The Practical Investor

9:00 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!  I am recovering from the flu and running late.  Please excuse me.

SPX futures have come down to a morning low of 5513.00.  Intermediate support lies at 5475.00, so we may see a further pullback.  Once SPX completes its pullback, overhead resistance liews at the Cycle Top at 5702.12.  Yesterday I estimated the running target for this rally at 5780.00.  Usually the Cycle Top resistance may prevail in ending this trend.  The Cycles Model suggests about a week to 10 days may be left to make a top.

Today’s options chain suggests Maximum Investor Pain at 5530.00.  Long gamma may begin at 5550.00 while short gamma may start beneath 5500.00.

ZeroHedge reports, “US equity futures erased earlier gains and were trading with modest losses as dollar, oil and yields all slumped entering the US session. As of 7:45am, S&P futures traded down 0.1% around 5,562 as consistent selling pressure emerged around the European open, even as Asian stocks had another solid session. Nasdaq futures were unchanged, with megacap tech mostly higher led by NVDA +56bp, and AMZN +60bp. Bond yields and USD are both lower; 2-, 5-, 10-yr yields are 2bp, 5bp, 10bp lower, pulled down by a sharp drop in oil as the Harris oil trading desk resumes shorting. Other commodities were mixed with base metals higher. Today, the key macro focus will be U of Mich Sentiment and housing data (Housing Starts and Building Permits).”

VIX futures challenged the 50-day Moving Average at 15.67 this morning before pulling back beneath it.  Should it close above that level, a buy signal may be confirmed.  From this point on, the VIX may be the only index in which to buy the dip.  While the Master Cycle low may have occurred early, it may set into motion a rising VIX phenomenon until the end of September.  The Cycles Model suggest a surge of trending strength may begin this weekend.

TNX is in  pullback mode after testing the trading channel trendline at 39.50.  It is on a buy signal (sell UST) and may continue rising during the next 3-4 weeks.  Fireworks may develop as trending strength multiplies near the end of August.  Next week’s Treasury auctions may better inform us as to the the direction of TNX.

7:45 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 continued their inexorable march higher to 19123.70 this morning.  It has risen above Short-term resistance at 18993.00 (not shown) and may test the double resistance at 19416.17 before moving higher.  Its intended target may be 21150.00.  There are no guarantees of its success by the end of the month.  Individual investors, stock buybacks and now pension contributions are fueling the rise in stocks.  Qualified pension plans have until October 15, 2024 to make their final contribution extension for the plan year 2023.  It appears that they are doing so with gusto.  At the same time, whale investors like Warren Buffett are culling stocks in companies that are overpriced.

Today’s options chain shows Maximum Investor Pain at 19125.00  There is not long gamma, while short gamma resided beneath 19110.00.

ZeroHedge remarks, “Who owns America?

Is it the government? The politicians? The corporations? The foreign investors? The American people?

While the Deep State keeps the nation divided and distracted by a presidential election whose outcome is foregone (the police state’s stranglehold on power will ensure the continuation of endless wars and out-of-control spending, while disregarding the citizenry’s fundamental rights and the rule of law), America is literally being bought and sold right out from under us.”

SPX futures have risen to 5466.60 this morning, above the 50–day Moving Average at 5448.42.  Its intended target by the end of the month may be near 5780.00.    The Cycles Model suggests the rally may continue to the end of the month, with rising volatility.  This may send the BTFD speculators into a buying frenzy.  We will know the trend is over when the last fool is parted with his money.  I know many such people.  They now think they are bulletproof.

Today’s options chain shows Max Pain at 5450.00.  Long gamma may arise above 5500.00 while short gamma dwells beneath 5400.00.

ZeroHedge reports, “US equity futures are following European and most Asian stocks higher, with traders’ attention turning to today’s retail sales report (full preview here) which may support the case for the Federal Reserve to cut rates at its September meeting. As of 7:45am, S&P futures are up 0.2%, higher for the fifth day in a row, as the burst of 13-F releases overnight helps to boost some individual names; Nasdaq futures also gain 0.1% led by tech with Mag7 and Semis leading pre-mkt though NVDA is lower to start the day. Bond yields are flat to up 1bps, and USD is flat. Commodities are bid across all 3 complexes though base metals are lagging and Silver over Gold. PPI/CPI data shaped the inflation story and now Retail Sales/Jobless Claims will do the same for the Growth story, while Walmart boosting its profit outlook will help ease recessionary fears. That said, the Fed may not reveal its hand until the Sep 6 NFP print.”

VIX futures continue their descent toward the 50-day Moving Average at 15.63.  I am illustrating the nearness of the Master Cycle low, which may happen this week.  Rising volatility in a rising market is a sign of changes to come.  The Cycles Model suggests VIX may gain strength as early as this weekend.

The August 21 options chain shows massive short gamma beneath 16.00 and equally massive long gamma above 17.00.  If the Master Cycle low occurs today, the shorts may be taken out to the woodshed.

TNX rallied to its trading channel trendline at 39.35 this morning.  A breakout here gives a very clear buy signal for TNX /sell signal for UST.

ZeroHedge remarks, “For once, consensus is in line with BofA’s omnipotent forecast for retails today (July data) with an expectation of a 0.4% MoM rise in nominal spending. They were both wrong… as retail sales shot up 1.0% MoM – well above the highest forecast.

That is the biggest MoM rise since Jan 2023 – so to hell with your soft landing narrative, right…”

8:30 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 been flat this morning, as it absorbs the new money flows.  Short-term resistance is overhead at 19006.43, which may cause a brief pullback.  Some readers have pointed out that volume increases on down days, suggesting we should be bearish.  However this can be explained by measured selling by some “whales” who are early to cash in due to their size.  As I mentioned last week, panic down days must come in multiples, not giving the market a chance to recover before the next onslaught of selling.  We have not yet experienced that phenomenon.  The Cycles Model suggests that the rally may continue to the end of the month.  Stock buybacks end on September 6.

Today’s options chain shows Maximum Investor Pain at 18850.00.  Long gamma starts at 19000.00.  Short gamma may begin at 18800.00.

ZeroHedge remarks, “Following last month’s ‘deflationary’ print (-0.1% MoM), analysts expected headline CPI to rise 0.2% MoM and they were spot on, shifting the YoY CPI print to 2.9% (from 3.0%) – the lowest since March 2021…”

SPX futures rose to a morning high of 5447.70 thus far, as core consumer prices rose for the 50th consecutive month.  It has crossed the 50-day Moving Average at 5444.19, confirming the buy signal.  The Cycles Model suggests the rally may last until the end of the month.

Today’s options chain shows Max Pain for investors at 5415.00.  Long gamma may begin at 5425.00 while short gamma starts at 5400.00.

ZeroHedge reports, “Futures are flat, after trading in a narrow range overnight which saw Asian stocks gain and European bourses trade mostly higher, with tech down small and small-caps/Russell leading with bond yields up 1bps in the front of the yield curve. As of 7:45am, S&P futures are unchanged at 5,459 after soaring 1.7% on Tuesday, fueled by cooler-than-forecast PPI data while Nasdaq futures are down 0.1% with the Mag7 mixed as NVDA boosts Semis. 10Y yields are down again, sliding to 3.83%, and pushing the USD lower. Commodities are mixed with Energy/Precious higher and Base lower; China’s largest steelmaker warns of 2008-like downturn given the slump in domestic consumption. The macro focus is on CPI (our full preview is here) and Retail Sales tomorrow.”

VIX  futures continue their decline as the Cycles Model shows an upcoming pivot by the end of the month.  The decline may be targeting the 50-day Moving Average at 15.57.

VIX Aug 21 options shows short gamma prevails between 12.00 and 17.00.  Long gamma begins at 20.00 and stretched over nearly the entire spectrum of strikes.  There is the liklihood of a lot of speculators getting wrong-footed.

While TNX futures dipped lower, TNX reversed at the Cycle bottom support at 38.28.  This may be a positive sign for the uptrend to resume.  The US Treasure upcoming Auctions Schedule showws $245 billion of short term bills being auctioned today and tomorrow.  A 20-year Bond issuance may be announced tomorrow for later auction this month.  Yellen’s practice of auctioning short-term bills rather than long term debt may backfire soon.

ZeroHedge comments, “A recent article co-authored by Stephen Miran and Dr. Nouriel Roubini, aka Dr. Doom, accuses the U.S. Treasury Department of using its debt-issuance powers to manipulate financial conditions. They liken recent Treasury debt issuance decisions to stealth QE. Per the first paragraph of the article’s executive summary:

By adjusting the maturity profile of its debt issuance, the Treasury is dynamically managing financial conditions and through them, the economy, usurping core functions of the Federal Reserve. We dub this novel tool “activist Treasury issuance,” or ATI. By manipulating the amount of interest rate risk owned by investors, ATI works through the same channels as the Fed’s quantitative easing programs. 

Is their accusation reasonable?”

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 have risen to 18720.00 this morning.  Confidence in equities is rising again with the proportion of US household owning equities nearing its all-time high, last seen in 2021.  In addition, the corporate buyback window is open and flush with cash.

Today’s options chain shows short gamma beneath 18600.00.

SPX futures hit a high of 5376.00 this morning, approaching short-term resistance at 5390.00.  The saying that, “The market climbs a wall of worry.” is relevant here, as investors are still licking their wounds from a week ago.  The Cycles Model suggests a choppy but rising market for the next three weeks.

Today’s options chain shows Max Pain at 5365.00.  Long gamma may begin at 5390.00 while short gamma may start beneath 5350.00.

ZeroHedge reports, “US futures are slightly higher, although well off session highs following disappointing guidance from Home Depot while rising tension in the Middle East weighed on risk appetite. Tech leads modest gains as we receive the first batch of the week’s macro data today when PPI drops at 830am ET. As of 7:45am ET, S&P futures are 0.2% higher, paring a gain of 0.5%, after yesterday’s flat close on Wall Street; Nasdaq futs are up 0.3% with NVDA rising 1.5% as Mag7 are all higher and Semis catch a bid, following yesterday’s outperformance. European markets are lower even as Asian stocks erased last week’s sharp declines led by a bounce in Japan thanks to a drop in the yen. Bond yields are 1-2bps higher which is boosting the USD. Commodities are mostly lower with WTI reversing losses to trade around $80 and Brent at $82 as the US sees an Iranian attack against Israel as increasingly likely; Ags/Precious metals are under pressure. Fed’s Bostic speaks today, and disappointing earnings from HS may shape the market narrative. Tomorrow’s CPI and Thurs’ Retail Sales are the key catalysts.

VIX futures declined to 19.57 this morning.  It is due to go lower.  The 50-day Moving Average at 15.57 may be the target for this decline.

8:  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 roes to 18586.00 thus far this morning, showing some stability, if not strength.  Investors and hedge funds are eagerly buying Mag 7 and AI stocks at a “discount.”  While equities may retest the lows, both the Cycles Model and Wave structure indicate a possible blow-off top in the making, provided the 200-day Moving Average at 17727.31 holds.  After Monday’s drubbing, the fear of missing out is becoming prevalent again.  This may set up the conditions for a very nasty sell-off starting in September.

Today’s options chain shows Maximum Investor Pain at 18590.00.  Long gamma may begin above 18500.00 while short gamma resides beneath 18580.00.

ZeroHedge remarks, “That AI love affair did not die

It looks like, in the end, it was AI that saved the markets this week. That love affair from investors toward the AI space (and tech in general) is what brought in the buyers.

1. Hedge funds bought the AI TMT space consistently over the past 7 sessions
2. The L/S ratio (of AI TMT) is rising and high on a LT basis (91st %-tile), but below highs seen earlier this year
3. Hedge funds are also going back to the general US Tech space and mainly Mag7. US tech saw 2 sigma buying this week.”

SPX futures rose to an overnight high at 5361.90.  It closed on Friday above the 100-day Moving Average at 5312.60, creating a buy signal.  The modest bid continues this morning.  There is a probability of a retest of the 1987 trendline at 5119.25.  However, time is running out for new lows.

Today’s options chain shows Mas Pain at 5325.00.  Long gamma may begin at 5350.00 while short gamma resides beneath 5300.00.

ZeroHedge reports, “US equity futures are seeing a slight bid, tracking Asian and European markets higher, as the week starts off more muted than last week but with a preference towards Quality. As of 7:45am, S&P 500 and Nasdaq 100 contracts are about 0.3% higher as Mag7 names are mixed but net higher and Semis are bid, while Europe’s Stoxx 600 index erased most of a 0.5% advance. Bond yields are flat as is the USD while the yen continued dropping as more jawboning from an ex-BOJ member suggested that rate hikes in Japan are effectively over, giving a green light to restart carry trades . Commodities are stronger led by Energy, WTI is higher after adding 4.5% last week. Copper is higher after 5 consecutive weekly losses and 11 of last 12 weeks, -20% from highs. Today’s macro focus is the NY Fed’s 1-year inflation expectation (3.02% prior). This is a heavy macro data week with both growth and inflation measures and the market is waiting on that data to determine the next market narrative. Earnings are almost complete but DE, HD, and WMT will provide important updates on the Consumer.”

VIX futures have been flat over the weekend.  Hedging activity has trailed off, giving the green light to longs for a short while.  However, liquidity has crashed in the VIX, limiting possible short-term moves.

The August 14 op-ex shows only a modest amount of activity.  However, the August 21 options chain is heavily laden with long predominantly above 20.00 and shorts heavily populated beneath 16.00.

TNX has risen above the trading channel trendline near 39.45.  It may be due for a burst of trendline strength as it may find support at the trendline.

7:45 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 rose to 18551.00 in the overnight market, but have receded since then to the flat line.  It may be winding up its 3-day correction in a complete round trip from last Friday’s close.  Structurally, the NDX may have yet another decline ahead of it.  The amplitude of the declines/bounces is growing, adding to market instability.  Despite these massive bounces, the NDX Hi-Lo has remained below 0.00 the entire week, closing at -137.00 yesterday.

Today’s options chain shows Maximum Investor Pain at 18500.00.  Long gamma may begin at 18600.00 while short gamma may start at 18460.00.

ZeroHedge remarks, “Bear markets

The quicker they are, the faster they recover.

Source: Barclays

Tactical bounce

Citi strategy writes: “we find that US equities are apt to rebound… a tactical timing tool based on implied vs realized volatility is showing an abundance of caution in the market; this has typically led to short-term positive (if volatile) returns.”

SPX futures rose to 5346.40 in the overnight session, then pulled back into the red.  A negative open beneath 5300.00-5310.00 may be actionably short.  The Cycles Model for the NYSE shows the Master Cycle ending next week.  However, there are indications of yet another panic decline, should the market begin making new lows.  Despite the positive bounce, the NYSE Hi-Lo Index closed at -13.00, showing very weak internals.

Today’s op-ex shows Max Pain at 5330.00.  Long gamma may start at 5400.00 while short gamma kicks in beneath 5300.00.

ZeroHedge reports, “With both Goldman and JPMorgan asking the question on everyone’s lips, namely whether the market has bottomed, so far the answer remains elusive with futures flat on the last trading session of the day, but erasing earlier gains as sentiment remains on edge thanks to a VIX around 24 and the yen, the currency at the basis of the carry trade, failing to drop. Perhaps the only good news is that the wild week is ending on a subdued note, with Friday trading seeing light equity volumes and small moves across stocks, bonds and currencies as even traders are exhausted from the week’s fireworks. Remarkably, US stocks are close to wiping out all the losses from the Monday’s market meltdown, with S&P 500 futures unchanged as of 7:45am, fading an earlier gain of 0.5%, after markets roared back on Thursday as data showed much fewer American filed for jobless benefits, alleviating fears of a looming recession. Nasdaq futures were modestly in the green led by Mag7 and semi stocks. European stocks are already positive on the week as investors hunted for bargains from the selloff. Treasury yields dipped and the dollar weakened. The VIX Index hovered around 23. Otherwise it will be a quiet data on the data front with no macro releases scheduled as investors now wait for next week’s data, which includes reports on the all important CPI and retail sales.”

VIX futures dipped to an overnight low at 23.12, but has since become positive.  Investors may be forgetting that August and September constitute the weakest season for stocks.  Yet they are crowding back into their old haunts.

The August 14 op-ex shows investors crowding back into short gamma between 13.00 and 22.00.  There is little conviction to the upside.  Hedging has already been forgotten.

TNX has pulled back after a clear breakout propelled by yesterday’s debacle of a 30-year bond auction.  The intended target for the pullback may be the Cycle Bottom support at 38.45.  The upcoming T-bill auctions early next week are massive (over $200 billion).  Yellen’s attempt at managing yields by shortening maturities is bound to backfire.  The Cycles Model suggests yields may “pop” over the weekend.

ZeroHedge reports, “After yesterday’s dire 10Y auction, which sent yields surging and stocks tumbling, the last thing the market needed was another debacle of an auction, but that’s precisely what it got moments ago when today’s 30Y auction tailed by 3.1bps, the exact same as yesterday’s 10Y sale, and predictably yields spiked after both.

Stopping at a high yield of 4.314%, today’s sale of $25 billion in 30Y paper saw the lowest yield since January’s 4.229% and was down sharply from the 4.405% in July. And, like last month, today’s auction tailed and by a substantial amount: with the When Issued trading at 4.283%, this was the biggest tail since November.”

USD futures show it rising from an overnight low at 102.92.  The Cycles Model shows the USD rising for yet another week, or possibly longer.  It also shows a possible double dose of trending strength starting this weekend.

2:40 pm

Today’s SPX high is two points beneath yesterday’s high.  The NDX high is 34 ticks beneath its prior high and is receding.  Should today’s SPX/NDX not go any higher, equities may begin to sink like a rock.  Although the BOJ backed off from its rate hike, the TNX (10-year treasury notes) is back above 40.00.  In addition, the NYSE Hi-Lo Index shows only 1 new 52-week high out of 3300 listed companies.  That is not healthy.  The 100-day Moving Average is at 5310.00.  Beneath that level may be a confirmed sell signal.

ZeroHedge remarks, “Back in 2000, when technology stocks hit the wall, one of Gavekal’s first clients told us: “It’s OK. Bear markets serve an important purpose: they return capital to its rightful owners.”

Behind this cynicism lies an inherent truth.

Bear markets do tend to shake out “weak hands,” clean out retail investors, and punish those who operate with too much leverage. Another key function of bear markets is to transfer leadership from one country or sector or asset class to another.”

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!  The Website has been recovered and working normally.  Thank you for your patience.

SPX futures remained flat overnight, leaving investors on a knife’s edge of decision.  Should the SPX remain above the 1987 trendline at 5119.27, equities may begin to rally again to new all-time-highs.  The crux of the matter is that the Cycle low may have come early.  Should the former Master Cycle extend another two weeks to its normal pivot date, we may see a totally different outcome.  Perpetually bullish dealers have raised their odds of a bear market from 15% to 15%.

Today’s options chain shows Maximum Investor Pain at 5225.00.  Long gamma is scarce, but short gamma starts at 5200.00.

ZeroHedge reports, “After three rollercoaster days of wild, brutal swings, futures are flat ahead of the Thursday open, erasing overnight losses if still below the all-important CTA threshold level of 5255 which trigger billions in sales by systematic funds. Asian and European stocks declined, prolonging the soaring volatility that has gripped global markets for days after the BOJ effectively steamrolled the carry trade last week when it unexpectedly hiked rates, only to U-turn just days later when the Nikkei suffered its biggest one day crash since Black Monday. As of 7:4am S&P futures were unchanged at 5,228 while Nasdaq futures were fractionally in the green, with Mag7 and semis providing support despite the continued selling by Supermicro. Treasuries yields are lower ahead of US jobless claims data, with US 10-year yields falling 2bps to 3.93% as European bonds also gain. Keep an eye on bonds as yesterday’s 10Y auction was weak but that could have been negatively impacted by elevated Credit issuance; today is the 30Y auction. The USD is weaker and commodities are lower across all 3 complexes as WTI dips below $75, but precious metals catch a bid. Today’s macro data focus is on jobless claims; a spike there preceded a weaker NFP that coincided with the carry unwind so the market may have heightened sensitivity to the print. Elsewhere, both Goldman and JPMorgan raised their recession odds, from 10% to 25% and from 25% to 35%, respectively.”

VIX futures have also remained relatively flat.  While the VIX appears more “normal” near 25.00, the VVIX (VIX Volatility Index) remains stubbornly high near 150.00..  This indicates the VIX may move higher.  You may recall, I had mentioned that the probable target for this rally is the 2020 high at 85.47.  The Cycles Model suggests that the VIX has another two weeks of rally.  Should the VIX Cycle prevail over the SPX Cycle, the SPX may see a surprising “dip” beneath the 1987 trendline in the next two weeks.

The August 14 options expiration shows a weak short gamma between 13.00 and 22.00.  Long gamma appears to be weaker still, suggesting no conviction of a VIX blowout.  However, the situation is ripe for exactly that.

ZeroHedge observes, “Did VIX Really Hit 65 on Monday?

Without a doubt, the official VIX calculation reported a level of 65.73 on Monday at 8:34 am EST. That level was posted and is now being used by many people to justify long positions in equities. The theory seems to be that we had an “epic” spike in volatility indicating panic, and that panic has since receded – hence creating a buying opportunity. Notice, that we chose to use the word volatility here, partly because many seem to use VIX and Vol interchangeably – which is not accurate.”

TNX has pulled back fro the trendline at 39.20 after a brief challenge this morning.  It is likely to pull ack to the Cycle bottom at 38.47, or possibly the 50% retracement level at 38.00.

ZeroHedge reports, “Amid all the chaos in markets over the past few days, it is perhaps no surprise that ‘demand’ for bonds would be somewhat weaker. However, today’s 10Y auction was very ugly.

10:00 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!  I have been having difficulty with the website.  Postings may be limited.

SPX futures have crossed above the 100-day Moving Average, creating a potential buy signal. I had mentioned previously that the 1987 trendline was a very critical support.  It held.  Although the Master Cycle may have come early, it arrived at an acceptable time, day 248.  If correct, the Cycles Model suggests a rally to the week of September 16.  A move back beneath 5300 may reactivate short gamma and cause a further decline.

Today’s options chain shows Long gamma starting at 5300.00.  Short gamma lies directly beneath it, so SPX is at a crucial testing point in the options market.

ZeroHedge reports, “And just like that, the great carry trade freak out – which started exactly one week ago when the BOJ hiked rates by a huge 0.15% – is over, because as we had expected, the BOJ got cold feet and capitulated on its rate hiking cycle on Wednesday morning when BOJ deputy governor Shinichi Uchida sent dovish U-turn signal in the wake of historic financial market volatility by pledging to refrain from hiking interest rates when the markets are unstable. In kneejerk reaction to his comments – which were the first public remarks by a BOJ board member since the bank raised rates on July 31 – the yen, which had strengthened by a record amount in the past week as the carry trade careened sending deflationary shockwaves around the globe, weakened by more than 2%, bond yields rose and stocks soared. As of 7:30am ET, S&P 500 jumped by 1.2% with both Tech and small-caps outperforming as the BOJ capitulation relief rally continues;’ Nasdaq 100 futures gained more than 1.5% after the underlying indexes rebounded more than 1% on Tuesday following a wave of dip buying. The Stoxx Europe 600 index climbed more than 1%, with mixed earnings reports from some of the region’s biggest companies doing little to dampen the risk-on mood. Japanese stocks led a broad rally in Asia. Bond yields are higher by 4-5bps, and the USD is higher, looking to erase its weekly loss. Commodities have also caught a bid as the carry trade is reestablished with WTI, base metals, and Ags all seeing strength. Mtge Applications and 10Y bond auction are the major macro data pts. Is the panic unwind finished? Are detailed thoughts are below.”

2:50 pm

Understanding the current market situation leads us to the Japanese Yen and the “carry trade.”  The current market had been propelled by declining domestic interest rates until March 2020, when the 10-year rate started to rise from 0.0398% to October 23, 2023 when it reached 49.98%.

What propelled the market further as our domestic rates rose was that the Bank of Japan.  IT was still willing to lend unlimited sums at 0-.10%, which it had been doing since 1999.  What’s more, the Japanese Yen had peaked at 98.83 on March 9, 2020 and started to decline, meaning that a person could make money simply by borrowing at 0.00-0.01% and simply parking it.

Last week it all changed when the Bank of Japan decided to raise rates from 0.10% to 0.25%, sending the Yen skyrocketing.  All the currency gains of the past 10 months have suddenly disappeared while the equities market began to flounder.

Today may have been the end of the current Master Cycle, suggesting the Yen will come back down.  However, the damage has been done.

BBCNews reports, “Japan’s central bank has raised the cost of borrowing for only the second time in 17 years as it tries to normalise monetary policy in the world’s fourth largest economy.

2:26 pm

SPX may be testing a double resistance at 5303.00-5308.00, including the 100-day Moving Average.  As mentioned earlier, tomorrow may be a panic down day.  This may be a good opportunity to sell the bounce.  Many individuals and hedge funds have been “buying the dip.”  While a good practice while the market is going up, it may be deadly on the downside.  Patience is needed here.

11:01 am

BKX, our liquidity proxy, has found support at the trendline at 102.50.  Resistance may be at the 50-day Moving Average at 106.40.  A further decline beneath the trendline may introduce the next panic decline in the BKX.  The Banking Index may be considerably lower by the end of the week.  Panic days reappear during the week of August 19 and August 26.

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 bounced to 18319.70 this morning, above the 200-day Moving Average at 17657.00, but nowhere near a breakout of any significance.  A stumble back beneath the mid-Cycle support at 17898.00 tells us the decline has resumed.  There are no significant support levels until it reaches the Cycle Bottom at 15400.00.  The Cycles Model tags tomorrow as the next panic down day.  Buying the dip at this point may be like catching falling knives.

Today’s options chain shows short gamma beginning at 18000.00.  There may not be any long gamma to speak of.  Buyers of calls are becoming scarce.

ZeroHedge observes, “In March, Nvidia Corp. disclosed that CEO Jensen Huang’s Rule 10b5-1 trading plan included selling 600,000 shares (or about 6 million shares accounting for the 10-for-1 stock split) by March 31, 2025. He has already sold millions of shares, effectively top-ticking the market. This news should have served as a clear warning sign to investors that the AI bubble was approaching a peak.

Data from Bloomberg shows Huang’s daily sale of 120,000 shares began on June 13. The selling was indiscriminate. Most of it was sold between $135 and $109 from June through July. The selling continued into the downward draft in recent days.”

SPX futures rose to 5276.00 this morning, unable to overcome yesterday’s opening gap down and short of the 100-day Moving Average at 5307.00.   The 1987 trendline lies just beneath it at 5119.00.  A decline beneath it may offer support at the 200-day Moving Average at 5011.72.  The Cycles Model offers two conflicting scenarios for this decline.  The first shows the bottom occurring during the week of August 12.  The second shows a possible further decline during the week of August 26.  We may consider taking downside profits in the first case, but delay any long until the last week of August.

Dealers may have attempted to raise the SPX out of short gamma, which starts at 5245.00.  That effort may have failed.

ZeroHedge reports, “After Monday’s historic selloff that capped a three-week, $6.4 trillion rout in global equities as a brutal unwind in the carry trade driven by last week’s BOJ rate hike hammered most consensus trades, a dead cat bounce arrived as some investors looked for bargains and markets saw a hint of calm return on Tuesday, but the rebound has been decidedly more tepid than the rout, and doesn’t prove the meltdown is over. Futures on the S&P 500 and Nasdaq are poised to regain only a fraction of yesterday’s loss, while stocks in the UK and Europe gave up earlier gains to head lower. There were stronger moves in Japan, where the two key share gauges both jumped more than 9% at the close after tumbling 12% the day before. US futures higher in a volatile, shaky session, with small caps lagging the Nasdaq, as USD finds support and Japanese Equities rally 10% overnight, erasing much of Monday’s loss. As of 7:45am, S&P futures were up 0.8%, off session highs, while Nasdaq futures rebounded 1.1% falling more than 7% over past three sessions. That said, much of the overnight gains were pared after JPM’s co-head of FX Strategy Arindam Sandilya said that we may only be 50% – 60% through this carry trade unwind. Bond yields are 5-6bps higher as treasuries retreated, with the 10-year yield heading for the first increase in almost two weeks as traders curbed bets that the Federal Reserve will step in to support markets with early interest rate cuts. Commodities are weaker, with WTI and gold modestly in the green. For the remainder of the week, the macro catalysts are bond auctions and Fedspeak.”

VIX futures are flat this morning after yesterday’s spike high at 65.73.  The Cycles Model shows a possible three more weeks of rally in the VIX.  It appears to be out of sync with the SPX Cycle and bears watching.  The target may still be the 2020 high at 85.47.

In tomorrow’s op-ex, the shorts are redoubling their positions so that short gamma now begins at 18.00, suggesting that options buyers are still treating yesterday’s move as a short opportunity.  Long gamma is practically nonexistent.  This behavior is extremely odd.

TNX may have made a Master Cycle low yesterday.  Proof of that event may be a rise above the Cycle Bottom at 38.51.  The activity of the last week appears to have been a throw-under beneath its trading channel.  Should that be the case, we may see TNX back in rally mode by the end of the month.  The trendline may be tested prior to a meaningful rally.

11:59 am

SPX went well beneath its Monday target mentioned last Friday.  The fact is, it may have bounced off the 1987 trendline which is in the vicinity of this morning’s low.  Unfortunately for the longs, SPX may not be able to bounce much further.  The next stop may be today’s circuit breaker at 4971.00.  Today may be a margin call day, especially for the NDX, which has declined over 14% from its July high this morning.  Margin calls may begin at 3:00 pm or sooner, depending on how leveraged an investment account may be.

ZeroHedge observes, “US retail traders are panicking this AM after likely receiving push notifications on their smartphones about market turmoil in Asia and Europe, which has since spread to the US premarket. Now that the cash session is about 15 minutes underway, website monitor DownDector reports outages are emerging across several major US brokerage houses as everyone tries to log into their accounts and sell stocks.”

9:40 am

BKX has declined beneath its trading channel trendline at 102.50, confirming the sell signal.  The Cycles Model suggests the decline may continue to the end of August.  We may begin to see failures occur across the regional and smaller banks.

7:45 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 plunges to 17247.20 this morning before a bounce.  Welcome to the panic, which may last a few days.  A minimal decline would take NDX to 16500.00, but the Cycle Bottom at 15536.80 is not out of the question.  This week may offer critical information about the extent of the bear market.

The NDX is so deep in short gamma that there are no publicly available options listings.  That may change after the open.

ZeroHedge repors, “Nvidia shares plunged in early premarket trading in New York. The world’s most valuable chip maker is being battered by a global selloff, rising recession fears, AI bubble unwind (mid-July report: “Did The AI Bubble Just Burst, And What Happens Next”) , and reports of delays in its new AI chip production.

The Information reports that Nvidia has informed Microsoft and other cloud providers that its most advanced AI chip models in the Blackwell series (B200 AI chip) face three months of delays following the discovery of a design flaw “unusually late in the production process.”

SPX futures have tanked to 5150.00 thus far this morning, with no end in sight.  The decline appears to be headed for the 200-day Moving Average at 5007.66, beneath the 1987 trendline.  Buyers have stepped aside, for obvious reasons.  The trouble with this decline is that there has been very little hedging, which means there are few shorts that can take profits at this level.   Today may turn into a “limit-down” day.  The bad news for investors is that limit-down days often happen in a series of two or more.  The circuit breakers may be activated should the SPX reach 4971.00.

Today’s options chain is heavily populated with puts all the way to 4200.00.  This indicates that large players have been hedging possibly as late as Friday in anticipation of today’s panic.  .

ZeroHedge reports, “Good morning and welcome to a global market meltdown, sparked by last week’s catastrophic BOJ decision to hike rates by 0.15bps which in turn crushed the $20 trillion yen carry trade, sent the yen exploding higher and wiping out trillions in highly levered investments, leading to a cascade of selling and forced liquidations which has resulted a historic market crash in Japan and a rout everywhere else.

In the US, futures are sharply lower with tech plunging as the global AI/Semis trade – itself a byproduct of the carry trade – is sold and small-caps are re-shorted. The Nasdaq 100 is set for its biggest opening drop in more than four years, as investors bracing for days of volatility amid rising concerns over a slowing US economy and overheated gains in the tech sector. Nasdaq 100 futures fell as much as 6.5% before paring losses to about 4.5%. That puts the tech-heavy index on track for its worst open since the pandemic days of March 2020.”

VIX futures rocketed to a new high at 61.95 thus far, with no end in sight.  Those of you who though my prediction that VIX may rise to its 2020 high at 85.47 might be crazy may now reassess their thought process.  Pundits are now comparing today to the 2020 high.

Wednesday’s options chain shows VIX well above what few long calls there are.  The market has been caught totally off guard this time.

TNX bounced at 36.69 this morning, well beneath its daily Cycle Bottom.  At this (Primary) degree, the weekly chart may be more useful.  It shows its Cycle Bottom at 29.38, which may be the target for the current Master Cycle.  Fortunately, the MC is due to end   in about two weeks.  The decline in TNX is attributed to the notion that the Fed may be forced to do multiple rate cuts to prevent a further drawdown in equities.  The fact is, the Yen carry trade that has been extant since the 90’s is now over and with it, the “zero percent” financing of the leveraged market as well.  In addition, the fall in rates and rise in the 10-year Treasury Notes may be attributed to a knee-jerk reaction of investors seeking a “safe haven” from the declining equities.  The Cycles Model suggests this may come to an end in about two weeks.