The Practical Investor

12:38 pm

SPX has completed an impulsive decline and is due for a retracement.  The 50% retracement value is very near 4400.00, as is other overhead resistance.  Should that be the retracement target, we may see the rally continue another 24 hours in an attempt to take back this week’s losses.  However, the 0-DTE options trades are favoring the puts with the 4350.00 strike gaining strength.  Should SPX decline beneath 4350.00, the decline may resume sooner.

10:07 am

The Ag Index was repelled by the upper trendline of its 8.6-month declining trading channel.  The Cycles Model suggests another 4 weeks to the end of the new Master Cycle.  Should support at the 50-day Moving Average at 437.20 hold, we may see it break out of the channel in the next week.  Trending strength makes a comeback starting tomorrow and may last through mid-July.

9:50 am

An update on the BKX shows it challenging Intermediate-term support at 79.24.  It is now on a confirmed sell signal with a decline to the end of the month.  Normally I would suggest a target at the Cycle Bottom.  However, the potential for a panic decline is significant next week.

8:00 am

Good Morning!

NDX futures are lower this morning, down to 14796.90.  NDX is on an aggressive  sell signal beneath 15000.00 with further reinforcement at the Cycle Top at 14500.08.  A confirmed sell signal lies at the lower trendline of the Ending Diagonal and Intermediate-term support at 14054.67.   Most analysts still believe that the uptrend is still in force.  A few are now timidly calling for a small pullback.  The Cycles Model calls for a panic Cycle to emerge over the next week until the end of the month.

Today’s op-ex shows Max Pain at 14975.00.  Long gamma starts at 15000.00 while short gamma begins at 14950.00.  The short gamma trend appears to be accelerating.

ZeroHedge remarks, “Now that we know that hedge funds have been quietly but persistently derisking for the past 9 days, a move which now appears to be spreading to institutions and high net worth retail, it makes sense why today was the third consecutive day of the market giving back.

As Goldman trader Mike Washington notes in his EOD summary, it was a relatively light volume session with semis + MAGMAN + software + retail favorites all selling off in tandem; the bank’s trading desk was “peppered with questions on the move lower but there wasn’t much to point to other than froth coming out of lower quality sleeves of the mkt.” The desk also saw an uptick in selling in more speculative complexes like growth software on the way down from not just the hedge fund community but also institutional long-onlies (who had been piling in while HFs were selling) reducing length, as well as a defensive bid for value. As an aside, Powell’s testimony was largely in line with a slightly hawkish tilt, reiterating that we are ‘very far’ from the 2% inflation target and rates will be ‘somewhat’ higher by year end (fed fund futs now pricing in a ~70% probability for a July hike).

This brings us, or rather Goldman, to ask we first said on Monday is the only question that matters: Is the rally about to sizzle or broaden out?”

SPX futures are challenging the Cycle Top support at 4351.70.  Beneath it lies an aggressive sell signal.  Other reinforcements lie at the upper trendline of the Ending Diagonal at 4250.00, while a confirmed sell signal lies beneath the 50-day Moving Average and lower trendline at 4188.40.

In today’s op-ex Max Pain lies at 4375.00.   Long gamma begins at 4400.00 while short gamma starts at 4350.00.  It appears that short gamma may dominate the day.

ZeroHedge reports, “US equity futures and global markets slumped for a 4th day as policy tightening fears from the US to Norway to Switzerland to the UK hobbled the recent bull run which sent US stocks to a 52-week high last Friday. At 7:45am, S&P 500 and Nasdaq futures were down 0.3% following a selloff on Wall Street on hawkish warnings by Fed Chair Jerome Powell in testimony to Congress. The Bloomberg dollar index was higher with the Norwegian krone outperforming among Group-of-10 currencies. Treasury yields edged higher across the curve, mirroring mild increases in the UK and Europe. Brent crude slid nearly 1%, gold fell and Bitcoin topped $30k amid optimism over ETFs related to the token but has since reversed back under after today’s tightening barrage. Today’s macro data focus includes Jobless data, Home Sales, regional mfg activity, and the leading index. Powell speaks at 10am and there are 4x other Fedspeakers.”

VIX futures hit a morning high at 13.98 as it rose from an extended Master Cycle low on day 266.  The Cycles Model suggests an uptrend in VIX that may last through mid-August.  I have been advocating accumulating shares, long options and ETFs for the past two weeks and now our patience may be rewarded.

Wednesday’s op-ex shows long gamma above 13.00. with no short gamma  The heavy short gamma positions held until yesterday’s expiration have all disappeared.

TNX may resume its rally today after finding support at the trendline and mid-Cycle level at 36.82.  Most analysts consider the bond market to be flat since March.  However it has only ventures beneath the uptrend line three times in the past three months.  The current Master Cycle is due to end in early July.

ZeroHedge reports, “An otherwise boring day in which everyone pretends to be listening to Powell but is really playing wordle was broken up momentarily by some bond market action when 1 minute after 1pm ET, the Treasury announced results from today’s 19-Year 11-Month reopening auction of 20Y paper, which saw nothing less than stellar demand.

Stopping at a high yield of 4.010%, this was a 6bps increase compared to May and the first 4-handle auction since November; more notably, it stopped through the 4.028% When Issued, a 1.8bps stop through, which was the highest since January.

The bid to cover was even more impressive: printing at 2.87, it was more than 30bps higher compared to May and was also the highest on record since the return of the 20Y tenor after it was put on hiatus in 1986.”

USD futures are rising out of their June 16 master Cycle low.  The Cycles Model implies that the new Master Cycle may extend beyond mid-August.

7:45 am

Good Morning!

NDX futures are approaching 15000.00 in their decline.  A decline beneath this may reinforce the aggressive sell signal given by the Cycles Model.  Further bolstering of the aggressive sell lies beneath the Cycle Top at 14462.55.  A confirmed sell signal may not be given until NDX declines beneath the Intermediate=term support at 14013.09.  Aggressive signals are often subject to push back, but may lead to better positioning at the Cycle turns.  Each layer of support/resistance gives a higher probability of success.

Today’s op-ex shows Maximum investor pain at 15075 (Wouldn’t you know?).  Long gamma begins at 15100.00 while short gamma lies beneath 15000.00.

ZeroHedge remarks, “With prescient flare, in 2012 our long-time friend Josh Brown, better known as the “Reformed Broker”, wrote a piece called the relentless bid. He explained that mammoth asset managers like Merrill Lynch and Morgan Stanley are constantly buying stocks and holding on to them as opposed to trading in and out as fees-based accounts replaced transaction-based accounts. Josh has a good sniffer, this was the early stage of the passive investing torrent.

These days there are even larger forces at work that are putting a constant bid under the market. This is the interplay between the $11 Trillion of passive investments and the 0DTE index options, but it has created a ticking time bomb. There are alarming unintended consequences of mechanical buying by passives and the surging options volumes. Both work together in a self-reinforcing feedback loop to artificially distort risk indicators by suppressing volatility. Once again this is causing a massive buildup of one-sided, overcrowded long positions. In the past, this has led to vicious, almost disorderly sell-offs from time to time and it is bound to happen again.”

SPX futures are consolidating in a narrow range.  A decline beneath the Cycle Top support gives an aggressive sell signal.  A further decline beneath the Ending Diagonal trendline and the 50-day Moving Average at 4163.17 confirms the sell signal.  SPX has completed a 17.2-month top-to-top Cycle and is due to end its Master Cycle, currently shown as completing at the high on day 246.  Still unresolved is the possibility that the Master Cycle may actually terminate at a low in the next two weeks.

Today’s op-ex shows Max Pain at 4385.00.  Long gamma may begin at 4400.00, whils short gamma starts at 4350.00.

ZeroHedge reports, “US equity futures are flat and global markets grind lower, as bond yields and breakevens rise in reaction to the latest “shockingly” hot UK inflation data (May U.K. CPI unchanged at 8.7% vs. exp. of  a drop to 8.4% y/y ) which saw the odds of a 50 bps BOE hike tomorrow jump to 50%. At 7:30am, S&P futures were down -0.1%, flipping between modest gains and losses after trading in a narrow range after the S&P index notched its first back-to-back losses in nearly four weeks. Economic bellwether FedEx Corp. tumbled 3% in premarket trading after its outlook fell short of analyst consensus estimates on weakened demand. The Bloomberg gauge of the dollar moved higher and Group-of-10 currencies were mixed, with the pound the worst performer. Treasury yields drifted higher across the curve, following their UK counterparts. Gold and oil were little changed, while Bitcoin climbed for a third-straight day. BBG reports that Equity ETFs have seen $102BN in inflows vs. $93bn for FICC ETFs; if ECM and M&A turn back on, could flow outperformance increase.”

VIX futures revisited their low at 13.48 last night.  A hawkish Powell speech may jolt the VIX back above the 50-day Moving Average.  It’s time to accumulate VIX shares, Options, ETFs.

Today’s op-ex shows Max Pain at 21.00, which is heavily contested.  Short gamma is strong beneath that strike down to 13.00.  Long gamma begins at 23.00 and is strong to 50.00-60.00.

TNX is bouncing off mid-Cycle support as it may be due for a double dose of trending strength.  The next resistance is the Cycle Top at 41.27.  The Cycles Model shows growing strength into the first week of July.

ZeroHedge observes, “The market has slide in overnight trading ahead of Fed Chair Jerome Powell’s monetary policy testimony to Congress.

According to just released prepared remarks, he will tell lawmakers on Wednesday there is still “a long way to go” to cool inflation and interest rates are expected to rise further this year, reiterating his comments from last week.

“[I]nflation pressures continue to run high, and the process of getting inflation back down to 2 percent has a long way to go,” Powell’s prepared remarks state.

“Nearly all [officials] expect that it will be appropriate to raise interest rates somewhat further by the end of the year,” he added.”

USD futures are hovering beneath the 50-day Moving Average at 102.36.  A move above that level gives a buy signal for the USD.  The Cycles Model suggests a rising USD through mid August.

Gold futures jus broke down beneath the May 26 low at 1936.00, hitting a low at 1929.75. The Cycles Model suggests a continued decline to the  end of July.  Initial support lies at the mid-Cycle at 1864.23.  However, the decline is likely to go to the Cycle Bottom at 1619.20.

10:12 am

The Ag Index is taking a breather after it run-up from the Master Cycle low on June 13.  It is on a buy signal that may show trending strength through mid-July.  It is still early enough to accumulate shares.

ZeroHedge reports, “Last week Russian President Vladimir Putin reiterated why he is dissatisfied with the UN-brokered grain deal as it’s being implemented in practice. “Probably, for the guys who are fighting, it’s not clear why we are letting the grain through. I understand,” Putin told journalists while explaining that the deal asymmetrically benefits Ukraine and its ability to keep selling primarily to Europe. “We do it not for Ukraine, but for the friendly countries in Africa and Latin America. Because grain should go first and foremost to the poorest countries in the world.” He additionally said last Friday, “the supply of Ukrainian grain to world markets doesn’t solve the problems of African countries in need of food.”

In new comments, Putin’s press spokesman Dmitry Peskov followed up on Sunday by saying at this point the deal which allowed Ukrainian grain to be exported through the Black Sea has “no chance” of being extended.

He asserted that Russia has “shown goodwill several times, made concessions” and allowed the agreement to be extended. But what Moscow was promised in return still hasn’t been fulfilled, said Peskov.”

9:45 am

BKX is losing ground this morning after Wednesday’s Master Cycle high.  The new Master Cycle may have a brief but strong  decline into the end of June.  The Cycle that follows may suggest a decline into the end of August.  The Head & Shoulders formation is not yet complete, so we may see its target as the minimum decline for that period.  News from the banking industry is calm on the surface, but roiling beneath it.  A new sell signal lies beneath the 50-day Moving Average at 79.24.

8:30 am

Good Morning!

SPX futures are lower, having made a morning low of 4387.60.  This master Cycle may be a double, with both a high and a low within two weeks, as happened last October on the 5th (high) and the 13th (low).   In addition, Friday’s high may count as the terminus for a 17.2-month Cycle as well, marking the ending of the first phase of the bear market.  Aggressive shorts may be entered here with the first level of confirmation beneath the Cycle Top at 4339.93.  Most analysts won’t consider a sell signal until SPX crosses the lower trendline of the Ending Diagonal formation and the 50-day Moving Average.

In today’s op-ex 4400.00 is hotly contested, with long gamma starting at 4450.00 and short gamma beginning at 4360.00.

ZeroHedge reports, “US equity futures and global markets slipped for a second day following Friday’s blow-off top and quad-witching reversal, as part of a global risk-off tone sparked by disappointment after investors were left underwhelmed by the latest reduction in the benchmark lending rates at Chinese banks – though bond yields are higher and USD weaker – as the second-quarter rally met resistance from economic headwinds and signs that positioning is overbought and extremely stretched. As of 7:45am ET, S&P futures were down 0.4% while Nasdaq futures dipped -0.3%. MegaCap tech names led the weakness with almost all in the red pre-mkt. Commodities are weaker, but oil and gold rose, while Bitcoin climbed for a second-straight day.”

VIX futures are higher, after Friday’s probable Master Cycle low on day 261.  The summer may be a hot one for the VIX, with the first of a series of panic Cycles beginning the last week of June.  The new Master Cycle may not end until the last week of August.

TNX is consolidating above the rising trendline and Mid-Cycle support at 36.92.  TNX may see a breakout today as the Cycles Model suggests a double dose of trending strength may arrive imminently.  The Cycles Model suggests the current rally may continue (in strength) through the first week o July.

USD futures rose to a morning high at 102.23 as the Master Cycle may have completed on Friday, day 261.  The Cycles Model suggests a rally in USD may ensue through mid/August with trending strength beginning in July.

Gold futures declined to 1947.90 this morning as it begins a new Master Cycle heading lower.  Gold made a weak Master Cycle high on Wednesday, June 14.  Gold remains on a sell signal, remaining beneath the 50-day Moving Average at 1998.60.  The chances of another attempt at the 50-day Moving Average are diminishing rapidly.  The new Master Cycle remains in effect until the end of July.

2:13 pm

On Tuesday I mentioned that the opportunity for a long-term position in the Ag Index was ideal.  The timing could not have been better, with a 7.8% gain in only three days.  Note the long-term target which may be realized in the next 12 months.

ZeroHedge remarks, “A lot of the experts didn’t think that this would happen. 

Once the pandemic subsided, global supply chains were supposed to return to normal.  But now “hundreds of drugs” are in short supply in the United States, and even CNN is admitting that we are in the midst of “the worst food crisis in modern history”.  As I did research for this article, I was stunned by what I discovered.  Things are worse than I realized.  I knew that a lot of drugs were in short supply, but it turns out that there have been shortages of many of our most basic antibiotics since last October, and now Pfizer is telling us that several types of penicillin will completely run out later this year…”

2:00 pm

SPX may be headed for a flat close, at best.  The energy for this rally may be gone, with a potential reversal in the making.  Rallies that have expended this kind of energy in the past three weeks are often subject to reversion to the mean.  Take profits while you can.  Mean reversions can be wicked.

ZeroHedge remarks, “Ahead of last month’s expiry, we quoted Goldman’s derivatives guru Brian Garrett who correctly predicted that the market had felt like a coiled spring (“tightest 1 month hi/low band in years”) and – lo and behold – 4 few weeks later and the market has soared more than 200 handles higher, trading at the highest level since early 2022.

Fast forward to today, when in his latest opex discussion (available to pro subscribers here), the Goldman trader looks at what may happen next and writes that a lot of heavy lifting has happened and with SPX ripping north of 4200 in a very short period of time, “there is VERY little option gamma to potentially trade against this market momentum.” Indeed, as we warned last week, dealers are long left tail and “not long” right tail, especially after today’s June expiry.”

7:30 am

Good Morning!

NDX futures are consolidating beneath yesterday’s high.  The monthly Cycles Model suggests the rally may have run its course.  Stay alert for a possible reversal.

Today’s am options expiration suggests yesterday’s blow-off rally may have been an overshoot.  Long gamma is most active between 15000.00 and 15125.00.  Short gamma begins at 14800.00.

ZeroHedge comments, “Heading into this afternoon’s blow off top, which saw the S&P close at the highest level since April 2022 after 6 straight days of gains (the longest winning streak since Nov 2021), the post-FOMC gamma squeeze (because apparently nobody believes or is scared of Powell any more) was in full blast, not just across the vanilla Greek space but especially 0DTE, with the most traded option of the day being the SPY 440 (S&P4,400) Call expiring today, and for good reason: opening at 14 cents, it was up 3,050% to $3.15 when we snapshotted it just before the close…”

SPX futures are also consolidating beneath yesterday’s afternoon high.  An important monthly Cycle may have just completed.  Stay alert for a reversal.

In today’s op-ex, the am expiration shows heavy call volume from 4250.00 to 4400.00.  But put volume is growing.  Yesterday’s gamma wall stopped at 4430.00 with call volume substantially reduced above 4400.00.  The pm expiration gives the nod to calls between 4325.00 and 4400.00.

ZeroHedge reports, “Following the largest ever S&P call-buying day in history…

… which sparked a marketwide gamma-squeeze that pushed the market higher for the 6th consecutive day to the highest level since April 2022, US equity futures and global stocks were headed for the best week in more than two months, buoyed by bets on Chinese stimulus and exuberance surrounding artificial intelligence firms. After closing above 4,400 on Thursday, S&P futures were up 0.1% at 7:40m ET, recovering from an earlier dip and trading near session highs. The MSCI World Index has climbed 3% this week, the most since the end of March. Asian stocks staged a broad rally on Friday and European equities climbed. Treasury yields climbed across the curve, most steeply at the shorter end on recession fears. The Bloomberg dollar index reversed earlier gains while gold prices rose. Oil prices were flat, while iron ore is also edging lower today despite being poised to climb this week.”

VIX futures are consolidating near their closing high.  A rising VIX in a rising stock market suggests a reversal may be imminent.

Next Wednesday’s op-ex shows short gamma beneath 21.00 and long gamma above 22.00.  This is consistent with long gamma in stocks.  The question is, can this carry over to Wednesday?

ZeroHedge comments, “Boom

The options chase printed another high yesterday as investors must show they have long exposure in this market. 1.8m call options traded in the SPX. We have been pointing out the spot up, vol up market over past days. This creates powerful market dynamics.”

3:00 pm

This week’s surge in stocks defies all explanation, other than FOMO.  The next technical resistance levels are round number resistance at 5300.00 and the 78.6% retracement level at 4534.00.  The reversal may come without warning.

3:30 pm

Here is a partial answer to why the market is behaving in this manner.  Long gamma runs hot from 4350.00 to 4430.00 for tomorrow’s (monthly) am strike.  The pm strike is not as populated and is hotly contested at 4400.00.  This may explain the run-up having no other fundamental or technical basis.

ZeroHedge comments, “As investors digest the Fed’s “skip” day, while clearly ignoring Powell’s warning that a July fed hike is the base case, here are a few thoughts from JPM’s and Goldman’s trading desk. But first, here is the Fed’s mouthpiece, WSJ reporter Nick Timiraos, clearly telling that “Powell’s Freudian “skip” suggests a July rate rise is the base case, even though (as always) the economy can intervene. “There is an every-other-meeting strategy, and the July decision has all but been made.”

2:20 pm

The reason I call the BKX the liquidity proxy is because one can chart the amount of excess deposits in FDIC insured banks, which is closely parallel to other forms of liquidity.  According to the FDIC, excess liquidity in banks peaked in January 2022.  Soon after, the Fed started raising interest rates which started draining excess bank deposits earning essentially no interest.  The rising Treasury rates were beginning to compete with low interest rate savings accounts.

The insolvency of Silicon Valley Bank in March brought the problem to the forefront.  With it, excess deposits took a hit and so did the bank index.  However, the next phase of the banking crisis is about to bubble to the surface in the form of rising rates.  Today I received an offer from my credit union offering a 5.5% yield on an insured certificate of deposit.    This, in turn, may pull more money out of the market.

FT comments, “The recent failure of Silicon Valley Bank combined two ingredients: excess deposits and losses on assets, even in securities such as Treasury bonds that are ordinarily considered “safe”. SVB did not have adequate liquidity to tolerate a bank run and did not have adequate solvency to meet its liabilities. Emphatically, however, the failure did not occur because there was too little liquidity in the banking system as a whole. It occurred because there was too much.”

7:45 am

Good Morning!

NDX futures are down substantially, to a morning low of 14890.10.  A Primary (monthly) Cycle may be complete.  The daily Cycles may show a reversal beneath 14750.00, giving us an aggressive sell signal.  Another aggressive sell may be issued beneath the Cycle Top support at 14276.11.  A confirmed sell signal may be offered at Intermediate-term support at 13845.38 and another confirmation at the 50-day Moving Average at 13557.92.  Should the decline continue, the current Master Cycle may end on June 30.  The Potential targets may be the March 13 low at 11695.41, or should a panic ensue, the October 13 low at 10440.64.

ZeroHedge remarks, “A ‘pause’ in rate-hikes and a far more hawkish dot-plot than expected spooked markets and then Powell monotonously meandered through his press conference, seemingly providing something for doves to cling to (though we are not sure what).

Powell emphasized that the inflation fight is still a priority: “Without price stability, the economy doesn’t work for anyone.”

“There’s just not a lot of progress in core inflation.”

“We want to see it moving down decisively.”

But:

“Risks for inflation are still to the upside.”

Powell says the process of getting inflation back to the 2% target “has a long way to go,” but don’t call this ‘pause’ a skip…

“The skip — I shouldn’t call it a skip.”

SPX futures are down to a morning low of 4351.40.  Should the decline continue, an aggressives sell signal awaits beneath the Cycle Top support at 4323.51.  Another aggressive sell signal awaits at the upper Ending Diagonal trendline at 4250.00.  A confirmed sell signal awaits beneath the lower Ending diagonal trendline at 4186.06.  What may transpire may be the Master Cycle ending on June 30 with a potential target at either the Cycle bottom at 36.39.19 or (more likely) the October 13 low at 3491.58.

In today’s op-ex, Maximum investor Pain lies at 4345.00.  Long gamma may begin at 4350.00, while short gamma starts at 4300.00.  It appears that the dealers and hedge funds now abhor long gamma, thus the morning decline.  What follows after is yet to be determined.

ZeroHedge reports, “Futures are lower, reversing much of the post-hawkish FOMC euphoria, as markets digest the Fed meeting, the decision to halt rates while projecting two more rate hikes, the increase in the terminal rate, and when the Fed begins an easing cycle, and concluding that the mix is not as bullish as they thought less than 24 hours ago.  As of 7:30am, emini S&P futures were down 0.4% to 4,400 while Nasdaq futures dropped 0.7%. Treasury yields are climbing after warnings from the Fed yesterday that rates will go higher in the coming months, which also helped pull the USD higher. Commodities are seeing a modest relief rally with Ags leading while gold prices are falling, with the higher rate outlook generally a dampener on appetite for bullion, while oil and iron ore both climb. Today’s macro focus is on Retail Sales and Jobless Claims as CPI and unemployment become the two major data points ahead of the July Fed where the market is pricing ~70% chance of a 25bps hike. The next CPI is on July 12 and NFP is July 7.”

VIX futures are consolidating inside yesterday’s trading range.  A further breakdown in stocks may propel the VIX to the 50-day Moving Average at 17.04.  A confirmed buy signal awaits above that level.

In next week’s op-ex, Max Pain is at 20.00, a hotly contested strike.  Short gamma begins at 19.00 and extends to 14.00.  Long gamma starts at 22.00 and may extend to 60.00.

TNX is consolidating after yesterday’s near-breakout.  The Cycles Model infers a buildup of trending strength beginning tomorrow and being reinforced over the weekend.  Expect the breakout, and then some.  The current Master Cycle may continue until after the July 4 holiday.

USD may be consolidating today after making its Master Cycle low at 102.24 on day 259.  It had reversed at the 50-day Moving Average at 102.34, as suggested.  A potential aggressive buy signal awaits above the Intermediate-term resistance at 102.78.  The new Master Cycle may extend through mid-August.  No one is expecting the USD to break out above its 200-day Moving Average at 105.38.

9:55 am

BKX may have finally completed its retracement at 83.38 and its Master Cycle on day 260 today.  The retracement was an irregular one, since it had not achieved its prior high at 85.95.  Nor has it achieved the Head & Shoulder neckline at 92.50.  That suggests the minimum Head & Shoulders target may be achieved this summer.  The next Master Cycle Pivot occurs at the end of June.  The Model suggests a panic is possible starting by the end of this week.

ZeroHedge notes, “Investors are underpricing the possibility that the Federal Reserve will telegraph a higher peak rate with its new dot plot this week.

The median of FOMC members’ indications will show an additional one or two hikes, while a couple of them may pencil in more tightening than that. Should the median show more than one increase, Treasuries are bound to sell off.

The Fed will need to revise its dot plot to acknowledge that it isn’t done with its efforts to quell inflation that is still running well above its own estimates.”

8:10 am

Good Morning!

NDX futures rose to 14953.30 this morning, then settled back down to consolidate within yesterday’s trading range.  The 18.5-month top-to-top Cycle is drawing to a close, despite everyone’s desire for a halt or a pause in the Fed hikes.  The problem with that thinking is the elephant in the room, which is being ignored.  That is, the war in the Ukraine.  Wars are inflationary.  The succking sound in Eastern Europe is greater than any numbers the DOL can concoct to make us look good.

Today’s op-ex shows Maximum investor pain at 14750.00.  Long gamma begins at 14800.00 while short gamma starts at 14700.00.

ZeroHedge comments, ” More joining the party

1. improving breadth – 397 out of S&P 500 stocks in green, a significant increase from the year-to-date average of 259, even though the S&P has seen a 14% growth this year.

2. Long onlies continue to hold substantial cash reserves, and there’s no significant selling pressure in supercap tech stocks despite the buying of cyclicals, leading to the ‘catch-up trade’ in other sectors. (Goldman’s sales)

Chasing other stuff

We have been pointing out the need to chase other stuff beyond mega cap tech (here and here). Goldman’s PB shows this is happening. Note the selling of mega cap and the buying of financials by hedge funds.”

SPX futures rose to 4279.60 this morning, making a new retracement high above the 61.8% retracement level at 4311.34.  The current retracement is now at 67%, lest anyone believes we are in a new bull market.  The Cycles Model suggests a strong reversal may be possible.  Despite the consensus, a Fed pause may not be “baked in.”

Today’s op-ex shows Max Pain at a hotly contested 4325.00.  Long gamma begins at 4350.00 while short gamma starts at 4300.00.

Zerohedge reports, “US equity futures are higher – again – with markets positioned for Jerome Powell to announce a hawkish, yet bullish pause, in the Fed’s rate hiking campaign at 2pm today. S&P futures rose 0.15% as of 7:45am ET following the S&P 500’s fourth consecutive increase — the longest winning stretch since early April – which approached the 4,400 mark, the highest level in over a year. Small caps/Russell outperformed (in line with what we said last night) as bond yields reverse an earlier drop into Fed Day, while the USD is again weaker pre-mkt. Commodities are rallying led by Energy and Metals, WTI oil rises back over $70 and base metals are up 4% – 7% MTD on hopes of Chinese stimulus. In Europe, a rally in miners helped push the Stoxx 600 benchmark to the highest in three weeks.”

VIX futures are consolidating within yesterday’s trading range.  Friday’s Master Cycle low stands.  The Cycles Model suggests more near-term strength with a high probability of a panic Cycle during the week of June 26.

Today’s op-ex shows Max Pain at 14.00 with no short gamma while long gamma begins at 15.00 and stretches to 40.00.  Long gamma gets serious above 20.00, so I would expect the VIX to stay beneath that level.

TNX is taking a pause after yesterday’s burst of strength.  The pause may not last, as trending strength returns in spades by the weekend.  The current Master Cycle may continue through the 4th of July Holiday.

Zeroedge notes, “US econowatchers have been stumped by a bizarre divergence in the US economy in recent months. On one hand, the aftermath of the March bank crisis which destroyed two of the largest California banks, led to a crippling tightening in credit standards at least according to the SLOOS survey. On the other hand, after a brief airpocket three months ago when credit card debt saw its lowest increase in over two years, revolving consumer credit has exploded higher and the last two months have seen a near-record increase…

… even as the interest rate on credit cards has jumped to the highest on record.”

Gold futures rose to 1973.75 this morning, in a possible attempt to complete its retracement at the 50-day Moving Average at 2000.00.  Today is day 259 of the Master Cycle, which would usually call for an end of the Cycle.  However, the Cycles Model also calls for a burst of trending strength over the next couple of days, which may prolong the Cycle until the weekend.  Stand by for a reversal that may mean lower prices until the end of July.

8:30 am

This gets top billing.  The Ag Index may have hit its Master Cycle low yesterday, on day 263.  If so, the rally of a lifetime in Ag products may have started.  This may appear to be a departure from my usual bearish rant.  However, this may be one of the unrecognized values in the investment universe.

ZeroHedge remarks, “Significantly higher food prices are coming, because U.S. food production is going to be way below normal levels this year. 

That is really bad news, because food prices are already absurdly high.  In some cases, people are paying as much for a full shopping cart full of food as they did for a used vehicle in the old days.  I wish that I was exaggerating, but I am not.  Unfortunately, food prices are only going to go higher because farmers and ranchers are being hit extremely hard from coast to coast.

For example, it is being reported that wheat farmers in Kansas “will reap their smallest harvest in more than 60 years”…

7:30 am

Good Morning!  I am starting early due to some minor surgery scheduled later this morning.  I may not be returning until late afternoon.

NDX futures are at a new retracement high at 14884.00 this morning, but has slipped back out of long gamma above 14840.00.  Time may be running out for the rally.  The more likely daily outcome may be a flat close.  The expectation for the Fed pause or QT to begin is unfounded.  In addition, the fuel for the rally provided by stock buybacks is about to be halved in the next day.  The 18.5-month Cycle is ending and may usher in an abrupt change.

Today’s op-ex shows Maximum investor Pain at 14680.00.  Long gamma begins at 14840.00 while sort gamma may begin at 14650.00.

ZeroHedge remarks, “The S&P 500 has risen to a new cycle high, edging ever closer to its record level.

Complacency seems to be taking hold of market participants because the latest leg up has been driven entirely by multiple expansion.

According to Bloomberg, the Price to Earnings ratio of the S&P 500 has erupted back to 19.2x, almost a 10% increase in valuation with no discernible improvement in earnings or margins. The latest round of revisions shows consensus estimating a -0.28% growth in earnings for this year.

SPX futures have risen to a morning high of 4364.20, but have given up most of the overnight gain.  a pullback beneath the Cycle Top support at 4308.98 may be the cause for an aggressive sell signal.  Further reinforcement for the aggressive sell lies at the upper Ending Diagonal trendline at 4250.00.  A confirmed sell signal lies at the lower trendline at 4160.00.  This is a very stretched rally and may suffer an abrupt and powerful reversal.  Today is the last day of trending strength and the window has opened for an early Master Cycle high.  If so, there may be more than a month of decline ahead.   The target for this probable decline may be the Cycle Bottom at 3643.25.

In today’s op-ex, Max Pain is offered at 4310.00.  Long gamma may begin at 4320.00 and strengthening at 4370.00.  Short gamma starts at 4300.00, but not with conviction.  The longs may have come back at the peak.

ZeroHedge reports, “US equity futures traded sharply higher in early trading, with spoos (Sept futs contract) rising briefly above 4,400 before giving up much of their advance as traders awaited a crucial CPI print which will show pressures have cooled enough to allow the Fed to put tightening campaign on pause Wednesday and as traders assessed the impact of economic stimulus from China. As of 7:50am ET, S&P futures were flat at 4,390; Nasdaq futures were more buoyant, rising 0.3% on more positive tech news with Oracle’s earnings beat after surging 1.5% the day before to the highest level in over a year. 10Y Treasury yields are flat at 3.73% while a measure of the dollar weakens. Spot gold prices and oil are climbing, while iron ore is declining.”

VIX futures are forging higher above yesterday’s reversal high.  The Cycles Model indicates the Master Cycle low was made on June 9.  Interestingly, the new Master Cycle is projecting a high at the end of the month.

In today’s op-ex, Max Pain is at 14.00 with no short gamma.  Long gamma starts at 15.00 and extends to 40.00.

ZeroHedge comments, “Quad Witching and the JPM Collar roll are right around the corner, one Friday after the next.

The Gamma Index™ is very high (about 3) with a theoretical max of 4.

Our chart here shows how much gamma is scheduled to expire on June’s Quad Witching next Friday (June 16).

On the aggregate, SPX options are dominantly focused on June, which is on track to being the large buildup and release of market gamma until Quad Witching later on in December. Part of what makes this Quad Witching is that SPY gamma is guaranteed to focus mostly on that same June monthly expiration.

The market has been following the expected patterns of monthly gamma contraction/expansion. If that continues, then market gamma would remain strong until next Monday.

However, given how cheap long puts are right now, it is important to be aware that this morning is CPI (at 8:30am EST). This invites a potentially unprecedented exogenous shock.”

TNX continues its consolidation above the mid-Cycle support at 36.87.  The Cycles Model suggests strengthening of the uptrend may begin after the Fed announcement.  In the meantime, the trendline and the 200-day Moving Average lie at 36.27 as support.

3:24 pm

VIX appears to be closing near Wednesday’s Max Pain at 15.00.  The Call volume is growing with the June 21 op-ex exploding in the hundreds of thousands options with Max Pain rising to 21.00.

ZeroHedge comments, “In calls we trust

Highest reading in 18 months.

Source: DB

In VIX calls we trust (again)

Not overly surprising given the VIX reset. Chart shows VIX call options open interest.

2:04 pm

BKX reversed lower today without making a new high.  The current high on June 7  stands as the Master Cycle high on day 253.  The new decline is due to reach its first Master Cycle low by month end.  The loss of strength may reach panic proportions by the weekend with the US Treasury attempting to refill its coffers.  In addition, the June FOMC meeting is scheduled for this week with the CPI being announced on the first day of the meeting.  It is normal to see a Head & Shoulders target being met in a Wave (3), which could happen very quickly.

June 12 (Reuters) – Most big Wall Street banks expect the Federal Reserve to keep interest rates unchanged on Wednesday, while sticking to its hawkish tone due to a strong job market and elevated inflation.

Several economists say that it is a toss-up between a skip and a hike in the June meeting. Most banks expect the central bank to prepare markets for a hike in July.

Money markets are currently pricing in a more than 70% chance of a pause this month, with rate cut expectations pushed out to next year.

7:45 am

Good Morning!

NDX futures are consolidating beneath Friday’s high after a mimic of the 1999 rally.  The market has accomplished its feat of attracting buyers back in right at the peak.  NDX has overshot its 61.8% Fibonacci retracement level at 14325.00 in a classic throw-over above the Ending Diagonal formation.  The upper trendline and Cycle Top are at 14110.00.  A decline beneath that level produces a potential aggressive sell signal.  This peak did not produce a Master Cycle high because only 4 companies produced nearly all of the gain.  Instead, this potential pivot is a result of a 18.5 month peak-to-peak Cycle from the all-time high.  What may come next is a decline to the end of June.  The Cycles Model indicates a possible abrupt reversal and the beginning of a strong decline, whether a new high is made today, or not.

Today’s op-ex shows Maximum investor pain at 14525.00.  Long gamma starts at 14540.00 while short gamma begins at 14450.00.

Zerohedge comments, “It was only two weeks ago when, with the S&P about to break out to new 2023 highs, we noted that Bank of America ‘s client flows desk had declared retail capitulation (in the case of BofA, “retail” means High Net Worth individual investors), but it wasn’t just the rich that were dumping: a parallel analysis by Vanda Research found that all across the retail sector – including those Millennials armed with a few hundred bucks to spare and a Robinhood account – enthusiasm for buying stocks had shrunk and “retail investors are not chasing the rally.”

Well fast forward to today, when with the S&P blasting off above its previous range of 3,800-4,200 and about to take out the August 2022 highs, it didn’t take long for retail to make a dramatic U-turn and flood right back into the book.

According to the latest note from Vanda Research, which at the end of May was about to declare the end of retail’s infatuation with chasing stocks, “with an average flow into US markets of US$ 1.36bn/day over the past week, retail traders are officially back in the mix after a 3-month lull.”

SPX futures are also consolidating beneath its Friday high.  On friday is met its 61.8% Fibonacci retracement of the 2022 decline at 4311.34.  In addition, it may have completed a 17.2-month Cycle, as well.  A reversal at the Cycle Top resistance at 4302.50 may produce an aggressive sell signal.  A second aggressive sell signal occurs at the upper Ending Diagonal trendline at 4250.00.  A confirmed sell signal lies at the lower trendline and 50-day Moving Average at 4140.24.

Today’s op-ex shows Maximum investor Pain at 4295.00.  Long gamma begins at 4300.00, while short gamma starts at 4280.00.  There’s not much room to move in either direction.

ZeroHedge reports, “US equity futures, Asian markets and European bourses are all higher as part of a global risk-on tone, ahead of a week packed with central bank decisions. S&P 500 futures and contracts on the Nasdaq are both well in the green this morning, up 0.3% and 0.6% respectively as at 7:30 a.m. ET. The S&P is poised to surpass its August 2022 closing high, rising to the highest level since April of last year. Paradoxically, treasury yields are also ticking higher across the curve, with the sharpest rises in two- and three-year notes. A measure of the dollar is weakening, helping drive gains in spot gold prices. Oil prices are continuing their decline following another price cut forecast from Goldman Sachs, while iron ore drops slightly as recession fears once again outweighing fundamentals in commodities but certainly not in equities. Tesla was poised to set a record winning streak, rising for a 12th consecutive day. Keep an eye on labor strikes across US ports and potential stall supply chain normalization.”

VIX futures show a rally off Friday’s low at 13.50 to a morning high of 14.67.  The Master Cycle was stretched to 272 days, near the maximum deviation from the 258-day average.  The Cycles Model indicated a strong reversal over the weekend, which appears to have happened.  Further strength may be added to the rally over the next few days.

Wednesday’s op-ex shows Mas Pain at 15.00.  There is no short gamma.  Long gamma begins at 16.00 and extends to 40.00.

TNX continues to consolidate above the mid-Cycle support at 36.86.  The Cycles Model indicates possible growing strength as the week progresses.  The current Master Cycle may continue through the first week of July.

USD futures have declined to 102.84 this morning, approaching support at 102.20-102.61.  It is due for a Master Cycle low in the next few days, only to resume its rally that may last until mid-August.

Gold futures have declined to a low of 1968.45 this morning.  Gold is in the final days of its Master Cycle.  Ideally, it may rally to its 50-day Moving Average at 2000.00 in the next few days, completing its Master Cycle.  Following that, gold may resume its decline through the end of July.  The potential target may be the Cycle Bottom at 1604.15.

8:25 am

Good Morning!

NDX futures continue to consolidate beneath the Monday high.  The Cycles Model suggests trending strength may revive over the weekend.  Wednesday’s trending strength day produced a loss, suggesting further losses to come.

Today’s op-ex shows Max Pain at 14475.00.  Long gamma may start at 14500.00 while short gamma begins at 14450.00.

ZeroHedge remarks, “Since October 2022, the stock market has traded consistently higher as earnings improved. With the first quarter earnings season behind us and the second quarter approaching, will earnings improve further? In 2021 and 2022, we wrote several articles discussing why analysts’ estimates were overly optimistic. As we head further into 2023, are analysts again becoming overly optimistic?

According to FactSet, with the vast majority reporting:

“78% have reported actual EPS above the mean EPS estimate, which is above the 10-year average of 73%. It is also the highest percentage of S&P 500 companies reporting a positive EPS surprise since Q3 2021 (82%). In aggregate, earnings have exceeded estimates by 6.5%, which is above the 10-year average of 6.4%. It is also the highest surprise percentage reported by S&P 500 companies since Q4 2021 (8.1%).”

SPX futures continue to consolidate beneath the 4300.00 resistance level.  There is a chance of a brief breakout today as today is the end of a 17.2-month Cycle.  A reversal beneath the upper trendline at 4250.00 may produce an aggressive sell signal.

Today’s op-ex shows Max Pain at 4285.00.  Long gamma begins at 4300.00 while short gamma starts at 4250.00.

ZeroHedge reports, “After the S&P closed in a bull market from its October 2022 lows yesterday, futs were again paralyzed, their 4th consecutive session with virtually no changes in the overnight session. As of 8:00am ET, S&P futures were up 1 point or less than 0.05% to 4,300 while Nasdaq futures were also modestly in the green; bond yields are 2-4bp higher this morning, most markedly at the short end. The Bloomberg dollar index is strengthening while oil prices are edging higher after yesterday’s drop. Gold prices are little changed, while iron ore continues its weekly ascent.”

VIX futures are flat, after extending the Master Cycle to day to day 272 yesterday.  A dramatic turn may be imminent, as trending strength comes back this weekend.

The Wednesday, June 14 op-ex shows long gamma starting at 18.00, although calls are being bought down to 12.00.

ZeroHedge remarks, “VVIX – enough is enough

VVX showing signs of life, while the VIX has continued the implosion. Watch the gap between these closely.

Source: Refinitiv

Complacency alert

One of our favorite “under the hood” measures of VIX, the VIX 2/8 months spread, has started flashing complacency. Previous moves lower in the spread like the one we have seen recently has led to the SPX reversing.”

TNX may be finding support at the mid-Cycle support at 36.84 as it consolidates this morning.  Trending strength may be staging a comeback this weekend, setting the stage for a breakout.  The current Master Cycle may have another month to go, indicating the Cycle Top at 41.22 may be a near target.

USD futures is consolidating above yesterday’s low.  It may have completed its short-term retracement and may be poised for a continuation of its uptrend.  There may be a week left in the current Master Cycle.

8:10 am

Good Morning!

NDX futures are flat this morning as small cap stocks take up the slack.  Yesterday’s trending strength was to the downside, suggesting a new trend.

Today’s op-ex shows Maximum Pain at 14325.00.  Long gamma is above 14350.00, while short gamma is at 14300.00.

ZeroHedge notes, “NASDAQ – much needed

Not what the late chasers planned, but NASDAQ’s latest mini move lower is more than a needed pause move. We could easily see it move to 14100 (first support) and still trade above the 21 day moving average. Note that the 50 day is down at 13500.

Source: Refinitiv

Watching NASDAQ stress

In mid May we had VXN moving higher while VIX was “dormant”. We are seeing a similar thing occur now. Is this time different?”

ZeroHedge notes further, “Last night we said that the tech/small cap “reversal” had arrived amid a clear rotation signal out of the frAIng pan and into the small-cap fire, signaled by record call buying in the Russell ETF, the IWM.

We concluded that “while the S&P may continue to go nowhere (and especially the equal-weighted S&P), prepare for a violent reverse rotation below the surface as the historic outperformance in tech, and crushing underperformance in small caps, is set go in the other direction.”

SPX futures ae testing the first level of support at 14250.00.  Beneath that is still an aggressive sell signal, but with two confirmations.  The uptrend is broken at 4150.00, creating a confirmed sell signal.

Today’s op-ex shows the 4270.00 and 4275.00 strikes hotly contested, with a waning long gamma beginning at 4280.00 and short gamma starting at 4250.00.

ZeroHedge reports, “For the third day in a row, futures have gone nowhere in the overnight session, and are flat as a pancake with yields also barely changed and holding on to their sharp move higher from the previous day when they surged 14bps; the USD was down, commodities are mixed with oil outperforming again, and crypto and gold staged a modest rebound. At 8:00am ET, emini S&P futures were unchanged at 4,275 while Nasdaq futs were just fractionally in the green after the index yesterday posted its worst decline since April; concern that central banks will keep driving interest rates higher sent tech stocks in Europe to one of the worst performances among industries, with ASML Holding NV as the biggest drag on the Stoxx 600.”

VIX futures are consolidating as the Master Cycle becomes more stretched after 271 days in the current Master Cycle.  It is possible that the VIX has been used in a “tail wags the dog” operation to keep equities high.  However, it is meeting diminishing results.

In next wednesday’s op-ex, short gama has disappeared altogether, with long gamma beginning at 14.00!  The options market shows that expectations have changed.

ZeroHedge comments, “Has VIX become immune?

VXN reacted to the move lower in NASDAQ yesterday, but VIX remains dormant. Haven’t seen NASDAQ move this much and VIX not pay attention at all…

Source: Refinitiv

Complacency is here

Regular readers of TME are familiar with the VIX 2/8 months futures spread. Basically, in terms of stress people grab shorter term maturities as main hedges, and the spread moves higher. The inverse occurs when markets become complacent. We have just entered complacency when it comes to pricing VIX.

TNX has probed to 38.21 this morning, then pulled back.  Trending strength reappears this weekend, so it is difficult to say whether TNX may break out before the weekend, but it will break out.  The Cycles Model suggests rates may continue to rise through the first week of July.

ZeroHedge remarks, “One month after we saw the second biggest surge in credit card debt (which took place just as it appears US consumers had hit the brakes on credit-fueled spending), coupled with a sharp slowdown in student and auto loans, the latest consumer credit data just released by the Fed reveals… more of the same.

In the month of April, total consumer credit rose by $23.1 billion to a new record high $4.860 trillion, up 6.8% Y/Y.”