The Practical Investor

8:20 am

Good Morning!

Note:  I will be absent from blogging on Wednesday and Thursday.  Friday will be my next opportunity to comment.

NDX futures have risen to 13193.30 this morning.  As mentioned yesterday, NDX has yet another probe higher to complete the current Master Cycle.  A likely target is the Cycle Top resistance at 13506.60.  Today is day 245 in the current MasterCycle.  The move above 12880.98 has performed a reset on the Wave/Cycle structure.

Today’s op-ex shows Maximum Pain for options investors at 13025.00.  Calls rule above 13050 with long gamma beginning at 13100.00.  Short gamma may begin ant 12975.00.  Friday’s monthly op-ex shows long gamma beginning at 13000.00 with pockets of strength running to 13500.00.  Short gamma is practically nonexistent.  It is clear that long gamma holds sway over the options market until expiration on Friday.

ZeroHedge comments, “First, some context from Goldman’s Prime Brokerage: “our franchise flows have shifted to local selling of tech this week and Nasdaq is only up in two of the past ten sessions (also note that it stands exactly where it stood in … the spring of 2021).”

In other words, might as well have sold in May of 2021 and gone away for two years, enjoying all the hikes, golfing and trips and you’d still be right where you left off. Instead, you overtraded every market move and lost money.”

SPX futures rose to 4173.00 this morning, approaching a breakout point at 4195.44, its February 2 high.  A likely target may be the Cycle Top resistance at 4270.28.  I have been asked, “Where are the violent post-2pm turnarounds coming from?”  Read the options analysis.

Today’s op-ex shows Max Pain at 4145.00 with possible long gamma starting at 4150.00 with strongholds at 4200.00 and 4250.00.  Short gamma begins at 4100.00, with a stronghold at 4050.00.  Long gamma may hold sway in today’s expiration.  Friday’s op-ex shows calls ruling from 4050.00 and up to 4250.00.  At 4000.00 the expiring calls number 78,646.00 while the puts number 90,803.00.

ZeroHedge reports, “We have said previously on more than one occasion that the bear market rally just won’t end until Wall Street’s two bearish cosplayers, Marko Kolanovic and Mike Wilson, throw in the towel and turn bearish…

… and sure enough, one day after both of these broken records published their latest weekly doom and gloom performance art meant solely to get institutional and retail investors to sell to their flow desks, futures have melted up even more, with spoos now trading a 2+ month high.”

VIX futures are down even further to 16.78 this morning on day 249 of the current Master Cycle.  Triangle formations are normally frustratingly long.  This particular formation takes the prize for maximum frustration.

Tomorrow’s op-ex shows Max Pain at 22.00 with options deep into short gamma, possibly down to 15.00.  Long gamma begins at 24.00 and stretches to 100.0.  With only one day left to expiry, it appears that short gamma rules another day.

Zerohedge proclaims, “The VIX guy is back

We haven’t heard from “our” VIX guy in a long time. He remains as the number one contrarian indicator when it comes to volatility. His latest reasoning is that we are entering a regime shift and that volatility will stay lower for much longer as “the market does not care about much”. Regular readers of TME know our general logic on protection and volatility: “do not buy protection when you must, buy it when you can”. We are getting very close to such a set up. Using options for directional bets (up/down) as well as protection is looking attractive. Time for a thread on volatility:

Say hello to inverse panic

SPX not even above the “magical” 4200, but VIX is in full crash mode. SPX vs the VIX 2nd month futures (inverted).”

1:23 pm

SPX is testing the trendline leading to a breakdown.  The likely path to a reversal may yet be another final probe to 4150.00 before doing so.

8:00 am

NDX futures remain flat with the April 4 high remaining the top of the Cycle thus far.  Today is day 244 of the Master Cycle and, while it is within the window for a reversal, there may be yet another probe higher to complete the Wave structure.

ZeroHedge observes, “A month ago, when the banking stress first surfaced, our primary takeaway for US equity markets was that it would likely lead to a credit crunch (here and here). Given our already well below-consensus outlook for corporate earnings, it simply gave us more confidence in that view. Fast forward to today and the data suggest a credit crunch has started. More specifically, they show the biggest two-week decline in lending by banks on record, as they simultaneously sell mortgages and Treasuries at a record pace to offset deposit flight. In fact, since the Fed began raising rates a year ago, almost $1 trillion in deposits have left the banking system. Throw in the already tight lending standards and it’s no surprise credit growth is shrinking. If that isn’t enough, last week the latest small business survey showed that credit availability had its biggest monthly drop in 20 years, while interest costs are at a 15-year high.”

SPX futures have risen higher after bouncing off a minor trendline at 4113.00 on Friday.  The Wave structure may be complete, suggesting a retest of the trendline later today.  I cannot rule out another attempt to probe above 4150.00.  However, time and targets have potentially been met.

Today’;s op-ex shows Maximum Pain for options investors at 4135.00.  Long gamma starts at 4150.00, while short gamma begins at 4100.00.

ZeroHedge reports, “US stock futures are off to a muted start to the week as investor focus turns to first-quarter earnings for clues on the health of corporate America amid the Fed’s own admission it is hoping to trigger a recession in the coming months. Futures on the Nasdaq 100 and the S&P 500 were both up a modest 0.1% following Friday’s drop despite better-than-expected quarterly reports from the big banks as markets were unnerved by Fed Governor Christopher Waller’s hawkish comments favoring further policy tightening. His views caused investors to ramp up bets on another rate rise in June, following one in May, and also to scale back expectations for rate cuts later in the year.  In Europe too, the Stoxx 600 Index erased an earlier gain.”

VIX futures are decidedly higher this morning, after Friday’s unmistakable Master Cycle low.  The pendulum has swung far beyond expectations and expanded the Triangle formation in a rare 7th reversal.  While most investors plot out the path of an investment with a ruler, the VIX much further back than one may anticipate.  The Cycles Model suggests the uptrend may last through the month of May.

TNX has risen abov ethe 200-day Moving Average at 35.14 and is challenging mid-Cycle resistance at 35.59 this morning.  Despite the potential buy signal this elicits, the Cycles Model suggests a potential reversal may be imminent, as today is day 259 of the Master Cycle.  As it stands, TNX may be due for another test of the trendline.

ZeroHedge warns, “Back in January, when the US was just days away from hitting (again) the statutory debt limit, and when we looked at the latest forecast for when the US Treasury would hit the so-called X-date, i.e., the point in time beyond which all Emergency Measures have been used up and when a technical default for the US looked all too possible, we said that according to Goldman calculations the US may have “until August, and possibly as long as October to raise the debt limit.”

Three months later, things have changed for the worse as a result of a notable spike in the US deficit (the result of less tax revenue and far more governmental outlays), and as the next chart below shows, the Treasury General Account, or the cash balance parked by the Treasury at the Fed, has dwindled rapidly and was in the double digits as of Friday, the lowest since the end of 2022 (when the Treasury was set to rapidly replenish its cash holding), an amount that unless a debt ceiling solution is found fast could lead to market chaos.”

USD futures have risen to 101.55 this morning on day 250 of the Master Cycle.  The Wave structure is not yet complete, so the Cycles Model suggests another week of probable decline.  However, this may not be the beginning of a new USD bear market (see below).

ZeroHedge remarks, “Back in October 2022, just as the dollar was hitting what according to some measures of FX strength was an all time high, BofA’s Michael Hartnett laid out his two top trade for 2023 which was summarized by the following symbolic pair: “buy EM humiliation, sell US hubris”, or said otherwise, buy EMs, short the USD.”

2:00 pm

On may consider the Financial Select Sector ETF as a means of hedging against further bank runs.  This memo is for informational purposes only and not a recommendation to buy or sell any securities.

1:27 pm

BKX got enough energy today to challenge the Cycle Bottom resistance at 83.26 before pivoting back beneath it.  The is a renewal of the existing sell signal.  While some felt that their short profits may have been eroding, the fact remains that the correction barely rose 19.8% of the decline at today’s peak.  BKX is now in for a two month decline that may erase another 50% from its value.

9:59 am

Wave (E) of the VIX Triangle has likely become a double zigzag, adding the 6h and 7th points to the Triangle formation at a low of 17.45 (The 39-month trendline comes in at 17.42).  This is an extreme move, calling for an extreme countermove to the end of May, as mentioned earlier.  At a personal level, 6 month’s living expenses in cash is advisable.

7:45 am

Good Morning!

NDX futures are lower this morning, but not to new lows…yet.   A decline beneath 12850.00 raises the probability of a reversal.  Conversely, a rally may go as far as 13350.00, should it not be complete.

In today’s op-ex Max Pain is at 12975.00.  Long gamma starts at 13000.00 and runs to 13250.00.  Short gamma begins at 12900.00.

QQQ (319.17) options show Max Pain at 308.00.  Long gamma starts at 317.00 while short gamma begins at 300.00.

ZeroHedge comments, “Risk continues to be skewed to the upside

GS trading desk: “Negative sentiment and light positioning remain as steady mkt tailwinds (much to the chagrin of many HFs). Investors are bracing for the worst in regards to earnings (not exclusive to banks) which makes me believe risk is skewed to the upside as earnings really get going. At this point “OK prints” will be good enough”

SPX futures are flat, but leaning toward the upside.   There is a probable trendline at 4150.00 providing some resistance.  Today is day 241 of the Master Cycle.  The pivot window is now open for an early reversal.  An aggressive sell signal may reside beneath 4070.00.

In today’s op-ex, the 4100.00 strike is hotly contested with puts dominant beneath it.  Long gamma begins at 4150.00.  Note that long gamma starts at the trendline.

ZeroHedge reports, “US stock futures were flat in yet another listless overnight session after Thursday’s bear-vexing rally as traders braced for a slew of earnings from major banks like JPMorgan Chase and Citigroup Inc. Contracts on the S&P 500 dipped 0.1% by 7:45am ET largely as a result of a big drop in Boeing shares, partially offset by solid JPM gains following stellar earnings, while those on the Nasdaq 100 fell by 0.5% after the underlying index added 2% in the last session.”

VIX futures may be bouncing after yesterday’s deep Master Cycle low.  The Triangle formation is threatening to extend a normal 5-point reversal to a 7-point reversal, which is highly unusual.  The impact of bringing the MC low forward allows the subsequent rally in the VIX to extend to 43 days.  By comparison, the panic in 2020 went for 30 days.

Next Wednesday’s op-ex shows Max Pain at 22.00.  Short gamma extends from 21.00 to 15.00.  Long gamma starts at 25.00 and runs hot to 60.00.

MarketWatch observes, “VIX sends a message

The CBOE Volatility Index VIX, 0.45%, on the other hand, remains a positive indicator for the stock market. While VIX has attempted to probe higher on several days recently, it has been repelled from the 20 level repeatedly. Thus the trend of VIX buy signal remains in place for the stock market. That signal would be canceled if VIX were to close above its 200-day moving average, which is currently slightly above 23 and declining. A “spike peak” buy signal has also been in effect since March 13^th. The trading system that we built around “spike peak” buy signals calls for the position to be exited after 22 trading days, and that is now. So, the “spike peak” buy signal will expire today. ”

TNX rose above the 200-day Moving Average at 35.11 this morning, giving a(n) aggressive buy signal and aggressive sell signal for UST.    The signal is confirmed above the mid-Cycle resistance at 35.44.  The new Master Cycle may be short (1-3 weeks), but has the potential of a panic.  Note how interest rated did not rise until after the auction!

ZeroHedge reports, “After two mediocre (at best) coupon auctions, including a tailing 10Y benchmark reopening yesterday, moments ago the Treasury held the week’s last auction when it sold $18BN in 30Y paper.

The auction was solid, if nothing to write home about: the high yield of 3.661% was well below last month’s 3.877% (to be expected in light of the collapse in rates this month), and the lowest since January’s 3.585%; it also closed on the screws with the When Issued which was also 3.661%, and followed two consecutive tailing auctions.

The Bid to Cover of 2.359 was virtually unchanged from 2.351, which was also the six-auction average.”

USD futures made a marginal new low at 100.47 this morning, then bounced.  That places a possible Master Cycle low on day 247.  However,, should the MC low extend to the full complement of 258 days, USD may decline further to the Cycle Bottom support at 99.21.  Normally we would see the USD rally with higher interest rates.  However, Bank of China is selling Treasuries (at a loss) as they prepare for war.

Asia.Nikkei.com reports, “NEW YORK/BEIJING — China’s U.S. government bond holdings hit the lowest in over 12 years at the end of December, while its gold trove grew against a backdrop of American interest rate hikes and bilateral tensions.

Chinese holdings of Treasury securities fell for the fifth straight month in December to $867 billion, data published Wednesday by the U.S. Treasury Department shows.

The figure fell $173.2 billion, or 17%, in 2022 — the biggest drop since 2016. China was not the only nation to sell down its Treasury holdings — all foreign holdings of Treasury securities fell 6% in 2022 — but its move was large.”

2:45 pm

SPX is approaching its 2-hour Cycle Top resistance at 4152.26 and has completed its corrective fractal.  A reversal may be imminent.

ZeroHedge remarks, “It has now been six months since the S&P 500 made its latest bear market low, having retraced around 50% of the decline from the January 2022 highs. The last week or so has seen the market trade siedways in a narrow range just below its downtrend resistance…

The question is  – where to from here? An upside breakout on a Fed pause (but would the required recession anxiety to prompt a dovish Fed work against earnings expectations and this drag the market down?) Or a downside retest of the lows as recession bites and The Fed remains ‘higher for longer’ as the main inflation indicators it monitors remain far above their goals (to maintain their credibility)?”

7:45 am

Good Morning!

NDX futures are probing a new low at 12820.00.  The next step is to challenge the 5o-day Moving Average at 12466.97.  The Cycles Model calls for a possible three-week decline that may challenge the Cycle Bottom at 10513.49.  The Current Master Cycle is due to end in the first week of May.  Investor bearishness is growing, which makes it hard to discern direction, as the crowd is most often wrong…until they’re not.

Today’s op-ex shows Maximum Pain for options investors at 12875.  There is a huge call wall (over 300,000 contracts) at 12900.00 and sustained up to 13250.00.  On the other hand, puts rule at 12770.00 and below.  Options sentiment appears much more bulish than bearish.

RealInvestmentAdvice maintains, “Despite media headlines, podcasts, and broadcasts suggesting “doom and gloom” lurks around the corner, investor bullishness has increased markedly since the October lows. This isn’t the first time we have discussed investor sentiment, which is often wrong at the extremes.

“One of the hardest things to do is go “against” the prevailing bias regarding investing. Such is known as contrarian investing. One of the most famous contrarian investors is Howard Marks, who once stated:

‘Resisting – and thereby achieving success as a contrarian – isn’t easy. Things combine to make it difficult; including natural herd tendencies and the pain imposed by being out of step, particularly when momentum invariably makes pro-cyclical actions look correct for a while.

Given the uncertain nature of the future, and thus the difficulty of being confident your position is the right one – especially as price moves against you – it’s challenging to be a lonely contrarian.‘” – Sentiment Is So Bearish It’s Bullish

That bolded sentence is the most relevant to today’s discussion.”

SPX futures are probing the lower end of yesterday’s trading range wile on an aggressive sell signal.  Aggressive signals are in areas where the Cycles may have pivoted, but remain subject to push-back.  Confirmation of the sell signal is at the 50-day Moving Average at 4032.45.  February 2 remains the high of the year in SPX.

In today’s op-ex the 4100.00 strike is hotly contested by both puts and calls.  Long gamma starts at 4120.00 while short gamma begins at 4080.00 with a put wall at 4040.00.

ZeroHedge reports, “For the fourth day in a row, US equity futures are effectively unchanged in the overnight action, as the April doldrums continue, and as shown below spoos have traded in a narrow 80 points range all month.”

VIX futures are trading lower after making a new Master Cycle low yesterday on the VIX op-ex day.  The trading pattern now suggests the probability of yet another low in the VIX in the next few days.

Next week’s op-ex shows the 23.00 strike being hotly contested.  Short gamma starts at 21.00, extending to 17.00.  Long gamma begins at 25.00 and extends to 100.00.

TNX futures pulled back to 33.89 this morning, but have since recovered some of the losses.   TNX is due for yet another possible Master Cycle low next week, suggesting a second test of the trendline.  The short-term direction of TNX remains in question until in exceeds its overhead resistance at 35.10 – 35.52.  The long-term trend is still higher.

ZeroHedge reports, “One day after a solid 3Y auction priced “on the screws”, moments ago the Treasury sold $32BN in a 9-year 10-month Reopening of 10Y cusip GM7. Cutting to the case: it wasn’t ugly but it could have been better.

Stopping at a high yield of 3.455% – the lowest since September and 53bps below the March yield – the auction tailed the 3.435% When Issued by 2bps, which may sound like a lot but it’s actually better than last month’s 2.7bps tail, and also better than December’s 3.7bps as well as November’s 3.4bps. Needless to say, the last few benchmark auctions have not been a walk in the park.”

USD futures are probing a new low at 100.65.  This extends the downturn for up to another week.  China is unloading its USD holding in the FX market as they are likely preparing for war.

Gold futures are soaring to a new Master Cycle high (on day 267) at 2060.65.   The next level to challenge is the February 2022 high at 2078.80.  Thereafter, it must beat the 2020 high at 2089.20.  Should that happen, a new uptrend may be established.  Conversely, should it fail, a potential 50% decline may ensue.

7:45 am

Good Morning!

NDX futures are testing the lower end of yesterday’s trading range at 12930.50 before a bounce.  The oscillations tell us that the rally has lost energy and is susceptible to a decline.

Today’s op-ex shows Maximum Pain at 12880.00, while long gamma begins at 12900.00.  Short gamma is light, so the pain may increase at lower levels.

ZeroHedge observes, “While it won’t have the market impact of recent CPI prints – as attention is now far more focused on the credit crunch and economic contraction resulting from the massive regional bank deposit run – Wednesday’s CPI report will still have a powerful effect on risk assets (and, as Goldman noted today, it could send stocks as much as 2% higher or lower).

This report is structured into three segments: i) what consensus expects; ii) key things to focus on, and where surprises may be hiding, and iii) how the market may respond.

I. Consensus Expectations

• Headline inflation is expected to drop to 5.1% Y/Y from 6.0% Y/Y in March, while the core gauge is seen rising modestly from 5.5% in March to 5.6%.
• On a sequential basis, consensus expects a slowdown to 0.2% M/M from 0.4% at the headline level, while core CPI is seen dipping to 0.4% from 0.5%”

SPX futures are consolidating within yesterday’s trading range, waiting for the CPI numbers.  The April 4 high remains the top tick.  An aggressive sell signal awaits beneath round number and trendline support at 4100.00.  Confirmation lies at the 50-day Moving Average at 4031.85.

In today’s op-ex puts dominate at the 4100.00 strike and below (short gamma), while long gamma starts at 4110.00.  Options appear to be on a razor’s edge.

ZeroHedge reports, “US stock futures traded in a very tight range on Wednesday as investors held off on making big trades ahead of today’s CPI print which is expected to provide clues on the Federal Reserve’s outlook for rate hikes. Contracts on the S&P 500 were up 0.2% at 7:45am ET while Nasdaq futures were fractionally in the red. The Bloomberg Dollar Spot Index was little changed, as Treasury yields edged higher across the curve, mirroring moves in European bond markets. Oil and gold rose. Bitcoin was flat after a four-day gain, its longest streak in three weeks.”

VIX futures are edging higher, to 19.38 this morning.  While April 6 may have been the Master Cycle low, confirmation for a buy signal awaits at the 50-day Moving Average at 20.63.  Once confirmed, the new trend may continue to late May.

USD futures are edging lower as the market awaits the CPI report.  The Cycles Model suggests a pivot at the end of the month.  However trending strength may come back by next week and last for the duration.

TNX is edging higher, at 34.60 and may challenge overhead resistance at 35.09-35.51.  The Master Cycle low has been established last Thursday and the uptrend may become more evident, especially early next week, as trending strength comes back.

ZeroHedge remarks, “Inflation will soon plateau at a higher level than the market expects, but this is historically not a sufficient reason to prevent the Fed from cutting. Kneejerk flattenings in the yield curve from higher-than-expected inflation should eventually lead to re-steepenings.

Today’s data is expected to show a continuation of the trend in falling headline CPI, but stubborn core inflation, expected to rise to 5.6% from 5.5%.

Leading indicators expect the fall in headline CPI to continue for now, but it is in core where we can do a biopsy to see what is going on under the surface.

The San Francisco Fed splits core PCE into cyclical and acyclical inflation. Very simply, cyclical inflation are those inputs most correlated to Fed policy, and acyclical is anything left.”

Crude oil is breaking out above its previous high and, with a week to go in its Master Cycle, may take aim for the Cycle Top resistance at 97.11.  The Broadening Wedge formation may have failed, as crude refused to stay under the trendline.

OilPrice.com reports, “Despite OPEC+’s surprise production cut, the global oil market will remain in surplus this year and next as demand growth could be hurt by lower-than-expected economic growth in the coming months, the U.S. Energy Information Administration (EIA) said in its latest Short-Term Energy Outlook (STEO).

The latest forecasts include declining production in OPEC and Russia, yet the EIA still expect global oil production to increase by 1.5 million barrels per day (bpd) in 2023, due to strong growth from non-OPEC countries excluding Russia. Non-OPEC+ production growth will largely be driven by North and South America, the administration said.”

8:00 am

Good Morning!

NDX futures are hovering near the bottom of yesterday’s trading range, but have not yet broken down.  The swing high was made last Tuesday and a correction of the decline is still in progress.  It appears that there may be a final probe to 13080.00 this morning, ending the corrective phase.

Today’s op-ex shows Max Pain at 13050.00.  Long gamma rules above 13100.00, while short gamma begins at 13000.00.  Sentiment appears to be slowly turning in NDX options.

ZeroHedge notes, “NASDAQ technicals

Trapped inside the big range, trading just above the 13k support level. Note the short term trend channel. Time to make a decisive move soon…”

SPX futures are flat, but may be poised to make a nominal new high before reversing back down.  The retracement may be nearly complete.  The hourly Cycle may reach its target in the first hour of trading.  Following the reversal, we may expect SPX to decline for the balance of April.  SPX is on an aggressive sell above the 50-day Moving Average at 4030.00, where the sell signal is confirmed.

In today’s op-ex, 4100.00 is hotly contested by both puts and calls.  Long gamma may begin at 4125.00 while short gamma starts at 4050.00.

ZeroHedge reports, “US equity futures held on to post-holiday gains as traders awaited tomorrow’s inflation data for clues about whether the Fed’s tightening cycle is done or if it will hike once more in May (currently market odds are 74% after Friday’s strong jobs report) and also prepared for the start of the first-quarter earnings season when the big banks report on Friday. S&P 500 contracts were flat as of 7:40 a.m. ET, fading earlier gains after the underlying benchmark pulled off another late recovery on Monday as investors shrugged off fears of one more Fed rate hike in the wake of Friday’s strong US employment data. Nasdaq 100 futures dipped 0.2% after rising modestly earlier.”

VIX futures are flat, near the lower end of its trading range.  Last Thursday’s belated Master Cycle low was a bit of a surprise, but the message is clear…no more new lows.

In tomorrow’s op-ex, puts have been virtually abolished, with long gamma starting at 17.00 and running to 35.00.  Next week’s monthly op-ex shows Max Pain at 22.00 with short gamma starting at 21.00 and long gamma beginning at 24.00 and running strong to 100.00.  The fuel for a panic attack is there, should the market go south.

TNX is pulling back after a major crack-up from its Master Cycle low last Thursday.  The Cycles Model suggests more of the same kind of move today, as well.  The next resistance is the 200-day Moving Average at 35.07, followed by the mid-Cycle resistance at 35.48.  The new Master Cycle may be a short one, ending in another possible burst of energy at the end of April.

ZeroHedge observes, “This feels very stagflationary.

As the labor market starts to finally crack (the most lagged economic signal), and consumer credit growth slows (at their limits), The Fed has a problem as, according to the New York Fed’s March Survey of Consumer Expectations, inflation expectations are on the rise once again, especially the short-term.

Median inflation expectations increased by 0.5 percentage point at the one-year-ahead timeframe to 4.7%, the first increase in the series since October 2022. Median inflation expectations for the three-year-ahead horizon edged up 0.1 pp to 2.8%.”

USD futures are pulling back from yesterday’s surge to consolidate before probing the 50-day Moving Average at 103.18.  The Cycles Model calls fo a continued surge higher through the end of April, possibly to early May.  This about-face may catch many traders off guard, as they are short the USD.

Gold bounced from its Cycle Top support at 1998.70 after making its Master Cycle high last Wednesday.  It is time to sell the bounces as the Cycles Model infers a decline to the end of April.  The decline may be steep, so long positions should be sold.

9:45 am

BKX, our liquidity proxy, is still hovering in no-man’s land.  It appears unable to rally as the window for that opportunity appears to be closing on day 270.  This may be the last chance to rally to the Cycle Bottom at 84.72.  BKX remains on a sell signal that may not change until the middle of June.  This may have the makings of a waterfall event.   Things may be going from bad to worse.  Much worse.

ZeroHedge reports, “Those who peeked below the surface of the latest H.8 statement which, as discussed previously, saw the biggest drop on record in bank loans and leases in the last two weeks of March…

… found another, perhaps even bigger surprise. As we detailed over the weekend when breaking down the weekly change in small bank loans and leases by their subcomponents, we found that whereas in the first week after the bank crisis (the one ending March 15) the bulk of the collapse in loans was in the traditionally volatile C&I space, the latest week was a surprise: that’s because while the plunge in C&I loans moderated substantially to just $6.9BN from $25BN the week before, the biggest slide was in one of the anchor pillars of the small bank sector: real estate loans.”

ZeroHedge observes, “Today, there is at least $7 trillion in uninsured bank deposits in America.

This dollar value is roughly three times that of Apple’s market capitalization, or about equal to 30% of U.S. GDP. Uninsured deposits are ones that exceed the $250,000 limit insured by the Federal Deposit Insurance Corporation (FDIC), which was actually increased from $100,000 after the Global Financial Crisis. They account for roughly 40% of all bank deposits.

In the wake of the Silicon Valley Bank (SVB) fallout, Visual Capitalist’s Dorothy Neufeld and Sabrina Lam look at the 30 U.S. banks with the highest percentage of uninsured deposits, using data from S&P Global.”

ZeroHedge adds, “Earlier this week, when looking at a critical real-time indicator of US loan activity – the Dallas Fed’s latest Banking Conditions Survey – which provides an early glimpse into loan supply and demand at least until the next SLOOS is released in early May, we warned that loan demand had collapsed, while credit standards had tightened to the point where there was virtually no new credit supply for broad swaths of the economy. Here is the key quote from the survey:

Loan demand declined for the fifth period in a row as bankers in the March survey reported worsening business activity. Loan volumes fell, driven largely by a sharp contraction in consumer loans…. Credit standards and terms continued to tighten sharply, and marked rises in loan pricing were also noted over the reporting period. Banking outlooks continued to deteriorate, with contacts expecting a contraction in loan demand and business activity and an increase in nonperforming loans over the next six months. Some contacts cited waning consumer confidence from recent financial instability as a concern.”

8:20 am

Good Morning!

NDX futures are testing Thursday’s low at 12846.03 this morning.  While February 2 was the turning point for the blue chips, Friday, March 31 may have been the turning point for the NDX as a first quarter push to a record gain may have ended.

In today’s op-ex, Maximum Pain for options investors is at 12875.    Long gamma begins at 13000.00, while short gamma appears nonexistent.  Virtually no one is short the NDX.

ZeroHedge comments, “A tightness in my chest…a bad feeling….something wicked this way comes. Or not. The markets have become very unkind. From week to week we have to deal with something else. Whether it be banking crises and bankruptcies, rates volatility, funding pressures and then a broader volatility spike, basis blow out and de-grossing that caught all and sundry. Then, without much reason or rationale we revert to mean. Equity vol abates, we see a week long rally and if headline indices were to be believed, it is as if nothing happened at all.

So in summary another head scratching week. Focus remains on US regional banking space and whether we are at the end or the beginning as well as growing concerns around the economy.

It increasingly feels like equities are caught in a channel. One that most believe (and are positioned) to see break on the downside and yet never seemingly does. Tony Pasquariello pointed out that the S&P spent Q1 in a 10% trading range – 3808 to 4180 – for the tightest bad since Q3 2021. On top of the usual debates around rates/inflation and the consumer….we worry about US regional banks, systemic and contagion risks, geo-political shifts, volatility in rates and fx, corporate earnings and margins, commercial real estate and leverage beneath the surface…and increasingly worry also about recession. There was a time where bad news was good news in the sense that bad news meant more stimulus, more liquidity and more backstop. Now it feels like bad news may just be that…..bad news. For now however, we muddle through. Last week the latest round of a gradual and steady rally for no discernible reason.”

SPX futures dipped to 4069.96, still within Thursday’s trading range.  The European market remains closed for Easter, so there is no directionality from that part of the world.  The Cycles Model suggests the decline may continue in the Blue Chips, as the rally did not succeed in making a new high.  The next Master Cycle Pivot occurs in early May.

Today’s op-ex sows Max Pain at 4115.00.  Long gamma starts at 4150.00, while short gamma begins at 4050.00.  The April 21 (monthly) op-ex shows 4000.00 as a hotly contested strike for both puts and calls. with over 80,000 contracts on either side.

ZeroHedge reports, “With much of Asia and Europe still closed for Easter Monday, US stock futures, already painfully illiquid, were trading in a narrow range for much of the session, before losing all of their post-payrolls gains as investors assessed the path of Federal Reserve monetary policy following Friday’s jobs report. Contracts on the S&P 500 dipped 0.2% at 7:30am while Nasdaq 100 futures dipped 0.4% as the dollar spiked to session highs on the back of yen weakness following the latest comments from the BOJ’s new head Ueda.”

VIX futures rallied this morning to a new high at 19.91 after Thursday’s surprise Master Cycle low.  Please read Thursday’s blog for a complete explanation.  Should that analysis be correct, the VIX may rally through the end of May.  A breakout occurs above 20.08.

In Wednesday’s op-ex, calls now dominate VIX options from 18.00 to 35.00.  Sentiment has turned dramatically.

TNX has turned up in strength, as predicted last week.  The Master Cycle has stretched in the case of TNX, where it has shortened in the  VIX to match an important turning point in the markets.  The Cycles Model suggests the new Master Cycle may have as little as a week to perform.  However, should the strength of the new trend persist, it may last through the end of April.

USD futures have risen to a morning high of 102.35, establishing the swing low made on Wednesday.  The current Master Cycle is due to make its Pivot at the end of April, suggesting new highs may be in the offing.  The cries for the collapse of the USD are getting louder.  However, as bad as things are, they are much worse in the rest of the world.

8:00 am

Good Morning!

Today, Good Friday, is a market holiday, although Federal Employees are still expected to work.  This anomaly may produce some unforeseen results, since the SPX futures market closes at 9:30 am, after the March  Employment Situation Summary is released.  Be prepared for some volatility.  I may not be able to comment on it this morning, as I am due to be elsewhere.

ZeroHedge reports, “While US cash markets are closed for the Good Friday holiday, futures are open but judging by the lack of action they may as well be closed. As of 7:45a ET, index futs were little changed after underlying indexes rose modestly in already thinned trading ahead of a three-day weekend that will see a crucial jobs report. S&P eminis were down 0.13% to 4,127 while Nasdaq futures dipped -0.08%. The yen fluctuated after declining Thursday against the dollar for the first time this week. Gold traded around $2010 while bitcoin drifted lower, sliding to $27800.

This morning’s study of the Cycles Model produced a stunning revelation.  Yesterday may have been the Master Cycle low despite it being on day 237.  You see, Master Cycles average 258 days with a standard variance up to 17.2 days.  That leaves the the normal window for a Master Cycle to be 241 – 275 days, with 92% clustered within 4.3 days of 258.  What makes this Master Cycle unique is that its predecessor was a  rare 282 days in length, so the average of the two is a normal 259.5 days.

There is a probability of BKX completing its corrective phase with a brief probe to the Cycle Bottom at 85.09.  Chances of going higher are small, but don’t rule out a  spike high before resuming the decline.  Disintermediation will continue for some time, weakening the banks.

ZeroHedge comments, “One week ago, we discussed a recent report from Barclays‘ repo guru Joseph Abate, who predicted that no matter the amount of emergency mitigation measures implemented by the Fed, the second, slower-burning phase of the bank run had begun as “depositors had finally awoken” about the opportunity cost of keeping their deposits at potentially challenged banks while earnings far less than they can earn by keeping their money in effectively risk free securities such as T-bills or parking deposits at Money Market funds.

Abate’s conclusion was that as long as the Fed kept Fed Funds rates high, i.e., 5% or so where they are now, the rotation out of deposits and into money markets would continue so long as the rate gap between deposits and money market rates is 200bps or higher, which is where it is now.”

TNX futures burst higher this morning, to a new high at 33.55.  This may confirm the Master Cycle bottom which occurred yesterday.  Since TNX has been making successively lower bottoms over the last 4 months, analysts have decided that the trend must continue.  There is no calculation of the drain that the war in the Ukraine has put on the US treasury which may cause rates to rally even further.  The one-year target for the 10-year is 5.3%.

7:30 am

Good Morning!

NDX futures probed lower to 12875.10 before bouncing back to breakeven.  The latest rally in NDX has all the appearances of investors charging ahead, looking through the rear view mirror, despite crumbling economic data.  Is Wile E. Coyote running off the cliff?  NDX rates an aggressive sell due to meeting time and target requirements.

In today’s op-ex Maximum Pain for options investors is at 13010.00.   Lang gamma may begin at 13025.00, while short gamma begins at 13000.00.  In other words, the shorts may be gaining ascendancy.

ZeroHedge comments, “Well that all escalated quickly.

As Goldman’s John Flood noted: “First time in a long time that I can recall bad economic data actually being bad for stocks.”

Just a month ago, the world and his pet rabbit was crowing about soft-landings and strong labor markets (ignoring the constant reminders that the labor market is the ‘last to go’)… and now US macro data is serially surprising to the downside (with ISM Services and ADP today)…

SPX futures have been consolidating within yesterday’s trading range in the overnight market.  It has also met the time requirement for a correction and has been repulsed by multiple resistances at or near 4133.00.  It also rates an aggressive sell.  Tomorrow is a market holiday, but not a federal employees holiday, leaving us to decide in advance how large a bombshell the DOL is about to lay.

Today’s op-ex reveals Max Pain at 4085.00.  Long gamma begins at 4100.00 while short gamma starts at 4050.00.  The 50-day Moving Average is at 4026.65, where the sell signal may be confirmed.

ZeroHedge explains, “For the past 9 months we have been warning that, whether by accident or due to active and malign data manipulation, the US labor market is in a far worse shape than indicated by the labor market. Here is an example of some of our work into what could prove to be the most destructive and glaring errors by the US Department of Labor, because while (mis)represented how “strong” the Biden labor market is, they were giving the Fed a false sense of comfort in the strength of the economy and enabling it to hike rates long past the point where they should have been pausing and/or pivoting.”

ZeroHedge reports, “Nasdaq futures dropped despite a continued slide in yields as the “bad news is bad news” mood extended for a third day, as traders awaited further data on the US jobs market that may fuel concerns about a potential recession. Nasdaq 100 contracts slid 0.2% by 7:30 a.m. in New York, the third straight day of losses for the tech index just after entering a bull market and posting its strongest March in over a decade. Contracts on the S&P 500 were little changed before the start of the Easter long weekend following a string of weaker-than-expected data releases from the US which has put the risk of a recession back into focus for investors who will be watching initial jobless claims closely today. Treasury yields extended a slump as growing fears that world economy is set for a sharper slowdown outweighed concerns over elevated inflation and monetary tightening. The dollar was flat, oil rose and bitcoin dropped.”

VIX futures are also consolidating inside yesterday’s trading range.  Cyclically, it is poised to go much higher.  The Cycles Model suggests a double surge of strength next week, first on Monday and again on Wednesday.

Nex Wednesday’s op-ex shows Max Pain at 19.00, which the dealers would dearly love to hold.  There is no short gamma to speak of.  Long gamma begins at 20.00.

The April 19 expiration is yet another story.  Max Pain is at 22.00.  Short gamma begins at 21.00 and runs to 17.00 while long gamma begins at 24.00 and extends to 100.00.  Speculators are taking their positions.

TNX made a marginal new low at 32.53 this morning, on day 274 of the Master Cycle.  Something is about to break loose in rates that may surprise investors caught the wrong way.  The next two weeks may show a startling outcome, totally unexpected by investors.

ZeroHedge reports, “After ugly ISM employment data, dismal JOLTS, soaring WARN notices, and a weaker than expected ADP print, this morning’s Challenger, Gray & Christmas report announced a bigger than expected 89,703 job cuts in March (270,416 year-to-date), up 319.4% YoY. The West dominated the cuts (East 13,638; Midwest 21,764; West 48,123; South 6,178), with technology-sector companies have announced 102,391 cuts so far this year, “on pace to surpass the highest annual total for the sector announced in 2001,” the report notes.

Source: Bloomberg

“We know companies are approaching 2023 with caution, though the economy is still creating jobs,” Andrew Challenger, firm’s senior vice president, said in statement.

“With rate hikes continuing and companies’ reigning in costs, the large-scale layoffs we are seeing will likely continue.”

 

ZeroHedge comments, “US 10 year – the break down

US 10 year extending the move lower, “well” below the 200 day moving average. Seems that lower for longer really is hitting the market.

Source: Refinitiv

Bond volatility on the move

MOVE moving higher today again. The gap vs VIX is back to very wide levels again…”

USD futures are rising to a morning high of 101.77 thus far.  This may put yesterday’s low at 101.09 as the “swing low.”  The Cycles Model suggests that Monday may begin the week with a surge in the USD that may continue through the end of April.

ZeroHedge comments, “Last week, Fox News aired a segment discussing the possibility that the US dollar will cease to be the global reserve currency and what that would mean for Americans. The tone of the piece suggested that a “catastrophic” decline of the US dollar was not only possible, but perhaps even imminent. CNN last week also aired its own segment suggesting the US will face “a reckoning like none before” if the “dollar’s dominance” in the global economy falls significantly.

Much of the analysis was framed to stoke the public’s fears of Chinese geopolitical power, and the Fox segment was especially hyperbolic in its predictions of near-total economic devastation resulting from any movement away from the dollar in international trade and reserves.”

Gold futures have edged down to a morning low of 2024.60 after making a probable master Cycle high yesterday, on day 259.  The Cycles Model calls for a steep decline into the end of April, after which the decline may  resume through early August.

ZeroHedge observes, “In February, central bank gold reserves rose by another 52 tons, according to the latest data compiled by the World Gold Council.

It was the 11th straight month of central bank net gold purchases.

Through the first two months of 2023, net central bank gold purchases came in at 125 tons. This is the strongest start to a year since 2010.

China was the biggest buyer in February. The Peoples Bank of China increased gold holdings by a reported 24.9 tons. It was the fourth consecutive month of reported Chinese gold purchases. In that time, China’s official gold reserves have grown by 102 tons.”

10:53 am

BKX, our liquidity proxy, is heading lower this morning.  Should it reverse above the March 24 low at 76.20, it may bounce to retest the Cycle Bottom resistance at 85.47.  However, a breakdown beneath that low raises the likelihood that the decline may continue through the middle of June.

ZeroHedge reports, “Over a month before Silicon Valley Bank collapsed on March 9 sparking the deepest US banking crisis since the Lehman bankruptcy…

… we reported that loan demand was plunging while bank lending standards were approaching the tightest levels on record.

And as we have noted frequently over the past month, the great fear – one also shared by Jamie Dimon – is that the ongoing bank run and near death experience of regional banks will force small and mid-size banks to further tighten lending standards as they enter survival mode and hunker down, effectively grinding all new loan issuance to a halt.”

TheEpochTimes reports, “JPMorgan CEO Jamie Dimon said in a letter to shareholders that the U.S. banking crisis is not over, and that even when it does end, its impact will linger for years, while warning that America seems to moving into a “vicious cycle.”

“As I write this letter, the current crisis is not yet over, and even when it is behind us, there will be repercussions from it for years to come,” Dimon wrote in the wide-ranging 43-page missive that included the ominous warning that storm clouds threaten the U.S. economy.”

8:15 am

Good Morning!

NDX futures are consolidating near yesterday’s high.  There may be an attempt to rally to the Cycle Top at 13407.37.  If so, it may be finished in the next week.  However, market strength is waning.  The NDX Hi-Lo Index has plummeted to -151.00 yesterday from -37.00 on Monday.  The four tech generals appear to be doing the heavy lifting, keeping the index from falling.

In today’s op-ex, Maximum Pain for options investors is at 13080.00.  Long gamma begins at 13010.00 while short gamma lies at 1300.00.  Sentiment appears bullish.

ZeroHedge observes, “Yesterday we reported that JPM’s Positioning Intel desk issued an alert of a possible marketwide squeeze should momentum accelerate to the upside and draw in more stopped-out shorts. Today, we turn our attention to another part of JPM’s trading floor, the Delta-One crack trading team, which has published a note on how to hedge the biggest market risks today including “Squeeze, Mini Cycles, and recent Tech Rally.”

We excerpt from the full note (available to pro subs in the usual place) below:

* * *

With the recent Tech rally & positive upgrade on economy, we analyzed the current potential risk to hedge in the market. Client inquiries about Growth vs Value and possible reversals of Mega-Cap rally suggest the fear in the market is about protecting recent Pnl with recovery in Tech. The changing market dynamics, in the short term, have become a pain for investors to protect PnL and require hedging emerging Short term risk.”

SPX futures are lower after consolidating overnight within yesterday’s trading range.  SPX is up against multiple resistances that may re-assert the downtrend after 21.5 days of rally following 39 days of decline.  We may see the decline begin to accelerate into a panic rout as early as next week.  Confirmation of the decline occurs at the 50-day Moving Average at 4024.39.  There is an aggressive sell signal currently in place.

Today’s op-ex shows Max Pain at 4115.00.  Long gamma begins at 4150.00, while short gamma becomes painful for longs at 4050.00.

ZeroHedge reports, “US stock futures edged lower on Wednesday, extending Tuesday’s post-JOLTs declines into a second day ahead of even more employment data including the ADP private payrolls report, as hawkish messages from New Zealand and Australian central banks signaled a prolonged fight against price pressures and revived concerns about a deeper economic slowdown. Gold extended a 13-month high. The two-year Treasury yield rose for the first time in four days and the dollar fluctuated.

Contracts on the Nasdaq 100 and the S&P 500 were both down by about 0.1% as of 7:30 a.m. in New York. The indexes had dropped on Tuesday following soft labor market data.  In Europe the FTSE100 is up 0.5%, boosted by AstraZeneca gains after positive drug trial results.”

VIX futures are consolidating near the upper end of yesterday’s trading range.  The Cycles Model suggests a dramatic surge in strength starting early next week and extending through the end of April.  VIX ETFs, futures and options appear to be in an accumulation stage prior to take-off.

TNX has made a new low on day 273 of the current Master Cycle.  Conditions are ripe for a massive reversal starting today and possibly extending to the end of the month…Consider the following:  While the 10-year bond yield went from 3.98 to 43.33, the UST declined from 140.36 to 109.48.  That’s a loss of 7.85% in UST for every percent of rate increase.  Should rates rise another 2%, that’s a further loss of 15.7% of principal in UST.  That may take 4.8 years to recover at today’s rate.

ZeroHedge observes, “260 Fed meetings will occur between the issuance and maturity of a 30-year Treasury bond. There will be 260 times when the Fed raises, lowers, or does nothing with Fed Funds. In that perspective, why should a bondholder care what the Fed does or doesn’t do at the next few meetings? We ask the question because we get many questions from potential bond investors on whether they should buy bills, notes, or bonds based solely on expected Fed policy.

Many inquiries are concerned about buying bonds too soon because they fear the Fed may still raise rates once or twice. While the Fed is an important variable in the performance of all bills, notes, and bonds, its actions significantly impact shorter-term bills and have less influence on longer-term notes and bonds. ”

ZeroHedge remarks, “Lower for longer?

Yields are at massive levels. Charts showing the 10 and the 5 year, both trading at the lower part of the range that has been in place since September last year. A close slightly lower in yields and we could be looking at a powerful break down move. Note both charts are “well” below the 200 day moving average.

Source: Refinitiv

USD futures bounced off yesterday’s low, suggesting a reversal may be at hand.  If correct, USD may end the month of April at a new high.

Investing.com reports, “The dollar held near two-month lows on Wednesday after weak data supported the view that the Federal Reserve may not need to raise rates much further, while the New Zealand dollar hit two-month highs after a larger-than-expected rate hike.

With the all-important U.S. monthly employment report just two days away, activity across the market was a little more subdued than it has been in recent weeks.”

Crude oil traded lower this morning following a probable Master Cycle high on day 264.  The Cycles Model calls for an extended decline through the month of May, so we will be watching this decline carefully.

Gold futures rallied to a new high at 2048.90 on day 259 of the current Master Cycle.  This may be the top I have previously warned about.  The Cycles Model suggests the first phase of the ensuing decline may last until the end of April.  This phase of the decline has the potential of probing the Cycle Bottom at 1588.14.