial impact on equities and cash over long-term periods. To wit:

“The simplest analogy to differentiate between fast risk and slow risk is heroin vs. cigarettes. Heroin is a fast risk. Cigarettes are a slow risk. Heroin tends to kill people quickly (especially in the event of an overdose), while cigarettes tend to kill people slowly.

Stocks have lots of fast risks, but little slow risks. The S&P 500 could drop 20% tomorrow, but 30 years from now it’s likely to be much higher than it is today. On the other hand, cash has lots of slow risks, but little fast risks. Next year your dollar should be worth about the same as it is worth today. But 30 years from now? Not so much.” – Nick Maggiulli

The analysis is correct. The probability of being down 5% during a 20-year period is zero.”

 

7:55 am

Good Morning!

SPX futures ran up to the Max Pain level at 4665.00 in the overnight session.  However, it may not be able to maintain it.  This run-up may have been used by dealers to unload some longs, as there appears to be a drift toward negative gamma in today’s options expiration.   Short-term support is at 4637.00, where open interest in spy  puts (at 464.00) is 29,497 contracts to calls at 8,449.  A breakdown beneath that support may be disastrous.

ZeroHedge reports, “U.S. equity index futures were slightly up at the end of a volatile week, trading in a narrow 20 point range for the second day in a row, while Treasuries resumed declines in response to the recent shock inflation data from the world’s largest economies.

Contracts on the three main U.S. gauges were higher, with Johnson & Johnson rising in premarket trading after saying it will split into two companies, while tech stocks again led gains at the end of a week scarred by deepening concerns over prolonged inflation. All the major U.S. indexes were set for a more than 1% weekly drop, their first since the week ended Oct. 1, as hot inflation numbers sapped investor sentiment and halted an earnings-driven streak of record closing highs. At 7:15 a.m. ET, Dow e-minis were up 106 points, or 0.3%, S&P 500 e-minis were up 8.5 points, or 0.18%, and Nasdaq 100 e-minis were up 40.25points, or 0.25%.”

 

VIX futures remain range-bound beneeath its triple resistance at 18.69.  VIX has made a 52% retracement of its rally from the Master Cycle low.  The next Master Cycle interval appears to arrive during the November options expiration, so this may be a very active month.

 

TNX remained above its Intermediate-term support at 15.59 over the Veterans Day break.  The rally is likely to continue with only short pullbacks through the January options expiration.

 

USD futures pulled back to a morning low of 95.09 as it consolidates after two days of gains.  It may pull back to the Cycle Top support at 94.82 before probing higher.    This activity is mirroring a small pullback in TNX, as well.  However, trending strength may return today or over the weekend.  A possible target may be the 61.8% retracement of the decline from the March 2020 high at 103.96 at 98.30.  This Master Cycle may have as long as three months to accomplish this.

 

The GSCI Ag Index continues its rally, gaining strength as it approaches November monthly options expiration.  It is on shcedule to continue its rise through mid-December.

ZeroHedge observes, “The latest CPI figures from the U.S. this week showed meat prices are rocketing higher. Consumers are wondering when will rapid food inflation end. The world’s largest meat processor warned that labor shortages are crimping production growth, pushing prices higher, according to Bloomberg.

Brazilian company JBS S.A. has meat processing plants worldwide. One of its challenges is labor shortages in every developed country, resulting in limited production and increasing costs.

On Thursday, Andre Nogueira, head of JBS SA’s U.S. division, said the problem is most severe Stateside as labor shortages are expected to persist into the new year. He said the lack of workers also impacts operations in Europe, Canada, and Australia.

“Labor shortages are holding back production growth,” Nogueira said. “This is a key issue for the industry.” He added the shortages weren’t cutting into current production capacity, but the lack of workers inhibits the company’s ability to expand output if needed.”

 

 

 

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November 11, 2021

11:02 am

A curious thing is happening here.  At about noon today, the SPX may complete its first declining Cycle and retracement in 30.1 hours (4.3 days).  It has been stopped at the 38.2% retracement value at 4664.55 and doesn’t seem capable of a further rally thus far.  If the Cycle timing is correct, we may see SPX tumble into negative territory at or shortly after noon today.  That is a sell signal with confirmation on a decline beneath 4630.86.  The aggressive sell signal was made yesterday at 4675.00.  Those of you who took it have been rewarded.  Now is the time to go short, as  the next support for the SPX may be the 50-day Moving Average at 4485.36.

Sadly, ZeroHedge remarks on the departure of a bearish icon of the last 10 years.  Is this a sign of the reversal?  Read on,”It was about four or five years ago that we dubbed Russell Clark (formerly of Horseman Global and more recently of Russell Clark Investment Management) the world’s most bearish hedge fund, and for a good reason: roughly a decade ago, Clark decided to take his fund net short – an unheard of event in an industry where despite the name, the average net exposure is well north of 100% – and while his market bias ebbed and flowed, it remained short for much of the past ten years.”

 

10:14 am

The NYSE Hi-Lo Index is down to bearish territory, opening at 15.00, but rising to a high of 33.00.  We will monitor this site to determine, if possible, whether a signal may be generated.

 

9:54 am

Today is day 259 in the Liquidity Master Cycle.  It may have another day to make its final high.  Otherwise, the high at 142.57 on November 3 may count as a truncated Wave 5 of (C).  I hate to discuss truncations, because they do happen, but often need verification before making that call.  this week may be the last chance for me to be wrong.  In the meantime, BKX has hovered beneath its Cycle Top at 140.63 for the past week.  This is the final piece of the puzzle to determine whether the reversal is real.

ZeroHedge warns, “President Biden’s Marxist nominee for Comptroller of the Currency – who said she wants to “end banking as we know it,” has just said the quiet part out loud, again.

Top banking pick Saule Omarova – who was born and educated in the USSR, earned the “Lenin” award, and has refused to turn over her thesis: “Karl Marx’s Economic Analysis and the Theory of Revolution in The Capital” – now wants to put millions of Americans in the energy sector out of a job.”

 

8:08 am

Good Morning!

SPX futures have risen to the 38.2% retracement value at 4664.34 this morning.  The ultimate retracment may go higher.  The 50% retracement level is 4674.88 and the 61.2% retracement level is at 4686.02.  Today is day 252 in the Master Cycle.  The top occurred on day 246 thus far.  Tomorrow’s options expiration comes into play today.  The Max Pain level is 4665.00 at which the payout to options speculators on both puts and calls is the least.   Negative options gamma starts at 4650.00, so the dealers and hedge funds can ill afford an “accident.”  Positive options gamma starts at 6700.00, with 33,592 calls vs. 7,488 put contracts.  It appears that tomorrow’s options expiration may be very painful for the bulls.

ZeroHedge reports, “US futures rose and European bourses once again rebounded from overnight lows, this time after concerns that scorching US and Chinese CPI and PPI prints will prompt central banks to tighten much sooner than expected. The bounce was aided by a surge in Chinese property developers which booked their best two-day gain in six years, joined by a jump in technology stocks, as investors speculated Beijing may soften regulatory crackdowns on the two industries. At 730am S&P futures were up 16.75 ot 0.36 to 4,658.50, Dow Jones futs were up 40 points or 0.11% and Nasdaq futures were up 97.50 or 0.61%. The dollar index rose and cash Treasurys are closed today for Veterans day.”

 

VIX futures pulled back to an overnight low of 17.73, losing some bullish support.    The NYSE Hi-Lo Index closed at 105.00, above the 50-day Moving Average at 93.10.  While the VIX has broken out above its resistance levels, the Hi-Lo must decline below 30.00 to give a sell signal.

TNX is closed for Veterans Day, but it had risen another .12 points after the close of the cash market.

 

The Shanghai Composite Index rose overnight to 3534.20, above the mid-Cycle resistance.  Teh November 10 low appears to be a Master Cycle low, suggesting a rally lasting up to two weeks before resuming its decline.   It is likely to rise to 3625.00 in a “flat” correction.

ZeroHedge observes, “Two months ago Wall Street was quick to conveniently ignore China’s property crisis, repeating that not only was the sudden hit to Chinese housing – the world’s largest asset class according to Goldman…

… not a “Lehman moment”, but that any contagion would be limited at best; at the same time central bankers – not just in China but around the globe – were quick to assure investors that a collapse by China Evergrande Group wouldn’t lead to a crash. As usual, Wall Street consensus (especially when coupled with soothing lies from central planners bankers) was dead wrong because now that the bond selloff has spread to China’s entire real estate sector and beyond, including healthy government-backstopped investment grade companies, concern is growing about the potential risk to the global financial system.”

 

USD futures rose to a new high at 95.10 after breaking above its prior high at 94.57 and its Cycle Top resistance at 94.77.  It has begun a period of “triple strength” as it continues the retracement of its decline from 103.96 in early 2020.

 

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November 10, 2021

4:15 pm

Should have bought those puts…

ZeroHedge remarks, “People hated puts when they should have loved them

We saw people puke puts just in time for the reversal.

Nothing new really, but it adds to the complex psychology of this market.

Source: Tradingview

Not only did they hate puts…

…they had to sell them short and load up on calls.

This is just a gentle reminder of one of the most important charts out there, if not the most important.

Greed has become so big, driving people into shorting puts and putting all that premium into calls.

Humans have come a long way, but greed and fear never changes…

 

3:22 pm

SPX entered negative gamma territory to hit Short-term support at 4630.00, but recovered to the Max Pain level, 4650.00, where the least amount is paid out for expiring options.  Now it’s time for that delayed retracement, possibly tomorrow.  Should it happen, we could see a rebound to the 61.8% retracement level at 4685.00.  However, the tension is on to keep the 4650.00 level through closing today.  Accidents can happen here, since the SPX is on such a tightrope.

 

2:02 pm

VIX just climbed above all three resistance levels at 18.71.  It may backtest resistance-turned-support and keep going higher.  It had only made a 35% retracement of its first rally off the bottom.

 

1:38 pm

This Morning I said “Something has to give” egarding TNX.  It may have just launched a “rampaging rally” that may last for the next 10 weeks!  The effort to squeeze the bond shorts may have just backfired.

ZeroHedge reports, “If the ugliest auction so far in 2021 was the disastrous 7Y sale back in February, which sparked a mini market meltdown in both bonds and stocks, then the just concluded sale of $25BN in 30Y paper was almost just as terrible. It was, in a word, catastrophic and since it is at the very end of the curve, one could almost argue it was even worse than the infamous 7Y auction.

Stopping at a high yield of 1.940%, the auction was slightly below last month’s 2.049%, but it was supposed to be far better, because while the When Issued traded at 1.888% the auction tailed by 5.2bps, which was the biggest tail on record for the 30Y tenor!

The bid to cover of 2.202 was far below last month’s 2.360 and below the six auction-average of 2.292. But it was the internals that were ugliest of all, with Indirects taking down just 59.0%, a collapse from last month’s 70.55% and far bleow the recent average of 64.3%. One has to go back to November 2019 to find a lower Indirect takedown. And with Directs also sliding to just 15.8%, the lowest since October 2020, Dealers were left holding on to 25.23%, the most since August 2020.”

 

1:24 pm

SPX is in the process of a complex decline that still has the probability of a retracement as high as 4700.00.  However, the option gamma turns negative beneath 4650.00.  Should that level hold, we may still see a retracement.  However, beneath 4650.00 all bets are off…

…VIX is still beneath resistance at 18.71.  This is a cautionary note to look for confirmation before getting whipsawed.

 

8:52 am

The GSCI Ag Index resumed its ascent from the mid-Cycle support at 425.29 yesterday.  Trending strength comes back this weekend and early next week.  This could be a big move.  Remember, the current Master Cycle lasts until mid-December.

EpochTimes reports, “With investors closely eyeing two major data releases this week on inflation—one on producer input costs and the other on consumer prices—Wells Fargo analysts say it’s unlikely sticker-shock-weary consumers will see relief as the persistent supply-side crunch will “keep fanning the flames on inflation in the near term.”

On Tuesday, the Labor Department will release data for October’s producer price index (PPI), which tends to front-run consumer inflation data as at least some production costs get passed on to consumers. Economists expect a year-over-year rise of 8.7 percent in the PPI inflation measure, which would be the highest reading in the history of the series. Last month’s PPI came in at 8.6 percent, a record high.”

 

8:42 am

SPX completed a declining impulse through the short-term trendline.  It is likely that it may rebound toward 4700.00 before resumig its decline.  This is the place to layer in some aggressive short positions, getting the best positioning you can.  The average investor is not concerned, yet.  He has seen this before and the market “has always gone back up.”  There is still a (diminishing) chance of a higher high, but   TNX has just broken above its final resistance at 14.85.

 

8:10 am

Good Morning!

SPX futures appear to be challenging the one-month trendline at 4675.00 by declining to 4664.60 this morning.  Since then it has bounced back to the trendline.  In today’s expiring options, the Max Pain (the least payout to options holders) remains at 4675.00.  While attempting to regulate the options payout, dealers and hedge funds may be inadvertently breaking down beneath an important technical support.  Today is day 251 of the Master Cycle.  Should a breakdown not occur in the cash market, the Cycles may allow a new all-time high later this week.

ZeroHedge reports, “For the third day in a row, early weakness in futures – in this case as a result of China’s soaring, record producer price inflation – reversed and spoos rose from session lows but were still down on the session as traders awaited inflation data due later on Wednesday. Treasury yields climbed and the dollar and cryptos rose. At 7:45 a.m. ET, Dow e-minis were down 47 points, or 0.12%, S&P 500 e-minis were down 10.25 points, or 0.22%, and Nasdaq 100 e-minis were down 68 points, or 0.42%.

 

 

VIX futures remained range-bound beneath its triple resistance at 18.73 this morning.  It is customary for a retracement to occur after the first impulsive wave from the bottom.  the 61.8% retracement may be as low as 16.20.  For those interested in going long the VIX (options and ETFs), this may present an opportunity to buy the dip.

ZeroHedge comments, “Having previously correctly called the current market meltup not once but twice (a torrid rally which finally took a breather today after matching the longest strecth of all time highs since 1997)…

… only to follow up with some shocked commentary as to the relentless meltup observed in this market over the weekend, on Monday Goldman trader Matt Fleury followed up with some even more hyperbolic (and floral) commentary, writing in a note that “traditional investing rules are being thrown out (NVDA; ~$750bn company going up 12% in a day, TSLA adding $350bn of mkt cap in a couple of weeks, BBBY going up 65% after hours on earnings, CAR 29 sigma move in a day).

Pointing out the obvious, Fluery cautions that “this is a very difficult tape for market neutral strategies” and he expects that to continue. Meanwhile, right tails – i.e., meltup hedges – are far too cheap.”

 

TNX has risen above the 50-day Moving Average, but appears to be stopped at the mid-Cycle resistance at 14.85.  Confirmation of a buy signal awaits above the mid-Cycle line.  Today is day 258 of the current (or past) Master Cycle, suggesting yesterday’s low may be the bottom of the Cycle.  The gap between the CPI and the 10-year yield is widening dramatically.  Something has got to give.

ZeroHedge observes, “Following yesterday’s US PPI print at record highs, overnight we saw Chinese producer prices rising at their fastest pace in 26 years, and this morning’s US consumer price data was expected to show yet another non-transitory surge in inflation… but the actual surge was far bigger than expected.

US Consumer prices soared 6.2% YoY in October, way higher than the +5.9% YoY expected and accelerating from September’s 5.4% YoY – that is the highest since June 1982…”

 

USD futures rose to 94.43 this morning beginning a new Master Cycle after bottoming on day 257.   This rally has a distance to go.  For example, a 61.8% retracement of the decline from the March 2020 high at 103.96 would be 98.30.

 

Crude oil futures are consolidating above the Cycle Top support at 82.79 as it gathers strength for its final probe to 90.00 or higher by the November options expiration.  The calls for $100.00 oil may be premature as the liquidity system may be breaking down.

OiPrice.com maintains, ”

  • OPEC+ will be very happy with where oil prices currently are and is unlikely to change its course anytime soon
  • The U.S. does have the ability to increase production, but U.S. shale does not have support from either the government or shareholders to boost production significantly
  • The two bearish variables that could drag prices down in the near term are a strong dollar and the continuation of inventory builds”

 

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November 9, 2021

1:13 pm

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

 

1:00 pm

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

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

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

 

12:54 pm

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

1:15 pm

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

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

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

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

 

8:00 am

Good Morning!

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

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

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

 

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

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

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

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

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

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

9:08 am

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

 

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

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

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

 

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

 

 

 

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November 8, 2021

7:50 am

Good Morning!

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

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

ZeroHedge observes, “Thinking about options…

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

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

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

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

Options mania is real

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

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

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

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

 

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

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

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

 

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

 

 

 

 

 

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November 5, 2021

10:00 am

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

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

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

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

 

9:40 am

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

 

8:30 am

Good MOrning!

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

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

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

 

 

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

 

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

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

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

 

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

 

 

 

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