The Practical Investor

7:45 am

Good Morning!

The DJIA futures have made another all-time-high this morning at 41746.10 with more room to move higher, though limited by the Cycle.  The possibility exists that the Dow may make a run to the upper trendline at 42500.00.  This has analysts salivating that the Dow may continue its run through October.  However, the Cycles Model indicates that this may be the last hurrah for stocks.  Why is this happening now?  There are multiple reasons for this breakout.  The first is that the Dow has been underperforming until now and is a perfect target for rotation out of tech.  The second is that it has the least exposure to overseas markets that are now falling.  Finally, there is room for domestic growth while Europe stagnates, or worse.

SPX futures have risen to a morning high at 5658.00, breaking out above the August 26th high at 5651.62.  It has not yet broken above the July 16 high at 5669.70.  Today is day 256 in the Master Cycle, leaving just this week to make a new all-time high.  Should it break above it, the next resistance is the Cycle Top at 5750.69.  Today is another day of trending strength, suggesting the breakout may occur.  A warning, though.  Thursday may be a high volatility Pivot Day.  The decline that follows may not be a “correction.”  The Cycles Model suggests a decline to follow that may not end until late November, suggesting political turmoil may rear its ugly head.  We await the retail sales report for a reaction, one way or the other.  A potential sell signal waits beneath the 50-day Moving Average at 5513.00.

Today’s options chain shows Max Pain (the least payout to investors) at 5625.00.  Long gamma may begin from 5650.00 to5670.00.  Short gamma occupies the zone beneath 5600.00.

ZeroHedge reports, “US equity futures gain, and trade just shy of all time highs, led by Tech (especially Mag7 and Semis) as global markets trade higher ahead of the FOMC tomorrow as traders continue to increase probability of 50bps cut (~70% chance now) prompted by another Nick Timiraos WSJ article saying the decision between at 25 vs 50bps rate cut is complicated but withholding a larger cut could raise awkward questions. As of 8:00am ET, S&P futures are up 0.4%, rising for a 7th consecutive day, while Nasdaq 100 futs gain 0.5%, with INTC (+6.9%) the standout and MSFT +1.9% on a new $60 billion buyback. European stocks are also broadly higher as Asian markets are mixed and Japan stocks tumbled 2% after reopening from holiday and getting dragged lower by the surging yen.  Bond yields are lower across the curve as the 10Y TSY yields drop to 3.60%, a new 2024 low ahead of tomorrow’s Fed rate decision where odds are now 70% of a 50bps rate cut. The USD remains under pressure, dropping for a fifth consecutive session, falling 0.1% to the lowest since January. Commodities are mixed: crude down, natgas up, precious down, base up, and Ags higher. For the US session, focus is on retail sales this morning, with the market looking to firm up expectations for tomorrow’s FOMC meeting (currently ~-40bps priced). The latest BofA card spending data suggests retail sales will miss estimates (est are for headline retail sales at -0.2%, control group +0.3%) reflecting mixed card spending and a moderation from the 7.7% annualized pace of retail control growth over the prior two months, but a potential boost from back-to-school shopping. Also this morning we have IP, NAHB housing market data and pre-recorded remarks from FOMC non-voter Logan (note, her remarks will not address monetary policy or the economy, reflecting the FOMC’s blackout period).”

NDX futures rose to 19556.70 (Friday’s high) and awaits the retail sales release.  NDX now appears to be the laggard, which may limit the scope of the rally beneath the all-time high.  Retail sales may produce less of a reaction in the NDX than the interest rate outlook.  Should (when) the decline begin(s), a sell signal may be found at the 50-day Moving Average at 19347.01.

Today’s options chain shows Max Pain at 19490.00.  Long gamma may begin at 19500.00 while short gamma may be found beneath 19480.00.

VIX futures are consolidating inside yesterday’s range.  There is little warning of the turmoil that exists just beneath the surface.  Today is day 250 of the Cycles Model.  The directional change may occur at any time.

Tomorrow’s monthly op-ex shows Max Pain highly populated in both directions from 17.00, which is Max Pain.  Short gamma is loaded with over 1.5 million contracts at 17.00 and below.  Long gamma is populated with over 3.5 million call conttracts (100 shares each) from 17.00 to 45.00.

TNX made a new Master Cycle low this morning and a pivot, on day 265 of the Master Cycle.  Rising interest rates may dominate the markets for the next month, putting pressure on equities.  A buy signal may be made above the Cycle Bottom resistance at 36.81.

The Japanese Yen lies threateningly above its Cycle Top at 70.99.  The Cycles Model calls for another 3 weeks of rally before it is exhausted.  The rally in the yen may have wiped out any gain made by those who have borrowed at the BOJ window at .1%.  Borrowers must now pay back the loans at the appreciated value of the yen.  As more borrowers buy back the yen (repaying the loans), the demand may cause the payback to skyrocket higher.  Note the Head & Shoulders formation which suggests another 11% appreciation to come.  Those owing their debt in yen need an exit plan, fast.

10:11 am

BKX has reached its 50% retracement level at 111.13 this morning.  A reversal back beneath the 50-day Moving Average at 110.50 may offer an aggressive sell signal.  Another large bank takes a hit as Goldman exits the consumer lending business.

ZeroHedge comments, “Amid all the volatility of the last few weeks in stocks, money markets have seen a constant inflow of funds (six straight weeks) with the last week adding $23.4BN to total MM fund AUM to a new record high of $6.324TN…

Source: Bloomberg

That is $188BN of inflow in six weeks – the biggest since the turn of the year seasonal flows.

At the same time, US banks saw almost $53BN of deposit inflows in the week-ending 09/04, pushing total (seasonally-adjusted) deposits to their highest since before the SVB collapse…”

8:15 am   2 Chronicles 7:14 

“If my people, which are called by my name, shall humble themselves, and pray, and seek  face, and turn from their wicked ways; then will I hear from heaven, and will forgive their sins, and will heal their land.”

Good Morning!

NDX futures are consolidating within Friday’s trading range as we enter day 255 (of an average 258 days) of the Master Cycle.  NDX has retraced 75% of the decline starting on August 22 to September 6.  This is within the high/normal retracement range.  The Master Cycle may have a few more days to go but does not appear likely to exceed its August high.  Price may remain sticky near the top as the market awaits the pronouncement of the FOMC on Wednesday.  The upcoming reversal may produce a sell signal beneath the 50-day Moving Average at 19358.33.  Further confirmation lies at the combined Intermediate and 100-day Moving Averages at 19045.00.

Today’s options chain shows Max Pain at 19250.00.  Long gamma may start at 192701.00 while short gamma may begin beneath 19200.00.

ZeroHedge mentions, “Shares of American chipmaker Intel are marginally higher in premarket trading following a Friday evening Bloomberg report indicating the company could secure up to $3.5 billion in federal grants to manufacture chips for US military and intelligence applications.

The report was based on sources familiar with the chipmaker’s binding agreement with US officials. They said the secretive Pentagon program, ‘Secure Enclave,’ that awarded Intel $3.5 billion, is a move by the military to produce chips domestically, more especially in several states, including a facility in Arizona.”

SPX futures are also consolidating inside Friday’s trading range.  The SPX retraced 93.8% of its recent decline.  SPX may not make a new all-time high unless the DJIA also does so.  Despite the excitement about the potential rate cut, this is a negative seasonality for equities, due to the buyback blackout.  Market watchers are surprised it has gone this far.  A sell signal may be made beneath the double support s at 5489.60.  Hedge funds have been net sellers for the past 5 weeks.

Today’s options chain shows Max Pain at 5625.00.  Long gamma may begin at 5655.00 while short gamma may start at 5495.00.  Dealers may work to keep the strike price near Max Pain as that offers the lowest payout to options investors.

ZeroHedge reports, “Futures are flat, erasing an earlier modest gain, ahead of a very busy week which will see the first Fed rate cut since March 2020. As of 7:45am, S&P futures were down fractionally, with small-caps outperforming following a trend from late last week as investors price in a 50bps rate cut on Wednesday. Nasdaq futures are down 0.3% as Semis lag and the Mag7 are mixed and AAPL slumps as much as 2.4% as noted analyst Ming-Chi Kuo notes that, based on his first weekend pre-order analysis, demand for the iPhone 16 Pro series is lower than expected. There was little reaction in markets to the second attempt to assassinate Donald Trump. Shares of Trump Media & Technology rose as much as 10% in premarket trading after the former president said he has “absolutely no intention of selling” his stake when a lockup expires this week. While JPM’s Andrew Tyler asks rhetorically this morning “let’s see if last week’s bid returns“, it does not look very likely since we just entered the worst 2 week calendar period for the year, and stocks enter a buyback blackout, plus there is no tech conference to spike the euphoric AI narrative yet again. Bond yields are down as the curve bull steepens, pressuring the USD which slides for the 4th day in a row to its lowest level in more than eight months. The move was driven by strength in the yen, which touched the highest since July 2023 amid speculation this week’s slew of central bank decisions will lead to a narrowing interest rate differential between the US and Japan. Commodities are higher with Energy and Metals boosting the index. Today is a light macro day ahead of tomorrow’s Retail Sales and Weds’ Fed Mtg where the market remains split on 25 o5 50bps.”

VIX futures have risen of their Friday low this morning.  That is likely to be a minor Trading Cycle low.  The Cycles Model calls for a high in the VIX by the end of September.  That is not all.  VIX has strong seasonality usually through October.  However, the Cycles Model calls for a rising volatility trend through the end of November.  A buy signal awaits above the 50-day Moving Average at 17.72.

The September 18 options chain shows Max Pain at 18.00.  Short gamma dominates the chain between 13.00 and 17.00.  Long gamma may begin at 20.00 and is strong to 50.00.

TNX has been lurking near its trendline, making a morning low at 36.26.  It appears to have made its Master Cycle low last Wednesday at 36.14, on day 259.  A probe above the Cycle Bottom resistance at 36.88 may create a buy signal for TNX (a sell signal for UST).  The Cycles Model calls for rising rates until mid-October.  In the meantime, experts claim that the policy rates must drop beneath 3.5% to avoid a recession.

Japanese Yen futures have risen even higher, to 71.61 this weekend.  The Cycles Model suggests the Yen may continue to rise t o the end of September.  This heightens th pressure on the carry trade, as borrowers (in Yen) seek to escape the crushing currency trap.  It’s not just hedge funds that are affected.  It may also be banks. credit card companies, mortgage companies and insurance companies that have been decimated by this reversal in the payback rate.

USD futures made a new Master Cycle low on day 263 at 100.25.  The USD and TNX Cycles are highly correlated.  That suggests a very powerful ris off the lows is imminent.  The Cycles Model suggests a rising USD through late November.

8:15 am

Good Morning!

NDX futures remained flat overnight, as the 4-day rampage loses steam.  The Cycles Model suggests the retracement is nearly over, as visible targets (the 50-day Moving Average) have been met.  The time element of the Cycle has also been met, or is about to be fulfilled.  NDX may have the capability to probe as high as 19575.00 this morning.  Whether it makes it that far is uncertain, since it is in a high resistance zone in both price and time.   The 50-day support/resistance is at 19364.00, beneath which lurks a possible sell signal.  The possibility of higher interest rates are a dark cloud on the horizon for the NDX.  Last night, investors were dreaming of a .50% rate cut.  Reality may strike this morning.

Today’s option chain shows Max Pain at 19500.00, suggesting dealers have the least payout there and prefer the NDX close at that level.  Long gamma may begin at 19530.00 and is reinforced at 19600.00.  Short gamma may start at 19460.00.

ZeroHedge observes, “2024 was the year when the runaway US budget deficit was supposed to gradually normalize, and after two crisis-years, the US was supposed to end its drunken sailor spending ways. And for a while there, it seemed touch and go, with the cumulative US deficit initially overtaking 2023 – forget about the batshit insane 2021 and 2022 when the deficit hit a mindboglilng 18% of GDP…

… before slowly easing back for a few months, only to sprint ahead  of 2023 once more in August…

… when THIS happened: an August budget deficit of a staggering $380 billion, up more than 50% from the $243 billion in July, and up more than 55% from July, and up 66% from last August… oh, and almost $100 billion more than the median estimate of $292.5 billion, which may be why the Treasury quietly snuck the number out by leaking it after 5am ET when everyone was sleeping, not at its regular time of 2pm ET.”

SPX futures rose to 5613.10 thus far this morning.  Few realize there may be a possible limit on this retracement near 5623.00.  Once the realization that a .50% rate cut may be out of the picture the market may throw a tantrum.  It may mark the end of the current Master Cycle today on day 252.  Should the SPX reverse today, it may do so forcefully, as trending strength may be powerfully launched over the next week.  Remember, the market makes big moves when investors are all wrong-sided.

Today’s options chain shows Max Pain at 5570.00.  Long gamma may start at 5600.00 while short gamma tentatively begins at 5550.00.

ZeroHedge reports, “US futures pointed to modest gains after a rally that lifted the Nasdaq 100 more than 5% this week thanks to Nvidia, and the S&P 500 by 3.5%. As of 8:00am ET, S&P futures rose 0.2% led by small-caps which rose 1% as hopes of a jumbo 50bps rate cut jumped overnight; Nasdaq futures were 0.1% higher, with GOOG, META, and NVDA the top performers in megacap land despite a plunge by Adobe on poor guidance. Treasuries yields fell with the 10Y trading at 3.65% and the policy-sensitive 2Y yield down 5bps, while the dollar continues to slide, dropping for a third day, and retreating 0.3% after an article by the WSJ’s Nick Timiraos and comments by Nevertrumper Bill Dudley restored speculation that a 50bps rate cut is possible next week. The yen soared to a fresh 2024 high. Commodities are higher. Today, the data focus will be on Michigan Sentiment and inflation expectation. The consensus is at 68.5 vs. 67.9 prior.

VIX futures made a new low overnight at 16.80.  Volatility may be about to rise significantly starting this weekend (possibly today).

The September options chain shows Max Pain at 18.00-19.00.  There are over 1.2 million put contracts between 13.00 and 17.00.  However, there are over 2 million call contracts scattered between 20.00 and 35.00.  Volatility may become violent next week.

TNX futures ventured as low as 36.22 last night, but had recovered to 36.51 this morning.  Yesterday it challenged the Cycle Bottom by rising to 37.04.  Today TNX may stage a breakout, rising above the Cycle Bottom at 36.95.  Bond volatility has been low.  However, the Cycles Model shows increasing volatility/strength in the following week.

ZeroHedge reports, “After two stellar auctions, where both Tuesday’s 3Y and yesterday’s 10Y sale may have been two of the best auctions in history for the respective tenors, moments ago the Treasury concluded the week’s coupon issuance when it sold $22BN in 30Y paper in a decidedly uglier sale.

The auction stopped with a high yield of 4.015%, 30bps below last month’s stop and the lowest since July 2023, but the auction also tailed the When Issued 4.001 by 1.4bps, the 3rd consecutive tail in a row.

The bid to cover was 2.376, a modest rebound from last month’s 2.31 but below the six-auction average of 2.39.”

The Yen futures rose to 71.24 this morning, throwing the Yen carry trade into crisis mode.  Since July, the value of the Yen in US dollars has risen 15%, wiping out any savings that borrowers may have expected with the .1% annualized loan rate.  The Yen carry trade is most visible in the NDX, where the inverse of the Yen (price) closely matches the rise and fall of the Magnificent 7.  The effects of the Yen carry trade are unreported by the banks as net interest income (interest earned on investments minus the cost of money) is being pressured for those banks involved in the carry trade.  The largest banks may  have been involved in the carry trade as the Yen is the world’s third largest currency.

2:30 pm

SPX may be in the home stretch of this extended retracement after a 79% recovery.  This is usually the limit to the Fibonacci numbers.  In addition, SPX has made a 4.3-day retracement after an 8.6-day decline.  The Cycle may be complete.  A sell signal may be invoked beneath the 50-day Moving Average at 5510.00.

8:00 am   2 Chronicles 7:14 

“If my people, which are called by my name, shall humble themselves, and pray, and seek  face, and turn from their wicked ways; then will I hear from heaven, and will forgive their sins, and will heal their land.”

Good Morning!

NDX futures reached an overnight high at 19315.00, just beneath the  61.8% Fibonacci retracement at 19355.06 and the 50-day Moving Average at 19369.05.  While it has eased back from its overnight high, it is likely that there may be an attempt to reach one or the other of those targets.  At the same time, the retracement bounce/rally may have run out of steam, or nearly so.  The rally may have been coordinated.  There were 17 impulses averaging 17.6 minutes each.   Today is day 251 of the current Master Cycle.  Resolution may be made within a week.  A sell signal may be incurred beneath Intermediate support at 19017.00.

Today’s options chain shows Max Pain at 19180.00.  Long gamma emerges at 19200.00 while short gamma begins at 19200.00.  Gamma may remain sticky for a couple of days.

ZeroHedge remarks, “Never was so much owed by so many to so few

It is basically one man that lifts the whole market….

“Huang spoke this morning at the GS Communacopia + Technology Conference.. not sure I’ve ever seen so much energy & excitement at an industry conference before” (GS sales)”

SPX futures have maintained a narrow range in the overnight market after nailing short-term resistance and  the 61.8% Fibonacci retracement at 5556.14 near yesterday’s close (a double resistance).  While the NDX Wave structure allows another probe higher, the SPX structure appears complete, or nearly so.  As mentioned above, today is day 251 of the current Master Cycle.  It may be due for a reversal within the next week.  A sell signal may reside beneath the 50-day Moving Average at 5508.00.

Today’s options chain shows 5515.00 at Max Pain.  Long gamma starts at 5525.00 while short gamma may begin at 5510.00.

ZeroHedge reports, “Futures are trading higher ahead of today’s PPI report, extending on yesterday’s post-NVDA rebound momentum, as a rally that started in the US spread to stock markets in Asia and Europe Thursday as the Goldman Communacopia tech conference enters its final day. As of 8:00am, S&P and Nasdaq 100 futures are up 0.1%, with NVDA, GOOG, and META the top performers among MegaCap Tech. European stocks zoomed 1% higher led by Dutch chip-equipment maker ASML as traders braced for another rate cut by the European Central Bank. Asian stocks are also broadly higher with the exception of Chinese equities, which fell to the lowest since early 2019. Bond yields are higher, with the 10Y trading at 3.67% and the 2s10s curve is almost inverted again; the USD is flat. Commodities are mixed with Oil and Base Metals higher, while Precious Metals are lower. Today, the key focus will be PPI and Jobless claims: consensus est are for PPI to print 0.1% MoM vs. 0.1% prior and Core PPI to print 0.2% MoM vs. 0.0% prior. On earnings, keep an eye on consumer read-through from KR (before market-open) and AI/Tech sentiment from ADBE.”

VIX futures remained flat above the 50-day Moving Average in the overnight session.  The Cycles Model shows growing trending strength into the weekend, suggesting new heights in the VIX.

The September 18 options chain shows Max pain at 19.00.  Short gamma fills the space between 13.00 and 17.00.  Long gamma may start at 20.00 and is heavily populated to 45.00.

TNX rose to a high of 36.74 this morning after making a Master Cycle low yesterday at 36.14, on day 259.  New trending strength may begin to shoe this weekend and continue to mid-October.  A buy signal may be found above the Cycle bottom resistance at 37.00.

ZeroHedge reports, “After yesterday’s stellar 3Y auction, moments ago the Treasury sold $39BN in a 10Y reopening of 9Y-11M cusipg LF6, which for the second day in a row, saw remarkable demand.

The auction stopped at a high yield of 3.648%, which was 31.2bps below last month’s 3.96% and was the lowest since May 2023; it also stopped through the When Issued 3.662 by 1.4bps, the 3rd through in the past 4 auctions, and a clear reversal to last month’s ugly 3.1bps tail.”

Yen futures are consolidating after yesterday’s probe higher.  The Cycles Model suggests the trend may continue to early October.  This is causing the carry trade to unwind, affecting banks and insurance companies as well as leveraged hedge funds.  The carry trade is more pervasive than most would perceive.

2:00 pm

SPX rose above the 50-day Moving Average, probing to 5514.94.  There is a minor possibility of a slight probe higher, possibly to the 50% retracement level at 5528.02.  However, the bounce has fulfilled its purpose to totally confuse weaker hands into buying high and selling low.  This is called a “shakeout.”  We should be looking for a close/decline beneath the 50-day at 5507.47, giving us a sell signal.  A further confirmation of a sell signal lies beneath Intermediate support at 5481.21.

ZeroHedge remarks, “For the second day in a row, the market needed a sticksave, and got it thanks to – guess who – Nvidia.

Earlier this morning we reminded readers that NVDA was set to present at the Goldman Tech conference in San Fran…

… an event we said would have greater significance than the CPI print, and sure enough that’s what happened, because as stocks were slumping and were threatening to take out Friday’s lows…”

10:30 am

SPX did not create a new high in the cash market this morning, although the futures did go to 5500.40.  Instead, the cash market reversed within a point of the 38.2% Fibonacci retracement at 5498.50.  The sell signal has remained intact, thus I did not mention it this morning.  There is no reason to be long beneath 5400.00.  However, should SPX not make a new low, it may attempt another retracement, possibly to the 50-day Moving Average at 5507.47.  It appears to be testing its boundaries, the Friday low being the bottom and the 50-day as possible resistance.

10:05 am

BKX may be accelerating its slide beneath the 50-day Moving Average at 110.19.  It is on a confirmed sell signal with the trendline at 103.00 as its next target.  The mid-Cycle support is at 102.47 and the 200-day Moving Average is currently at 101.32.  The Cycles Model suggests the decline may go to early October, making the Head & Sholders neckline a distinct possibility by month end.

ZeroHedge comments, “94-year-old Warren Buffett’s Berkshire Hathaway has been on a multi-month selling spree of Bank of America shares, raising many questions about the motivation behind abruptly dumping billions of dollars worth of BofA stock. Berkshire’s latest filing indicates that the selling pressure is finally easing as share price slides.”

8:15 am   2 Chronicles 7:14 

“If my people, which are called by my name, shall humble themselves, and pray, and seek  face, and turn from their wicked ways; then will I hear from heaven, and will forgive their sins, and will heal their land.”

Good Morning!

NDX futures varied from a low of 18678.50 to 18828.20 in the overnight session, consolidating within yesterday’s trading range.  The markets await the CPI report  due at 8:30 am.  The consensus   is a .2% rate of change.  Above that may encourage the lower rate of change.  Should the CPI come in at .2% or lower, it is believed that the rate reduction may be .50%.  NDX is interest rate sensitive so an inflationary reading may have an adverse affect.   Currently, the NDX has only retraced 29% of its decline.  Should the reading be lower, we may  see the NDX rise to the 100-day Moving Average at 18979.71, just beneath the 38.2% retracement at 18986.82.

Today’s options chain shows Max Pain at 18920.00.  Long gamma gets serious above 19000.00.  Short gamma lies beneath 18910.00.

SPX futures have also consolidated within yesterday’s trading range.  An interest rate friendly report may send SPX higher, as it has currently been resisted at the 38.2% Fibonacci retracement level at 5497.53.  The 50-day Moving Average is currently at 5504.00.

Today’s op-ex shows Max Pain at 5500.00.  Long gamma may begin at 5540.00 while short gamma may begin at 5450.00.

ZeroHedge reports, “US futures, the dollar and treasury yields are all lower post-Debate and pre-CPI but off session lows. As of 8:00am, S&P futures are down 0.1%, recovering from a loss of 0.5% earlier; Nasdaq futures were down 0.2% with Mag7 and Semis lower as Energy stocks rebound from yesterday’s drubbing. Treasuries had minimal moves during the debate, but yields are 3-4bps lower now, hitting fresh 2024 lows. USD is lower and commodities are higher led by Energy, Ags, and Precious, with oil rebounding from Tuesday’s rout. The macro data focus today is on the CPI print (full preview here) and the 10Y bond auction.”

8:30 am

CPI for all items rises 0.2% in August; shelter up

“09/11/2024

In August, the Consumer Price Index for All Urban Consumers rose 0.2 percent, seasonally adjusted, and rose 2.5 percent over the last 12 months, not seasonally adjusted. The index for all items less food and energy increased 0.3 percent in August (SA); up 3.2 percent over the year (NSA).”

9:00 am

ZeroHedge reports, “Following last month’s modest miss in CPI which sparked speculation about a 50bps cut, which was then boosted by the jobs report miss and the huge downward revision, moments ago the BLS reported that – as only a handful of Wall Street strategists warned – CPI actually came in hotter than expected at the core level, rising 0.3% MoM vs expectations of a 0.2% print, with all remaining metrics coming in line, to wit:

• CPI 0.2% MoM (or 0.187% unrounded), Exp. 0.2% – in line
• CPI Core 0.3% MoM (or 0.281% unrounded), Exp. 0.2% – hotter than expected
• CPI 2.5% YoY, Exp. 2.5% – in line
• CPI Core 3.2% YoY, Exp. 3.2% – in line”

VIX futures were lower this morning, as it remains in a corrective pattern.  In order to maintain its impulsiveness, it may not decline beneath 18.00.  Otherwise alternate structures may be inferred.  VIX may have begun its new secular trend.  However, short-term Cycles may alter perceptions of what is really transpiring.

The September 18 (monthly) options chain shows Max Pain at 18.00-19.00.  Short gamma is very enthusiastic between 13.00 and 17.00.  Long gamma may begin at 20.00 and is well populated to 50.00.

TNX made its Cycle low at 36.14 this morning and may have begun its bounce on day 259 of the Master Cycle.  Futures made their low at 36.02.  While the Cycles Model suggests rates may rise to mid-October, it also suggests this may be the beginning of a secular rise in the 10-year rate and undo the 2yr-10yr rate inversion.

ZeroHedge reports, “With the stock market rollercoaster stuck in “down” mode today, it is probably not a surprise that the flight to safety would be strong to quite strong, and sure enough moments ago when the US sold $58BN in 3Y paper, the demand was the strongest since at least last summer.

Pricing at a high yield of 3.440%, the 3Y auction was not only 37bps below last month’s 3.81% and the lowest since August 2022, but also stopped through the 3.457% When Issued by 1.7bps, the biggest Through since August 2023 and the 4th biggest on record.”

USD futures are on the rise, hitting 101.80 in anticipation of rising interest rates.  That, and the deteriorating European economy may propel the USD considerably higher.  However, the USD is due for a correction that may last a number of days before forging higher.

The Yen futures probed higher to 71.10 this morning as it forces the unwind of the carry trade even further.  The Cycle Top at 70.92 may not stop the rally in the Yen.  It may cease being the source of liquidity/financing for our economy, at least for the time being.  The rally is due to continue to early October.

9:50 am

BKX is hovering above its 50-day Moving Average at 110.15 this morning.  Beneath that level is a confirmed sell signal.  While stocks are beginning to show the effect of the unwinding of the Yen carry trade, the banks are lagging behind, even as the carry trade is now causing losses.  Warren Buffett, of all people, is keenly aware of this condition.  Thus, the unloading of Bank of America stocks.  Yen carry baskets are fundamentally unattractive and may become more so as the Yen rises.  Coupled with deteriorating loan portfolios due to a recessionary economy, the outlook looks bleak for banks on a forward looking basis.  The Head & Shoulders formation is there for a reason that is becoming clearer as time goes on…

3:00 pm

BKX has declined beneath the 50-day Moving Average, confirming the sell signal.  Banks are not talking about the Yen carry trade, but the effects are there.  Note how net interest income has fallen for JPM.

ZeroHedge notes, “The stock of the largest US bank is tumbling this morning after Daniel Pinto, JPMorgan’s president, said that analysts were too optimistic in projecting next year’s expenses and net interest income, sending the shares down more than 6%, and tumbling to 1 month lows..

The current NII estimate of $89.5 billion is “not very reasonable” given interest-rate expectations, Pinto said at the Barclays annual financial services conference Tuesday. The figure “will be lower,” he said, which is surprising because the bank’s own latest outlook just two months ago forecast $91 billion in net interest income.”

ZeroHedge further states, “Yesterday we said that the latest consumer credit numbers, which saw a bizarre surge in credit card debt as consumers – their savings now depleted and at record low levels – now have to charge their credit card for every day staples, were the “last hurrah” for consumption in the US.”

8:15 am    2 Chronicles 7:14 

“If my people, which are called by my name, shall humble themselves, and pray, and seek  face, and turn from their wicked ways; then will I hear from heaven, and will forgive their sins, and will heal their land.”

NDX futures completed its retracement slightly higher after the close at 18708.50.  However, it could not hold that elevation and is now back to a flat line position at present.  Should the NDX attempt a further bounce, the 38.2% Fibonacci retracement lies at 18986.00.  The bounce thus far has been weak and has done nothing to relieve the oversold condition.  That may lead to another 1-2 days of rally toward Intermediate resistance at 19038.00.  The alternate view is that , not having escaped short gamma, the NDX may continue in an oversold decline, a very dangerous condition.

Today’s options chain shows Max Pain at 18710.00  Long gamma may begin at 18750.00.  Short gamma may start with a bang at 18700.00.  This is a “must do” level for the dealers who may be overwhelmingly long.

ZeroHedge comments, “After the worst week for the S&P since the March 2023 bank crisis…

… which sent the Nasdaq to one of the most oversold levels since the covid crash…

… and with the market starting off September in typical “whimper” style: deep in the red as the following chart from Bespoke shows…”

SPX futures rose to 5485.00 thus far this morning thus far.  The 38.2% Fibonacci retracement level is at 5497.50.  The 50-day Moving Average is at 5504.54, where there is heavy resistance.  The SPX is not as oversold as the NDX, so there is room for a further decline, as well.  The Cycles Model allows another possible 1-2 day bounce.  However, that may depend on the condition of the options market.

Today’s options chain shows Max Pain at 5475.00.  Long gamma may begin at 5500.00.  However, short gamma threatens at 5450.00.  It appears that the dealers are attempting to  to keep the SPX out of short gamma.

ZeroHedge reports, “US equity futures rose, trading near session highs after they rebounding off overnight lows as markets head into a crunch period, with key inflation data on Wednesday followed by the Fed’s interest-rate decision next week. As of 8:00am ET, S&P futures were up 0.1% trading in a narrow range after the underlying gauge rose 1.2% on Monday, rebounding from its worst start to the month in data going back to 1953; Nasdaq futures were down 0.2% as Mag7 and Semis are weaker while Financials rise following a Bloomberg report of lower capital requirements. Treasury yields rose a second day, higher by 1-2 bps while the USD held Monday’s gains. Commodities are mixed with metals up, energy down, and Ags mixed. The macro data in focus is on the Small Biz Optimism print (which dropped to 91.2 from 93.7, missing estimates) and the Presidential Debate.”

The NYSE Hi-Lo Index shows the NYSE in a positive light.  Selling has not yet overtaken net purchases.  As a result there were 85 net new 52-week highs yesterday due to the continued rotation out of the NDX into mid- and small caps.  What is amazing is this is after last week’s selling.  What is missing is that this index is not cap weighted, which ignores the tech sell-off.

VIX futures have declined modestly beneath the Cycle Top at 21.07.  What is interesting is that the VIX refuses to go lower, despite the heavy short gamma in the options market.   Smart money (longer-term) is positioned for the SPX to decline and VIX to rise further.  The retail trade is still stuck on (short-term) 0-DTE trades.

Tomorrow’s op-ex shows Max Pain at 22.00.  Short gamma resides from 15.00 to 20.00.  Long gamma may begin at 25.00.  However, there is not much conviction on the long side this week.  However, the monthly op-ex on September 18 shows Max Pain at 17.00-19.00.  Long gamma is positioned above 25.00 with over 3 million long positions.   The right conditions may trigger a runaway train in the VIX.

TNX has pulled back in a retest of trendline support near 36.50.  Today is day 257 in the (former) Master Cycle.  There may be a couple of days needed to gain strength to push higher.  The Cycles Model suggests rising rates may take center stage to mid-October.  Despite lower 10-year rates, credit card rates are at an all-time high.  That may be due to the unwind of the Yen carry trade, which banks may have used to encourage no-and low-interest loans.  That may be coming to an end as the carry trade backfired  over the  last two months.

ZeroHedge remarks, “One month ago, when multiple discount retailers (here and here) were lamenting the sudden collapse in US consumer purchasing power, we observed the reason this unexpected hit to US consumption: as the US personal savings rate had collapsed, the growth in consumer credit was slowing, and in July, credit card debt growth posted its first decline since the covid crash, just in time for another month of record high credit card rates.

But fast forwarding just one month later, when in a stunning reversal, July consumer credit growth unexpectedly reversed the dramatic June slowdown, and soared more than $25 billion, to a new record high of $5.093 trillion.

The Japanese Yen broke out to a new high on Friday.  This has been forcing the great carry trade unwind in stocks, which may be why the SPX declined last week, despite low 10-year treasury yields.  Today’s pullback in the Yen may also explain the bounce in stocks.  The Cycles Model brings more bad news for equities investors as the pullback may not last more than a day or two.  The trend may be higher in the Yen through the end of September.

8:00 am    2 Chronicles 7:14 

“If my people, which are called by my name, shall humble themselves, and pray, and seek  face, and turn from their wicked ways; then will I hear from heaven, and will forgive their sins, and will heal their land.”

NDX futures made a bottom at 18355.60 this weekend, just above the mid-Cycle support at 18304.55.  This morning its bounced to 18614.55 and may have resumed its decline.  The Wave structure is incomplete and allows multiple outcomes.  A minimal outcome is a further decline to the 200-day Moving Average at 18130.13.  Another possible target may be the trendline just above round number support at 18000.00.  A third possible target may be a potential Head & Shoulders neckline at 17500.00.  The last target would proclaim the death knell for the bull market in tech an AI.

Today’s options chain shows Max Pain at 18530.00.  Long gamma is possible at 18600.00.  However, short gamma begins with a put stronghold at 18500.00 and another stronghold at 18300.00.

SPX futures bounced to 5455.00 this weekend after Friday’s futures low at 5397.10.  The bounce may reach resistance at the Intermediate level at 5479.52.  The 100-day Moving Average lies at 5378.80, but is unlikely to provide support.  Instead, the trendline at 5300.00 may be a minimum target with an alternate being the 1987 trendline and 200-day Moving Average at 5147.63.  The Wave structure, while it appears capable of supporting a substantial bounce, it is also prone to a more complex  structure, especially because of short gamma in the options market that may come alive at the open

Today’s op-ex shows Max Pain at 5420.00-5425.00.  Long gamma may begin at 5580.00.  Short gamma bursts on the scene at 5400.00.

ZeroHedge reports, “Futures are higher in a modest relief rally following the worst weekly loss of the year, triggered by cooling US jobs data that left economists and traders at odds as to how aggressively the Federal Reserve will cut interest rates.  As of 8:00am ET S&P futures are 0.7% higher  while Nasdaq futurs gained 0.8% after the underlying index ended last week with its steepest decline since November: both Mag7 and Semis higher in the premarket along with new index additions. Bond reversed some of their recent gains, with the 10-year Treasury yield jumping four basis points, the first increase in five days, aiding gains in the USD. Commodities are mixed with Energy higher and Ags/Metals lower but with soft patches of strength in base/softs. As JPM’s market intel desk writes, we enter a week with several major questions to answer and additional macro data points: near-term or deadcat bounce? 25 or 50bps? Who leads the election? Is AI dead?”

VIX futures bottomed at 19.45 on Sunday, but has bounced back toward its Cycle Top at 21.00 this morning.  The Cycles Model suggests the VIX may have a very strong showing today/tomorrow.

Wednesday’s options expiration shows Max Pain at 18.00-19.00.  Short gamma is strong at 15.00-17.00.  (Hope springs eternal.)  Long gamma may start at 20.00, but is sparse.  There seems to be little hedging at this point.

TNX has risen above its Cycle Bottom at 36.32 after making its Master Cycle low on Friday, day 254.  Subsequently, TNX may test that support to see if it holds.  Should that be the case, this gives TNX its buy signal.

TheEpochTimes comments, “Ever since I started writing about fishy government economic statistics, I’ve been flooded with a fun series of letters from current and retired bean counters. They are thrilled that I’ve taken up the topic and have added various insights. The most compelling point I’ve seen—one that had not occurred to me—comes down to the innumeracy of the employees themselves. They lack the basic intuition to see where their figures just don’t make sense.”

Crude oil futures declined beneath its Head & Shoulders neckline at 68.00 on Friday.  The futures bounced, challenging the neckline, but has pulled back beneath it.  Should it remain beneath the neckline, the sell signal is reinforced, with the consequences listed on the chart.  Despite a potential bounce, Crude Oil is on a longer-term decline that may last until mid-October.

ZeroHedge notes, “Oil and gasoline futures moved higher early Monday as the National Hurricane Center tracked a potential tropical system that threatened parts of the US Gulf Coast later this week. The storm could slam into the upper Texas and Louisiana coasts, accounting for about 60% of US refining capacity.

Potential Tropical Cyclone Six, or Invest 91L, churns in the southwestern Gulf of Mexico early Monday and is forecasted to become a hurricane before it reaches the northwestern US Gulf Coast late Wednesday. The storm emerges right on time, at the peak of the Atlantic hurricane season. It is interesting to note that this hurricane season has been very quiet.”

USD futures are consolidating after breaking above it Cycle Bottom at 101.09 last week.  It is on a buy signal with the potential of rising to its 50-day Moving Average at 103.80.  Analysts are still dismissing the USD as weak.

TheEpochTimes tells us, “Social Security is facing $63 trillion in long-term unfunded liabilities, according to the 2024 Old-Age, Survivors, Disability Insurance (OASDI) trustees report.

9:50 am

BKX declined beneath the Cycle Top support/resistance at 114.86 and beneath its Master Cycle high at 116.05 made on August 30.  BKX may owe its rally until the end of August to hedge funds that were buying, while Berkshire Hathaway was selling.  Buffett sure knows how to pick a top.

1:42 pm

BKX declined through Intermediate support at 111.06 and has challenged the 50-day Moving Average at 109.75.  The Sell signal is confirmed today.  

ZeroHedge remarks, “94-year-old Warren Buffett’s Berkshire Hathaway continued offloading Bank of America shares this week. Since Buffett started dumping BofA stock in mid-July, total sales have now topped nearly $7 billion.

Bloomberg explains:

In the latest round of transactions, disclosed in a regulatory filing Thursday, his Berkshire Hathaway Inc. liquidated $760 million of the stock since Tuesday. Still, Berkshire remains Bank of America’s top shareholder, with a roughly 11% stake valued at $34.7 billion, based on the latest closing price.

If Berkshire keeps selling, its stake in the second-largest US bank could soon slide below the 10% regulatory threshold that requires his conglomerate to disclose transactions within a few days. Once he controls less than that, Buffett may wait weeks to reveal transactions — typically offering snapshots after every quarter.

Berkshire Hathaway remains BofA’s number one shareholder, with an 11% stake valued at $34.7 billion. ”

8:00 am    2 Chronicles 7:14 

“If my people, which are called by my name, shall humble themselves, and pray, and seek  face, and turn from their wicked ways; then will I hear from heaven, and will forgive their sins, and will heal their land.”

Good Morning!

NDX futures have declined beneath yesterday’s low to 18673.80 in anticipation of the nonfarm payrolls report due at 8:30 am.  The consensus is a rise in the employment numbers to 165,000 from July’s print at 114,000.  A number below the consensus gives rise to a possible .5% rate cut on September 18.  The Biden DOL may be sorely tempted to “goose” that number higher as it seeks to paint a pretty face on the “facts.”  Another number that is due to rise after the 818,000 “adjustment” made in the statistics last month.   focal point is the unemployment rate at 4.3% in July.   Traders are hoping that the NDX may be oversold enough to bounce today.   The Wave structure does not indicate a bounce.

Today’s options chain shows Max Pain at 19025.00.  Long gamma may start at 19100.00 while short gamma begins strongly at 19000.00.

SPX futures declined to a morning low at 5457.10 before a small bounce.  More to come after the DOL release of nonfarm payrolls.

9:00 am

SPX futures bounced back above 5500.00 on the employment news, which was not too far from the consensus, ruling out a .5% rate cut.  What was noteworthy was the decline in the unemployment rate which moved beneath the Sahm”s Rule trigger announcing a recession.  We may see a probe to 5550.00, which is Max Pain in the options.  The probability of holding it there is slim.

Today’s op-ex shows an evenly matched strike at 5550.00.  Long gamma makes an appearance at 5600.00 while short gamma gains ascendancy at 5515.00.  It will take a payroll report of under 165,000 to move above short gamma.

ZeroHedge reports, “Futures are set to end a dismal first week of September lower, with tech again under pressure ahead of a very important jobs report. As of 8:00am, S&P futures are down 0.6% set for a 4th straight day of declines following a sudden dump around the European open; Nasdaq futures slide 1% as NVDA slides more than 2% pre-market while Broadcom also weighed on tech stocks after falling 9% after delivering a disappointing sales forecast. Bond yields are also lower, with the 10Y at 3.70%, the lowest since June 2023 as 2-, 5-, 10- yr yields are 3bp, 3bp, 3bp lower. The Bloomberg dollar index was lower for third day while the yen continues to surge on expectations today’s NFP will come in below expectations and greenlight a 50bps rate cut. Commodities are mixed with base metals higher and oil flat. Today, all eyes on the NFP print at 8.30am ET. Consensus expects 165k jobs being added, with unemployment dropping to 4.2% (our full preview is here). Fed’s Williams and Waller will speak this afternoon before the blackout period begins.”

VIX futures remain beneath the Cycle Top resistance at 20.86 in the overnight session.  As mentioned earlier, this week’s rally in the VIX was more dealer short covering than investor concern about their portfolios.  Today’s consolidation illustrates the confusion about the Employment Survey where employment increased by 142,000 (below consensus) but unemployment declined to 4.2%. from 4.3%.  A 50% retracement may be found at 18.57.

The September 11 options chain shows Max Pain at 18.00.  Short gamma resides between 15.00 and 17.00. while long gamma may begin at 20.00-21.00.

TNX may have extended its new Master Cycle low to today, day 254.  There is a shrinking prospect of the Master Cycle lasting to early next week.  A rise back above the Cycle Bottom resistance at 37.30 may negate that possibility.

ZeroHedge observes, “There was some good news and some bad news in today’s jobs report – first the bad news: the August payrolls number came in at 142K, a small miss to estimates of a 165K print, if a big jump from the downward revised July print of 89K. The good news, however, is that while the payrolls print missed, the unemployment rate actually dipped from that critical “Sahm’s Rule trigger” level of 4.3%, to 4.2%, in line with expectations. So bottom line: the number could be better, but it is certainly not bad enough to trigger a 50bps rate cut in two weeks.

Here are the details.

As noted above, in August, the US added 142K jobs…

… which was slightly below estimates of a 165K print, but hardly some crazy outlier as in previous months.”

USD futures declined to the trendline above the Master Cycle low at 100.40 to 100.52 before reversing above its Cycle Bottom at 101.05.  Should it remain above 101.05, USD will be on a buy signal, confounding the “experts.”

10:30 am

XDN broke out above its retracement high and may threaten the Cycle Top resistance at 70.86.  The carry trade is being threatened by this rise in the Yen and may force a significant unwind of leveraged positions in the market held by hedge funds.  In addition, this may shake the banking index, which has benefited from a declining yen.  Credit card companies that have been offering “zero interest” incentives will have to shut them down or suffer losses.

10:09 am

SPX is making a final test of resistance at 5560.00, which happens to be the 38.2% Fibonacci retracement level.  An alternate level may be the 50% retracement at 5580.00.  Afterwards, the decline may begin in earnest.

ZeroHedge observes, “After the disaster that was the Manufacturing surveys earlier in the week, the Services surveys are the ‘soft landing’-narrative-believers last great hope ahead of tomorrow’s all-important payrolls print to save the day.

• S&P Global’s Services PMI jumped from its flash print of 55.2 to a final August print of 55.7 (up from the 55.0 in July) – that is the highest since March 2022.
• ISM Services rose from 51.4 to 51.5 (barely beating the 51.4 expectations)

And all that ‘soft’ data improving as ‘hard’ data languishes…

8:00 am    2 Chronicles 7:14 

“If my people, which are called by my name, shall humble themselves, and pray, and seek  face, and turn from their wicked ways; then will I hear from heaven, and will forgive their sins, and will heal their land.”

Good Morning!

NDX futures consolidated overnight at the 100-day Moving Average at 18940.47 but may have lost that support in this morning’s action.  The next levels of support are the mid-Cycle line at 18277.28 and the 200-day Moving Average at 18101.72.  A decline to that level may wipe out all gains since early June.  The Cycles Model calls for rising volatility over the next week, suggesting that not all is well.

Today’s options chain shows Max Pain at 19075.00.  Long gamma may start at 19200.00 while short gamma begins at 19010.00.

ZeroHedge remarks, “The dumpster fire at Intel under the direction of CEO Pat Gelsinger, who is doing his best to replace Marissa Mayer as most overpaid and useless ‘turnaround’ CEO in tech history, looks like it could finally wind up being put out as a result of the company assessing strategic alternatives.

But the damage has surely been done. Intel stock has fallen about -56% this year so far while competitor Nvidia has soared more than 141% over the same period. Over a 5 year period, it gets even uglier: Intel has plunged -53.4% while Nvidia is up an astounding 2,750%.

However, past performance is not indicative of future results, and CEO Gelsinger is looking to finally try and claw some value back into Intel shares by proposing a number of strategic transactions to the board later this month, Reuters reported last week. ”

SPX futures declined to a morning low of 5503.80, challenging the 50-day Moving Average at 5504.02.  A potential gap down may be developing, creating a firestorm of selling in anticipation of a dismal non-farms payroll report.  CTA selling thresholds begin below 5500.00 and redouble beneath 5350.00.  The next support may be the 100-day Moving Average at 5371.59.  After that is a toss-up between the rising trendline originating last October near 5300.00 or the 1987 trendline near 5150.00.  The ISM and PMI data being released today may give us a handle on just how bad the recession risk has become.

Today’s op-ex shows Maximum Pain at 5550.00.  Long gamma may begin at 5600.00 while short gamma appears in strength at 5515.00.

ZeroHedge reports, “After several days of rollercoaster volatility and uniform pain across global equity markets for bulls, US equity futures are flat as the global sell-off stabilizes into the most important macro data releases. As of 8:00am ET S&P futures are up 0.1% and Nasdaq futs are flat, with NVDA +40bps premarket, TSLA rising 2.3% while the balance of Mag7 is weaker and Semis under pressure, too. Europe’s Stoxx 600 index dropped 0.3%, with China-facing luxury stocks such as LVMH again among the biggest losers. Asian equities erased most gains after declines in Hong Kong and Japan. Bond yields are 1bps higher, but the USD is weaker as the yen gained overnight following unexpectedly strong – if transitory – Japanese wage data. Commodities are stronger led by Energy and precious metals while iron ore slumped to its lowest level since 2022 and traded near $90 a ton as China’s main steel industry group advised mills to be cautious in boosting output too quickly to avoid snuffing out a post-summer recovery.  Looking at the coming FOMC decision, 50bps bets are increasing, rising as high as 50% after yesterday’s dismal JOLTS report, as the growth component of the Goldilocks narrative is challenged. ISM-Services today and NFP tomorrow are key facets of the narrative and we should leave for the weekend with a stronger sense of 25bps or 50bps.”

VIX futures challenged the Cycle Top support/resistance at 20.77 before moving higher.  The Cycles Model shows the VIX rising with a potential burst of momentum early next week.  The speed that investors re-shorted the VIX since August 5 has been remarkable.  However, the jump in the VIX on Tuesday was mainly from dealer and market-maker short-covering and not re-hedging.  The sentiment  is not yet consistent with an economic downturn but may change over the next two days as a clearer picture of the economy develops.

The September op-ex shows Max Pain at 18.00 with short gamma between 15.00 and 17.00.  Long gamma hasn’t yet appeared with any conviction.

TNX has declined to its trendline at 37.25.  That may have accomplished its Master Cycle low on day 253.  If correct, yields may start rising again.  The Cycles Model suggests the implied rally may last to mid-October.

ZeroHedge remarks, “Initial jobless claims continues to ignore the ‘other crappy data’, printing 227k (in line with 230k exp) and basically unchanged at two-month lows…

Source: Bloomberg

On a non-seasonally-adjusted basis, initial claims are at their lowest in 10 months!! Of course! Why not.

Continuing claims also dropped (to three month lows)…”

Crude oil futures tested the Head & Shoulders neckline near 68.00 yesterday and may be consolidating today.  Should it go beneath the neckline, a firestorm of selling may take place.  The Cycles Model suggests that crude oil may continue its decline through mid-October.  Warning, there is a larger Head & Shoulders formation that may take crude down to the end of December.

8:15 am   2 Chronicles 7:14 

“If my people, which are called by my name, shall humble themselves, and pray, and seek  face, and turn from their wicked ways; then will I hear from heaven, and will forgive their sins, and will heal their land.”

Good Morning!

NDX futures sank to a new low at 18780.90 this morning after crossing the 100-day Moving Average at 18934.34.  The next support appears to be the mid-Cycle at 18261.61 and 200-day at 18086.20.  The tenor of the market has changed.  As more sellers offer their shares, buyers retreat, creating gaps in the price action that may not be filled.  Add margin calls to the mix and utter chaos may reign by the end of the day.

Today’s options chain sows Maximum Investor Pain at 19200.00.  NDX options are in short gamma  beneath 19020.00 with short concentration beneath 18950.00.

ZeroHedge observes, “That’s gross

Looking at leverage for “all hedge fund categories” we can see that gross is close to maximum (and nets a little high too). A lot of de-grossing potential if this volatility continues.”

Source: JPM PI

SPX futures declined to a morning low at 5494.30, increasing the likelihood of a probable gap down at the open.   While the SPX would normally bounce at the 50-day (5503.00), it appears that the bounce was muted.  Once the SPX declines beneath the 50-day Moving Average, selling may redouble as recognition of no support is realized.

Today’s options chain shows Max Pain at 5560.00 with short gamma beginning at 5550.00.  Short gamma explodes at 5490.00 (this morning’s low) leaving no hope for sellers to find buyers beneath that level.

ZeroHedge reports, “US stock-index futures fell, pointing toward a continued selloff on Wall Street after a slump Tuesday, when dire manufacturing PMI and ISM data led to renewed concern that a recession may be looming. Futures on the S&P 500 dropped 0.4% while contracts on the Nasdaq 100 Index declined 0.8% at 8.00 am ET, as NVDA extended its record losses which saw a historic $280 billion in market cap wiped out in Tuesday’s session, after a Bloomberg report hit just after the close that Kamala’s DOJ sent subpoenas to the chipmaker. NVDA sparked Nasdaq’s 3.2% Tuesday rout: the stock has been falling since the company’s earnings last week failed to live up to the highest expectations. Losses in Europe and Asia were deeper, with traders still rattled by the speed and severity of the US retreat while the VIX climbed above 22. Treasury yields dropped 2bps to 3.82% while the dollar weakened for the first time in six as the yen extended gains and the USDJPY traded at 145. On the macro front, we have mortgage applications (1.6% vs 0.5% last week), trade balance, JOLTS job openings, as well as the final July factory orders and durable goods reports.”

VIX futures vaulted to a morning high at 23.28, exceeding yesterday’s high at 21.99.  The Cycles Model suggests the rally may accelerate through the weekend.  There may be a repeat of yesterday’s 7-vol spike that prompted margin calls for the shorts and dealers.  If so, VIX may exceed 30.00 today, beginning to make the August 5 volmageddon look like child’s play.

Today’s options chain shows long gamma beginning at 20.00.  Fortunately, the options chain isn’t very populated, considering today is the weekly op-ex.  However, many 0-dte speculators may be testing which way the wind is blowing, ready to  propel the VIX even further.

TNX futures made a new low at 38.03 but recovered before the open.  The Cycles Model suggests higher volatility through the rest of the week, with the outcome being a possible low at the Cycle bottom at 37.49 later this week or early next.  However, the rise in yields may resume next week, prior to the FOMC meeting.

Japanese Yen futures rose to 69.20 this morning, coming out of its Master Cycle low on August 19.  I am currently neutral on the Yen, but that may soon change.  A breakout above the high at 69.51 may lead to a sharp acceleration higher, crushing the Yen carry trade once and for all.   AI and tech stocks have benefitted from the carry trade, so a resumption of the rally in the yen may bring down the whole tech complex.