The Practical Investor

3:25 pm

SPX has completed 30 trading days from the October 13 low, completing its final retracement push.  I had previously mentioned that Friday would be a day of strength and a pivot day, to boot.  It would be wise to prepare for the reversal into Intermediate Wave (C) of Primary Wave [3], a  very strong combination for the next leg down.

Remember, the Fed always follows the bond market.  The Cycles Model already says that yields are going higher!

ZeroHedge comments, “While prevailing consensus was that the Fed didn’t really say anything unexpected, or anything that wasn’t already telegraphed both in the Nov 2 statement and subsequent Fed speak, Wall Street commentators agreed that “the statement overall comes across as dovish” as BBG Economics chief Anna Wong put it, With Integrity Asset Management’s Joe Gilbert adding that “it is constructive that Fed participants were becoming increasingly aware of the lagged impact of all the rate hikes this year. Generally, this is bullish for equities and fixed income because there is now a slight change in consensus at the Fed which means that significantly more rate hikes are now less likely.”

Wong added that “there’s widespread agreement within the committee to slow the pace of rate hikes soon, with only ‘a few’ preferring to wait until the policy stance is more clearly in restrictive territory. We think Powell belongs to this latter group.”

The market agrees with the dovish take and stocks have jumped to session highs while the market implied Fed Funds curve has dipped on the outer end,”

:30 am

Good Morning!

Thanksgiving guests are arriving for a four-day family event.  My wife and I are preparing for two dozen people for Thanksgiving dinner, including an introduction to our youngest son’s new fiancée.  Please excuse the brevity of this report.

SPX futures rose to 4014.40 in the overnight session.  They have since eased back to the flat line.  The item du jour is the FOMC report, due to be delivered at 2:00 pm.  Investors are not prepared to be disappointed.  The Master Cycle high may have been put in on November 15 (day 264).  The Cycles Model suggests a strong directional day (trending strength) on Friday.  It appears that whether the direction is up or down depends a lot on today’s FOMC performance.

ZeroHedge reports, “US equity futures were steady, trading in a narrow 15 point range before the release of minutes from the latest Fed meeting which may signal that the pace of rate hikes may slow. S&P500 futures up 0.1% by 7:30 a.m. ET, swinging between gains and losses, after the underlying index closed above 4,000 for the first time since Sept. 12 amid lighter trading before Thursday’s Thanksgiving holiday. Nasdaq 100 futures rose 0.1% after the tech-heavy index climbed 1.5% on Tuesday. Credit Suisse shares plunged below their record closing low after the bank warned of a fourth-quarter loss. Oil fell as the EU discussed imposing a price cap on Russian oil between $65 and $70 a barrel (which Russia will never comply with). The Bloomberg dollar index erased earlier declines. Ten-year US Treasury yields rose by one basis point.”

VIX futures remained steady after yesterday’s plunge to a Primary Cycle low.  The Cycles Model suggests a strong move is imminent, possibly as early as today.

ZeroHedge remarks, “US credit protection puke

CDX IG is printing the lowest levels in a while. The latest move from panic highs is the largest cumulative move lower since credit protection started rising in early 2022.”

Remember this:

“Rule 1. Markets are risky.

Rule 2. Trouble runs in streaks.

Rule 3. Markets have a personality.

Rule 4. Markets mislead.

Rule 5. Market time is relative”
― Benoît B. Mandelbrot, The (Mis)Behavior of Markets

TNX plunged this morning, but failed to make a new low.  The Cycles Model suggests a reversal is possible today with yields rising to the first week of January.  Stay on the alert.

Yesterday ZeroHedge reported, “After a subpar and tailing 2Y auction and a mediocre and tailing 5Y auction both of which took place on Monday in the holiday-shortened week, moments ago we got the week’s final coupon issuance in the form of $35BN in 7Y paper. It was ugly. In fact, it was almost as ugly as that infamous Feb 2021 7Y auction which sparked a brief selling panic across the Treasury market.

The high yield of 3.890% was below last month’s 4.027%, the first sequential decline in auction yields since July, but more notably it tailed then 3.863% When Issued by 2.7bps. This was the biggest 7Y tail since that infamous Feb 2021 seven year auction which sparked a flash crash across the curve and a mini freak out in the rate market.”

USD futures declined to 106.24 this morning.  While the November 15 low may be the Master Cycle low, it is possible for an extension to a newer low this week.  There is no buy or sell signal at this time.  We await the passage of time to determine the final outcome.

Crude oil futures resumed its decline today, declining to a low of 76.83.  The Cycles Model suggests a possible two-week decline that may meet the Cup with Handle target.  The 50% retracement of the rally from 2020 is at 68.50, so the Cup with Handle formation is credible.  The 61.8% retracement value is at 53.87, not far from the Broadening Wedge target.

ZeroHedge remarks, “Oil prices are tumbling this morning amid Europe’s Russian Oil Price Cap scheme discussions about a price cap between $65 and $70 and rapidly spreading lockdowns across China impacting demand.

“At current price levels, the plan seems ineffective,” PVM Oil Associates analysts Tamas Varga and Stephen Brennock said in a note, referring to the price cap.

“It will be crucial to see the details of the proposed cap to evaluate the price impact.”

Beijing asked residents not to leave the city unless necessary, to stem the spread of the virus.”

8:15 am

Good Morning!

SPX futures rose to 3968.50 this morning on light trading as it bounces between the 100-day Moving Average at 3908.97 and the mid-Cycle resistance at 4036.48.   Today is day 271 of the Master Cycle and the chances of a new high are rapidly diminishing.  However, the shortened Thanksgiving week is very lightly traded, so there is the opportunity to push higher without much resistance.  Friday is the last opportunity for a new high, but it also qualifies as a potential reversal day, as well.

ZeroHedge reports, ” After trading in the red for much of the overnight session, US futures inched higher shortly after the European open after a volatile session in Asia marked by rising Covid cases in China, while a Fed president turned dovish and showed openness to slowing the path of rate hikes. Futures on the S&P 500 traded near session highs, up 0.4% to 3,972 by 8:00 a.m. in New York, while Nasdaq 100 futures gained 0.1% after struggling for direction. ”

VIX futures made a marginal new low at 22.23 this morning.  Although this decline does not qualify as a Master Cycle low, the Cycles Model suggests a possible end to this decline on Friday.

ZeroHedge comments, “Exuberant VIX is back

VIX is discounting the Thanksgiving turkey already…The short term VIX inverted vs SPX gap is getting rather wide. People continue sucking fear out of this market.

TNX continues to consolidate near the November 16 low (day 260).  While that low was timely, we are in a season that’s prone to short-term intervention.  There is a potential for a possible deeper low by Friday.  It’s probably best to go and relax over the holiday and come back ready for the fray to resume next week.

ZeroHedge reports, “After today’s mediocre sales of $42 billion in 2Y paper, moments ago the US Treasury completed the second auction of the day (courtesy of the week’s abbreviated schedule) when it sold $43 billion in 5Y notes in another average auction.

The high yield of 3.974% was the second consecutive decline after peaking at 4.228% in September. It also tailed the When Issued by a modest 0.7bps (vs a 1.8bps stop through last month). This was the 6th 5Y auction tail in the past 8 auctions.

The bid to cover of 2.39 came in below last month’s 2.48 but was above the 6-auction average of 2.37.

The internals were also fine, with Indirects taking down 66.2%, down from 68.0% last month, and above the 62.4% recent average; and with Directs awarded 18.7%, Dealers were left holing 15.1%, the lowest since February.

Overall, a mediocre, tailing auction but with stronger than expected internals. And with that we now look to tomorrow’s last for the week sale of 7Y paper ahead of the holiday.”

USD futures pulled back to 107.17, then bounced.  Today is day 260 of the Master Cycle, suggesting there may be room for one more low by the end of the week.  The 7-year treasury auction today may have a pivotal effect on the USD.

11:55 am

Last week I had mentioned a final probe lower might be necessary to complete the current Master Cycle.  Today it may have arrived with support at 460.00 holding the low on day 258 of the Master Cycle.  There is now an opportunity for GKX to rally sharply over the next three weeks with the Lip of the Cup with Handle at 500.00 as a probable target.  There is a high probability of an ensuing rally lasting up to 8 months or longer.

ZeroHedge observes, “Grain shippers have been scrambling to consider all their export options in the wake of low water levels on the Mississippi River and its tributaries.

“Because of the low water conditions on the river, which is a major conduit for soybean and grain exports, there are a lot of farmers and a lot of agricultural shippers who are asking themselves, ‘What is my plan B? What is my plan C?’” Mike Steenhoek, executive director of the Soy Transportation Coalition, told FreightWaves. “And that answer is going to be different depending on your region of the country and what that market looks like.”

10:05 am

BKX consolidates beneath its mid-Cycle resistance at 109.86.  While most traders consider BKX may be in a (short-term) uptrend, it is hovering just above its 50-day Moving Average at 102.50 where the (aggressive) sell signal is confirmed.  The Cycles Model suggests a continued decline through the end of the year.  While there is commentary about the illiquidity of the market, investors and speculators may not know just how close we are to the brink.  In the meantime, (down) tending strength may be given a boost this week.

ZeroHedge comments, “While many market participants are concerned about rate increases, they appear to be ignoring the largest risk: the potential for a massive liquidity drain in 2023.

Even though December is almost here, central banks’ balance sheets have hardly, if at all, decreased. Rather than real sales, a weaker currency and the price of the accumulated bonds account for the majority of the fall in the balance sheets of the major central banks.

In the context of governments deficits that are hardly declining and, in some cases, increasing, investors must take into account the danger of a significant reduction in the balance sheets of central banks. Both the quantitative tightening of central banks and the refinancing of government deficits, albeit at higher costs, will drain liquidity from the markets. This inevitably causes the global liquidity spectrum to contract far more than the headline amount.

Liquidity drains have a dividing effect in the same way that liquidity injections have an obvious multiplier effect in the transmission mechanism of monetary policy. A central bank’s balance sheet increased by one unit of currency in assets multiplies at least five times in the transmission mechanism. Do the calculations now on the way out, but keep in mind that government expenditure will be financed.”

8:45 am

Good Morning!

SPX futures sank to a morning low of 3941.60 before a bounce.  It remains on an aggressive sell after the Master Cycle high on Tuesday, having spent 264 calendar days in that Cycle.  The Sell signal is confirmed beneath the 100-day Moving Average at 3908.49.  The Model suggests a decline through mid-December in which the Cycle Bottom at 3520.54 may be taken out.

The options page is currently unavailable through Schwab.com.

ZeroHedge reports, “After opening modestly in the green, US equity futures have drifted steadily lower all session and were last trading near their Monday lows as concerns that China may tighten Covid curbs after China reported its first Covid-related death in almost six months and a city near Beijing rumored to be a test case for dropping all curbs enforced a slew of restrictions all weighed on growth in the world’s second-largest economy, as well as the ongoing carnage in the crypto space. At 7:30am ET, S&P futures were down 0.5% to 3,953 while Nasdaq 100 futures slumped 0.9% to session lows, below 11,600. The dollar stormed higher as investors sought shelter in the dollar; 10Y yields rose to 3.83%, while bitcoin traded around $16,000 after dumping over the weekend. Oil dipped but rebounded from session lows on concern of a weakening demand outlook from China and following a $10 price target cut to $100 for Q4 2022 from Goldman overnight.”

VIX futures are trading at the upper range of Friday’s trading, but no new high to report.  VIX’s problem is the huge number of Zero Day to Expiry (ODTE)  trading which magnifies short term moves, but is not reflected in the VIX, which usually measures options expiring 30 days out.  Two possible scenarios may flip the VIX in a very big way.  First, a solid week of back-to-back declines may change the day-trader behavior pattern.  Second, should SPX decline beneath the Lip of the Cup with Handle formation, it may send a strong signal that the bear market is not over.  At the moment, investors are still holding out hope for a pause/pivot to end the agony of higher interest rates.  The Cycles Model suggests a strengthening (up) trend starting this week.

ZeroHedge observes, “In recent weeks there has been much discussion of the unprecedented explosion in 0DTE (0-days to expiry), or options with less than 24 hours to maturity, which have become an extremely levered way to bet on even the smallest market gyrations (of course, the past month has seen some very major market gyrations, so imagine those magnified by 100x or more when it comes to P&L impact).

Just last week we quoted Goldman’s derivative strategist Rocky Fishman explaining that “the strongest area of volume growth has been ultra-short-dated” options, and that “measured in notional volume terms, S&P options with less than 24 hours to maturity now represent 44% of the index’s trading volume, and have been averaging $470BN notional per day over the past month.”

TNX has been consolidating beneath the 50-day Moving Average this morning.  However, the Cycles Model suggests a burst of trending strength starting in the next day or so.  It also shows the uptrend may continue through early January.

USD futures rose to 107.82 this morning on Day 259 of the Master Cycle.  I have marked November 15 as the low, but there is a distinct probability of a deeper low in the next week.  There is no buy signal at this time, but it may be considered should USD test the 200-day Moving Average at 104.78.  We may see trending strength return to the USD during the week following Thanksgiving.

11:10 am

ZeroHedge explains, “US equity markets are chopping around wildly in the last few days as Nomura’s Charlie McElligott notes that risk is drifting on a mini “triple whammy” causing a modest reversal stronger in the USD (after the post-CPI puke)…

1) China’s again-devolving COVID outbreak (Beijing reported 3 COVID-related deaths, Guangzhou imposed a 5-day lockdown, Hong Kong’s CEO tested positive for COVID, and Shijiazhuang–the 11m population city profiled by the FT last week as a potential “test case” for re-opening–instituted lockdowns and mass PCR testing—h/t AK),

2) the ultimate arrival of cold European weather finally seeing first drawdowns of Gas reserves and

3) a raft of better US economic data late last week (Bloomberg US Eco Surprise Index at best levels since May) is flowing-through financial markets via suddenly-squeezing US Dollar.

Bloomberg Dollar Index has now bounced more than 2% off the three month low made last week, which sits at the root of the overnight risk-asset pullback to start the holiday-shortened US trading week.”

WTI futures are making new lows as I write, currently at 76.44 and falling…  The Cycles Model suggests a possible double bottom in December.  Meanwhile the decline may be strengthening as a breakdown may occur imminently with WTI trading beneath its Cycle Bottom at 75.86.

ZeroHedge observes, “The first question that comes to mind (as oil already tests multi-month lows) is – why would they do this?

The Wall Street Journal reports that Saudi Arabia and other OPEC oil producers are discussing an output increase, the group’s delegates said…

An increase of up to 500,000 barrels a day is now under discussion for OPEC+’s Dec. 4 meeting, delegates said.

The move would come a day before the European Union has said it would impose an embargo on Russian oil and the Group of Seven wealthy nations’ plans to launch a price cap on Russian crude sales, potentially taking petroleum supplies off the market.

Any output increase would mark a partial reversal of a controversial decision last month to cut production by 2 million barrels a day at the most recent meeting.

The reaction was swift and obvious as WTI tumbled $2 back to a %77 handle…”

8:15 am

Good Morning!

SPX futures rose to a morning high of 3983.60, a 62% retracement of the prior decline.  Yesterday I had mentioned that the “normal” retracement would go to 4000.00.  The top of Wave [iv] appears to be 4002.00.  This retracement may be used to cover longs/go short.   The retracement may run out of steam in the first couple hours of the day.

Today’s monthly op-ex shows Maximum Pain for options investors at 3930.00.  Long gamma begins at 3950, but an equally weighted mass (~58,000 contracts each) of puts and calls reside at 4000.00 in the AM strike.

ZeroHedge reports, “Yesterday when previewing today’s sizable, $2.1 trillion option expiration…

… we said that following the record put-to-call spike…

… and amid continued pressure on implied vol, the most likely outcome was for a drop in the VIX and another bounce.”

VIX futures declined to a low of 23.46 this morning.  The November 11 low remains intact and an aggressive buy may be considered here.  However, the reversal is not confirmed until the VIX rises above its mid-cycle resistance at 26.52.  a Head & Shoulders formation may be activated above the neck/Cycle Top at 34.57.

Wednesday’s op-ex shows Max Pain at 26.00  Short gamma begins at 23.00 while long gamma starts at 27.00.

ZeroHedge explains, “The market’s recent swings have become so violent, so powerful and so unexpected, leading to bone-crushing whiplash and a near record loss for trend-following CTA funds during last Thursday’s CPI  shock…

… that even the otherwise bullish JPM trading desk has been trying to talk the market lower (see “We See More Selling Into Strength Here”: Why JPM’s Trading Desk Isn’t Buying This Rally“, and “JPMorgan: “This Is Another Unloved Rally For Clients”; Watch For These Key Technicals“) simply because not even JPMorgan is positioned bullishly enough to take advantage of what was a record short squeeze.”

TNX is on the rise again, but still beneath the 50-day Moving Average at 38.39.  The Cycles Model suggests that trending strength may come roaring back next week.  However, I would not be surprised that today’s volatility may be reflected in the TNX challenging the 50-day.

USD futures appear to be consolidating within Yesterday’s trading range.  Today is day 256 of the Master Cycle.  It appears that the low may have been made on day 249, last Friday, but there is an outside chance of another probe to a lower low (at the 200-day Moving Average at 104.72).

WTI futures plummeted to a morning low of 77.33 as the decline gathers steam.  Crude oil has been on a sell signal since early this week.    The decline may continue until mid-December.

ZeroHedge reports, “Oil prices are plunging this morning as futures contracts roll with the Jan 23 WTI contract price trading with a $77 handle.

There’s little fresh news, but analysts say the rise in COVID-19 cases in China has renewed worries about energy demand.

China’s State Council warned cities to avoid “irresponsible loosening” of COVID-19 measures, according to the South China Morning Post.

“Commodity markets have been under pressure as China’s zero-COVID strategy has strangled economic growth. Without any signs of softening, commodity markets had factored-in that status quo for the foreseeable future. Looser quarantine rules suggest an end to the restrictions are closer than we thought,” ANZ Bank said in a note.

Additionally, recession concerns have dominated recent oil market trading even with the European Union’s ban on Russian crude approaching and OPEC’s efforts to tighten supply.:

Gold futures are edging lower this morning after Tuesday’s Master Cycle high on day 252.  The Cycles Model suggests the new decline may last through the end of January.

11:50 am

The last four months have been a good time to accumulate shares in the Ag Index, whichever fund/ETF you choose.  Today we find the index at day 254 of its Master Cycle with firm support at 460.00.  A confirmed buy signal awaits above 471.80-474.74, the 50-day Moving Average.  Keep in mind that the rally from this low may continue for up to a year or longer.

ZeroHedge reports, “Wheat prices slid Thursday after a United Nations-brokered deal allowing exports of farm goods from Ukraine was extended for 120 days, reported Bloomberg.

The Black Sea Grain Initiative was initially agreed upon in July and ended a five-month Russian blockade of Ukraine’s seaports, allowing millions of tons of farm goods to leave Ukraine — a major ag exporter to the world — to countries across Asia, Europe, and Africa.

“I welcome the agreement by all parties to continue the Black Sea Grain Initiative, “UN Secretary-General Antonio Guterres said in a statement, while Ukraine’s President Volodymyr Zelensky tweeted that Guterres and Turkish President Recep Tayyip Erdogan worked together to extend the deal. He added: “waiting for an official announcement from partners.”

11:14 am

I had always understood that the Crypto sector to be at the outer fringe of speculation and have declined commentary until now.  This week’s carnage has confirmed my worst fears that, when this financial crisis is over, people will wish they never heard of Crypto currencies (they’re not a currency) before they put their money at risk.  The excitement is now gone and the panic is in full swing.  The sad part is that the panic may migrate to other parts of the market.

ZeroHedge observes, “Cryptocurrencies have been on the doldrums since the ‘Crypto Carnage’ of Spring 2021. Over the weekend, a Bahama-based crypto exchange FTX Exchange collapsed. It will probably not be the last one.

Due to the massive financial speculation, induced by the credit (QE) programs of central banks, the crypto market grew into a hub of speculation. During their first global crash in spring 2021, it was rumored that some players had been engaged in speculation with leverage of 100x. That is, by borrowing 100 times the value of the underlying asset (cryptocurrency) and investing it back into the market. I have to admit that I had never heard of anything similar. In standard economic thinking, leverage of 12x was considered extreme. That “rule of thumb” was shattered in the crypto markets.”

10:55 am

BKX is on an aggressive sell signal after an early reversal (day 245) from the mid-Cycle resistance at 110.17.  Should this be correct, the Cycles Model infers a decline to the end of the year, with a possible extension to the end of February.  Support remains strong at 97.00, but if we have a repeat of the Lehman crisis, the supports may not matter.

3:10 pm

SPX ran up to 3954.00, a 39% retracement of the initial decline.  It now may be headed for the trendline and the 100-day Moving Average (not sown) at 3906.00.  Should it cross beneath it, we may have a confirmed sell signal.

10:38 am

It’s time for a bounce in the SPX, but I wonder if things could get out of hand at this point, with liquidity in short supply and the Crypto plunge with more losses to come.  Normally we might see a short-term bounce up to 4000.00, which would be an ideal point to go/add shorts.  But there is so much uncertainty that I personally would simply be short and bear the bounces, if they occur.

ZeroHedge observes, “A few days ago we asked how much longer do we have to wait for the “first-day affidavit” in the FTX bankruptcy, traditionally the most detailed and comprehensive summary of how any given company collapsed into Chapter 11 (and in FTX’s case, Chapter 7 soon, as this will soon become a full-blown liquidation)…

… and this morning we finally got our answer when it hit the docket (22-11068, U.S. Bankruptcy Court for the District of Delaware), almost a full week after FTX filed on Nov 11… and boy is it a doozy.

Because how else would one describe it when FTX’s new CEO and liquidator, John Ray III,  who also oversaw the unwinding and liquidation of Enron, admits that “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.”

8:00 am

Good Morning!

NDX futures are lower this morning, reaching a low of 11573.40 after reversing from the 100-day Moving Average on Tuesday.  That reversal gave us an aggressive sell signal that is confirmed beneath the 50-day Moving Average at 11442.69.  It is due for a 30-calendar day decline that may venture to the Cycle Bottom support at 10287.33, where it meets the trendline starting in 2009.  There may be a Santa Rally in the last two week of December, but the decline resumes in January with another 30-day decline, where it may decline beneath 8000.00.

Today’s op-ex is overwhelmingly bullish all the way down to 10650.00.  Remember that NDX is the playground for institutional investors.  It too them a whole month to go long.  QQQ (Closing: $285.44) op-ex, on the other hand, has few calls in today’s op-ex.  Short gamma starts at 282.00.  Friday’s op-ex shows Mas Pain at 279.00 with huge positions on either side.  Long gamma begins at 290.00 and short gamma reigns beneath 275.00.

ZeroHedge comments, “When is it time to short?

The question now is if this is the 8th or the 16th of August – the difference could be monumental for the survival of a short position. The latest data from the various prime brokerage desks we trade with indicates that we are very close to the end of the bounce – and that is what this email examines. From a trading perspective we still would want to see a test of 4100 to get involved in a pure delta 1 short – and are happy for now with our VIX logic from yesterday. There is more often than not a little extra juice left to squeeze in moves like these and we need to be surgical in terms of implementation. Stay tuned.

De-grossing done

The excellent “Positioning Intelligence” team at JPM is of the view that the bulk of the de-grossing (especially the type of extreme reductions we’ve seen in the past week) seems likely to be over. The total amount of gross that was added from late Aug to end-Sep appears to be mostly reversed. This is apparent when looking at rolling 4wk gross flows which reached a +2z level in late Sep, but are now approaching a -2z level for a full reversal.”

SPX futures are substantially lower,  approaching the 100-day Moving Average at 3906.50.  Tuesday’s reversal brought the SPX beneath its 2-hour (short-term trading) Cycle To, giving an aggressive sell signal.  The signal remains on the aggressive side until it declines beneath the 100-day for a confirmation.  The Cycles Model suggests an approximate 30-calendar day decline that may bring the SPX to or beneath its Cycle Bottom support at 3621.23.  Wave [3] may not be complete until early February.

Today’s op-ex shows possible Max Pain at 3955.00.  Short gamma begins at 3950.00 with a ramp higher at 3900.00.  Long gamma begins at 4000.00.

ZeroHedge reports, “US equity futures dropped to session lows, and surrendered earlier gains of as much as 0.2%, setting up Wall Street stocks to extend Wednesday’s weakness, with traders assessing comments from Fed officials about the path of rate hikes amid earnings reports (such as those from Target) confirming that the US consumer is hunkering down for a recession.  S&P 500 futures were 0.8% lower and those on the Nasdaq 100 dropped 0.6% at 7:30 a.m. in New York, with treasury yields bouncing after yesterday’s decline.  10-year Treasury yields rose, following indications from Fed officials on Wednesday that policy would tighten further. The dollar rallied half a percent against a basket of currencies.

VIX futures rose, but still must overcome mid-cycle resistance at 26.56 for a confirmed buy signal.  The Cycles Model shows the next Master Cycle high in mid-December.

Next Wednesday’s op-ex shows Max Pain back down to 24.00.  Short gamma starts at 22.00-23.00.  Long gamma shows call buyers are filtering back in at 27.00 with increasing strength to 60.00.

TNX is rising to test the 50-day Moving Average at 38.29  A move above that level puts TNX on a confirmed buy signal.  The Cycles Model shows the 10-year yield rising to the end of the year.  The target for Wave [5] may be near 53.16, a peak yield not seen since 2007.  Yesterday’s 20-year auction may have marked the bottom in yields for a while.

ZeroHedge reports, “What a difference a month makes: last month, when inflation prints were coming red hot, one couldn’t find a willing buyer for the 20Y auction with a microscope, and as a result we saw a 2.5bps tail, tying the biggest on record. Well, fast forward to today when after two big misses in the form of lower than expected CPI and PPI, we just got the 2nd best 20Y auction on record.

Printing at a high yield of 4.072%, the auction priced not only more than 30bps below October’s 4.395%, the first sequential yield drop since August, but also stopped through the When Issued 4.101 by 2.9bps, which was the second highest stop through on record with just April’s 3.0bps higher.”

WTI futures declined to 83.53, separating itself even further from the 50-day Moving Average at 85.92.  It is on a confirmed sell with a potential decline to mid-December.  The minimum decline may be to the Cycle Bottom at 76.24.  However, it may be just as likely to decline to the lower trendline of the Broadening Wedge at 68.00.  Should it go that far, it is likely that the decline may continue through the end of the year.

ZeroHedge observes, “In the past 24 hours, oil traders have received clashing outlooks from two of the market’s leading forecasters — which one is right will determine how prices end this year.

On Monday the OPEC producers’ group once again slashed its forecasts for global oil demand in the fourth quarter, indicating that markets face a supply surplus unless the cartel and its allies implement the output cuts they announced — to much US irritation — last month.

The forecast suggests OPEC+ is likely to continue keeping a tight leash on supplies when it meets on Dec. 4. That would also be consistent with recent comments from Saudi Energy Minister Abdulaziz bin Salman, who said at the COP27 talks in Egypt last week that OPEC+ will remain “cautious.”

Gold futures continued their decline from the potential Master Cycle top made on Tuesday (day 252).  Should that be correct, the decline may continue through the month of January.  A buying opportunity may re-assert itself by the month of March, per the Cycles Model.

8:10 am

Good Morning!

NDX futures bounced to 11923.00 in the overnight market, 50 points shy of the 100-day Moving Average at 11983.82.  Since then it has eased lower, but not to new lows.  Yesterday it rose to challenge the 100-day, but fell back at the close.  The total retracement was 48.3%, a far cry from retracements made just a year ago.  Yesterday was day 261 of an average 258-day Master Cycle.

Today’s op-ex shows Maximum Pain for options investors at 11875.00.  Long gamma begins at 11900.00, while short gamma resides at 11840.00.  QQQ (close 289.39) shows Max Pain at 289.00.  Long gamma begins at  290.00, while short gamma may start at 288.00.  QQQ options are tightly packed, with the slightest move in either direction starting a potential firestorm of buying/selling.

ZeroHedge remarks, “Remember when we warned that it’s not inflation that will force the Fed to do a 180, but that there is only so much record US Dollar strength the world can tolerate before a pivot is imposed?

We were right… and while this has yet to manifest in official central bank memoranda and bulletins, it has already swept across markets like wildfire.

In our market wrap from yesterday, we showed a stunning chart from Morgan Stanley according to which high-momentum L/S funds had just suffered their 2nd worst 2-Day drop in the past 20 years.”

SPX futures bounced around within the mid-range of yesterday’s trades.  Yesterday may have seen the Master Cycle high at 4028.84, a near miss to the mid-Cycle resistance at 4044.33, giving a 64.4% retracement.  While the retracement has overshot the proposed 61.8% retracement level, yesterday’s spike high did more to investors’ nerves, urging weak hands to capitulate.  Should it be underway, the new Master Cycle may last until mid-December with a likely test of the low.

Today’s op-ex shows Maximum Pain at 3970.00.  Long gamma begins at 4000.00, while short gamma may begin between 3925.00 and 3950.00.  SPY (close: 398.49) shows Max Pain at 399.00.  Long gamma starts at 400.00, while short gamma begins at 398.00, a very tight spread.

ZeroHedge reports, “US equity futures were flat, having traded in a narrow range on either side of unchanged, as investors braced for the latest retail sales data, assessed the easing path of inflation and remained calm in the face of rising geopolitical concerns resulting from a NATO attempt to paint rocket a Ukraine strike on a Polish village as Russian, in hopes of dramatically escalating the war.

Luckily, video evidence refuted the false flag, and overnight NATO was forced to admit that the “:Explosion in Poland was Likely Due to Ukraine Air Defense” Even so, the Western pro-war alliance still blamed Russia with  NATO’s Secretary General saying the blast in Poland was likely caused by a Ukrainian air defence missile but that Russia was ultimately responsible because it started the war. “They are responsible for the war that has caused this situation.” Propaganda aside, fears of an immediate spillover from the conflict were soothed, knocking the yen and dollar lower, as demand for safe-haven assets gradually faded.”

VIX futures consolidates between 23.99 and 24.61, awaiting further developments.  Having made a Trading Cycle low, the next hurdle to overcome is mid-Cycle resistance at 26.59.  The December master Cycle high in the VIX comes a week later than the projected Master Cycle low in the SPX.  It will be interesting to see which index dominates.

ZeroHedge remarks, “We are considering VIX hedges for the first time since August

Everything that is “protection” has come down hard and we are starting to get interested. To go outright short cash equities here is not a trade for us – we would want to see an attack and possible overshoot of the 4100 level – but volatility is different. Let’s examine.

Put puke – getting there

Never buy protection when you must, buy it when you can. We are getting closer…”

TNX is making new lows this morning as it completes the final probe of the correction on day 260 of the current Master Cycle.   Should the reversal take place today, we may see rising rates through the end of the year, according to the Cycles Model.  Not a happy thought…

1:30 pm

ZeroHedge reports, “What a difference a month makes: last month, when inflation prints were coming red hot, one couldn’t find a willing buyer for the 20Y auction with a microscope, and as a result we saw a 2.5bps tail, tying the biggest on record. Well, fast forward to today when after two big misses in the form of lower than expected CPI and PPI, we just got the 2nd best 20Y auction on record.

Printing at a high yield of 4.072%, the auction priced not only more than 30bps below October’s 4.395%, the first sequential yield drop since August, but also stopped through the When Issued 4.101 by 2.9bps, which was the second highest stop through on record with just April’s 3.0bps higher.

The bid to cover of 2.64 was also very solid, printing above last month’s 2.50% and above the six-auction average of 2.53%.

The internals were also stellar, with Indirects taking down 75.3%, the third highest on record, and well above the 70.3% recent average; and with Directs taking down 15.4%, below the 17.6% recent average, that left Dealers holding 9.2%, the lowest since September and well below the recent average of 12.1%.”

1:55 pm

SPX just crossed beneath the Cycle Top support at 3982.16 and declined beneath yesterday ‘s low.  This may constitute an aggressive sell signal, while yesterday’s decline did not cross the Cycle Top support.

ZeroHedge remarks, “Are we about to test Art Cashin’s thesis that you should never bet on the end of the world (i.e. sell stocks as the ICBMs start flying). As a reminder:

Art Cashin, the dean of the NYSE floor, told a story on Tuesday at Barry Ritholtz’s Big Picture conference in midtown that illustrated this point perfectly. It was in the days before the Cuban missile crisis. Mr. Cashin was a young trader. One day a rumor mushroomed that the Russians had launched their missiles. World War III was starting. Mr. Cashin ran across the street to find the best trader he knew – who was in a bar having a drink. Mr. Cashin ran in breathlessly, hardly able to talk.

“Stop,” the trader said. “Have a drink. Explain everything.” After hearing all the information, the trader had one order: “Buy. Don’t sell. Buy.”

“Why?” Mr. Cashin wondered.

“Because if you’re wrong, the trade’ll never clear. We’ll all be dead.”

8:25 am

Good Morning!

SPX futures rose to 4004.10 in the overnight session.  The market structure still appears bullish but the 61.8% Fibonacci retracement has ben met on day 263 of the Master Cycle.  SPX may still bounce around, since there may be a few more “me too” investors finally getting off the sidelines.  The daily mid-Cycle resistance is at 4044.50.  Meanwhile, the  risk of a sudden reversal is high.  VIX ix not making new lows.

Today’s op-ex has a broad epicenter of Max Pain centered around 3925.00.  However, long gamma begins at 4020.00 and short gamma strengthens at 3920.00.

ZeroHedge reports, “US futures jumped from Monday’s shallow dip, which in turn followed the S&P 500’s best week since June, boosted by a triple-whammy of positive news out of China, including the Xi-Biden meeting which pointed to easing tensions between Washington and Beijing, China’s Covid pivot and property measures, and solid earnings from Walmart which boosted guidance and announced a new $20BN buyback. Contracts on the Nasdaq 100 extended earlier gains and were up 1.1% as of 7:1 a.m. ET while S&P 500 futures surged above 4000, rising almost 1.0%. Treasury yields and the dollar slipped while bitcoin resumed its modest rise. At 8:30am we get another inflation read in the form of the latest PPI Print, which is also expected to ease modestly.”

VIX futures declined to 23.18, within yesterdays trading range.  Friday’s low may be considered a Trading Cycle low, a lesser degree than the Master Cycle, despite the length of the decline.  The next Master Cycle (high) may arrive in mid-December..

Wednesday’s expiring VIX options show an overwhelming number of short contracts beneath 27.00 with Max Pain at 28.00.  While VIX options are a very small ortion of the market, it would appear that the dealers and hedge funds may be loath to pay out the short gamma.

TNX may be completing its final probe lower on day 259 of the Master Cycle.  It has already exceeded its downside target of 38.00 but may have another short probe lower.  Be prepared for a sudden and sharp reversal.  Trending strength may resume by the end of the week.  With PPI declining (below), what’s going to make interest rates rise again?

ZeroHedge reports, “Just days after the CPI missed across the board sparking a record surge in stocks, moments ago the PPI followed suit when the BLS reported that in October wholesale inflation not only eased across the board but missed every single forecast, with the highlight being the unchanged print in core PPI, a sharp drop from last month’s 0.2% increase and far below the 0.3% forecast. Here is the breadown:

• PPI 0.2% M/M, Exp. 0.4%, Last 0.2% (revised from 0.4%)
• PPI 8.0% M/M, Exp. 8.3%, Last 8.4% (revised from 8.5%)
• PPI Core 0.0% M/M, Exp. 0.3%, Last 0.2% (revised from 0.3%)
• PPI Core 6.7% Y/Y, Exp. 7.2%, Last 7.1% (revised from 7.2%)

The YoY increase in headline PPI of 8.0% was the lowest since July 2021, the lowest in over a year.”

USD futures declined to 105.20 this morning, challenging the mid-Cycle support at 105.28 on day 253 of the current Master Cycle.  Mid-Cycle support is the usual target for Waves 2, so the end of the decline is near.  The USD is likely to follow the reversal in the 10-year treasuries, which is imminent.

Investing.com comments, “The dollar is inching lower again this morning and we think the ongoing correction could extend a bit more as optimism on US-China relations appears to be lifting sentiment. That said, a broader and sustained US Dollar downtrend on the back of the China and/or Fed pivot story appears premature. Today, keep an eye on the ZEW and UK pre-Budget headlines

US Dollar: A bit more pain

The dollar showed tentative signs of recovery yesterday, but appears to be lacking any strong support at the moment. While we don’t buy the one-way traffic, and the USD-bearish narrative in the longer run, there may be extra downside room for the greenback this week.”

WTI futures declined to a morning low of 84.08 after closing beneath the 50-day Moving Average at 85.94 yesterday.  It is on a confirmed sell signal with the next Master Cycle low due in early December.

OilPrice.com reports, “Significant global economic uncertainties in the coming months made OPEC cut on Monday its estimate of global oil demand growth for this year and next, in the fifth reduction of consumption forecasts since April.

OPEC revised down each of its 2022 and 2023 oil demand growth forecasts by 100,000 barrels per day (bpd) from last month’s estimates due to China’s still-strict Covid policy and economic challenges in Europe, the organization said in its Monthly Oil Market Report (MOMR) out on Monday.”

Gold futures rose to 1789 in the overnight session as it rallies toward the mid-Cycle resistance at 1804.32.  The current Master Cycle has about a week left to produce that result, as today is day 252.

1:44 pm

WTI futures plummeted to a morning low of 85.69, beneath the 50-day Moving Average at 86.01.  It has since bounced back to retest Intermediate-term support/resistance at 86.65 and is declining again.  This creates a sell signal off the November 7 Master Cycle high.  Crude often leads stocks, since it is considered a leading indicator of economic health or a supply/demand imbalance.

ZeroHedge observes, “Now Bloomberg reports Freeport LNG told customers that outages at its Texas terminal, which has been closed since June and was scheduled to reopen by mid-November, could be delayed further.

People with direct knowledge of the situation said LNG shipments for November and December are likely to be canceled as maintenance work continues on the liquefaction plant. Also, regulatory approvals could prolong the start date.

This comes as heating demand is set to surge across the Northern Hemisphere. The LNG export facility in Freeport, Texas, accounted for 15% of all US LNG exports, most of which were sent to Europe.”

8:35 am

Good Morning!

SPX futures have eased lower this morning after coming within 7 points of the 61.8% retracement level.  The rally took 21.5 market days from the low on October 13.  This emotionally-charged rally lends itself to a heavy reliance on rumors and speculation that soon fade and give way to a panic decline.  The Cycles Model suggests the next Master Cycle low may be in mid-December, but the total decline may last until early February, 12.9 months since the inception of the decline.

Today’s op-ex shows Maximum Pain for options investors at 3945.00.  Long gamma may begin at 3950.00 while sort gamma starts at 3875.00.

ZeroHedge reports, “The rally in US index futures paused after Wall Street stocks posted their best week in several months, following comments from a Federal Reserve official that the fight against inflation has further to run. Contracts on the S&P 500 were down 0.3% at 7:30 a.m. ET…

VIX futures rose to a morning high of 24.33 as it breaks away from its decline at a half-Cycle low.  A Master Cycle high may be due in mid-December.

Wednesday’s op-ex shows the overwhelming sentiment is bearish under 30.00 with put contracts in excess of 100,000 at each strike between 22.00 and 27.00.

ZeroHedge remarks, “What’s the biggest fear out there?

Goldman’s Scott Rubner asks himself: “Is the biggest fear for global wall street now a flat on the year S&P 500 by 12/31?”

1. we have suddenly entered a positive feedback loop: inflation down, China re opening and a potential war de-escalation

2. FOMU is huge – fear of materially underperforming

3. Pain trade is higher…positioning is simply not long enough”

TNX is higher this morning, leaving a potential Master Cycle low on Friday, day 255.   The 50-day Moving Average at 38.00 was tested on Friday.  However, the correction may not be complete.  Look for either a retest of the 50-day or a rally above Intermediate-term resistance at 39.71 for confirmation.

USD futures bounced to a weekend high of 107.15 after a potential Master Cycle low on Friday.  A strong reversal may be developing.  However, we await a clear sign of a reversal.

1:40 pm

Time is the essence of Cycles.  In this case, 21.5 market days have elapsed from the October 13 low in the SPX.  This is a typical retracement time.  In addition, the Wave structure may be complete. There may not be much of a sell signal today, other than those two items.  Typically we would wait for the crossing of an important support.  The Cycle Top in the 2-hour is at 3934.65.  It may not be breached today.  Most investors are bullish again…

Wrong-headedness has captured the market again.

RealInvestmentAdvice cautions, “Since June, the market rallied on hopes of a “policy pivot” by the Federal Reserve. However, those hopes got dashed each time as Jerome Powell clarified that the “inflation fight” remained the primary focus. Mr. Powell made that point very clear following the latest FOMC announcement.

“The question of when to moderate the pace of increases is now much less important than the question of how high to raise rates and how long to keep monetary policy restrictive.”

Before the pandemic, the Fed’s storyline was to let inflation run hot rather than allow inflation to stay too low for too long. Such makes sense as inflation is easy to deal with by hiking rates and slowing the economy. Deflation is a far different story, as it becomes an entrenched psychological impact that becomes difficult to dislodge.

Today, Powell says the Fed’s concern is entrenched inflation which causes pain to the economy.

The reality is that inflation is not the problem.”

8:00 am

Good Morning!

The stock market is open today (Veteran’s Day), but the bond market is closed for the day.

SPX futures reached an overnight high of 3990.10 as it potentially aims for the 61.8% retracement value at 4008.00.  Yesterday was the culmination of a triple boost of trending strength as SPX completes its retracement rally.  Today is day 260.00 of the Master Cycle and SPX will have achieved 21 market days of rally from the October 13 low today.

In today’s op-ex, Maximum Pain for options investors appears at 3925.00.  The options market is hotly contested in both directions with long gamma starting at 3975 and short gamma at 3880.00.

ZeroHedge reports, “One day after its best day since April 2020, when the S&P500 added 5.5%, or a near-record $1.8 trillion in market cap in one day, a rare 4-sigma move that has only occurred 10 times over the past decade, which essentially showed how wrong-footed the market was ahead of the inflation surprise.…

… the index was set to extend its gains as a FOMO panic started to spread among traders fueled by a softer-than-expected US inflation print and as China reduced the amount of time travelers and close contacts of virus cases must spend in quarantine, and pulled back on testing, in a significant calibration of the Covid Zero policy that has upended the world’s second-largest economy and raised public ire.

Contracts on the US stock benchmark advanced 0.3% to 3,974 at 730 a.m. in New York, having earlier risen as high as 3,997. Nasdaq 100 futures also gained 0.7%, while Treasury futures weakened, with the cash market closed for the Veteran’s Day holiday. Commodities also rallied while the dollar retreated for a second day.”

VIX futures rattled around between 23.50 and 23.91 as it consolidates on day 30 of the Master Cycle.  Further investigation shows that the September 28 high may have been 34.13, allowing the October 12 high at 34.53 as the top of the Master Cycle.  What tipped me off was the completion of a zig-zag decline yesterday, making it a corrective decline.  This allows a potential 5-week rally to a mid-December high.

Next Wednesday’s options expiration show that it has change to overwhelmingly short beneath 30.00.  Time for a reversal?

TNX cash market is closed today.  However TNX futures continue to decline toward the 50-day Moving Average at 37.75.   Commentators are gushing about the 4-sigma event that happened yesterday, not recalling that this is still a bear market correction.

ZeroHedge reports the turnabout in bonds. “One day after the ugliest 10Y auction in a long time, which tailed the most in 6 years, today we got a mirror-image, when moments ago the Treasury sold the final refunding auction of the week when it placed $21 billion in 30 year paper (Cusip TL2) at a high yield of 4.080%. While this was the highest yield since July 2011 and was well above last month’s 3.930%, the auction stopped through the When Issued 4.113% by 3.3bps. This was the biggest stop through since at least 2016 so yes, a mirror image of yesterday’s tailing 10Y which also was a six-year outlier, only in the opposite side as it tailed by a similar amount.

The bid to cover of 2.422 was well above last month’s 2.386 and was also the highest since July.”

USD futures made a new corrective low at 106.60.

1:27 pm

SPX has made its extension and may have completed Wave [e] of E of (B).  If correct, the minimum decline may take SPX beneath 3000.00.  An aggressive sell signal awaits beneath the Cycle Top at 3911..00.  The Cycles Model calls for the final high to be made today, so we may see a reversal in the next 24 hours.  NDX remains beneath the 50-day Moving Average at 11475.00.  This market has been a nightmare for technical analysis.  Nonetheless, this is still a bear market, as the retracements have only succeeded to reach the 50% level.

9:37 am

A third Broadening Formation appears, indicating a fevered pitch (panic)among investors, helped along by some whale of a buyer coming at precisely the right moment to allay fears of a panic decline.  We are likely to see an extension above the Cycle Top at 3902.81.  This is not normal.

ZeroHedge observes, “The cooler than expected CPI print sparked the somewhat expected chaos in markets as Fed rate trajectory expectations puked dovishly. Fed terminal rate has plunged back below 5.00% and subsequent rate-cut expectations are soaring…

December has now priced out any chance of a 75bps hike (50bps locked in)…”

8:30 am

Good Morning!

SPX futures blasted higher ahead of the CPI announcement, which showed a .4% increase, not seasonally adjusted.  Today is day 259 of the Master Cycle, which allows an inversion.  The probable target for this probe may be the 100-day Moving Average at 3894.84, with some extension above that.

Today’s op-ex shows Maximum Pain for options investors at 3780.00.  This morning’s pop in the SPX relieves the dealers and participating hedge funds of a large liability.  Long gamma may begin at 3800.00-3850.00.

ZeroHedge reports, “After yesterday’s cryptoquake shook all capital markets, sending global stocks tumbling, on Thursday morning US equity futures are steady as traders brace for an inflation print which will determine not only the December Fed rate hike but set the pace for Fed tightening over the next quarter. Nasdaq 100 and S&P 500 futures both edged modestly higher, rising 0.2% at 7:30 a.m. ET after underlying indexes plunged on Wednesday as the sweeping Republican Congressional victories that Wall Street traders bet on failed to materialize. Treasuries fell, with yield curves bear-flattening. The dollar advanced, while oil extended its slide to a fourth day.”

VIX futures slid to 23.91, extending the Master Cycle low to day 290.00.  I will comment later on the VXN, which shows evidence of manipulation at the Fed announcements.  Evidence of manipulation in the VIX is less clear, but the stretched Master Cycle may be an indicator that all is not right with the VIX, as well.

ZeroHedge comments, “The VIX is well placed to act as a hedge for market risk should US CPI come in higher than expected today.

There’s plenty of dogs barking in the crypto world, but one dog that has yet to bark is equity volatility. Despite the longest bear market since the Lehman crisis, the VIX remains low relative to cross-asset volatility, low compared to at-the-money volatility, and low versus – and less than – realized volatility, something we see only infrequently.”

TNX made a new corrective low beneath Intermediate-term support at 39.79.  The next support for this decline is the 50-day Moving Average at 37.75.  The current Master Cycle has yet another week to complete, allowing it to decline toward the Wave A bottom at 35.64.  The period of strength anticipated this weekend may push TNX lower.  Yesterday’s failed 10-year auction appears to have been bought.  By whom?

USD futures declined to 108.48, stretching the Master Cycle low to day 279.  The Cycles Model shows that today may be the last day of (inverted) strength in USD.  This may allow for a Master Cycle high in mid-December.