The Practical Investor

7:45 am

Good Morning!

NDX futures probed above its Ending Diagonal formation in a brief “throw-over” to 13436.60 before easing back under.  This may be the final probe for the NDX, whether it registers on the daily chart or not.  Today is day 273 of the old Master Cycle and it may be running out of time.  In addition, it has run up against the weekly mid-Cycle resistance at 13468.00.  The Cycles Model suggests a 30-day decline from here.  The target may be the Cycle Bottom at 10512.68.  For an Index that is so interest rate sensitive, NDX appears sanguine about the potential risk.

Today’s op-ex shows Maximum Pain at 13370.00.  Long gamma begins at 13400.00, while short gamma may begin at 13325.00.  The longs still have it, but the number of shorts is growing.

ZeroHedge comments, ““if political [debt ceiling] kabuki ends in risk-off drama then Fed does QE (like BoE last Oct)…this is why other assets classes not worried.” – BofA’s Michael Hartnett

Except in some specific corners, most of the markets don’t quite buy the story that the US Treasury could, after all, default on its obligations.

T-bills due around the estimated time of the X-date have shown some angst, with yields on one-month instruments up some 200 basis points in less than a month. Meanwhile, credit-default swaps are pricing in a 3% chance of a default. While that may not seem alarming, that default pricing is way higher than in 2011 and 2013, when we were last witness to such stress.”

SPX futures may be climbing Intermediate-term support at 4112.63 this morning.  While many claim it shows signs of a potential breakout, the Cycles Mode says “not”.  Today may be a trending strength day and the trend may be down.  A breakdown may come as a bit of a surprise to those who have abandoned their risk awareness.

Today’s op-ex shows Max Pain at 4130.00.  Long gamma starts at 4145.00, while short gamma begins at 4125.00.  A decline beneath Intermediate-term support puts SPX squarely into short gamma, which may have a steamroller effect on the SPX.

ZeroHedge reports, “US equity futures dropped on Tuesday ahead of today’s critical debt ceiling discussions in Washington and weighed expectations of more easing after China’s data showed the recovery there is rapidly losing momentum. Both S&P 500 and Nasdaq futures down -0.1% at 7:45am ET, but off the best and worst levels of the session. Treasuries are up ahead of the debt-ceiling talks with the Bloomberg dollar index slightly weaker, while oil is extending yesterday’s gains. Iron ore is up this morning, while gold is lower.”

VIX futures climbed above the long term trendline at 17.50 this morning and is on a buy signal.  Today is a high potential strength day.  Expect  a gap higher at the open.

Tomorrow’s op-ex shows Max Pain at 20.00.  Short gamma starts at 19 and runs to 15.00.  Long gamma begins at 21.00 and runs to 90.00.

TNX is now marginally above the 50-day Moving Average at 35.31 and rising.  Recognition of higher rates may be upon us as TNX is about to rally above its prior high at 35.32.  The 200-day Moving Average at 35.76 is another marker showing the trend may have changed.  The Cycles Model has already signalled a change in trend on May 4.

ZeroHedge remarks, “As the bond rally runs out of steam, the case for shorting Treasuries is becoming increasingly compelling.

The bond market that US political advisor James Carville wanted to be reincarnated as is about to get intimidating again.”

USD futures are backing away from the 50-day Moving Average at 102.34 as it consolidates its gains.  The Cycles Model maintains that the uptrend may continue to mid-June.

7:40 am

NDX futures rose to a weekend high of 13388.40, not able to exceed Friday’s high inside the Ending Diagonal formation on day 269 of the Master Cycle.  Today is day 272.  NDX may be at the point where the Cycles may not allow further gains.    However, should the NDX throw over its formation, the Cycle Top resistance at 13513.22 may act as the final resistance.  The bottom of the Ending Diagonal is at 13200.00, giving a potential sell signal, which is confirmed beneath Intermediate-terms support at 13057.50.

Today’s Max Pain is at 13350.00, also hotly contested by both calls and puts.  Long gamma begins at 13400.00, while short gamma may starts at 13240.00.  Friday’s monthly op-ex shows long gamma beginning at 13100.00 in NDX.

ZeroHedge remarks, “Flat&Flat 4ever

1. Less than 1% weekly closing range in SPX for the past 5 weeks.

2. Large cap EPS now expected to be totally flat for 2 quarters.

3. Very little factor volatility in the US since start of Q2.

4. Financial Conditions also displays very little delta lately.

Equity moves on Ozempic

Friday closes for the past 5 weeks:

4137

4133

4169

4136

4124

From a mathematical volatility stand-point, this is very “flat & flat”.”

SPX futures rose to 4142.80, less than 100 basis points beneath Friday’s high.  Friday’s low challenged the SPX is Intermediate-terms support at 4107.94, suggesting it may no longer hold upon further testing.  Volatility/weakness appears imminent, accompanied by a potential panic Cycle.

In today’s op-ex, the 4125.00 strike is at Max Pain and is also hotly contested.  Long gamma may begin at 4150.00, while short gamma starts at 4100.00.  There’s no a lot of room to move before gamma takes over the options market.  Friday’s monthly op-ex shows much the same dynamics, but in much larger volume.

ZeroHedge reports, “US equity futures rose to start the week as investors monitored a subtle optimistic shift in debt-ceiling talks. Both S&P 500 and Nasdaq 100 contracts added 0.4% at 7:30 a.m. ET, following similar increases in the Estoxx50 over the early London session. A subdued market reaction to the US fiscal standoff suggests that investors expect politicians to negotiate a solution after President Joe Biden voiced optimism over the weekend that a deal could be reached. Still, Treasury Secretary Janet Yellen has warned that the the world’s biggest economy risks a catastrophic default as soon as June 1 if the debt limit isn’t suspended or raised. Treasury yields ticked higher while the Bloomberg dollar index dropped to session lows; oil prices are flat, doing little to rebound from the past four weeks of losses. Gold is edging higher this morning, while iron ore and copper also gain.

VIX futures are testing the long-term trendline at 17.50, but remain beneath it.  Today VIX may get its first shot of adrenaline as tending strength returns.  Should that be the cse, the trendline and the 50-day Moving Average may be exceeded.   An aggressive buy signal is already in place.  Crossing the trendline, and especially the 50-day may confirm the signal.

TNX has risen above Intermediate-term resistance at 34.71 , confirming the buy signal.  Most analysts won’t recognize this until TNX crosses above the50-day Moving Average at 35.41 or the 200-day Moving Average at 35.71.

ZeroHedge remarks, “Higher bond yields are an increasingly likely prospect as rising inflation expectations push bond holders to demand an extra premium to lend money.

It’s been a testament to the Fed’s inflation-fighting credibility that – despite almost double-digit CPI – bond yields have not risen even more. The central bank’s own two-year forecast for PCE inflation never got above 3%, and based on the behavior of term premium – the extra yield bond holders demand above what is implied by long-run rate expectations – the market has taken the Fed at its word.

Since bond yields bottomed in August 2020, virtually the entire rise has been accounted for by expectations of Fed rate increases.”

ZeroHedge further advises, “As if the worst banking crisis since Lehman (and in terms of notional assets, even worse) wasn’t bad enough – and it will get much worse because a quick and dirty overlay of commercial bank deposits currently vs where they should be assuming the Fed completes its normalization paradigm shows another $1.5 trillion in outflows…

… a familiar systemic crisis ghost has made a surprise re-appearance: the trade that led to the repo crisis in Sept 2019 and also brutally exacerbated the crisis of March 2020 when for several days the Treasury market had zero liquidity, is back and is looking to blow up a whole new generation of clueless rates traders.”

USD futures have retreated to 102.20, just beneath the 50-day Moving Average at 102.38.  The buy signal was made at Intermediate-term support/resistance at 101.59, so USD is in an accumulation phase.  The Cycles Model suggests the rally un USD may continue for the next month.

9:00 am

BKX continues to deteriorate beneath the Cycle Bottom resistance at 76.08.  The Cycles Model continues to suggests a bottom may be in by mid-June.  However, the stand-off on the debt ceiling may extend that period, as indicated by trending strength persisting beyond the Cycle due date.

ZeroHedge remarks, “After last week’s massive non-seasonally-adjusted deposit outflows (and shrinking Fed balance sheet), all eyes will be back on The Fed’s H.4.1. report this evening for signs that the regional banking crisis is accelerating even further (as PacWest’s statement and regional bank shares suggest).

The answer is not a good sign for the bulls as Money Market Funds saw $18.3 billion of INFLOWS, pushing the aggregate to a record high of $5.328 trillion. That is almost $120 billion of inflows in the last three weeks…”

7:30 am

Good Morning!

US Tech futures are higher this morning, to 13434.80.  Today is day 269 of the Master Cycle.  It appears to be in an Ending Diagonal throw-over with the Cycle Top at 13516.54 as a probable final resistance.  Throw-overs are not breakouts, since they are usually done with thin volume, suggesting little or no follow-through.

Today’s options expiration shows Maximum Pain for options investors at 13075.00.  Long gamma begins at 13100.00, while short gamma starts at 13050.00.  The options market may be the tail that wags the dog, as long as long gamma persists.

QQQ, at 326.20, shows 324.00-325.00 to be hotly contested, with long gamma above and short gamma beneath that range.

ZeroHedge posits, ” The “what if” bull

One could argue that the two most important events / developments for the markets over the past few months have been:

1. Musk reducing Twitter workforce by 70% with the product still working….

2. AI. No comments needed.

Who have been the first early adopters / benefactors of this? Big Tech of course. They are actively reducing staff (well-needed, the organizations were becoming bloated) and there is much more to go. And Big Tech are leading in the AI race so far.

This has resulted in a massively bifurcated market where Big Tech is carrying the whole rally themselves.”

SPX futures rose to 4150.50 this morning, as  the influence of the Nasdaq bleeds over to the blue chips.  The retracement structure appears complete at 4154.28.  A reversal appears imminent.  Intermediate term support is at 4103.44.  If broken, this may confirm the sell signal.

In today’s op-ex, the 4125.00 strike appears to be hotly contested, with long gamma above and short gamma especially strong at 4100.00 and below.

ZeroHedge reports, “US equity futures advanced to end the week as traders remained fixated on the path of monetary policy while assessing stronger than expected corporate earnings as the season nears its end. Contracts on the S&P 500 rose 0.3% at 8:00 a.m. ET while those on the Nasdaq 100 advanced 0.2%. Swiss luxury-goods maker Richemont soared 7.8% to a record on “spectacular sales growth”, fueling a broad rally across European luxury stocks. Risk-on sentiment pushed Treasury yields higher. The Bloomberg dollar index was poised for its biggest weekly gain since March while oil prices declined again, set for their fourth weekly loss. Meanwhile, gold is also on course to end the week lower. Iron ore futures are falling sharply for a second day, but still on track for a weekly gain.

VIX futures are sitting near yesterday’s low.  The long-term trendline at 17.50 appears to be the line in the sand.

The May 17 (monthly) op-ex shows the 20.00 strike to be hotly contested.  Short gamma reigns beneath it to 14.50.  Long gamma rules above it to 90.00.

TNX rose toward the trendline at 34.50 this morning.  Rising above it confirms the buy signal.  The Cycles Model suggests rates may rise through early July.

ZeroHedge reports, “After a stellar 3Y auction, a solid 10Y moments ago we got the last refunding auction of the quarter when the treasury sold $21 billion in 30 year paper, and it did so in impressive fashion.

The high yield of 3.741% was just above last month’s 3.661%. It also stopped through the When Issued 3.756% by 1.5bps, the biggest stop through since January’s 2.4bps.

The Bid to Cover rose to 2.426, above April’s 2.359, above the six-auction average 2.346 and the highest since January’s 2.451.”

TheEpochTimes observes, “Senator Joe Manchin (D-W.Va.) said his fellow Democrat, President Joe Biden, has staked out a “hypocritical” position in recent debates over how to raise the U.S. debt limit.

Biden has repeatedly called for a so-called “clean bill” to raise the debt limit without any additional conditions on matters such as spending reforms. In an interview with CNN on Tuesday, Manchin criticized Biden’s position.

7:00 am

Good Morning!

This chart has given me some sleepless nights as of late, so here goes…

First, a look at the technical side.  There is a Head & Shoulders formation ongoing for the past 30 months.  Most analysts won’t see it because their vision is too short-term.  The target listed on the chart may be met on June 14, 2023.  Head & Shoulders targets are typically met on third Waves.  In this case, June 14 is likely to be the bottom of Intermediate Wave (3) of Primary Wave [3], a significant confirmation of that formation.

Second, why June 14?  The answer may be both simple and complex at the same time.

The Simple answer is that, if the X-date (June 1)is passed with no resolution of the debt ceiling, the treasury will have to limit or delay its payment options.  The largest one is the Social Security payments with a starting due date of June 14.  Nearly 70 million people are dependent on Social Security.  This does not cover food stamps and other subsidies.  Should the Treasury miss or delay payment starting on June 14, there will be hell to pay.  The result may be that the crisis gets extended to the end of June.

The complex answer lies in the Cycles.  The following Indices are anticipating Cycle lows on June 14:  the Banking Index, including regional banks, Gold and the CRB.  Crude oil may expect a low at the end of May.  SPX may  expect a low at the end of June.   UST may see a low in early July.

The following Indices are anticipating Cycle highs on June 14:  The US Dollar and VIX.  The Ag Index may see a high at the end of June.  TNX may see its high in early July.  So, you can see that there is a lot of confirmations that something big may happen by June 14, with a possible extension to the end of June.

ZeroHedge remarks, “With three weeks left until Janet Yellen’s earliest estimate for when the infamous X-date will hit on June 1 (the date which effectively marks a technical default by the US, only it doesn’t because while the government can prioritize debt payments it wouldn’t make all payments to America’s bloated bureaucracy represented by some 22.6 million parasites not to mention countless deep state agents), the fearmongering has hit record highs.”

NDX futures are still on the rise reaching a morning high of 13401.90.  The Cycle Top resistance may now be in reach.  Today is day 268 in the current Master Cycle.  Stretched, but not broken, yet.

Today’s options expiration shows Long gamma starting at 13200.00.  Short gamma starts at 13170.00.  All of the conviction appears on the long side.

ZeroHedge remarks, “Breaking up?

NASDAQ breaking up above the extremely boring range. Recall Goldman’s logic from yesterday (here) on how to play a possible squeeze from here.

Source: Refinitiv

King tech

The question is whether or not the broad market will follow?”

SPX futures remain range-bound between 4130.00 and 4153.00.  The Master Cycle high remains at 4186.92 on May 1, day 258.  The NDX is putting upward pressure on the SPX. Keep in mind that the 4 largest tech firms constitute 48% of the SPX volume.  However, market internals don’t offer support, with the NYSE Hi-Lo Index at -9.00 and the NDX Hi-Lo Index at -65.00.

Today’s op-ex aows Max Pain at 4125.00.  Long gamma starts at 4160.00, while short gamma begins at 4100.00.

ZeroHedge reports, “US equity futures pared an earlier advance and dropped to session lows driven by a fresh plunge in Pacwest shares after the bank warned the bank run was back (or rather, had never gone away as we warned last weekend) as a renewed sharp deposit outflow from the bank spooked investors, even as European stocks rose as more investors said the Fed is likely to pause interest-rate hikes on the back of cooling inflation data. Contracts on the S&P 500 dropped to session lows, down -0.1% after rising 0.2% earlier; the Nasdaq was flat.”

VIX futures are still consolidating beneath the trendline at 17.50.  The Cycles Model suggests the VIX may rally until June 14, and possibly beyond, should the debt ceiling not be agreed upon.

Next Wednesday’s options Expiration (May 17) shows Max Pain at 20.00 with a growing put contingent down to 15.00.  However, long gamma starts at 21.00 ad stays strong to 90.0.

TNX has dipped beneath the trendline at 34.50 a second time.  There appears to be a lot of downward pressure on yields as the probability of a default rises…there’s a snake hiding in that grass, as the trend may be up as long as TNX does not dip beneath 32.53.  The new Master Cycle is stretched to early July.  I wonder what yesterday’s buyers of 10-year notes were thinking?

Zeroedge notes, “fter yesterday’s blowout, record 3Y auction, it seemed as if it was all downhill from there: after all, it would be difficult to repeat that particular stellar results with today’s 10Y refunding auction. And while today’s sale of $35BN in 10Y paper wasn’t nearly as exciting, it was anything but ugly. In fact, aside for the modest tail which has become  a staple of 10Y auctions, it was rather solid.

Pricing at a high yield of 3.448%, barely down from last month’s 3.455%, the auction tailed the 3.439% When Issued by 0.9bps; it was also the 3rd consecutive tail and the 15th tailing 10Y auction of the past 19. One can assign the tail to the post-CPI rally into the auction which saw yields slide from 3.50% to 3.45%.

The Bid to Cover was 2.45, up from last month’s 2.36 and above the recent average of 2.41.”

USD futures leaped above Intermediate-term resistance at 101.64, creating a confirmed buy signal.  Additional confirmation lies above the 50-day Moving Average at 102.48.  The rally may last until mid-June, as flight from both stocks and bonds increase the demand for cash and money market accounts now earning 5%.  Demand for USD may get even frothier, as demand heats up into August.

ZeroHedge observes, “Euro – not that great

Investors are still talking about the horribly weak dollar and pushing their euro long narratives, but price action isn’t supporting that view. Yes, the dollar is down since mid March, but it is basically unchanged since late January. First support for the latest weakness in the euro is the 50 day, around 1.087.”

8:15 am

Good Morning!

NDX futures are hovering, awaiting the CPI report and parsing what that may mean for interest rates.  The Master Cycle high was a week later than that of the Blue Chips.  As the tech-heavy generals go, so does the rest of the market, as the NDX Hi-Lo Index fell to -101.00 at yesterday’s close.  Underlying support for NDX is crumbling.

Today’s NDX op-ex shows Maximum investor Pain at 13200.00., although there is no serious short gamma threat.  Long gamma begins at 13250.00 and shows strength to 13400.00.’

SPX futures rose to 4137.90 this morning, showing buoyancy in a deteriorating market.   The NYSE Hi-Lo Index closed at -27.00 yesterday, giving a possible sell signal.  A confirmed sell signal lies beneath Intermediate-term support at 4092.18.  The 50-day lies at 4045.03.  Beneath that, thigs get dicey.

In today’s options expiration, Maximum investor Pain is at 4115.00.  Long gamma begins above 4150.00, while short gamma begins at 4100.00.

Zerohedge reports, “US index futures traded in a narrow range but eventually faded earlier gains and traded with modest losses along with European and Asian stocks, as traders took some risk off the table before today’s closely-watched inflation data (full preview here).  S&P 500 futures were down 0.1% on Wednesday as of 7:45 a.m. in New York, while Nasdaq 100 futures were flat. Meanwhile, short-dated Treasuries fell as worries around the debt ceiling deadline circulate, but longer-term maturities are edging higher. The dollar reversed earlier losses, and was set for a third day of gains, while oil snaps a three-day rally and gold loses momentum as traders pause for clues on monetary policy. Iron ore bounces and copper declines.”

VIX futures slipped to 16.43 this morning as investor sentiment leans bullish.  The stage here is set for a panic rally by next week.  It is markets like these that draw investors to commit their hard-earned money at the wrong time.

In today’s op-ex, Max Pain is at 14.00, with no short gamma beneath it.  The longs and shorts are contesting the 19.00 strike, which is where the VIX may close today.  Long conviction runs to 47.50.

TNX has pressed through Intermediate-term support at 34.71 and may decline to the trendline at 34.00 before resuming its rally.  Trending strength ay not come back until next week.  However, the Cycles Model suggests TNX may go higher at any time.  Once begun, the rally may continue through early July.

ZeroHedge reports, “So much for worries the Fed will continue hiking.

In the first refunding auction of the week, and the first coupon auction of May, moments ago the Treasury sold $40 billion in 3Y paper in an absolute stunner of an auction which was a blowout record breaker in more than one category.

Starting at the top, the auction priced at a high yield of 3.695%, a sharp drop from last month’s 3.810%, but more importantly, it stopped through the When Issued 3.723% by 2.8bps, which was the biggest stop through on record (with data going back to 2016).”

USD futures slipped to a morning low of 101.00 at the CPI press release, then bounced.  The Cycles Model shows the USD near a Trading Cycle low, suggesting a rebound above Intermediate-term resistance atr 101.63 may be imminent.

7:45 am

Good Morning!

NDX futures have slid from a lated Master Cycle high on day 265, one week after the SPX high.  Normally, NDX would lead the SPX at important junctures.  However, the flight to “safety” in the mega-tech companies has captured the imagination of many investors.  FOMO has blinded them to what may happen next, as the decline  may turn into a panic decline that may last to the end of June.

This morning’s op-ex is hotly contested at 13300.00.  However, long gamma doesn’t start until 13450.00 while short gamma appears to be non-existent.  A good day for a decline.

SPX futures are also down this morning, but above Intermediate-term support at 4088.75.  The aggressive sell signal is given.  Confirmation comes beneath the 50-day Moving Average at 4042.97.

Today’s op-ex shows Max Pain at 4125.00.  Long gamma begins at 4150.00, while short gamma may begin at 4100.00.

ZeroHedge reports, “US index futures retreated as the short squeeze that lifted distressed regional banks fizzled and went into reverse, dragging down names such as PacWest down as much as 20%, while the latest Chinese macro data spooked investors after imports dropped much more than expected and investors prepared for key US inflation data later this week. Both S&P 500 and Nasdaq 100 contracts slipped 0.4% on Tuesday as of 8:00 a.m. ET.  Meanwhile, the dollar is edging higher, set for a second day of muted gains. Oil prices have lost the momentum of the past two sessions, falling back in today’s trading. Gold is set for its third day of gains. Iron ore dropped in the wake of data that showed China’s imports of the steel-making ingredient fell to a 10-month low in April. Copper also slides.”

VIX futures have risen back above the long-term trendline at 17.50 in existence since November 2017.  VIX is on a buy signal above the trendline.

In Wednesday’s op-ex, the strike at 19.00 is hotly contested.  However, Long gamma may already have been established at 15.00.

Zerohedge remarks, “History of debt ceiling “volatility”

JPM’s market intelligence team reminds us:

The downgrade on August 4 led to a volatile market with several declines in the SPX and a peak VIX of 48 (was around 20 into the event)….SPX had a 6.7% decline on Aug 8, 4.4% decline on Aug 10, a 4.5% decline on Aug 18.

Source: Refinitiv

Volatility can actually spike on this

Yes, we agree, it does not feel like the strongest nor most compelling bear case (the debt ceiling debacle), but historically the markets have gotten concerned before.”

USD futures are raiang toward Intermediate-term resistance at 101.67 this morning.  While the outlook for the USD appears bleak, the Cycles Model suggests a rally may already be underway.  Trending strength may not appear until the third week of May.

TNX has pulled back, but still above Intermediate-term support at 34.71.  The perception is that TNX is in a long, flat trading range.  However, a breakout above overhead resistance may change that perception radically.

ZeroHedge notes, “As President Biden is about to welcome Speaker Kevin McCarthy and other congressional leaders to discuss the debt ceiling at the White House on Tuesday, there seems to be little hope for a quick resolution of what threatens to become a drawn-out game of political chicken.

As Statista’s Felix Richter reports, with the country’s economic wellbeing at stake, both parties could hardly be further apart, as Republicans push for steep spending cuts while President Biden has been urging Congress to raise the debt limit with no strings attached.

When the country was at a similar crossroads in the fall of 2021, the White House Council of Economic Advisers (CEA) published a blog post detailing what “Life After Default” could look like.

“A default would fundamentally hinder the Federal government from serving the American people,” the CEA found, while also anticipating “serious and protracted financial and economic effects.”

In conclusion, the CEA urged lawmakers to avoid “the self-inflicted economic ruin” and to refrain from partisan brinkmanship. “The debt ceiling is not and should not be used as a political football. The consequences are too great.”

Despite all warnings against the potentially catastrophic consequences of a default, the current debate over the debt ceiling has turned into yet another partisan issue that divides the country roughly in half.”

10:15 am

The Ag Index broke through both the trend line and Cycle bottom to begin what may be the strongest rally yet after 7 months of decline.  Should GKX break out, the rally may last until the end of June.

10:01 am

BKX bounced out of Thursday’s Master Cycle low and is currently testing the Cycle Bottom resistance at 77.34.  Should it probe above the Cycle Bottom, there may be a high probability to continue the bounce to the 50-day Moving Average at 86.38.  Conversely, the inability to cross above the Cycle Bottom may propel BKX to deeper lows over the next month.

ZeroHedge observes, “Deposits at U.S. commercial banks have fallen to lowest figure in nearly two years, according to the Federal Reserve. This figure has fallen by $500 billion since the Silicon Valley Bank collapse. However, total banking credit has risen to a new record high of $17 trillion, according to the U.S. central bank. Fewer deposits, but more credit. What could go wrong?

The inevitable credit crunch is only postponed by a consensus view that the Fed will inject all the liquidity required and that rate cuts will come soon. It is an extremely dangerous bet. Bankers are deciding to take more risk expecting the Fed to return to a loose monetary policy soon and expecting higher net income margins due to rising rates despite the elevated risk of increasing non-performing loans.”

7:45 am

Good Morning!

NDX futures are consolidating at the upper end of Friday’s trading range.  Last Monday it put in a probable Master cycle high on day 258.  While it is testing that high, there is little reason to believe that it may go higher.  The Cycles Model suggest Equities may remain range-bound this week, with trending strength returning next week.

Today’s op-ex shows the 13200.00 strike being hotly contested by both puts and calls.  Long gamma starts at 13250.00. while short gamma may begin at 13000.00.

ZeroHedge observes, “Boom boom buybacks

Buyback announcements have continued to boom…almost $200bn worth in the last 3 weeks.

Source: Deutsche

Selling and selling

Goldman’s PB was net sold for the 3rd week in a row and saw the largest net selling in three months…note short selling was the main driver, not selling of longs…

SPX futures are also trading at the upper end of Friday’s trading range.  The first hourly Cycle (4.3 days) appears complete, revealing an expanded flat correction.  This suggests the decline may resume imminently.

Today’s op-ex shows Maximum Pain for options investors at 4125.00.  Long gamma begins at 4150.00, while short gamma starts at 4110.00.  Short gamma is well populated down to 3900.00.

ZeroHedge reports, “US stock futures reversed losses and traded near session highs as the squeeze in regional banks pushed stock prices higher despite another huge (unadjusted) deposit drop last week as investors assessed the outlook for the banking crisis while awaiting inflation figures due later this week for clues about the path of Federal Reserve policy. Contracts on the S&P 500 and Nasdaq 100 rose 0.2% at 735am ET. The underlying benchmarks had rallied 1.8% and 2.1% on Friday, respectively. Oil edged higher to start the week, while European markets rose and Chinese bank stocks soared. Japanese stocks fell as traders came back online after a holiday. Elsewhere, Janet Yellen warned the debt-limit impasse may trigger a constitutional crisis. And Warren Buffett says good times are coming to an end.”

VIX futures have risen above the long-term trendline near 17.50 this morning after retesting it last week.  This gives us a buy signal in the VIX.  The Cycles Model suggests a possible peak in mid-June and a probable stronger one near the end of June.

The May 10 op-ex shows a population of put positions between 15.00 and 19.00.  However, there is a huge call position at 15.00 that appears to neutralized the puts.  Long gamma starts at 19.00 and runs strong to 47.50.

Zerohedge notes, “Despite reassurances from Powell and Biden that everything is probably awesome and that the banking crisis is just a short-seller thing, Bloomberg reports that one trader seems to be extremely worried about the prospect of an S&P 500 Index meltdown, entering into a massive call position in the VIX.

A huge block trade was printed on Thursday for 300,000 VIX September call options at a strike price of 60 amid intensifying concerns over the health of US regional banks and sustained monetary tightening by the Federal Reserve. The strike price is triple the current VIX level near 20.

Additionally, the trader sold a total of 100,000 September calls with a strike price of 40 (offsetting some of the cost of the calls) in a strategy commonly known as a bullish call ratio back spread strategy.

The trade cost around $4.8 million and he is far from alone as VIX Calls continue to dominate VIX Puts, with the ratio trading around its pre-COVID collapse levels…”

TNX gapped above Intermediate-term resistance as it embarks on its new rally.  The cross-over confirms th buy signal for the 10-year rates.  The first leg of this new trend may extend to early July as the summer heats up.  The 200-day Moving Average is at 35.54.  Crossing it would put TNX back in a rising trend scenario.

Zerohedge remarks, ““We’d be in unchartered territory and the consequences on the US economy could be highly uncertain and adverse,” said Jerome Powell, warning of the risks from a looming government debt default. “No one should assume that the Fed can protect the economy from the potential short and long-term effects of a failure to pay our bills on time,” continued the Chairman. And that’s really saying something. You see, when the person running a $7.8trln central bank balance sheet, acquired through successive rounds of protecting the economy from any and every risk imaginable, says not even he can help, you probably ought to listen.

“Our economy is in free fall due to unsustainable fiscal policies,” wrote a group of 43 GOP senators, including Minority Leader McConnell. So severe is Mitch’s purported economic freefall that the unemployment rate declined to 3.5%, nearly a 54-year low.

“This trajectory must be addressed with fiscal reforms,” added the senators. But as pretty much everyone knows, both parties run colossal deficits when in power, and seek reforms when out. This is why our national debt rises inexorably in good times and then explodes higher in bad times.”

USD futures are hovering near their lows this morning.  There is an outside possibility of making a new low, thereby extending the old Master Cycle into May, on day 271.  No trades hav ebeen initiated, so we remain cautious until the pattern becomes clearer.  In the meantime, pundits call for the demise of the USD at the bottom of the Cycle.

Crude oil futures continue their bounce from Thursday’s low.  It has about two more weeks left in the current Master Cycle, suggesting that overhead resistance at 75.00 may stop the bounce.  Should that be the case, WTI may continue its decline to the 61.8% retracement value at 55.87, or possibly the Weekly Cycle bottom at 53.17.

OilPrice.com reports, “Oil prices are still on track to finish out the week in the red, but crude prices saw a strong rally on Friday morning as the market attempts to rebalance itself from the disconnect between bearish sentiment and fundamentals.

Much of the previous week’s price slide can be attributed to a disappointing crude oil demand look out of China on the back of lackluster manufacturing activity, compounded by bank sector stressors in the United States. Nevertheless, little has changed in the way of oil market fundamentals, and the market is looking to make that correction.”

Gold futures are bouncing this morning off the low at Intermediate-term support at 2004.21.  It may test the Cycle Top resistance at 2060.42, but may soon resume its decline.  The Cycles Model suggests gold may decline through mid-June.  It is on a sell signal with the next support at the 50-day Moving Average at 1955.40.  Should that not hold, the mid-Cycle support at 1824.24 may be the next target.

8:15 am

Good Morning!

NDX futures bounced from the Intermediate-term support at 12948.00 to the 38.2% retracement level this morning at 13073.60 thus far.  The Cycles Model and Elliott Wave structure both agree that a much larger decline is now due.  The next support is the 50-day Moving Average at 12656.05.

Today’s op-ex shows Maximum Pain at 12825.00.  Long gamma starts at 12850.00, while short gamma begins at 12800.00.

ZeroHedge anticipates, “After a tsunami of earnings and major economic and policy releases, including rate hikes by the Fed and ECB, a barrage of earnings culminating with Apple, the week is almost over, we just have one more event to go: Friday’s jobs report. So here is a look at what street consensus expects.

• Nonfarm Payrolls: +185k median headline, down from 236k, analyst forecasts range from 125k-270k. This compares to the 3-,6-, and 12-month averages of 345k, 315k, and 345k, respectively. According to Newsquawk, 185k would mark a cooling in the growth of the labor market to levels more consistent with pre-COVID trends, coming down from extremely hot levels.”

SPX futures rose to a morning high of 4092.00 thus far, a 32% retracement.  So far, the retracement has met the short-term trendline (not shown), but no further.

In today’;s op-ex, the 4100 strike is hotly contested, with over 7000 puts and calls contracts.  Long gamma begins at 4120.00, while short gamma may start at 4075.00.

ZeroHedge reports, “US futures entered the last day of a brutal week in the green ahead of key US jobs data, as regional banks clawed back some of their recent selloff, even as the S&P 500 benchmark was still poised for its worst weekly performance in almost two months. The S&P 500 contracts climbed 0.7% as of 7:30 a.m. ET while Nasdaq 100 futures gained 0.6%. European stocks were higher but on pace for their biggest weekly drop in 7 weeks. Treasury yields are ticking higher amid a more risk-on day, while the dollar is still weakening on recession risks and a potential pause in interest rate hikes. Oil is staging a rebound, though is still set for the worst week since mid-March, continuing its third weekly decline. Meanwhile, gold is headed for its biggest weekly advance since the middle of March, up around 2% this week, as traders look for havens. Iron ore slides, while copper is little changed.”

VIX futures declined to a morning low of 18.39 as it retraces 50% of its rally.  The  retrace may be short-lived as trending strength comes back next week.

The May 10 op–ex shows long gamma starting at 15.00 and extending to 47.50.

ZeroHedge comments, “Ahead of today’s jobs report, which we previewed earlier and where median consensus expects a drop in payrolls to 185K (which would be the lowest since 2021) with unemployment rising to 3.6%, many joked that at this point the job report is so rigged and “adjusted” that Biden’s Dept of Labor may as well just keep going with fabricated numbers until the 2024 election. After all, one look at the chart below which shows the number of consecutive beats confirms what a farce the “data” has become: everything in the name of a beat and a favorable press conference soundbite.

Well, the cynics were right once again because moments ago the BLS reported a record 12th consecutive month of payrolls beating expectations…”

TNX jumped this morning, reversing the probe beneath the trendline and testing Intermediate-term resistance at 34.73.  The reversal above the trendline has created an aggressive buy signal for TNX and a sell signal for UST.  The Cycles Model suggests the new trend may continue until early July.  Economists are projecting the future with rulers again.

ZeroHedge observes, “There’s nothing quite like a non-farm payrolls report to stir the markets’ imagination. But the April edition will be largely beside the point for traders who are focused on the banking sector, where the angst of March is, to some degree, being rekindled.

Economists reckon that US employers continued to expand their payrolls, an unbroken run since the start of 2021, but at a far slower pace than in March. If the number comes in anywhere near the forecast 185k and the jobless rate is somewhere around the estimated 3.6%, the Fed would take it as confirmation that the labor market continues to be strong and withstanding the stress from the more-vulnerable pockets of the economy.

A number that is somewhere around the consensus is unlikely to persuade the Fed, which has already raised rates by 500 basis points in this cycle, to tighten again in June.

In other words, Treasuries are unlikely to move a whole lot even on a glowing report.”

1:29 pm

SPX has bounced near its 50-day Moving Average at 4037.78 and has tested the trading channel at 4082.61.  It is now headed lower.  The first support that may halt the decline is the 200-day Moving Average at 3962.31.  Another support  just as likely to create a bounce is the 2-hour Cycle Bottom at 3931.41.  Those two supports provide the likely range for the next installment of the decline.

10:40 am

VIX is now on a confirmed buy signal, having exceeded the 50-day Moving Average at 19.89.  The rally may continue until mid-June.

10:20 am

The Ag Index made a probable throw-under yesterday, having met its long-term target of 424.00.  It may be on an aggressive buy signal with probable confirmation above the Cycle Bottom at 436.98.  Should that be so, GKX may be on a likely rally to the end of June.  Trending strength comes into play this weekend and may last all next week.

The Netherlands are under intense pressure to curtail their highly productive farms to reduce dubious emissions.

ZeroHedge reports, “Rice is the primary food source for over half of the global population, especially in emerging markets, where it plays a crucial role in feeding people. Last year, we highlighted the potential for a severe global rice shortage. A new report reveals that rice production this year could be at its lowest in decades.

A report by Fitch Solutions forecasts this year’s global rice production will log its biggest shortfall in two decades. The deficit will be a major headache for countries relying on grain imports.

“At the global level, the most evident impact of the global rice deficit has been, and still is, decade-high rice prices,” Fitch Solutions’ commodities analyst Charles Hart told CNBC. 

ZeroHedge infers, “Dozens of experts were asked to look into the science behind claims that meat eating causes disease and is harmful for the planet in a special issue of a journal called Animal Frontiers.  They have warned against a widespread societal push towards plant-based diets, arguing that poorer communities with low meat intake often suffer from stunting, wasting and anemia driven by a lack of vital nutrients and protein.

Thousands of scientists across the globe have also joined The Dublin Declaration, a group stating that livestock farming is too important to society to “become the victim of zealotry.”  They say that many of the negative claims about meat in our diet are simply not true.”

9:57 am

BKX, our liquidity proxy, is making a deeper low this morning.  The Cycles Model suggests the downtrend may continue to mid-June.  Trending strength may intensify this weekend, adding to a n already panicky trend.

ZeroHedge observes, “First Horizon Corp. shares crashed in premarket trading after Toronto-Dominion Bank published a statement outlining how a deal to purchase the Memphis-based bank has been “terminated.” The announcement comes after multiple regional banking failures.

The lenders said they both “entered into a mutual agreement” to terminate their originally announced merger agreement, announced on February 28, 2022. TD said it “does not have a timetable for regulatory approvals to be obtained for reasons unrelated to First Horizon. Because there is uncertainty as to when and if these regulatory approvals can be obtained, the parties mutually agreed to terminate the merger agreement.”

Under the terms of the termination agreement, Canada’s second-biggest bank will make a $200 million cash payment to First Horizon on top of a $25 million reimbursement payment.

As a result of the termination, shares of First Horizon plunged 52% in premarket trading.”

ZeroHedge exclaims, “Earlier today, when Jerome Powell openly lied to the American People during the FOMC press conference stating without a hint of irony that the US banking system is “sound and resilient”…

…we balked: how could this former lawyer lie so brazenly to the American people, the narrator wondered, when in just the past few weeks we had seen over half a trillion in bank failures, making the current bank failure episode even worse than the global financial crisis?”

8:00 am

NDX futures probed lowser to 12978.70 before rising back to the flat line.  While dealers and hedge funds do their best to maintain a tight trading range in NDX, bad news may jolt it off its perch.  Once the decline gathers momentum, it may continue to the end of June.  The decline may have the same magnitude as the August-to-October decline, starting with a lower top.

In today’s options expiration, 13000.00 is a hotly contested strike.  Long gamma begins in earnest at 13120.00, while short gamma starts at 12930.00 and runs to 12800.00.  The options market appears to be teetering toward short gamma.

ZeroHedge notes,”Fed raises rates by 25 bps as expected.

Policy statement softens the rate guidance in a way consistent with past pauses and The Fed deletes reference to “some additional policy firming may be appropriate.”

A clear hat-tip to the banking crisis:

“Recent development are likely to result in tighter credit conditions” removed and replaced with “Tighter credit conditions”

The decision was unanimous.

As WSJ Fed Whisperer Nick Timiraos notes: “The FOMC statement used language broadly similar to how officials concluded their interest-rate increases in 2006, with no explicit promise of a pause by retaining a bias to tighten.”

SPX futures declined through Intermediate-term support at 4073.95 this morning,  testing short gamma and potentially confirming the aggressive sell signal made on Tuesday.  The Cycles Model shows a probable sell signal until the end of June, with rising volatility along the way.

Today’s op-ex shows the 4110.00 strike hotly contested.  Long gamma begins at 4130.00, while short gamma is in control beneath 4075.00.

ZeroHedge reports, “US stocks were set to open lower, reversing a modest gain earlier and extending a three-day selloff as investors weighed the possibility of more bank failures against a pause in rate hikes by the Federal Reserve as growth slows. Contracts on the S&P 500 were down 0.3% as of 7:45 a.m. ET while Nasdaq 100 futures were flat. The benchmark S&P 500 had slid on Wednesday, marking its longest losing streak in nearly two months even as the Fed signaled a possible pause in its most aggressive tightening campaign in decades. Sentiment was routed as US regional banks tumbled further even after PacWest said its deposits rose since March and confirmed a Bloomberg report that it’s talking with potential investors in a bid to calm markets. The stock slumped as much as 45% premarket. And Western Alliance was down 23%, though it claimed it hasn’t seen unusual deposit flows.

VIX futures rose to 19.63 this morning, with a likely test of Tuesday’s high at 19.81.  The new Master Cycle may run to mid-June, with a possible extension through the end of June.

YahooFinance observes, “(Bloomberg) — For all the angst over US banking stress and a profit recession, none made it to the surface of the stock market in April.

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Calm prevailed, with the Cboe Volatility Index ending the month below 16 for the first time since November 2021. The gauge, a measure of options costs also known as the VIX, slipped for six straight weeks as the S&P 500 endured its least turbulent month in almost four years.

As eerie as the market peace looked, it was the result of aggressive forces balancing each other out beneath the surface. Examples included the violent rotation between technology and financial stocks, and the collapse in lockstep moves among individual shares that sent correlation to a 17-month low.”

TNX made a brief throw-under of the trendline at 34.00 this morning as it seeks to rise back above it.  Should it succeed, the uptrend may resume, confirmed above the 50-day Moving Average at 36.12.  The new Master Cycle may continue to early July.

ZeroHedge warns, “The full force of the rate-hiking cycle is about to be felt across the economy as the Federal Reserve pulls back from warehousing duration risk, leaving the private non-bank sector acutely exposed to higher rates, and credit spreads prone to significant widening.

There has been no shortage of surprises in this cycle. For one, it is remarkable that despite the fastest series of rate hikes for decades, equities are less than 15% off their highs, the VIX is little changed from when the bear market started, and credit spreads are not wider.

But, like a cyclist at the front of a peloton, the Fed has been shielding the economy from the full, and mounting, headwind of higher rates.”

USD futures made a marginal new low at 100.80 before reversing higher this morning.  A rise above Intermediate-terms resistance at 101.88 confirms the buy signal that may last to mid-June.

Crude oil futures plummeted through the Cycle Bottom support at 68.20, to a morning low at 63.70.  he next target may be the weekly Cycle bottom at 53.11, just beneath the 61.8% retracement of the rally from April 2020 to March 2022, potentially also completing a 12.9-month declining Cycle.  The Cycle may be done in 2-3 weeks.  Traders are already calling for a bottom.  It won’t likely happen until those voices are silenced.

ZeroHedge observes, “Oil – keep it simple?

Trading the range in oil requires a mean reverting mind. Buy when it feels like oil is breaking down, and sell/short when it feels like things are about to break up. We are in the lower part of the range and seeing the first up candle in a while…

Source: Refinitiv

Oversold

Oil is very oversold here. Last time we had similar readings of the RSI, things bounced aggressively…

Gold futures extended their Master Cycle high to 2082.80 this morning, on day 267.  It did not exceed the August 2020 high at 2089.20.  A further challenge may be possible, but time is running short for a new high.  Should the current Master Cycle be complete, the new MC may produce a decline to the middle of June.

8:10 am

Good Morning!

NDX futures rose to 13154.60 this morning. a 45% retracement (thus far) of yesterday’s decline.  We may expect a calm market before the FOMC  announcement unless more bad news develops.  There is a tendency to lean to the positive side before the 2:00 pm hour.  It appears that the Master Cycle top occurred on Monday after all.  The longer NDX Cycle took an extra day to complete.

Today’;s options expiration shows Maximum Pain at 13080.00.  Long gamma appears at 13150.00 and extends to 13300.00.  Short gamma starts at 13070.00 and goes to 13030.00.

Zerohedge remarks,  “The weak stuff getting weaker

Russell looks to be falling below the lower part of the huge range. Note we have not closed this low since October last year.

Source: Refinitiv

KREdded

It is hard to find superlatives for the latest move in KRE. This is a pure panic move. Second chart shows KRE vs SPX: We don’t think this gap will close, but it sure looks scary…”

SPX futures are approaching the 50% retracement level of yesterday’s decline at 4138.00 this morning.  Again, the tendency is for the market to stay calm-to-positive until the FOMC announcement.  Investors are keeping their ear to the ground, anticipating further developments.  This is anticipated to be the final rate hike.  The Cycles Model does not agree.

Today’s op-ex shows Max Pain at 4125.00  Long gamma starts at 4130.00 and intensifies at 4150.00.  Short gamma starts at 4120.00 and keeps going to 3900.00 (possibly lower).  This market has a very short fuse.

ZeroHedge reports, “S&P 500 futures are marginally higher on the day despite renewed pre-market weakness from US regional banks and a continued plunge in crude, which sent WTI futures lower by more than 3% on the day and below $70 per barrel on demand worries as the global economy slows. Contracts on the S&P 500 edged 0.1% higher while those on the Nasdaq 100 gained 0.2% by 7:30 a.m. ET, bouncing from yesterday’s losses ahead of the Fed decision. Treasury yields are lower, as traders seek out havens, while the Bloomberg dollar index weakened as traders eye recession risks alongside a potential pause in interest rate hikes. Meanwhile, most metals, including gold, decline slightly.”

VIX futures are mildly positive after making nearly a 50% retracement of yesterday’s rally.

In today’s op-ex, Max Pain is at 18.00.  Short gamma is at 16.00, but nothing further beneath it.  Long gamma starts at 20.00 and extends to 35.00.

ZeroHedge observes, “The winner of the day

VIX1D up almost 100% today…

Source: Refinitiv

Depressed regionals

Hedge funds have puked regionals for a while, but GS notes LO supply has started hitting the tape as well. They also write: “Point being there is still some wood to from chop here if the HF community decides it wants to bring exposures back down to 2019 – 2020 levels.”

TNX is has rolled back to the trendline at 33.90.  The question of the day, “Will it hold?”  The Cycles MOdel is neutral here, but soon to regain its vigor as trending strength returns by this weekend.

ZeroHedge notes, “The Treasury has published details of its quarterly refunding and subsequent Treasury auctions, and as previewed earlier, it kept sales of longer-term debt steady for the third straight time, in line with dealers’ forecasts, while unexpectedly announcing a new program to buyback older securities, starting sometime in 2024. According to some, a buyback program is not that different from QE as it injects liquidity into the system at regular intervals.”

USD futures dipped lower this morning to 101.27.   USD is lingering near the low of its 4-month trading range.  A breakout above the 50-day Moving Average may change the outlook.