The Practical Investor

1:46 pm

TNX is still beneath its Cycle Top at 42.22, but received a jolt this afternoon in the form of a “Disastrous 10-Year Auction.”  Reception was so poor tat dealers had to take 24% of the offering.  They, in turn, will add to the selling, since they do not want to hold such a large supply, which the Fed would normally have taken off their hands.

1:36 pm

SPX has declined beneath the 50-day Moving Average at 2792.00 and Short-term support at 2882.00, creating a confirmed sell signal.  The next level of support is at the mid-Ccle at 3728.88.  Take appropriate action.

12:45 pm

NDX has fallen beneath the Li of the Cup with Handle formation, confirming its sell signal.  Take appropriate action.

8:00 am

Good Morning!

SPX futures are lower, but have not declined beneath the 50-day Moving Average at 3805.36.  The structure appears to be incomplete, so there is a good probability of yet another probe higher.  Overhead resistance (100-day MA) is at 3894.72, suggesting only a brief foray above that level.  Today is day 258 of the Master Cycle.

Today’s op-ex shows Maximum Pain for options investors at 3820.00.  Long gamma comes in at 3855.00, while short gamma prevails beneath 3805.00.

ZeroHedge reports, “Futures and yields are flat, both recovering from a dip earlier in the session, as investors kept an eye on midterm election results ahead of key inflation data later in the week. To the disappointment of bulls, a Red Wave failed to emerge in Congress as voters delivered a mixed verdict in elections shaped by inflation and split around social issues, with Republicans headed toward control of the US House, but by smaller margins than forecast, while the Senate majority remains a toss-up.

Back to markets, where Nasdaq 100 futures were down -0.5%, while S&P 500 futs slipped 0.4% at 7:30 am ET after fluctuating between gains and losses one day after stocks capped a three-day rally.”

VIX futures were rather range bound in the overnight session.  Friday’s Master Cycle low at 24.00 remains intact.  An aggressive buy is an option here, given the length of the correction.  Of course, the buy signal is confirmed above the mis-Cycle resistance at 26.67.  Wave 3 should waste little time moving above the Cycle Top resistance at 34.71.

Today’s op-ex sows a battle for supremacy or Max Pain at 25.00, with 3,540 call contracts expiring and 3,960 put contracts expiring.  Long gamma begins at 26.00, while short gamma prevails beneath 25.00.

An interesting phenomenon has developed in the VXN, which measures NDX volatility.  As we should know, the NDX is interest rate sensitive, which makes the spikes in the VXN problematic.  The three largest down-spikes occurred on June 15, September 21 and November 2, 2022.  On each of these days the Fed raised interest rates by .75%.  Could this be a coincidence, or was there an effort to squash any potential NDX sell-off through the back door (VXN).  Those large spikes of selling at the precise hour of the announcements leads me to infer that a very large seller was present to discourage buyers of hedges against a sell-off in the NDX, thereby “calming the markets.”

ZeroHedge comments, “Sharp intra-day falls in the Nasdaq VIX, like those we’ve seen in recent days, have previously been associated with corrections in the Nasdaq 100 itself.

Strange things are afoot in vol world. S&P implied volatility as captured by the VIX has looked low relative to cross-asset volatility, at-the-money volatility and realized volatility for most of this year. This is unexpected given equities are in a protracted bear market. The relative cheapness of deep out-of-the-money puts is perhaps one explanation, as the market believes the Fed’s put is drawing nearer.

Nevertheless, we are also seeing similar patterns in the Nasdaq 100’s version of the VIX, the VXN. It is also very low compared to realized volatility, as well as being close to 15-year lows to at-the-money volatility.”

On top of that, there has been some unusual price action in the VXN in recent days. There has been a cluster of lightning-fast intra-day falls, with an equally sharp rebound straight after. These types of moves are very rare, and they have never been this big, with the low hitting only 20% of the close.”

TNX is higher this morning, but beneath the Cycle Top at 42.22.  That resistance may not last, since today may be the first day of a series of “ratchet up” days for the TNX, culminating in a potential Master Cycle high next week.

ZeroHedge reports, “With stocks and gold soaring while the dollar and cryptos plunge in what appears to be an extremely chaotic day for most risk assets as midterms loom, moments ago the Treasury held its first refunding auction when it sold $40BN in 3Y paper at a high yield of 4.605%, the highest yield since Nov 2006 and well above last month’s 4.318%. The auction stopped through the When Issued 4.617% by 1.2bps, the biggest stop through since at least 2016 (and the first non-tail since August).

The bid to cover of 2.568 was virtually unchanged from last month’s 2.567 and came in modestly above the recent average of 2.506.”

USD futures are higher this morning, testing the trading channel trendline near 110.50 and leaving a new Master Cycle low in its wake.  It occurred on day 277 of the current Cycle.  A breakout above the trendline and the 50-day Moving Average at 111.02 may be imminent, as Trending Strength is about to get a boost.   Calls for a weaker USD are premature.

WTI futures have continued their decline to a morning low of 87.14.  A confirmed sell awaits beneath the 50-day Moving Average at 85.99.  A Master Cycle low awaits in early December, which may offer an opportunity for a long position.

ZeroHedge reports, “Despite ongoing dollar weakness, oil prices tumbled for a second straight day as China Zero-COVID easing hopes faded and the crypto meltdown today appeared to hit ewvery asset class for a period…

“The lack of a concrete timeline or any real details about plans to reopen the Chinese economy and move away from the still very strict and economically crippling restrictions weighed on the energy market into the afternoon,” wrote analysts at Sevens Report Research.

Of course, traders are also waiting for any signals on supply/demand tomorrow with tonight’s API report offering some early insight…”

10:56 am

Last week I had warned that crude oil may give a false signal to the upside.  Yesterday it did just that, exceeding its prior high and completing its Wave 4 formation and Master Cycle (day 266).  This is a setup for a potential panic decline with trending strength beginning later this week.  The Cup with Handle formation provides the minimum target and Broadening Wedge giving the more bearish outlook.  The next Master Cycle is due in the first week of December.  Keep this in mind as crude oil may be a leading indicator for the direction of the stock market.

10:34 am

The SPX Wave structure is becoming even more complex with a Broadening Wedge inside another Broadening formation.  This may end up as an inversion (Master Cycle high) as today is already day 257.  This has been totally unforeseen as it indicates a very high emotional pitch that is likely to leave most investors long at the end of the Cycle…just in time for a 5-week crash.

8:00 am

NDX futures rose during the night but remained beneath the Lip of the Cup with Handle formation at 11100.00, which leaves the sell signal intact.  To complete Wave (C), NDX must decline beneath 8000.00 at a minimum, as the Cup with Handle formation indicates.  The anticipated panic decline expected this week may be sufficient time to met its target.  The next Master Cycle pivot occurs in mid-December.

Today’s op-ex is light with Maximum Pain for options investors at 11120.00.  Long gamma may begin at 11150.0.  Short gamma starts at 11100.00, right on the Lip of the bearish formation.  QQQ (closing price: 267.59) offers Max Pain at 264..00.    Long gamma starts at 268.00, while short gamma rules beneath 260.00.

ZeroHedge comments, “Puking puts

“They” loved puts at recent market lows…and “they” are now in put puke mode. Let’s see if put hate goes extreme…

Source: Refinitiv

Much ado about nothing?

Gentle reminder of the fact that nobody is in control. SPX is at the same levels we traded at on Sep 21…

SPX futures are challenging the 50-day Moving Average at 3812.59.  It remains on a confirmed sell beneath the 50-day.  Futures Cycles run on a parallel track to the daytime market, but may go higher or lower from time to time.  For example, the 50-day MA in futures may be at 3820.00, leaving it on a sell signal in the overnight market, which may quickly resolve itself at the open.

Today’s op-ex shows Max Pain at 3780.00.  Long gamma begins at 3805.00, picking up intensity at 3815.00 while short gamma may start at 3775.00.  Certainly short beneath 3750.00.

ZeroHedge reports, “US equity futures rose as bond yields dipped as Americans headed to the polls on Tuesday for midterm elections where Republicans are expected to gain as many as 75 seats in the House and 11 in the Senate, while traders were also bracing for a key CPI print later this week. Nasdaq 100 futures were up 0.5% by 7:30 a.m. in New York, while S&P 500 futures rose 0.2% to trade at 3,820 and above a key CTA threshold level (as Goldman notes overnight “CTA short term momentum flipped from negative to positive w/ the close north of 3804”). The US Dollar was little changed as was the yield on the 10-year Treasury after rising for the past four days.

VIX futures remained range-bound with no new foray higher or lower.  Last Friday’s Master Cycle low at 24.00 and 284 days has been truly stretched.

In tomorrow’s op-ex, Maximum pain for options investors appears at 25.00.  Short gamma also begins beneath 25.00, while long gamma starts at 26.00.  Long gamma is maintained to 40.00.

ZeroHedge remarks, “But SPX has crashed – why isn’t VIX higher?

“VIX should be much higher as SPX has crashed”. Lot of people that have never traded volatility as an asset are having this view, but that remains a fallacy. Volatility is mean reverting over time. VIX has basically been stuck in a range this entire year. Yes, a wide range, but there is no trend. Currently we are in the middle of the range, hence our view of “VIX being not cheap enough to buy, nor expensive enough to short“. The SPX is down around 20%, from all time highs, but VIX is trading at the same levels as when the SPX traded at around 4650/4700. Do not confuse direction with pace…VIX prices the latter.

Source: Refinitiv

What is volatility saying here?

SPX volatility has decreased over past weeks. The 1 month implied volatility is trading below 1 month realized volatility, but what is the market pricing here? The 1 month ATM is priced around 24, implying daily moves of around 1.4% for the SPX. You buy volatility if you think we will move more and sell volatility of you think we will move less, and delta hedge if you are running a volatility book. Will we move more or less?”

SeekingAlpha observes, “With the consumer price index on deck, it will be another big week for markets. The CPI report has been a market-moving event for the last few months, and the October report comes Thursday, November 10.

Estimates May Be Too Low

Consensus estimates may prove too low again for both headline and core CPI. For October, CPI is estimated to have risen by 7.9%, down from September’s reading of 8.2%. Meanwhile, core CPI is estimated to have increased by 6.5%, down from September’s 6.6%. The problem is that CPI and core CPI have met or beaten estimates in 10 out of the last 12 months.”

TNX has eased beneath its Cycle Top support at 42.09.  This may just be the calm before the storm, since trending strength may go on a rampage for the rest of the week, if not longer.

1:155 pm

SPX has reached the halfway point in this hourly Cycle.  There may be a sharp probe toward the 50-day, but the rest of the Cycle may be very sharply down.  No one will be ready for what comes next.

ZeroHedge comments, “Despite all the worries over the possibility of a recession in the quarters ahead, the stock market seems to have priced in a “soft landing” for the economy.

The cyclicals-to-defensives ratio has yet to really react even to the slowdown in the economy we have already seen over the past year or so as indicated by the reversal in the ISM Manufacturing PMI. If the latter continues to deteriorate in the months ahead, cyclicals (like the tech and consumer discretionary sectors) could have a great deal of pain still in front of them.”

7:15 am

Good Morning!

NDX futures continue to rise in a bear market correction.  NDX is on a confirmed sell signal.  The likely path this morning is to test the underside of the Lip of the Cup with Handle near 11100.00.  Today NDX completes 8.6 days of a 12.9 day decline.  The last 4.3 days are the most violent of the Cycle.

Today’s op-ex shows Maximum Pain for options investors at 10750.00.  Long gamma starts at 10800, while short gamma begins at 10700.00.  QQQ (Close: 264.68) investors have turned bullish.  Max Pain is at 263.00.  Long gamma begins at 270.00, while short gamma starts at 260.00.

ZeroHedge remarks, “Aggressive tightening from the Federal Reserve has caused tech stocks to plummet back to Earth in 2022, and as Visual Capitalist’s Nick Routley details below, this has shaken up the membership of the trillion dollar market cap club…”

ZeroHedge warns, “Legendary financial and geopolitical cycle analyst Martin Armstrong says, “The cheating in the midterm election next week is going to be so great that it is almost impossible to make a prediction. . . . In a fair midterm election, the Republicans would win the House and the Senate.”

SPX futures rose to 3796.90 thus far in an effort to reach the 50-day Moving Average at 3818.91.  The rally may not yet be over, so that short-term target is possible. Today is the half-way mark for a probable 8.6-day decline.

Today’s op-ex shows Max Pain at 3755.00 with long gamma beginning at 3775.00.  Short gamma starts at 3740.00 and is quite deep, extending to 3500.00.

ZeroHedge reports, “This morning’s price action has a whiff of what happened two weeks ago when a relentless barrage of bad earnings reports by tech giants propelled stocks higher during the latest bear market meltup, amid speculation the worst news is priced in. Well, after last week’s FOMC mauling, risk has once again started to meltup following Friday’s stark divergence between the “good” payrolls number and “catastrophic” employment data, sending stocks sharply higher and the dollar sliding.

And while some may have expected the selling to return after Sunday’s latest cut to high end iPhone 14 shipping forecasts, which Apple blamed on China but which appears to have been driven as much by a decline in demand and sent AAPL shares down 2%, this morning US stock futures have reversed earlier losses of more than 1% and looking to extend Friday’s rebound, as investor attention turns to the latest inflation report and the midterm elections later this week. At 7:30am ET, contracts on the Nasdaq 100 were up 0.4% after earlier sliding as much as 1.3% as Chinese officials reiterated their intention to “unswervingly” stick to a Covid Zero approach; S&P 500 futures also reversed early declines to rise 0.4%. The benchmark had snapped a four-day slump on Friday following a mixed jobs report. The dollar reversed earlier gains; while Monday’s partial gains in Treasuries were underpinned by a 4-basis point drop in the 10-year yield. The two-year rate, more sensitive to monetary policy, remained higher around the 4.68% level.”

VIX futures are rising after finding a probable Master Cycle low last Friday, on day 284.  It has been one of the longest Master Cycles that I have seen.  VIX has been unresponsive to the decline in stocks until now.  However, it indicates that Volatility may be considerably higher in December and in 2023.

TNX is beneath its Cycle Top resistance at 441.91 this morning, but it may not last beneath its resistance.   Trending strength appears to be growing, with a strong burst higher by the end of the week. TNX is due for a Master Cycle high in mid-November.

USD futures has dropped beneath its trading channel trendline at 110.60 and the 50-day Moving Average at 110.98.  This may cause an extension of the Master Cycle low.  Today is day 277 of the (old) Master Cycle, with a possible extension due to the elections.

Crude oil is correction from what is likely to be its Master Cycle high on Friday.  If so, it may be in the final decline of the current correction.  The next Master Cycle (low) is due in mid-December.  While the bear-term outlook is bearish, longer term prospects are still positive, even after a two year bull run.

ZeroHedge remarks, “It has been a great year for energy stocks as the chart below clearly reveals…

… and it will be an even better year (and decade) for energy stocks.

Why? Not because of what Goldman trader Michael Sullivan wrote last week explaining why Energy has (finally) become everyone’s favorite sector (more than two years after we first told our readers to go balls to the wall long XOM):”

8:10 am

Good Morning!

Note:  I may be unable to report on my blog tomorrow due to pressing family matters.

NDX futures declined to a morning low of 10780.00 thus far.   The next support level is at 10700, where a bounce may be possible.  While last Tuesday’s high at 11681.80 qualifies as a Master Cycle high, the timing is a bit early (day 243), allowing for the Master Cycle to create a new low by the end of next week.

Today’s options expiration for NDX are thin, but short gamma is discernible beneath 10900.00.  There are only a handful of calls, making it impossible to locate long gamma.  QQQ (close: 265.68) options show Max Pain at 277.50.  Long gamma begins at 280.00, while short gamma comes on strong at 275.00 and below.  Options may be a virtual train wreck today.

ZeroHedge comments, “It will live in the annals of market infamy as the day the Fed rugpulled the market, when first a very dovish statement sparked a frenzied buying spree, only to be followed by a blistering, hawkish assault on the bulls during Powell’s press conference, leading to risk freefall, and the worst final 90 minutes of a Fed day in history, according to Bespoke.”

SPX futures tumbled beneath Intermediate-term support at 3734.72, leaving the next technical support at either round number support at 3700.00 or the Lip of the Cup with Handle formation at 3650.00.  A potential Master Cycle high was made on Monday (day 249) at 3911.79.  However, a very strong decline is in store that may more accurately position the Master Cycle.

Today’s op-ex shows Max Pain at 3785.00 with no clear long gamma reading nearby.  Short gamma, on the other hand, begins at 3775.00.  Shorts are not as populated as would be expected due to the squeeze which ended on Monday.

ZeroHedge reports, “… US index futures extended their plunge on Thursday, signaling more losses for equities ahead of another 75bps rate hike (give or take) by the Bank of England. As of 730 a.m. ET, contracts on the S&P 500 dropped 0.7%, while Nasdaq 100 futures were down 0.9%, extending earlier losses.

Both underlying equity indexes have fallen for three straight days, with the S&P 500 losing 2.5% on Wednesday. The dollar gained as investors looked toward US jobs data, which may help to determine the pace of upcoming rate hikes.”

VIX futures rose to 26.53 as I write, threatening a breakout above the mid-Cycle resistance at 26.67.  VIX seems to be “stuck” in a lower range due to the fact that more than half of the puts and calls were for 1 day or less.  VIX, on the other hand, measures the expected volatility over the next 30 days!  Basically, hedge funds and speculators have used the VIX as a day trading platform with no real long-term expectations.  The Cycles Model suggests that is about to change.

USD futures rose to 113.03 this morning, leaving it above Intermediate-term support at 111.78.   The Cycles Model shows the USD getting a jolt of strength at the end of this week that may propel it to a new high.  The new Master Cycle may continue the rally through mid-December.

TNX rose to a morning high at 42.23, breaking above Cycle Top resistance at 41.62.  It may continue to rise until mid-November where the current MC terminates.  The longer view is that TNX may remain in rally mode until early next year, when it achieves its target at 53.16.

ZeroHedge reports, “The Bank of England hiked rates by 75bps as expected (7 voted for 75bps, 1 voted for 50bps, and 1 voted for 25bps) after CPI soared to a 40-year high in September.

This is the biggest BoE rate-hike in three decades (eighth hike in a row and the biggest since 1992), but we note that the Monetary Policy Committee (MPC) pushed back aggressively against the hawkish market expectations ahead.

…the peak in rates will be “lower than priced into financial markets”

11:23 am

SPX has been challenging the 50-day Moving Average at 3838.27 this morning.  Beneath that is a sell signal.  However, as long as it straddles the line, there is a chance of a quick move to the 2-hour Cycle Top at 3947.68 at the Fed announcement, a 1.7% move higher.  Subsequently, the decline is due to resume with targeting beneath 3000.00, at a minimum.  As a reference, the upper Cup with Handle formation came within 10 points of its intended target at 3491.58.  The two lower formations are in not-so-surprising agreement.  We may see Wave (C) of Wave [3] complete by mid-December.  Next week the Cycles Model shows a triple dose of volatility on November 8, 9 and 10.

ZeroHedge remarks, “With a looming sense of deja vu all over again, US equity prices have decoupled ‘hopefully’ from monetary policy expectations in recent weeks as the ‘pause/step-down/pivot’ narrative combined with extreme positioning to prompt yet another squeeze higher…

Source: Bloomberg

This in turn prompted a significant easing in financial conditions (easiest since mid-September), despite terminal rate expectations hitting cycle highs above 5%…

This, as Nomura’s Charlie McElligott details below, is a major problem for The Fed… again.”

9:39 am

The Agriculture Index has pulled back from the 50-day Moving average at 475.95 after having made a buy signal.  Once a signal such as this has been made, buying on the pullback follows.  While the new Master Cycle is short (3-4 weeks), the Cycles Model suggests trending strength may prevail, suggesting a breakout is possible.  Note that all reporting is done with accurate hindsight.

ZeroHedge observes, “Food inflation has continued to surprise to the upside in the US.

That food inflation has not calmed down in recent months is somewhat surprising as we have seen weakness in commodity food prices in recent months.”

However, new information suggests a rough patch ahead.  As Russian grain shipments resume, the bird flu strikes Iowa poultry farms with the largest ever bird flu outbreak in the UK.

7:56 am

Good Morning!

SPX futures rose to an overnight high of 3972.20, then has eased down.  It is likely to maintain a flat composure until the Fed announcement at 2:00 today.  Today is day 251 of the Master Cycle.  Should a new high be made today, it qualifies as the end of the current Cycle.

Today’s op-ex shows Maximum Pain at 3855.00.  Long gamma begins at 3875, while short gamma may start at 3830.00.  Puts are being re-populated after having been thinned out last week.

ZeroHedge reports, “US equity futures were unchanged after two days of declines in underlying gauges as investors brace for today’s 2pm Fed interest-rate decision along with its monetary policy outlook (although a potentially more surprising treasury buyback announcement could come as soon as 830am when the Treasury publishes its quarterly refunding announcement). Contracts on the S&P 500 were little unchanged, while Nasdaq 100 futures advanced 0.2% as of 7:30 a.m. in New York. Stocks have stabilized after a drop in the S&P 500 on Tuesday that was triggered by a surprise surge in job openings. European stocks erased earlier gains while US-listed Chinese stocks rallied in premarket trading and the Hang Seng Index rose in a session cut short by a storm warning as growing speculation over China’s reopening spurred another rally in Asia. The US dollar dropped for the second day as the yen strengthened in a sign traders anticipate a muted impact of Fed tightening on the currency; 10Y yields traded unchanged around 4.04%.”

VIX futures rose to a morning high of 26.27, beneath the mid-Cycle resistance at 26.66.  Today is day 282 of a very stretched Master Cycle, should it go lower.  However, I am comfortable with calling yesterday’s low “the bottom.”  Most analysts do to consider the VIX a “buy,” expecting it to go lower.  However, the VIX Cycles Model suggests a double dose of fear may strike the markets over the weekend.

Today’s op-ex shows Max Pain at 27.00, with short gamma at 26.00 and long gamma at 28.00.  Heavily populated strikes are at 35.00 and 40.00.

ZeroHedge comments, “Bit of VIXubernce going into Fed

The gap between SPX and VIX (inv) is widening further. VIX has come a long way since the most recent “panic” highs, but as we stated earlier today, it is not cheap enough to buy, nor expensive enough to short.”

TNX is lower this morning, being unable to cross above the Cycle Top resistance at 41.45.  The Cycles Model suggests a continued decline over the next two weeks as it completed its correction.  It may be due to cross beneath Intermediate-term support at 38.83 and challenge the 50-day Moving Average at 36.53 during that  time.

ZeroHedge comments, “Not more than a year ago it was generally thought impossible among mainstream economists and retail investors that the Federal Reserve would commit to raising interest rates and ending stimulus.  After 14 years of predictable QE and near zero rates, it’s not surprising that they would refuse to acknowledge the possibility that the Fed would abandon them.  Well, as with the seasons, all things must change.

At first they refused to admit that inflation was a problem, now mainstream outlets are openly discussing the idea that the Fed will have to “blow up the economy” in order to stop rising prices, with another 75 bps rate hike expected this week.  As CNN noted recently in an article titled The Fed May Have To Blow Up The Economy To Get Inflation under Control:

“It’s unclear what all this tightening will do to the economy. The housing market is already starting to show some signs of strain. Bond yields have spiked due to the Fed. And mortgage rates, which tend to move in tandem with the benchmark 10-year Treasury, have skyrocketed this year as a result.”

In the meantime, the Treasury has deferred its decision about buybacks.  Zerohedge remarks, “Yesterday we said that “with all the focus on the Fed tomorrow, it will be delightful(ly ironic) if the Treasury steals the show with a TSY buyback announcement during the 8:30am refunding announcement.”

Of course, as discussed extensively, a Treasury buyback – something that has not been done in earnest since the early 2000s – would be the functional equivalent of a QE/operation twist hybrid, only one conducted not by the Treasury, and thus any affirmative announcement today would have had an even bigger impact on markets than anything Powell would say at 2pm.”

USD futures may be testing the 50-day Moving Average at 110.80 for support before moving higher.  The Cycles Model shows the USD strengthening this week in preparation for a possible breakout.  The new Master Cycle may last until mid-December.

Crude Oil futures are moving higher and threatening to break through the upper trendline of the Triangle formation.  This type of breakout is common and unfortunately sends a false buy signal to the unwary.  Today is day 261 of the current Master Cycle, making a reversal imminent.  The Cycles Model calls for a decline into the second week of December.

ZeroHedge observes, “Oil prices rallied today for the first time in 3 days after strong JOLTS data and rising geopolitical risks outweighed anxiety overFed-induced demand drags. Additionally renewed Zero-COVID lockdown easing rumors in China helped sentiment.

“Risks to energy supplies remain elevated after reports that Iran was planning an attack on targets that include Saudi Arabia and Northern Iraq,” said Edward Moya, senior market analyst at OANDA.

Meanwhile, “global economic outlook remains very fragile to a swathe of risks, and that should keep crude demand forecasts vulnerable to getting slashed, but for now energy traders remain fixated on how tight the market remains.”

For now, all eyes are on the API for any signs of distillates stocks rebuilding….”

Gold futures are consolidating within yesterday’s trading range.  Gold is on a sell signal and may continue its decline through the 4th week of November before a a reprieve in the downtrend.

11:40 am

SPX is now testing the 50-day Moving Average at 3843.00.  A sell signal lurks beneath that level.  While the shorts are being cautious, today’s reversal may rule out the potential for a continued rally, as this morning’s probe to a new high appears to be the final one.

7:38 am

Good Morning!

NDX futures are higher this morning and threaten to make a new corrective high.  Nearby resistances are the 50-day Moving Average at 11777.08 and the 100-day Moving Average at 12023.79.  The 100-day repelled the NDX at the top of Wave (B) of Wave [1] on March 29.  Should this take place, the result would be an inverted Master Cycle ending this week.  Today is day 250 of the current Master Cycle.  Bear markets have some pretty spectacular rallies within them.  However, the Broadening structure has been difficult to follow, even with the Cycles Model.

The best of analysts are stymied.  ZeroHedge comments, “Ahead of the Wednesday FOMC 2pm decision, a fourth successive 75bps rate hike has long been pretty much nailed down but the subsequent path of hikes is now up for grabs and will be the focus from this week’s meeting.

As DB’s Jim Reid wrote earlier today, “it feels inconceivable to us, given how spectacularly forward guidance has broken down across the global markets over the last 12 months, that Powell will try to guide too aggressively for December, especially with two payrolls (one this week) and two CPIs to come before they meet again.” In light of this, DB’s economists currently believe that 75bps is still likely in December, but that January could mark a downshift whilst still seeing upside risks to their terminal rate expectation of 5% given the recent inflation data and evidence that r-star has risen. Even WSJ Fed mouthpiece, Nick Timiraos, tweeted at the weekend “Consumers have a big cushion of savings. Corporations have lowered their debt-service costs. For the Fed, a more resilient private sector means that when it comes to rate rises, the peak or “terminal” policy rate may be higher than expected.” To be fair in his WSJ article that went viral 10 days ago he did mention that 2023 Fed forecasts could be upgraded. However the market mostly focused on the near-term downshift possibilities.”

SPX futures are making new corrective highs as it challenges the 50% retracement level at 3908.00.  The next retracement level is 61.8% at 4006.00.  Today is day 250 of the current Master Cycle.  A new high today may mark the end of this Cycle.

Today’s op-ex sows  Max Pain at 3900.00, with long gamma at 3950.00.  Puts have been severely pruned back.  While the dealers want to avoid short gamma, they don’t want to chase the markets (long) at this level.

ZeroHedge reports, “US equity futures started off the new month with a bang, set to surge after Monday’s less than spooky declines, as investors awaited Wednesday’s Fed decision (where JPM sees one outcome pushing stocks 10% higher… and another sending them crashing 8%), while sentiment got a big boost from speculation that Chinese policymakers are making preparations to gradually exit the stringent Covid Zero policy.

At 7:30am, contracts on the S&P 500 rose 1.0% while those on the Nasdaq 100 gained 1.1% on the first day of November, a month that has seen the underlying benchmarks end in the green on average for the past three decades. Dow Jones futures climbed 0.6% after the underlying gauge wrapped up its best month since 1976. Treasuries were poised for their biggest jump in a week as 10Y yields dropped to 3.94%, alongside real rates and the dollar as hawkish Fed hike wagers are trimmed ahead of this week’s policy outcome; the yen, euro and cable surged.”

VIX  futures are challenging Friday’s low on day 281 of the current Master Cycle.  This may be evidence of manipulation, as there is little conviction in this move.  Mid-Cycle support at 26.66 is the usual limit for a retracement such as this, so time is running out  for a reversal.

In tomorrow’s op-ex, maximum pain for options investors is at 27.00.  Short gamma starts at 26.00.  There may be a reluctance to start a bull run at this stage of the rally, so chances are that VIX may remain neutral prior to the Fed announcement.

9:46 am

The Agriculture Index rose out of its 269-day Master Cycle low this morning.  The Cycles Model calls for a potential rally lasting about 3 weeks.  This may be an aggressive buy signal.  Once it rallies above its 50-day Moving Average at 475.00, the next target is the Lip of the Cup with Handle formation.  The rally may gather strength this week and sustain it over the next three weeks.

Zerohedge reports, “It’s been two days since Russia suspended its participation in the Ukraine grain export deal after a swarm of drones targeted at least one Russian warship from the Black Sea navy. Wheat futures soared Monday as traders eye tightening world supplies following Russia’s exit.

Moscow immediately suspended its compliance with the grain deal, known as the Black Sea Grain Initiative, which was formed and launched in July and ended a five-month Russian blockade of Ukraine’s ports. The United Nations and Turkey brokered the deal, allowing safe passage for cargo ships in and out of Ukraine’s ports to haul farm goods worldwide.”

Domestically, things aren’t any better.  ZeroHedge observes,                 “La Niña has returned for the third consecutive winter, allowing for drier-than-average conditions across America’s crop belt. Some farmers told Bloomberg that conditions are so dry that “fertilizer is evaporating from the soil, and plants are struggling to emerge from the ground.” 

The odds are stacking up that this winter’s growing season in the Midwest is going to be a bad one. The latest government data shows drought is intensifying across the western half of the US. ”

8:45 am

Good Morning!

SPX futures fell back beneath the minor Cup with Handle formation (not shown) and round number resistance at 3900.00.  This may be considered an aggressive sell signal, although there is a risk of another probe higher.  Confirmation of the sell signal may be found beneath the 50-day Moving Average at 3858.81.  The Broadening formation reveals the strong influence in both directions as this is a highly emotional market.  Today is day 249 of the current Master Cycle and may qualify this high as the end of the Cycle.  What follows is a panic decline lasting up to two weeks.

In today’s op-ex puts and calls are hotly contested between 3900.00 and 3905.00.  3850.00 is another hotly contested area.  Long gamma may be confirmed at 3925.00, while short gamma may predominate at 3800.00.

ZeroHedge reports, “US futures were mixed at the start of another busy week of earnings and key central bank decisions, after posting their best two-week rally since November 2020, with investors bracing for the Federal Reserve’s meeting and another busy earnings week. S&P 500 futures were down 0.4 as of 7:30 a.m. in New York, having dipped as much as 0.7% earlier, after the index closed 2.4% higher on Friday, while Nasdaq 100 futures fell 0.7%. Both gauges are set to pare gains for October, which has been the best month since July. The market drop was led by chipmakers and Chinese stocks. The 10-year Treasury yield hovered around 4.04% after surging by nine basis points on Friday, but has receded from about 4.25% in the past week; yields on UK gilts were steady ahead of what could be the Bank of England’s biggest interest-rate hike in more than 30 years. The dollar rose as the yen and pounds reversed much of last week’s gains. Crypto unexpectedly spiked.”

VIX futures rallied above mid-Cycle resistance at 26.62, reaching a morning high of 27.07 thus far.  Friday may have been the end of the extended Master Cycle at 277 days.  It may be on an aggressive buy signal with confirmation at the 50-day Moving Average at 27.93.  While the VIX and SPX Cycles originally did not match, the extension of VIX and shortening of the SPX Master Cycles may have done what did not appear  obvious earlier.

Wednesday’s op-ex shows Maximum Pain for options investors at 27.00.  Short gamma begins at 26.00 and long gamma, though light, starts at 28.00and extends to 40.00.

TNX is on the rise again, but has not exceeded its Cycle Top resistance at 41.18 where a buy signal lies.  However, the Cycles Model calls for a possible new low by mid-November, although the Fed announcement on Wednesday may cause an inversion.  In either event, the rally in rates may resume through the end of the year after this brief pullback.

2:05 pm

SPX may be completing the final Wave of Minute Wave [c] near 3900.00, which is round number resistance.  Another resistance nearby is the 100-day Moving Average at 3910.00.  The current Cycle has taken 51.6 days from the August 16 high and may have only 8.6 days to the low.  Since Wave [3] cannot be the smallest Wave, it would follow that the minimum target may be near 3100.00.  The Cup with Handle target is an average.  The bottom of Wave [3] may not be achieved until mid-December.  The 50-day Moving Average (sell signal) is at 3855.00.

ZeroHedge remarks, “This morning’s melt-up in stocks appears to be more of the same panic-hedge unwind, vol-driven buying-panic as hopes/hints of a “pause” or “pivot” or “step-down” remain the over-arching narrative as rate-trajectory expectations drift dovishly (lower terminal rate and faster subsequent rate-cuts)…”

8:00 am

Good Morning!

NDX futures declined to 11021.70 in the overnight session, crossing beneath the Lip of the Cup with Handle formation near or at 11100.00 before a bounce.  The mega-cap technology companies lead the way.

In today’s op-ex, Maximum Pain for options investors is at 11275, while short gamma is at 11250.00, leaving NDX deep in negative territory.  Today’s options are light, but may change as hedge funds are buying same-day options.  QQQ (close: 272.87) shows Max Pain at 273.00.  This is a tightly wound op-ex, since long gamma begins at 274.00 and short gamma begins at 272.00.  There are over 150,000 put contracts between 272.00 and 265.00 this morning.

ZeroHedge observes, “As goes mega-cap tech, as goes the US economy

These large mega cap companies aren’t just secular growth stories they are so big that they are the US economy. The US economy is slowing as evidenced by PMIs, regional survey, Conference Board and housing data. And, as evidenced by the chart below, they were probably trading at too big valuation premium going into this. But maybe it does not matter that much from here. Up until this point the dominant factor influencing the price of equities has been rates…rates higher = multiples lower. If we get a reversal in rates (and that’s a big IF of course) that will probably trump even trembles in tech earnings….”

SPX futures made an overnight low of 3767.30 as it declines toward the next support at 3749.48.  The Cycles Model suggests a possible event-driven panic starting on Sunday.

Today’s op-ex shows Maximum Pain for options investors at 3805.00.  Long gamma begins at 3825.00 wile short gamma intensifies at 3775.00.  The shorts are getting back their nerve.

ZeroHedge reports, “With the core of tech earnings season now behind us, FAAMG goes 0 for 5 on earnings as lackluster earnings from the group this week dampened sentiment and underscored the impact of the Fed’s tightening regime. While macro data didn’t help the cause – the GDP report showed the US economy rebounded after two quarterly contractions (all driven by net exports)and  briefly assuaged concerns of an imminent recession, consumer spending remains under pressure because of persistent inflation – after the bell, AMZN out with an extremely disappointing miss which sent the stock down as much as 21%, followed by AAPL with a low quality beat driven by As such, Goldman’s Michael Nocerino writes that this morning is going to be harder to compartmentalize these prints (like we have with MSFT, GOOG, META) given AMZN and AAPL make up 10% weighting of the S&P.”

VIX futures made a nominal new low at 26.92 before a bounce began.  This has stretched the current Master Cycle to 277 days and may have completed an irregular Wave 2, as well.  This irregular formation goes hand-in-hand with the Broadening wedge formation in the SPX and NDX.  The probable inference is that some big player has poured liquidity into the market to prevent a melt-down.

RealInvestmentAdvice remarks, “The Fed’s next crisis is already brewing. Unlike 2008, where “subprime mortgages” froze counter-party trading in the credit markets as Lehman Brothers failed, in 2022, it might just be the $27 Trillion Treasury market.

When historians review 2022, many will remember it as a year when nothing worked. Such is far different than what people thought would be the case.

Throughout the year, surging interest rates, the Russian invasion of Ukraine, soaring energy costs, inflation running at the highest levels in 40 years, and the extraction of liquidity from stocks and bonds whipsawed markets violently. Since 1980, bonds have been the defacto hedge against risk. However, in 2022, bonds have suffered the worst drawdown in over 100 years, with a 60/40 stock and bond portfolio returning a horrifying -34.4%”

Crude Oil WTI futures declined to 88.43 this morning, suggesting a Master Cycle high may have been made yesterday, on day 255 of its Master Cycle.  A slip beneath the 50-day Moving Average at 86.65 may produce a sell signal, with a potential decline to mid-December.

ZeroHedge reports, “U.S. diesel supplies are becoming critically low with shortages and price spikes likely to occur in the next six months unless and until the economy and fuel consumption slow.

Stocks of diesel and other distillate fuel oils were just 106 million barrels on Oct. 21, the lowest for the time of year since the U.S. Energy Information Administration (EIA) started collecting weekly data in 1982.”

ZeroHedge observes, “The worse the tech wreck, the more the fuel – so to speak – for energy gains, and following what has been the worst quarter for megacap tech names, most of which have tumbled double digits following dismal earnings, it is hardly a surprise that the two largest US energy majors just had blowout quarters, with Exxon posting its strongest quarterly result in the company’s 152-year history including its highest ever net income, while #2 Chevron reported its second-largest profit; the two companies amassed more than $30 billion in combined net income as Democrats blast Big Oil for raking in massive profits but since a red avalanche is coming to Congress in less than two weeks, we doubt anyone cares what Democrats think.”

6:30 am

I will be out of town to attend the funeral of my uncle.  Here are a few early thoughts.

SPX futures rose to an overnight high of 3856.00, but have since receded to the flat line as I write.  The key from yesterday’s activity is that SPX reversed at the 50-day moving average at 3876.01 at a key inflection point, an aggressive but unconfirmed sell signal.  A decline beneath Intermediate-term support at 3757.13 confirms the decline.  Analysts admit that this is a technical rally in a bear market, but have no clear picture of its target.

Today’s op-ex is light with Max Pain at 3835.00.  Long gamma begins at 3900.00.  Put contracts are dispersed, with no clear gamma line down to 3600.00.  Options buyers appear cautious, with the shorts being much more so.

ZeroHedge reports, “US equity futures swung between gains and losses (a remarkable achievement considering the collapse in generals such as GOOGL and MSFT and last night’s 25% implosion in META, something which startled even JPMorgan’s top trader) as investors weighed disappointing tech earnings amid growing hopes of a Fed pivot and/or a Treasury buyback (Op Twist) announcement.

Contracts on the S&P 500 were little changed as of 7:30 a.m. in New York, while Nasdaq 100 futures fell 0.4% after both indexes snapped a three-day winning streak on Wednesday, dragged down by negative sentiment toward tech following a string of disappointing earnings.”

ZeroHedge poses the question, “Following several quite remarkable days in the market, here are some comments from JPM’s head of TMT trading Ronald Adler who summarizes the key underlying tension:

Shorts are getting NERVOUS. I’m getting a lot of questions today as to “why is that stock that I’m short/underweight outperforming or simply not down?”

NDX futures continues their slide to a low of 11320.60 after closing beneath Intermediate-term support at 11444.20.  This appears to confirm yesterday’s sell signal and may provide guidance for the SPX as well.  The next support is the trendline at 11050.00.

Today’s op-ex is very light, with a small cluster of calls at 11350.00.  Gamma is difficult to determine in either direction.

ZeroHedge remarks, “Rock & Roll earnings

Implied was right…..The average S&P500 stock has moved +/-4.7% on earnings QTD, the highest since 2011.

Source: Goldman

Bear market seasonality

Very different from normal seasonality. Seasonality does not look the same in different market regimes. We should be very close to the “seasonal top” for bear markets right now and heading lower into year-end.”

VIX futures are positive, but still within yesterday’s trading range…

What is noteworthy is that VIX may have made a very extended Master Cycle low yesterday, at day 275,  The NYSE Hi-Lo also made its Master Cycle high yesterday at 29.00, a very weak showing.

3:33 pm

NDX as reversed and fallen beneath Intermediate-term support at 11447.00, creating an aggressive sell signal.  Confirmation lies at the Lip of the Cup with Handle formation at 11045.00.  Intermediate Wave (C) of Primary Wave [3] promises to be a panic decline that sets a record for 2022.

1:47 pm

SPX appears to have reversed from the 50-day Moving Average and the resistance trendline, both at 3875.00.  The Cycles Model indicated that this type of reversal may be considered an aggressive sell signal, to be confirmed by crossing the next support level at 3768.00.  Should the decline continue, we may see a 12.9 market day decline beneath 3000.00 at a minimum.  The Cup with Handle offers a deeper target.  We may see a small bounce before the decline declines forcefully.

ZeroHedge remarks, “The S&P 500 Index will decline about 7% for every additional 100-basis point increase in the Fed funds rate, a study of its duration shows, suggesting the index may sink as low as 2,900 should the policy benchmark rise to 6% in the current cycle.”

9:45 am

Japanese Yen futures made their Master Cycle low on Friday and may have another week of respite before resuming their decline.  The bounced of that low was due primarily to massive intervention and may have had help from the US Treasury to boost liquidity.  The decline may resume in force after the end of October.  Meanwhile, here in the US we find the source of the last burst of liquidity.

ZeroHedge comments, “Something strange is going on: while we already know that the BOJ has spent north of $50 billion in reserves to stop the yen from crashing in response to the BOJ’s own policy of recklessly and wantonly throwing infinite yen at the JGB market to preserve Yield Curve Control and avoid a crash in long-term Treasuries, one question many have been asking is whether Japan is spending all this money (the BOJ is effectively doing the Fed’s job for it, injecting billions in USD into the market which is painfully short the greenback) without any coordination with the US. If so, it would be effectively one central bank doing what everyone in the market is advised to never do: fight the Fed.”

8:15 am

Good Morning!

SPX futures made a morning low of 3813.80 before a bounce leaving it at a loss.  The good news is that SPX did not test the 50-day Moving Average at 3884.65.  The more difficult news is tat the decline is not confirmed until SPX declines beneath Intermediate term support at 3762.29.  The timing of the reversal still allows for a 12.9-day decline to a Master Cycle low by mid-November.

In today’s options driven market, Max Pain is at 3845.00.  Long gamma begins at 3865.00, while short gamma begins at 3835.00.  Futures are currently testing short gamma.

ZeroHedge reports, “US index futures are lower this morning, set to give back some of Tuesday’s 1.6% sharp rally as technology giants’ earnings and outlook disappointed investors, stoking concerns about the industry’s profitability and raising new doubts over whether this year’s $5.5 trillion selloff is nearing a bottom.

S&P 500 futures dropped as much as 1.2%, and were down 0.7% at 7:30am while Treasuries extended gains, with the 10-year yield falling to around 4.05%. Nasdaq 100 fell more than 1.5% as megacap stocks tumbled in premarket trading after Alphabet’s 3Q miss and disappointing outlook from Microsoft and Texas Instruments weighed on the cohort, which is set to lose approximately $300 billion in market value if losses hold at open.  The combined weight of the three companies amounts to more than 19% of the Nasdaq 100.

VIX futures remain near the bottom of the trading channel after extending its Master Cycle to day 274. The Cycles Model now calls for a rally in the VIX lasting to mid-December.  Those buying VIX futures and options at the August low have seen a pullback, but not losses.  Buuying VIX during a panic is generally not a good idea.

Today’s op-ex shows both puts and calls evenly distributed at 30.00, creating a potential trigger finger volatility event.   Next week trending strength returns in a double portion.

ZeroHedge remarks, ”

TNX may be back-testing the Cycle Top support/resistance line at 40.83 before continuing its decline.  I had mentioned that a big player may be contemplating buying long-term treasuries to fill in the liquidity gap.  The Fed may not be able to do this as it would destroy (what’s left of) their credibility and so-called independence.  However, there is a person more closely aligned with the White House who can do this and may be considering this option.  So far, there is no significant news, but note that the Cycles Model calls for a rate reduction from now until mid-November.  Is this just a coincidence?  Much like the release of oil from the SPR, we may only find out the players after the fact.

USD futures declined to an overnight low of 109.79, beneath the 50-day Moving Average at 110.39 and trendline at 110.85.  Today is day 264 of the Master Cycle, so we may anticipate a reversal imminently.  What little relief the decline has given to other currencies may not last.

Investing.com observes, “The US dollar is having one of toughest days of the year. It has been sold across the board and taken out key levels like parity in the euro, $1.15 in sterling, and CAD1.36. The Chinese yuan surged over 1%. Chinese officials promised healthy bond and stock markets. There is some talk that the PBOC may have intervened directly in the forex market. Large bourses in the Asia Pacific region rallied and the CSI 300 rose by 0.8%, its first gain of the week. After rising by around 2.8% over the past two sessions, Europe’s STOXX 600 is slightly lower. A disappointing batch of corporate earnings is weighing on US futures. The US 10-year yield is around four basis points lower at 4.06%, while European yields are most 2-4 bp higher.”