The Practical Investor

10:05 am

BKX, our liquidity proxy, may be attempting a correction.  A likely target may be near the Intermediate-term resistance at 79.91.  I am dubious that it will make it, but the Cycles Model suggests the uptick may last through Friday.  Hmmm.

ZeroHedge comments, “Despite today’s modest pullback in rates which took place after the 30Y briefly rose above 5% for the first time since 2007, and was catalyzed by the worst (and most realistic) ADP report since 2021, the reality is that rates have seen unprecedented moves in recent months, including a +73.5bps rise in 10yr US yields during Q3, while 30yr yields soared +83.9bps, the largest move since Q1 2009.

It is therefore not a surprise that there has been a frenzy of inquiries into whether the spike in yields will lead to another round of “accidents” something which both Goldman and JPMorgan warned is increasingly likely… and in the case of the latter even welcome, since any regional bank failure would mean that JPM would just become even bigger as it assumes (and with some luck, is paid by the FDIC to do so) the deposits of yet another failed bank(s) – just see what happened in March when every regional bank failure meant JPM would just soak up its good assets while leaving the toxic stuff to US taxpayers.”

8:10 am

Good Morning!

NDX futures made a new high during the overnight session to 14810.80, then pulled back to Max Pain.  The correction is underway to a possible high near the Intermediate-term resistance at 15044.56.  You may hear sighs of relief that the decline may be over, but don’t believe it.  The worst part of the decline is yet to come.

In today’s op-ex Maximum Investor Pain is at 14770.00.  Long gamma starts at 14800.00, while short gamma may begin at 14750.00.

SPX futures tested yesterday’s high in the overnight market, then eased back down to a low at 4242.60.  Today is resumes its zigzag journey to resistance at 4335.00.  That journey may take another day to complete.

Today’s op-ex shows Maximum Investor Pain at 4255.00.  Long gamma may begin at 4260.00 and extends to 4350.00.  Short gamma starts at 4235.00 and has support to 4150.00.

ZeroHedge reports, “US equity futures were flat on Thursday, reversing earlier modest losses, with Asia and Europe both solidly in the green after days of losses as global markets steadied thanks to bonds halting their rout as investors looked ahead to more weak labor market data tomorrow. As of 7:45am, S&P 500 futures were unchanged at 4,298 and the yield on 10-year Treasuries was flat 4.71%. The dollar was steady while commodities extended their losses dragged by Energy. WTI has lost ~$10 in six trading sessions, -10.8%, and is virtually unchanged on the year after breaching $95 late last week. Today’s macro data focus includes Jobless Claims and Job Cuts; there are two Fed speakers and announcements on the next wave of bond auctions. Tomorrow we get the Sept NFP which according to JPM “may mean more than next week’s CPI.””

VIX futures traded inside yesterday’s range above the trendline at 18.50.  The Cycles Model offers no indication whether the correction may continue lower in the next couple of days, but that is the base case.

Next Wednesday’s op-ex shows Max Pain at 18.00.  Short gamma extends from there down to 15.00, while long gamma begins at 19.00 and extends to 42.50.

The October 18 (monthly) op-ex shows Max Pain moving up to 18.00.  Short gamma starts at 17.00 and extends to 12.00.  Meanwhile, long gamma begins at 20 and extends to 70 with 70,000 contracts at that strike.

TNX has eased back from yesterday’s high, but not for long.  While the next couple of days may be quiet, trending strength comes roaring back over the weekend.  In July the Cycles Model predicted that TNX would exceed 50.00 by the end of October and it appears that it may come to pass.

ZeroHedge remarks, “Today’s modest normalization notwithstanding, the recent move in rates has been historic: as noted earlier, we have seen a massive +73.5bps rise in 10yr US yields during Q3, while 30yr yields soared +83.9bps, the largest move since Q1 2009. This staggering parallel shift has resulted in huge unrealized losses on bank’s fixed income portfolios (which amount to $5.4 trillion in debt securities), and which according to DB calculations will reveal another $140 billion in unrealized losses, pushing the cumulative total to a new record at or above $700 billion.

USD futures sank to 106.25 in a brief correction, possibly to test the Cycle Top at 105.95.  The correction may last to the weekend, but trending strength may resume by mid-week.

ZeroHedge observes, “wo weeks ago, we laid out the various reasons why – according to JPMorgan and Goldman – sentiment on US consumer stocks had cratered, and would continue to worsen.

After a brief short squeeze at the end of September, the XRT retail ETF is at the lowest level since June after peaking on the “last Fed hike” in late July, and as we enter into 4Q, there is a lot on the line in the consumer space, something that has not been lost on the market. Indeed, as Goldman’s Prime Brokerage recently noted, shorting in the consumer discretionary space is at YTD highs as a result of a growing multitude of macro issues.”

Gold futures made a new low at 1826.25 this morning as the decline continues.  Gold may consolidate near the Cycle Bottom at 1836.25, but may resume its decline over the weekend.  The next threat to investors is breaking the March low at 1810.80.  The outcome of that action may cause a “limit down” day to follow.

 ZeroHedge observes, “Central bank gold buying continues to sizzle.

Central banks globally added a net 77 tons to their reserves in August, according to the latest data compiled by the World Gold Council.

It was the third straight month of net purchases. Over the last three months, net gold buying by central banks totaled 219 tons.”

Crude Oil futures tumbled to a deeper low at 82.36 this morning as the decline extends beneath critical supports.  The next support may be the mid-Cycle line at 77.51.  Panic is about to set in as the decline becomes unrelenting.

ZeroHedge observes, “Oil “well” below the 50 day

Despite all the explosion narratives, oil is actually trading at the same levels we traded at in mid November. Oil continues puking below the 50 day, while the 200 day remains way lower. Mean reversion minds remain winners in oil…

Source: Refinitiv

Oil – long and wrong

CTAs were massively long oil into this latest sell-off. We do not have any recent updated data on how much they have sold as price is collapsing, but GS says that it is safe to blame the CTA crowd for the move lower in oil yesterday.”

9:58 am

BKX continues its inexorable slide this morning, but may be due for a short technical bounce.  The already thin ice is cracking ominously as the Fed continues to hide its deteriorating reports until after the Friday close, hoping that they will be buried by the weekend news.  The Cycles Model tells us that there may be a 2-3 week (severe) decline, likely to start by this weekend.  The fed’s message to the troubled banks, “For heavens sake, keep it under wraps until this weekend!”

ZeroHedge remarks, “The financial conditions (FCI) “tightening shock” which has occurred ever since The Fed ‘de facto hiked’ with their surprisingly aggressive SEP a few weeks back was further fueled yesterday by the incoherent JOLTS data (which this morning’s ADP print appears to completely dismiss).

Source: Bloomberg

This is the fastest pace of tightening since September 2022 and yields and stocks are finally paying attention to it…”

8:15 am

NDX futures tested the trendline at 14120.00 but bouncing at 14446.30, making a lower low.  However, this morning’s futures are positive, reaching 14639.50 as I write.  The anticipated bounce may have begun.  The anticipated target may be the 100-day Moving Average at 14921.57.  Should that target be reached by the end of the week, we ay see a 9-day sell-off that may reach a new Master Cycle low.  This is not the beginning of a new uptrend, as many may predict.

In today’s op-ex Maximum Investor Pain is at 14640.00.  Long gamma emerges at 14660.00 and strengthens at 14700.00.  Short gamma starts at 14630 and remains strong as it goes lower.

ZeroHedge observes, “SPX – massive levels

SPX could be breaking below the huge trend line that has been in place since last October. We are well below the 100 day…and closing in on the 200 day, currently around the 4220 area.

Source: Refinitiv

The Jaws gap

The gap between NASDAQ and the US 10 year (inverted) remains absolutely massive. Chart 2 shows the shorter term view. The rates narrative is alive…

SPX futures did reach the 200-day Moving Average at 4201.50 in the overnight session, then bounced to 4246.00 thus far.  It is likely that this bounce may rise to 4300.00 – 4335.00. in the next few days.  The current Master Cycle is not over, so should we see that bounce complete in the next few days. we may still see a two-week decline afterwards to complete the Master Cycle.

Today’s op-ex shows Max Pain at 4240.00.  Long gamma begins at 4250.00 and strengthens above 4260.00.  Short gamma begins at 4225.00 and strengthens beneath 4200.00.

ZeroHedge reports, “Global stocks and US futures were in freefall earlier this session, with spoos tumbling to a four month low of 4,235 and tracking the relentless drop in Treasuries tick for tick which briefly sent 30Y yields above 5.00% – the highest since Sept 2007 – around the time Europe opened…

… before a bout of buying kicked in and yields dropped sharply while futures reversed all losses and as of 7:45am, S&P futures were up 0.2% to 4,273 while Nasdaq futures were up 0.1% after slumping sharply earlier.”

VIX futures reversed down to 18.98 this morning to complete its Wave pattern down to 15.83 in a possible expanded flat correction over the next few days.  Should my assessment of the Cycles be correct, the new Master Cycle may last up to two months.   The coming rally in VIX may rival the March 2020 rally.

In today’s op-ex, Max Pain is at 16.00, matching the probable downside target for the correction.  There is no short gamma.  Long gamma begins at 17.00 and strengthens above 20.00.

TNX futures reached a new milestone, topping out at 48.86 before pulling back in this morning’s session.  This action puts the Head & Shoulders minimum target in view, considering there are two more weeks in the current master Cycle.   At this rate, the Head & Shoulders target may be reached in October, while the ultimate target at 53.16 may be reached by the end of the year or very early in 2024.  Many commentators give too much credence to the Fed, with very little understanding of the Cycles.

RealInvestmentAdvice is a case in point, “Based on some comments, it appears we scared a few people with A Crisis Is Coming. Our article warns, “A financial crisis will likely follow the Fed’s “higher for longer” interest rate campaign.” We follow the article with more on financial crises to help calm any worries you may have. This article summarizes two interest rate-related crises, Long Term Capital Management (LTCM) and the lesser-known Financial Crisis of 1966.

We aim to convey two important lessons. First, both events exemplify how excessive leverage and financial system interdependences are dangerous when interest rates are rising. Second, they stress the importance of the Fed’s reaction function. A Fed that reacts quickly to a budding crisis can quickly mitigate it. The regional bank crisis in March serves as recent evidence. However, a crisis can blossom if the Fed is slow to react, as we saw in 2008.”

USD futures pulled back to 106.25 this morning, possible correcting to the cycle Top at 105.90.  The weakness may last through the weekend, but trending strength may come roaring back early next week.  The Cycles Model calls for two more weeks of strength before a larger correction comes due.

Gold futures appear to be consolidating after challenging the Cycle Bottom support at 1839.16.  However, the current Master Cycle isn’t finished and the largest decline yet may be at hand.  We may see a sharp but brief retracement followed by a resumption of the decline that may reach the cup with Handle formation target.  In this case, inflation is not the driver, but a liquidity crisis.

Crude oil futures made a new low at 86.36 overnight before bouncing at the Intermediate-term support at 86.11.   The bounce has the potential of reaching the Cycle Top at 89.60, but may not last beyond the end of the week.  The following decline may be fraught with perils as a liquidity crisis may be looming.

(Reuters) -Oil fell on Wednesday, as pledges by Saudi Arabia and Russia to continue crude output cuts to the end of 2023 were offset by demand fears stemming from macroeconomic headwinds.

Brent crude oil futures were down $2.02, or 2.22%, to $88.90 a barrel at 1228 GMT, while U.S. West Texas Intermediate crude (WTI) fell $2.10, or 2.35%, to $87.13 per barrel.

The OPEC+ Joint Ministerial Monitoring Committee (JMMC) online meeting on Wednesday kept the group’s output policy unchanged, two sources said while the meeting was underway.

ZeroHedge remarks, “Oil prices are plunging overnight as worsening sentiment across markets over the last few days, spurred by a higher-for-longer outlook for global interest rates, has trumped any physical tightness fears even as Saudi Arabia and Russia reaffirmed that they will continue output curbs until the end of the year.

API

• Crude -4.21mm (unch exp)
• Cushing +705k
• Gasoline +3.95mm (+300k exp)
• Distillates +349k (-400k exp)

DOE

• Crude -2.22mm (unch exp)
• Cushing +132k
• Gasoline +6.48mm (+300k exp)
• Distillates -1.27mm (-400k exp)

Crude inventories fell for the 3rd strauight week but stocks at the Cushing hub rose (+132k) for the first time in 8 weeks. Gasoline stocks soared by almost 6.5mm barrels – the biggest weekly build since Jan 2022…”

12:46 pm

SPX is probing new lows, but is approaching a key support.  The 200-day Moving Average is at 4202.00 (corrected).  This may set up a 2-week bounce that may revisit the neckline at 4335.00.  This is not the end of the decline, but SPX is getting oversold.  Stay alert.

7:45 am

Good Morning!

NDX futures have been consolidating near the top of yesterday’s trading range overnight, but are coming down this morning.  Overhead resistance lies at the 100+day Moving Average at 14909.00.  A decline beneath 14700.00 breaks the consolidation, while a decline beneath 14400 activates the Head & Shoulders formation.  NDX remains on a sell signal beneath the 50-day Moving Average at 15179.29.

Today’s op-ex shows Maximum investor Pain at 14830.00.  Long gamma comes on strong at 14840.00, while short gamma persists beneath 14825.00.

ZeroHedge remarks, “Kolanovic; There are enough similarities to 2008 to warrant caution

“Our cautious outlook will likely remain in place as long as interest rates remain deeply restrictive, valuations expensive, and the overhang of geopolitical risks persists. Since the start of the year, the headwinds for markets are stronger and tailwinds weaker, in our view. Lags in the impact of high rates are longer this time, but we believe most of the negative effects are still to come. Delinquencies in consumer loans and corporate bankruptcies are starting to move higher, and this trend is likely to continue absent a cut in rates. The oil price surge is adding a drag to growth. While we are not saying that the situation now is the same as in 2007-2008, there are enough similarities to warrant caution” (Kolanovic)”

SPX futures first tested yesterday’s high by rising to 4299.50, then sold off to the low with a decline to 4264.00 thus far.  The consolidation ends beneath 4260.00 and the sell signal is strengthened beneath the mid-Cycle support at 4229.45.  Most traders believe that the market will bounce from here, but new lows may stifle the thought.

Today’s op-ex shows Max Pain at 4285.00.  Long gamma starts at 4300.00 while short gamma kicks in at 4275.00.

ZeroHedge reports, “In a deja vu repeat of Monday’s open, and really a carbon copy of most mornings in the past month, what was a modest attempt to push futures higher has crashed and burned with US equity futures sliding to session lows as yields resumed their surge once again, the 10Y rising up to a new 16 year high of 4.74%, with 30Ys also rising to the highest since 2007, hitting 4.856%.

As a result what was a modest 0.3% gain in spoos turned into a 0.4% loss as S&P futures dropped to session lows of 4,307 as of 7:35am with Nasdaq futures dragged 0.5% lower. The Bloomberg Dollar Spot Index followed yields tick for tick and rose to an 10-month high, pressuring most Group-of-10 currencies. The selloff rippled across equity and commodity markets, with Europe’s Stoxx 600 sliding to a six-month low as WTI traded near $89 a barrel and gold and Bitcoin fell.”

VIX futures rose to to 18.56 this morning, with a promise of higher vales to come.  Once above the trendline at 18.50 the VIX has the capability of meeting and exceeding the March high at 30.81.  VIX is on a confirmed buy signal.

Tomorrow’s op-ex shows VIX solidly in long gamma above 17.00 and stretching to 40.00.

TNX futures rose to a morning high ov 47.57 as yields relentlessly move higher.  The Head & Shoulders target is clearly in view while three months ago it was considered an impossibility by many.  Even more amazing is that it may reach its target by month end.

ZeroHedge points out, “One of the largest 3-month steepenings

One of the largest 3-month steepenings of the US 2s10s curve.

Source: Goldman

More bear steepening ahead

Kolanovic says that bear steepening might not be behind us given:

1. bond funds appear to be overweight USTs

2. the banking system continues to shed duration

3. the JGB sell-off may have encouraged relative value flows away from other core government bond markets to JGBs

4. global non-bank investors remain modestly OW bonds

10:02 am

The Ag Index is testing its Cycle Bottom at 383.83 on day 265 of its current Master Cycle.  Today’s low is between the proposed potential lows at 380.54 and 387.76 mentioned this summer.  While it may linger another day or two, the new Master Cycle is overdue and ready to begin.

ZeroHedge remarks, “Russia’s second consecutive bumper wheat harvest has cemented it as the top producer of the grain, with the surplus leading to a three-year low in prices, overshadowing any concerns about tensions in the Black Sea between Ukraine and Russia. As the quarter ends on Friday, wheat prices are on track to record the longest quarterly slump in 14 years. While this development is favorable for consumers, traders must closely watch prices.

Bloomberg reports wheat futures in Chicago have tumbled about 11% in the past three months and are set for the fourth quarterly decline. Even though Russia terminated a safe-passage deal in July that allowed bulk carriers to export Ukraine’s grain via the Black Sea to the rest of the world, prices have remained under pressure – mainly because Russia has had a record bumper harvest. ”

9:53 am

BKX, our liquidity proxy, may be about to cut loose to the downside.  The ice becomes thinner and cracks are appearing…

ZeroHedge comments, “Retail money-market fund inflows continued last week and usage of The Fed’s emergency funding facility for banks remains at record highs, as shrinkage of The Fed’s balance sheet continues.

Tonight, all eyes are on the bank deposits for more worries, and on a seasonally-adjusted basis, total deposits jumped $49BN last week (the biggest inflow since May)…

Source: Bloomberg

But, on a non-seasonally-adjusted basis, total deposits plunged $85BN last week (the biggest drop since July)…”

7:30 am

Good Morning!

NDX futures tested Friday’s high by rising to 14864.60 before falling back near the close of the week.  It is currently consolidating between the 100-day Moving Average at 14893.89 and the Head & Shoulders neckline at 14435.00.  Crossing the neckline may activate that formation leading to a multiple week decline.

Today’s options expiration shows NDX options deep in short gamma with long gamma starting at 14880.00 and short gamma beneath 14850.00.  Options sentiment has turned to the dark side.

Meanwhile, ZeroHedge informs, “Goldman sees 2nd chance opportunity in Magnificent 7

Goldman says that the divergence between falling valuations and improving fundamentals represents an opportunity for investors to buy.”

SPX futures rose to 4320.10 over the weekend before declining back to its closing value.  SPX has met its retracement target and is primed to fall beneath its 200-day Moving Average at 4226.85.  It is on a sell signal with the Head & Shoulders target in view.

Today’s op-ex shows Max Pain at 4315.00.  Long gamma begins at 4350.00, while short gamma is strong beneath 4300.00.  Short strength remains down to 4000.00.

ZeroHedge reports, “Stocks tried to stage a modest rally overnight after the US government shutdown was postponed by 45 days, but failed after the global bond selloff resumed on Monday, with 10-year Treasury yields back to the highest since 2007, as investors waited for another speech by Fed chair Jerome Powell to provide clues on the direction of interest rates. As of 7:30am ET, S&P futures traded unchanged from Friday’s close after earlier gaining as much as 0.6% and following a September to forget in which they lost 4.7%; Nasdaq futures were 0.2% higher and continue to be disconnected with tighter financial conditions in rates as Treasury 10-year yields rose five basis points to 4.62% and back to the 16-year highs seen on Friday. The US dollar rose against most Group-of-10 currencies. Brent edged higher and traded around $92 buoyed by widespread bets that global demand will continue to run ahead of supply. Gold fell and Bitcoin gained for a third-straight day, surging above $28K. This week, we will have a busy calendar for macro data with ISMs and NFP being the focus; we will hear from 10 Fed speakers.”

VIX futures rose to test the trendline at 18.20 this morning.  While the former cup with Handle formation no longer applies, there is no apparent formation that may take its place.  That’s not a bad thing, since the next resistance appears to be the March high at 30.81.

In Wednesday’s op-ex, Max Pain resides at 16.00.  There is no short gamma to speak of.  Long gamma starts at 17.00 and intermittently runs to 40.00.

In the monthly op-ex (October 18, 2023),  Max pain is at 18.00.  Short gamma runs strong between 12.00 and 17.00.  However, long gamma begins at 19.00 and is populated in six figure layers to 50.00.

TNX has vaulted higher this morning, giving credence to my warning on Friday that the correction might only be a one-day affair.  The Cycles Model may not show trending strength again until the coming weekend, so TNX may venture more sideways than up to relieve the overbought condition.  We will know more later today as news events may affect the outcome.

ZeroHedge opines, “Milton Friedman made the term “long and variable lag” famous. Everyone involved in markets and the economy has been struggling with the question of “what is the amount of lag” that we currently face on monetary policy. “Conventional” wisdom, as I understand it, is that it takes 3 to 6 months for economic policy to be truly felt. I think that is far too short of a “lag” effect.

I’m going to ignore the fact that there was ongoing stimulus when the Fed started to hike. For example, things like the so-called “Inflation Reduction Act” came out during the hiking cycle. In addition, the Fed was still expanding its balance sheet almost until the time of the first hike. Finally, student loans were in moratorium and there were promises (and attempts, with limited success) of debt forgiveness.

Basically, I will ignore all the reasons why the lag effect was impacted early on. I will instead focus on the reason why it is still taking so long to kick in.”

USD futures are consolidating this morning,  awaiting critical economic data.  Whatever it is may send USD higher, as trending strength may get a boost.  The next overhead resistance lies at 112.00-115.00.

Crude oil futures are consolidating beneath its trendline at 92.50 and are on a sell signal.  It made its Master Cycle high on Thursday, day 266 and had an approximate two month declining Cycle ahead of it.  Declining oil prices in the face of tightening supplies tells us that there is something else going on that may be having a greater effect.

ZeroHedge maintains, “Buyers of physical oil across the planet are experiencing an acute supply shortage and are facing some of the highest premiums for supplies they’ve seen in months as plunging stocks at the largest US crude storage hub send shockwaves cross markets from Asia to Europe and the Middle East.

As Bloomberg reports, US crude cargoes on offer in Asia are being offered at the costliest premium this year. The spread between Brent and Middle East oil has jumped to the highest since February while the premium for near-term US supply is close to the highest since July 2022.

Behind the soaring premiums is Cushing, Oklahoma, the delivery point for benchmark US crude futures, which helps to set the price of oil across the Americas and beyond. As we have noted in recent weeks, inventories at the hub are now sitting just above seasonal lows last seen in 2014, and are effectively at the level known as “tank bottoms” below which inventories are for the most part unusable.

Gold futures reached a low of 1846.50 this morning, testing the Cycle Bottom support at 1839.66.  Today gold is experiencing trending strength, suggesting that support may not hold.  More trending strength is due over the next two weeks, suggesting the Cup with Handle target may be met in that time.

2:55 pm

It appears that the Ag Index is finally making its Master Cycle bottom.  on day 262.  I noticed that stores are having sales on canned foods as they move out last year’s crop and make way for this years canned goods.  Prices will go up due to developing shortages of food.  I was just touring the prairie in western Minnesota and the fields appear to be dried up unless they were irrigated.  Rivers and lakebeds are also dry, evidence of lowered water tables.  We may be in for a multi-year rally in food prices.

ZeroHedge remarks, “Our standard of living is being systematically destroyed, but for a lot of years many Americans didn’t fully understand what was taking place because it was happening so slowly.  But now we have reached a stage where the purchasing power of our money is collapsing and the cost of living has become exceedingly painful.  Thanks to our rapidly rising cost of living, the middle class is becoming “the impoverished class”, and the poor are increasingly being pushed out into the streets.  If we do not find a way to turn these trends around, it won’t be too long before we have tremendous societal turmoil on our hands.”

10:35 am

The bounce in the Banking Index continues on thinner ice as liquidity is drained from the markets.  Once the supports give way, the ensuing plunge may exceed that of the March decline.  The Head  Shoulders formation i s still active and awaits completion.

ZeroHedge observes, “After an unusual outflow last week, US money market funds saw a $6.3BN inflow this week, back up close to record highs…

Source: Bloomberg

Once again, retail funds saw inflows (no outflows since April) of $7.8BN while institutional funds declined $1.5BN…

Source: Bloomberg

That is the second week of institutional outflows as retail inflows send total retail funds to a new record high…”

9:30 am

Good Morning!

SPX futures reached a morning high at 4333.15 as it may have completed its retracement back to the Head & Shoulders neckline at 4335.00.

In today’s op-ex, Max Pain is at 4325.00.  Gamma turns positive at 4340.00, while short gamma begins at 4315 with a massive put wall at 4300.00 with 19047 put contracts.

ZeroHedge reports, “US equity futures and global stocks rose on the last trading day of the week, month and quarter and global bonds rebounded after dovish comments from Fed officials and signs that European inflation is finally slowing when EU consumer prices rose just 4.3%, down from 5.2% in August, and the lowest since Oct 2021. Ahead of today’s closely watched “Fed’s favorite inflation gauge”, the core PCE due out at 8:30am ET, S&P and Nasdaq 100 futures were up 0.4% as longer-dated bond yields were 2-3bps lower while supportive inflation data in Europe drove European bond yields lower this morning. 30-year TSY yields are down 3bps at 4.68% but still on course for their largest quarterly gain since 2009. The US Dollar dropped and crude oil rebounded. Commodities are mostly higher led by base metals (Aluminum +1.8%; Copper +1.3%), with Brent back over $96 and approaching the 2023 high of $97. Today’s macro focus is on PCE, Personal Income/Spending, Chicago PMI, and U of Mich. survey data. For PCE, consensus sees the PCE deflator printing at 0.5% vs. 0.2% prior and Core PCE deflator rising 0.2%, unchanged from 0.2% prior.”

VIX futures opened at 16.87 and remained soft wile SPX lingered near its target.  The Cycles Model shows trending strength beginning today, so the correction may not last.

Next Wednesday’s op-ex shows some short gamma between 14.00-16.00.  Gamma turns long at 17.00 and remains strong to 40.00.

TNX pulled back this morning after a stellar rise over the last week.  The correction may decline to the Cycle Top support at 44.29.  However, trending strength may come back over the weekend as the final Wave completes the Master Cycle in the next three weeks.

ZeroHedge reports, “The last coupon auction of the week is now in the history books, and for long-suffering bond traders it couldn’t come a minute sooner.

After two solid bond sales earlier this week, moments ago the Treasury offloaded another $37BN in 7Y paper, in what was at best a mediocre affair.

Pricing at a high yield of 4.673%, this was the highest stop on record…

… up a whopping 46bps from the 4.212 in August, and also tailed the When Issued 4.670% by 0.3bps.”

ZeroHedge further observes, “Bonds continue to look oversold after the equally-sharpest rise in the global median real yield seen in at least 60 years. More consolidation in the shorter term is anticipated as bonds continue to work off their oversold condition.

Yields across DM have hit cycle highs in recent days. They started to swing lower Thursday afternoon and are following through in the European morning.

Term premium has been rising as bonds’ efficacy as a portfolio and a recession hedge is impaired when the stock-bond correlation is positive. After most of the last two decades being negative, the correlation is positive again as inflation and inflation expectations have a greater influence on markets.

The global real yield of the largest EM and DM countries has increased by the most over one year since 1969, rising by over six percentage points.”

USD futures challenged their Cycle Top support at 105.69, declining to 105.34 prior to a bounce.  The rally may soon resume as the Master Cycle has three weeks remaining to go higher.

ZeroHedge observes, “Last week we laid out what the economic consequences of a lengthy government shutdown would likely be, among them a drop in GDP and a spike in the unemployment rate perhaps sufficient to push the US economy into recession, not to mention a halt in most economic data reporting..

… but ahead of the Sept 30 midnight drop dead date, there is still some confusion so let’s recap the main points, the first of which is that a government shutdown should not be confused with the debt ceiling and its potential for a sovereign default.

As JPM writes in its latest shutdown note, if no deal is reached by Oct 1 – which is now certainly the default case – then a continuing resolution is one of the more likely paths, but should a CR remain in place by Jan 1, 2024, then there will be an automatic cut to military/defense spending.”

1:45 pm

SPX has made a partial rally to the neckline at 4335.00.  The balance of the rally may be finished by tomorrow morning.  Its time to go short again either before the close today or early morning.

ZeroHedge remarks, “Credit spreads are vulnerable to an abrupt repricing wider as trading conditions in equity markets become more volatile from negative gamma.

An old Swedish proverb warns that what is hidden in the snow, is revealed in the thaw. Things are heating up in equity markets, threatening to lay bare the true state of credit. That risks a sharp widening of credit spreads as they rapidly adjust to worsening underlying credit conditions. With bond yields rising too, markets are in a riskier spot than they have been for several months.

The catalyst for more upset might just be negative gamma. When positive, it’s associated with more stable, less volatile equity-market behavior. But according to Goldman Sachs, S&P gamma is now at a series low, opening up a veritable Pandora’s box of risk and the potential for much higher equity volatility and considerably wider credit spreads. The move is perhaps now getting started, with both the VIX and spreads higher in recent days.”

8:00 am

Good Morning!

SPX futures are consolidating above the 200-day Moving Average at 4296.15 and beneath the Head & Shoulders neckline at 4335.00.  That will remain the trading range until the bounce is complete.  Once accomplished, the decline resumes with more vigor as the most intense part of the Cycle takes its position over the next three weeks.

Today’s op-ex shows Maximum investor pain at 4310.00.  Long gamma begins at 4315.00 wile short gamma rules beneath 4250.00.

ZeroHedge reports, “US equity futures reversed initial gains following Wednesday’s surprise reversal that helped US stocks close green, and were trading marginally lower as global bonds resumed their selloff, sending 10Y yields to a new 16-year peak as soaring Brent oil prices hit $97 overnight before reversing as the US Dollar dipped. At 7:45am ET, S&P futures traded down 0.1% and Nasdaq 100 futures were down -0.3%. As 10-year yields rose 4bps to 4.65% the yield curve flattened and the 2s10s was inverted by less than 50bp for first time since May. 1Y breakeven had its largest move since late July as oil surged on constrained supply. Commodities are mixed with metals and natgas leading with USD lower pre-mkt. Today’s macro focus is on GDP, Consumption, Jobless Claims, Pending Home Sales, Kansas Fed, and updates on economic revisions. We also get four Fed speakers, including Powell at 4pm. Financial conditions have tightened since the Fed meeting and mortgage rates are at multi-decade highs. Keep an eye on the 4200 level as we reach expiration on Friday and the JPM collar is rolled.”

VIX futures made a possible Master Cycle high yesterday, on day 257.  Circumstances suggest that the high may extend another day or two while the SPX tests its 200-day Moving Average.  Many analysts claim that the VIX may head even lower, as recency bias sets in.  Another argument is that seasonality indicates that the decline in stocks may be over, leading one to believe that VIX will suffer for it.  A reminder that seasonality (calendar patterns) is not the same as Cycles.  The Cycles Model indicated a continued rise in VIX through late November.

Wednesday’s op-ex shows Max Pain at 16.00 in the VIX.  There is no short gamma.  Long gamma begins at 17.00 and extends to 40.00.

ZeroHedge remarks, “Seasonality – headwinds turning into tailwinds

“…the last 10 days of September being the worst 10-day period of the year. However, the headwinds turn into tailwinds as we step into the final quarter, with an average rise of 4.5% at a hit rate of 80% in the global equities since 1987.” (BofA)

TNX futures hit a new high at 46.90.  The Head & Shoulders target appears much more attainable than before, as the current Master Cycle has three more weeks to go.

1:25 pm

SPX is deep into short gamma, thanks to the 0DTE traders.  This morning I mentioned a put wall at 4260.00.  It had over 3200 put contracts.  Now another put wall at 4250.00 with 5961 put contracts is being breached.  Short gamma is strong down to 4200.00, with the 200-day Moving Average at 4196.00 as a possible support, with a 4335.00 upside potential on the bounce.

ZeroHedge remarks, “As we have discussed many times before (here and here for example), the $16 billion JPMorgan Hedged Equity Fund (JHEQX) often has an impact into quarter-end options-expirations as the strategy rolls thousands of put contracts.

Typically, there is some ‘pinning’ trend action as the large gamma draws the market towards the put strikes as dealers are forced to sell the market (delta hedge) to bring their books back to neutral as the options time to maturity looms.

As Bloomberg notes, the fund’s derivatives position consists of a put-spread collar that involves buying puts as well as selling bullish calls and even more-bearish puts. At the end of each quarter these positions are often rolled over without incident.

Yet the market is particularly susceptible to influence when the S&P 500’s trading level approaches the strike price of any of the legs of the trade around the time of expiry.

This time, however, is a little different because the market environment is extremely gamma negative (as we noted previously, the most negative gamma ever according to Goldman Sachs).”

9:52 am

BKX may offer a weak bounce in the next day or two.  However, bad news is coming hard and fast in the Bank sector.  A repeat of the March decline is coming, and it is likely to be worse.  Enjoy the “calm” during the rest of October, since all hell is about to break loose in October.  The Head & Shoulders target is a likely scenario.

8:15 am

Good Morning!

SPX futures rose to 4296.90 this morning in a short-term bounce.  The bounce may take the SPX as high as 4320.00-4340.00 in a retest of the Head & Shoulders neckline in the next few days, easing the month-end losses.  Be aware that there is much more downside ahead.

Today’s options expiration shows Maximum investor pain at 4300.00.  Long gamma may begin at 4310.00, while short gamma gains momentum beneath 4300.00 with a put wall at 4260.00.  As usual, 0DTE traders may push these levels higher or lower.

ZeroHedge reports, “After Tuesday’s sharp rout, US equity futures are higher despite another slump in Asian markets and mixed European bourses, potentially setting up a relief rally as yields are lower with 10Y under 4.50% even as investors keep a close eye on the risk of a government shutdown and the Dollar keeps rising to the point where another Plaza Accord may be required.

As of 7:45am ET, S&P futures were 0.4% higher while Nasdaq futures rose 0.3%; on Tuesday the DJIA fell below its 200-day moving average, a technical signal that suggests the index has become oversold while the VIX retreated after hitting its highest level since May. Commodities are mostly higher with WTI back above $91, leading Energy. Today’s macro data focus is on durable goods and the 5Y Treasury auction ($49bn). Tomorrow we resume with Fed speakers and Friday’s PCE/Consumption data are the most impactful data points of the week.”

VIX futures are testing the trendline at 18.20.  The correction may continue through month-end.  The standard correction low may be the 50-day Moving Average at 15.07.

ZeroHedge observes, “and it’s gone

SPX’s must hold area, around 4360, is gone. We are below the longer term trend line. Why not try the 200 day moving average, only 100 points lower from here…”

ZeroHedge explains the bounce, “Max short gamma

Dealers are in deep short gamma land. GS notes: “Dealers are short $2.51bn of SPX gamma, the lowest level on record, and continue to get shorter on a sell off. ”

Source: GS

Volatility control selling could be big

Tier1Alpha says that volatility control funds will have serious size to sell if we go down a little more. “Pay close attention if markets start to move beyond that, with between $25- $30 billion in selling flow hitting the tape on a 2% return.”

ZeroHedge advises, “VIX perfection

The current sub 13 low in VIX was perfect, at least looking at it from a seasonality point of view. VIX is up around 45% from recent lows, which is a lot. Chasing VIX protection here is a late trade.

TNX is pulling back from a Master Cycle high made yesterday, as the sell-off in stocks precipitated a knee-jerk flight into bonds.  The correction may last approximately three weeks with a downside target being either the 50-day Moving Average at 41.66 or the trendline near 41.00.  This may give the appearance of lower interest rates to come, but the trend is higher and longer than most would expect leaving the Fed powerless to reverse the process.

ZeroHedge remarks, “We recently wrote The Lag Effect Unveiled to appreciate why it takes time for higher interest rates to inflict economic damage. We follow that up with a discussion of something equally worrying that also lags Fed rate hikes. A financial crisis will likely follow the Fed’s “higher for longer” interest rate campaign.

We are not clairvoyant in predicting a crisis; however, we do appreciate financial history.

As shown below, a crisis occurs every time Fed Funds have risen abruptly. Looking closely, you will see that most of the situations followed rate hikes and were quickly addressed by the Fed with sharp reversals in the Fed Funds rate.”

USD futures are consolidating after crossing above the Cycle Top support/resistance at 105.60.  There may be a brief retest of that support with a resumption of the rally next week.

Gold futures made a morning low at 1906.85, having declined beneath the Lip of the Cup with Handle at 1910.00.  It remains on a sell signal beneath the 50-day Moving Average at 1953.43 and mid-Cycle resistance at 1945.16.  Gold is due for a three-week decline that may reach the Cup with Handle target.

ZeroHedge remarks, “Singapore’s Channel News Asia (CNA) recently published a fascinating new documentary film about Singapore’s national reserve assets, including Singapore’s famed monetary gold reserves.

The CNA documentary includes a segment featuring BullionStar’s CEO Luke Chua in BullionStar’s vault visually explaining what 1 tonne of gold looks like, to illustrate the magnitude of Singapore’s gold reserves.”

10:59 am

The Ag Index made a lower low in my absence.  The current Master Cycle may have another day to run out, as tomorrow may be a final day of strength and a reversal at the same time.  This has been a strange pattern, but no rules have been violated.  Get ready for a reversal.

ZeroHedge remarks, “As Morgan Stanley writes in a report (available to pro subs) that is a must-read not only for weather-watchers but also traders (especially those who read our April note El Nino Watch Initiated As Ag-Industry In Crosshairs), developing countries around the world are facing another “inflation shock” as they grapple with floods and heatwaves fueled by the weather phenomenon known as El Niño. The shift to a warming phase from the cooler La Nina has sparked trouble for emerging market economies, which tend to be the most exposed to large swings in energy and food prices and production and usually have limited fiscal buffers to shield from an inflationary storm.

According to Morgan Stanley’s Rajeev Sibal, a moderately strong El Niño has a 90% chance of impacting weather patterns and “would be a significant headwind for EM economies, with high inflation and fiscal pressures two key risks.”

0:48 am

BKX declined to its lowest point since June after making a Master Cycle high on September 14.  The downside structure is unfinished so we are unlikely to see a bounce before new lows are made.  If the Head & Shoulders pattern is correct, BKX may decline another 50% over the next month.

ZeroHedge comments, “In his latest Flow Show note, BofA CIO Michael Hartnett – the most vocal bear at Bank of America – made an important observation, pointing out that at a time when virtually everyone – including the Fed – is expecting a soft landing, the hard landing “tells” are lining up: the yield curve is steepening from -110bps to -67bps, unemployment rate up 3.4% to 3.8%, personal savings rate up 3% to 4-5% YTD, and maybe most importantly, HY defaults are up 1.6% to 3.2%, credit card delinquencies are jumping from 0.8% to 1.2%, while auto delinquencies are surging up 5.0% to 7.3%.”

8:15 am

Good Morning!

My trip was cut short and I’m not unhappy about it.  Glad to be back.

SPX futures made a morning low of 4303.40, near yesterday’s low.  It has triggered the Head & Shoulders neckline at 4335.00 and has another three weeks of decline.   Watch out below!  Should it decline below the October low in the next week or so, then there is a chance of an even deeper low by the end of October.  I will speak on that later.

In today’s Options expiration, Maximum investor pain is at 4335.00.    This is a tightly wound market with long gamma starting at 4340.00 and short gamma beginning at 4330.00.  The 0DTE traders will likely push SPX into short gamma today.  The point of no return is beneath 4300.00 withy a wall 0f 4646 put contacts.

ZeroHedge reports, “US equity futures are weaker, reversing Monday’s modest gains amid a global risk-off tone that has sent European and Asian markets sliding, and which JPM’s market intel team says is “a trend that may continue throughout the week.” As of 7:30am, S&P futures were down 0.4%, off the worst levels of the session, while Nasdaq 100 futures are down 0.5%. Yields on TSYs and European govvies dropped after hitting decade highs even as the Bloomberg dollar index extended gains following its strongest close since December. Oil retreated as the impact of a rising dollar sapped demand. There is a $48bn auction for 2Y bonds today; this likely requires some concession to be digested and is the first of several auctions this week that are larger than normal size. Today’s macro data focus includes housing prices, new home sales, regional Fed activity surveys, and consumer confidence.”

VIX futures made a morning high at 18.14, just beneath the trendline at 18.50.  A breakthrough may set a Cup with Handle formation in motion, likely to challenge the Cycle Top at 23.58.  The Cycles Model suggests it may be possible by the end of this week.  Should it do so, there is a much higher target to be reached by late October.

TNX may have made a Master Cycle high yesterday, but the structure appears incomplete and the morning futures made a new high at 45.69.  In addition, this week shows another period of strength in the latter half.  It is possible for TNX to go higher before the current Master Cycle runs out.

ZeroHedge observes, “TLT -50%

Bond tracking ETF, TLT, closed at its lowest level since February 2011. The ETF is now officially down 50% from its high just 3 years ago in 2020. Good times for new bond investors, bad times for existing bond investors.”

ZeroHedge further advises, “Bonds’ diminishing ability to act as a hedge for stocks jeopardizes the concept of the standard 60% equities, 40% bonds approach to portfolio design.

A lack of viable alternatives for bonds may lead to increased stock exposure, threatening long-term financial and economic stability.

TINA is coming back, but this time with a vengeance. In the salad days of zero rates and fast-expanding central bank balance sheets, stocks were the only game in town. Nothing – not bonds, commodities or real estate – offered higher returns. TINA – There Is No Alternative – really was it.

One pandemic, multi-decade-high inflation and over 500 bps of rate rises later, the investing landscape has changed fundamentally. Equities entered a bear market and have yet to re-take their January 2022 highs, but still, owning them might start to look even more unavoidable than before.”

USD futures took a rest from its inexorable climb as it has consolidated inside yesterday’s range.  There is no further doubt that the USD is heading higher, along with yields.

Crude oil futures declined to 88.20 in the overnight session, testing the Cycle Top support at 88.13.  Crude made its Master Cycle high on the 19th and is currently on a sell signal.  A break beneath the Cycle Top adds confirmation to that signal.  Be aware that WTIC may be in decline  for the next two months, despite the Cushing reports.  There is something else going on which may be evident soon..

ZeroHedge observes, “Crude prices will likely get a fresh boost this week, as stockpiles at the key US storage hub in Cushing, Oklahoma, risk collapsing to the lowest level (aka “tank-bottoms”) in almost a decade.

Such a move would embolden those aiming for a return of $100 oil by year-end.

Cushing matters. Being the delivery point for the WTI futures contract, the rise and fall of the holdings is among the market’s most closely followed trends. So far in 3Q, inventories have slumped by ~47% to 22.9m barrels. That’s the lowest since July 2022 and that’s not far away from the 2014 lows.”

ZeroHedge makes a further comment, “Oil’s trend perfection

Oil continues trading inside the perfect trend channel that has been in place since June. We reversed off the channel highs with the perfect shooting star as we mentioned in our “Oil reversing” email 6 days ago. We are approaching the first supports, coming in at the 21 day moving average ($1 lower).”

Gold futures hit a new low at 1919.05, just above the Lip of the Cup with Handle formation.  It made a Master Cycle High on Sept. 20 and has fallen back beneath the 50-day Moving  Average at 1954.27.  It is on a sell signal that may last for the next three weeks.  A decline beeath the Lip at 1910.00 would have bearish consequences.

Please note:  This may be may last newsletter for the month of September.  

12:23 pm

BKX may be completing a small retracement (short squeeze).  Overhead resistance is at 83.9, if needed.  The Cycles Model suggests a decline may resume to mid-October.  Be aware of the Head & Shoulders formation and its minimum target.

ZeroHedge notes, “The panic that gripped financial markets in March over the regional bank bailout, which was in large part due to exposure to the foundering commercial real estate space in general and the office sector in particular, is all but forgotten even though in the six months since underlying fundamentals have only gotten worse, underlying cash flows in the CRE space have slowed further, and . In fact, the only thing that has changed is the record amount of “papering over” the Fed has enabled with the central bank’s BTFP facility hitting an all time high every week. Meanwhile, if one eliminates the impact of the BTFP program, which is scheduled to sunset in around 6 months, regional banks are effectively insolvent as the following chart showing large and small banks’ cash/assets with and without BTFP makes clear.

But not everyone has decided to just ignore the elephant in the room, which represents a staggering $2.5 trillion in debt maturities and rollovers at much higher rates, over the next five years:”

8:10 am

Good Morning!

NDX futures have fallen to 15404.00 thus far.  A sell signal is generated beneath the 50-day Moving Average at 15282.50.  The September 1 high remains the top of the last Master Cycle, leaving the decline in place through mid-October.Warning:  Bear markets are where the strongest up-days are.  However, they are book-ended by even stronger down days.  It is often best for the average investor to remain at the sidelines until the Cycle plays itself out.

Today’s op-ex shows Maximum investor Pain at 15430.00.  Long gamma begins at 15450.00 while short gamma starts at 15425.00.  Sentiment has levelled out, making it difficult who has the upper hand.

ZeroHedge remarks, “Heading into Triple Witching week (which only happens four times a year), the market has been struggling in a neutral position as it dipped into negative gamma territory for the second time this year. What we learned from the recent stretch of negative gamma in August is that context of structure and flow have become proportionately more important. This is partially because 0DTE flows have been supplementing the diminished liquidity from net negative market gamma.

When we exited the first round of negative gamma that we were in for the majority of August, we saw 0DTE flows tip the scales here by moving with the trend rather than against it (as it usually does).

If 0DTE flows begins to do this when in negative gamma, and chases a downtrend, then this could become quite dangerous for the market.”

ZeroHedge observes,”The risk premium investors demand from technology stocks is now the lowest since the dotcom bubble, underscoring the extent to which valuations have run up this year — and sending a warning.

The prospective earnings yield on the Nasdaq 100 adjusted for the Federal Reserve’s benchmark rate turned negative late last year, with this year’s stunning rally taking it further south:

The magnitude of inversion was on a similar scale but less pronounced in the run-up to the financial crisis, and clearly both prior episodes didn’t end well for investors.”

SPX futures have declined to test the 50-day Moving Average at 4476.51 thus far.  Should it open beneath it, a sell signal may be generated.  We may see an effort to keep the SPX above its Head & Shoulders neckline at 4335.00 prior to options expiration.  0DTE traders may quickly jump on any trend, including short, so the market is at a delicate juncture.

Today’s op-ex shows Max Pain at 4475.00.  Long gamma starts at 4500.00 while dhor gamma begins at 4450.00.

ZeroHedge reports, “US futures are slightly lower, but holding on to much of yesterday’s tech-driven gains, with European bourses and Asian markets mixed ahead of tomorrow’s CPI print. At 7:30am ET, both emini S&P500 and Nasdaq 100 futures slipped 0.3%, reversing yesterday’s rally. Tech stocks retreated as Oracle dropped 10% after posting slowing cloud sales, while the euro and pound weakened on concern the Europe faces a growing threat of stagflation. Tech will also be the center of attention on Tuesday, with Apple set to unveil a new product lineup including the new iPhone 15, and SoftBank-owned chip designer Arm gearing is set to price the biggest IPO of the year. US Treasuries edged lower, commodities are higher led by base metals with oil trading near its highest level this year before the OPEC monthly report. Gold fell while bitcoin redovered much of yesterday’s losses.”

VIX futures are consolidating inside yesterday’s trading range.  The Cycles Model suggests (up)trending strength may build into the end of the week.  A breakout may be imminent.  The Cycles Model suggests the new trend may last to mid-October.

Tomorrow’s op-ex shows Max Pain at 14.50.  There is a small contingent of puts at 14.00.  Long gamma begins at 17.00 and currently runs to 29.00.   Not much conviction here.

The September 20 op-ex shows Max Pain at 18.00.  Short gamma reigns between 14.00 and 17.00.  Long gamma begins at 20.00 and runs to 60.00.

ZeroHedge observes, “Never forget VIX seasonality

Will it strike again?

Source: Equity Clock

GS: VIX upside

GS: “We see upside to the VIX based on our Economists’ forecasts”. Chart shows actual vs predicted VIX levels based on the GS economic model of volatility.”

TNX may be consolidating above the Cycle Top support at 42.75.  The Cycles Model calls for a rally with strength into the end of the week.  Then we may see a retracement, just as traders switch to longs.  Ms market can be fickle at times.

ZeroHedge reports, “The Treasury’s first coupon auction came a day earlier, and instead of the usual Tuesday offering, moments ago Janet Yellen’s department sold $44BN in 3 Year paper at a yield of 4.660%, higher than last month’s 4.398%, and the highest since Feb 2007. The auction also tailed the 4.650% When Issued by 1 basis point, the first tail since June.

The Bid to Cover of 2.751 was below last month’s 2.901 – in fact, it was the lowest since June – and just below the six-auction average of 2.788.”

USD futures are consolidating beneath the Cycle Top resistance at 105.30.  The Cycles Model suggests rising strength this week, possibly extending the Master Cycle.  However, that may be followed by a pullback to the trendline at 103.25.  An alternate target may be the mid-Cycle suport at 102.75.

WTIC is running a strong uptrend that may bring in more investors.  The unfortunate part of this equation is that The Current Master Cycle is due to end next week.  The likely target is the trendline at 90.00.  The normal pullback may be to the mid-Cycle support at 76.31, but it may go lower.

ZeroHedge remarks, “Oil prices had been coiling for a few days ahead of this data and are breaking out now after OPEC reports that global oil markets face a supply shortfall of more than 3 million barrels a day next quarter – potentially the biggest deficit in more than a decade.

If realized, it could be the biggest inventory drawdown since at least 2007, according to a Bloomberg analysis of figures published by OPEC’s Vienna-based secretariat.

OPEC’s 13 members have pumped an average of 27.4 million barrels a day so far this quarter, or roughly 1.8 million less than it believes consumers needed, according to the report.”

7:45 am

Good Morning!

I am preparing for a month-long trip which may take me away from this newsletter.  Today’s report may be shortened.

SPX futures are positive this morning, having risen to 4480.00, above the 50-day Moving Average at 4474.41 and Friday’s high at 4473.53.  Intermediate resistance at 4479.51 may be the pivot point.  The Master Cycle may have completed on Friday, but the futures have their own timing that may differ.  Should SPX open beneath Friday’s high, the decline may resume.  Otherwise the next Cycle Pivot may occur Tuesday morning due to a burst of strength over the weekend.

Today’s op-ex shows Maximum investor Pain at 4455.00.  Long gamma starts at 4480.00, while short gamma begins at 4450.00.  This is a very tightly-wound options market.

ZeroHedge reports, “US futures and global stocks were broadly higher to start the week, helped by the biggest drop in the US dollar in two weeks following hawkish commentary from the BOJ, with trader sentiment also lifted amid improving Chinese data (the latest monthly credit data solidly beat estimates) and comments from Treasury Secretary Janet Yellen suggesting a soft landing is likely (this coming from the person who 6 years ago said no financial crisis in her lifetime).

As of 7:45am ET, S&P 500 futures which rolled to the Sept contract, were higher by 0.4%, while Nasdaq 100 futures rose 0.7% boosted by a surge in Tesla which got a major upgrade by Morgan Stanley. US gains were paced by Estoxx 50 where real estate sector leads gains day while Asian stocks were mixed. The dollar’s record 8-week hot streak was under threat as the yen and yuan rose about 1% after comments from the Bank of Japan and the People’s Bank of China boosted those currencies, respectively. Bank of Japan Governor Kazuo Ueda aired the possibility of ending the developed world’s last key negative interest rate. US Treasury yields climbed, gold was up 0.48%, the most in two weeks, and oil dipped.

ZeroHedge remarks, “Short selling alert

Hedge fund cumulative short flows in US has shot up dramatically higher…almost largest in 6 months (93rd percentile vs. the past five years), as per GS prime brokerage data. JPM Position Intelligence team also notes that the level of shorts added in past 4 weeks is again getting elevated. Time for Miss Market to give short sellers a little un-friendly squeeze?

VIX futures are consolidating inside Friday’s trading range.  While a new low may not be in the cards, it may resume its sideways action.  Remember, VIX has made a buy signal.  That is not to be dismissed.

ZeroHedge observes, “Caught in sentiment no man’s land

Investor sentiment, momentum indicators appear to be settling around neutral level.

Source: Macrobond

Sentiment not stretched

Not perfectly neutral but absolutely not stretched either.

TNX futures rose to 43.07, poised to break out above Friday’s high due to a burst of trending strength.  While the current Master Cycle may be over by the end of the week, it is causing consternation among bond traders who are still short.  A short squeeze this week may cause considerable damage.

USD futures have sunk to 104.13, a new low that may trend lower through the end of the week.  USD is now due for a correction that may last up to three weeks.  Possible downside targets may be the trendline and Intermediate support at 103.42.