The Practical Investor

12:10 pm

SPX continues to linger near the 50-day Moving Average.  However, the decline is no longer impulsive, which suggests a short squeeze may be at hand.  A suggested target may be between 4100.00 and 4150.00 with the mid-Cycle resistance at 4086.50 as a minimum.  This is not a time to go long.

3:40 pm

the marginal new low at 3956.37 may (still) not be impulsive.   What a nasty way to end the month of August.  The dealers are bloodied, but may be able to hold the line.  Let’s see what that last half hour may do.  VIX isn’t buying the slide in SPX.

7:50 am

Good Morning!

NDX futures attempted to scale back above the 50-day Moving Average at 12455.56 in the overnight market, but pulled back beneath it this morning.  This leaves NDX in a weakened state.  Worse yet, the 50-day is beneath the 100-day Moving Average at 12617.31, a bearish cross.  The short-term Cycles call for a bounce into the end of the week, but today’s overhead resistance is still not overcome.  August may cloes at a loss just in time for September earnings announcements.

In today’s options expiration Max Pain is at 12475.00.  Short gamma appears to start at 12400.00.  Long gamma starts at 12500.00.  QQQ(closing price: 301.02) appears to be in short gamma beneath 305.00 in today’s options expiration.

SPX futures consolidated near the 50-day Moving Average at 3996.66 after closing beneath it.  It currently rests just above 4000.00, a very populated area for puts and calls.

In today’s op-ex, Max Pain is at 4060.00.  Long gamma may begin at 4100.00, while short gamma kicks in beneath 4000.00.

ZeroHedge reports, “After three days of steep declines, S&P futures traded between modest gains and losses as global markets headed for the third consecutive weekly decline and another monthly drop on concerns that aggressive central bank tightening will push the global economy into a hard recession. At 7:15am ET, futures were up 0.2% and Nasdaq futures rose 0.7%, after trading both higher and lower earlier in the session. The dollar rose, Treasury yields jumped after another record CPI print in Europe, while the bizarre oil slump extended.”

VIX futures are consolidating just above the mid-Cycle support at 25.03.  The Cycles Model allows a final probe higher before correcting.  We may see some fireworks by mid-morning, should that occur.

TNX futures rose to an overnight high at 31.64, but it hasn’t shown up in the cash market, yet.  The current Master Cycle may not be over yet, although it has already clocked 270 days.  Should the new Master cycle begin today, it may extend to mid-November, about 11 weeks.  At a minimum, we often see corrections of this sort decline to mid-Cycle support at 24.53.  However, with the length of time anticipated, it may go much lower.

USD futures are testing the Cycle Top at 109.66 this morning, rising to 109.17 thus far.  The Cycles Model suggests USD may continue its rally through the end of September.  The week of September 5 shows exceptional strength in the rally.

West Texas Intermediate Crude futures have pulled back to 88.30 this morning.  This appears to be a normal pullback with the Cycles Model suggesting new strength emerging next week.  An alternate view, is a further decline, should WTIC drop beneath the prior Master Cycle low.

ZeroHedge comments, “Echoing what we said first two months ago (“Inside The Oil Market’s Jekyll-And-Hyde Moment“), an observation confirmed first by Goldman on more than one occasion (here and here), and also the Saudi Energy minister bin Salman who one week ago said that “the paper and physical markets have become increasingly more disconnected” due to lack of liquidity, this morning none other than Pierre Andurand, the head of the world’s largest oil hedge fund and the commodities trader known for his bullish calls (and record gains in the past year) tweeted that the oil futures market is now “completely broken” as futures can now move $10 lower a day “for no apparent reason” (just wait until he learns about S&P futures…)”

1:47 pm

SPX is making new lows in short gamma hell (for the dealers).  There is a new support level to watch at 3910.74.  Should this support hold, there may still be a bounce that could relieve the oversold condition somewhat by the end of the week.  However, the damage has been done.  Shorts may be squeezed, but the longer term buyers are making themselves absent.  Should equities continue their decline beneath 3900.00, the possibility of a limit-down event tomorrow may arise.

11:41 am

SPX has extended its decline to the 50-day Moving Average at 3996.00 and beneath short gamma at 4000.00 where I had indicated a potential bottom yesterday.   The 38.2% retracement is now at 4105.00 above mid-Cycle resistance at 4080.29.  This is looking weaker than expected, but there are still three days to the top of Wave 2.

ZeroHedge remarks, “Higher short-term real rates and falling gamma leave stocks exposed in the short term.

The jury was definitively in and Powell did what was broadly expected, renewing the Fed’s hawkish vows. This leaves equities exposed in the next few weeks as they continue to be heavily tied to short-term rates. Specifically, the real peak Fed Funds has a very tight relationship with the S&P. Real peak Fed Funds has risen lately, including 21 bps on Friday with Powell’s speech –- but the S&P has lagged the move so far, suggesting more equity downside is in the cards.

However, positioning in equities overall remains very short, increasing the risk of a squeeze. Sentiment has been improving, while internals such as the advance-decline line, the net number of stocks making new 52-week highs and the number of stocks trading above their 200-day moving average are constructive.

Nevertheless, we remain in a bear market, meaning there is a wide range of potential outcomes. Adding to the instability, net gamma is now negative, meaning a greater potential of more short-term follow-through on the downside.

As the market falls, short expiry, close-to-the-money calls see their delta rapidly fall to zero, while puts struck further out of the money that dealers are short of see their delta rise. This means dealers switch to having to sell after the market has moved lower, increasing the risk that downward moves are reinforced.

8:05 am

Good Morning!

SPX futures rose to 4071.70this morning, after completing an impulsive decline to 4017.42.  There was good reason not to go lower, as gamma hell was at 4000.00, with over 6000 expiring contracts.  The various Fibonacci retracements are: 38.2% – 4133.48, 50% – 4170.11 and 61.8% – 4206.73.  The next four days may give the SPX some relief from the downside.

In today’s op-ex Max Pain is at 4070.00 with long gamma above 4110.00 and short gamma below 4000.00.

ZeroHedge reports, “After revealing that he was so “happy” he danced a jig when stocks tumbled after Powell’s J-Hole speech sparked a market rout on Friday, we can only imagine that Neel Kashkari’s face looked like this when he saw the market update this morning…

… because after two days of selling, risk assets are sharply higher this morning, with S&P futures rising 0.8% and Nasdaq 100 futs rising 1.1%, as investor sentiment stabilized, while 10Y Treasury yields slid 5bps, the BBG dollar index lost 0.3%, and oil tumbled, 4% reversing most of Monday’s gains.

VIX futures tumbled to a low of 25.13 this morning after completing it first positive impulse off the bottom.  The retracement may take the VIX back beneath its 50-day support at 24.28.  However, this may be a good entry for longs, even at the lower levels.  The next few weeks may be a time to exercise patience, as the VIX is out-of-sync with the SPX.

TNX futures declined to a low of 30.50 this morning as the next Cycles gets underway.  The Cycles Model calls for declining rates until mid-November.  The first support nearby is the mid-Cycle support at 24.44.

10:10 am

SPX has been unable to close its opening gap at 4057.66 this morning, leaving the probability of yet another probe lower, possibly to the 50-day at3981.02 before a higher bounce develops.  It must bounce to 4080.00 to loosen the grip of short gamma on today’s op-ex.  Should this event develop, we may see a sideways market through the end of the week.  Overhead resistance is at 4200.00.

9:50 am

BKX (our liquidity proxy) is challenging its 50-day Moving Average at 106.8A1 this morning.  The Cycles Model suggests a possible short-term bounce, then a continued decline through the end of September.  A decline below the 50-day confirms the sell signal with the next support at 97.50.

ZeroHedge comments, “The hawkish tone of the Fed’s chairman Jerome Powell on Friday 26th was unequivocal. His most important sentence, in my view, was the following: “With inflation running far above 2% and the labour market extremely tight, estimates of longer-run neutral are not a place to stop or pause.”

What does this mean? The Fed will do what it takes to cut inflation if the labor market remains strong. These strong messages sent ripple effects to markets. Stocks and risky assets fell in unison and the US dollar relative strength created another widespread depreciation of weaker currencies.

The Fed knows that inflation is fundamentally a monetary phenomenon and that they must correct the mistake made in 2020 by increasing dramatically money supply and sending rates to even lower territory.

7:20 am

Good Morning!

NDX futures challenged the 50-day Moving Average at 12418.61, dropping to 12393.30 before bouncing back above the 50-day.  Should it open above the 50-day, there is a probability for a bounce to Intermediate-term resistance at 12807.93.  Structurally, the NDX is due for a bounce, but short gamma still may have control.  The Cycles Model allows the decline to continue to mid-day (8.6 market days from the high).  Stay alert for a bounce later this morning.

In today’s op-ex, Max Pain is at 12825.00, so NDX is deep in short gamma.  QQQ (Friday’s close 307.44), Max Pain is at 318.00.  It is also in short gamma with no leveling off in sight.

ZeroHedge remarks, “It was an ironic twist: one week ahead of Friday’s Jackson Hole meeting, Goldman’s biggest trading desk bull, Scott Rubner, who steadfastly – and correctly – encouraged the bank’s hedge fund clients to keep buying the most hated rally until its peak just below the 200DMA, joined BofA’s Michael Hartnett in turning bearish and warning that it’s time to sell and that the response to the question “are we there yet”, is “yeah we are” and that “sellers are lower.” At the same time, Goldman’s biggest trading desk bear, Matt Fleury, unexpectedly jumped the fence and sided with the bullish market consensus, saying that “I am of the view Powell doesn’t have the stomach to be all out hawkish here, and will give himself room to maneuver highlighting that monetary policy take time to have an impact & they need to see the lagged impacts.” He then added that “At the risk of being overly specific: I think Powell will seem dovish on Friday and risk premium will be taken out of the market” (granted, he added that “It wouldn’t surprise me to see some people return from vacation early on a market sell off into Labor Day given the current set up.“) Needless to say, the former bull was right and the bear’s view that Powell “will seem dovish” was wrong, and the result was a 4% tumble in the Nasdaq, the biggest 1-day drop in more than 2 months.”

SPX futures plummeted to 4007.20 before bouncing.  Unlike the NDX, SPX did not challenge the 50-day Moving Average at 3987.21.  This remains the focal point for a bounce, either in the futures or later in the day.

In today’s op-ex, Max Pain is at 4115.00.  Long gamma begins at 4150.00.  Short gamma starts at 4080.00.  Dealers have quite a hole to dig themselves out of this morning.  Short gamma is especially dangerous at 4000.00.  Thus, the bounce this morning at 4007.20.

ZeroHedge reports, “Market sentiment has only deteriorated after Friday’s sharp post-Powell/ECB dump, and investors started the week with the bear market rally in tatters after the world’s biggest central banks huddled around a simple message in Jackson Hole this weekend: they are ready to fight runaway inflation with higher interest rates, even if it does some damage (in other words they want to crush demand, even as Biden’s debt relief plan and Inflation Reduction Plan hopes to stimulate demand). Powell quashed the idea of an early dovish Fed pivot (ensuring a much more forceful one later once all EMs fully blow up on the back of the soaring USD) and also said on Friday that the road ahead will “bring some pain to households and businesses” in the US, an “unfortunate cost of bringing down inflation” while ECB’s Isabel Schnabel said she and her colleagues had “little choice” but to continue tightening even if Europe’s economy tips into recession, which is becoming increasingly likely. As expected, Senator Liz Warren said she was worried the central bank will tilt the US economy into a recession, but for now Biden still thinks that soaring inflation polls worse than recession and/or global depression.

In any case, Powell’s signal of higher-for-longer interest rates rocked market on Friday and then followed through in Asia and Europe on Monday, sinking stocks and equity futures. S&P 500 futures slipped 1% as of 715 a.m. New York time, while Nasdaq futures tumbled 1.3%, as swaps traders boosted their expectation for where the Fed rate will be a year from now to 3.82%, from 3.68% a week ago.”

VIX futures rose to a new high at 27.67 this morning.  It remains near the top of its range.  As of Friday it is on a confirmed buy signal.  Traders view this as a “risk off” signal.

ZeroHedge observes, “Friday was an equity “thing”

FX volatility down while VIX exploded higher. On the other hand, the VIX catch up was overdue. If you played our VIX call spreads logic from Aug 15 (here) when VIX closed at 19.95, make sure to actively adjust this position in order to capture max optionality.

Source: Refinitiv

VIX term structure – shifting higher

The entire curve moved higher on Friday, with the biggest impact in the short end of the curve as investors always chase the shorter term maturities for the “quick” hedge. We mentioned “playing the curve” two weeks ago (here), we wrote: “….buying the short end of the curve vs shorting longer end of the curve.” This is now playing out…but there is still no “real” panic being priced.”

USD futures Made a new high at 109.44 before pulling back to trendline support at 108.60.  This week may see some consolidation, but the first week of September may see a powerful move higher.

Crude Oil futures rose to 94.62 this morning.  It is on an aggressive buy above Intermediate-term support at 93.70.  The Cycles Model suggests a probable two-month rally through the end of October.  We await a breakout above mid-Cycle resistance at 96.79 to confirm the outlook.

Gold futures continue their decline to 1731.40 this morning.  The Cycles Model suggests the decline may continue through monthly op-ex before a possible bounce.  Cycle Bottom support lies at 1697.71 while the next Cup with Handle trendline lies at 1678.00.  Those are the two “lines in the sand” before a very significant decline.

2:31 pm

Since this morning, investors have sold thousands of expiring calls and bought puts instead.  Since this morning, over 33,000 SPX puts contracts came into-the-money.  Now its time for the CTAs and hedge funds to start selling, as well.  The aftermath may last into next week.  The Cycles Model suggests more weakness over the  weekend.

11:50 am

SPX has declined through the neckline of a small Head & Shoulders formation after a brief attempt at Short-term resistance at 4201.87.  This formation gives the impression that the SPX is simply “walking back down” its August rally.  However, SPX is now in short gamma and the decline may take on the force of a runaway train.

ZeroHedge comments, “While reactions to Fed Chair Powell’s 8 minute message are varied, the markets’ response seems sure – hawkish-er than expected…

9:35 am

Good Morning!

SPX futures attempted a rise above 4200.00 (4215.20) before easing back, opening in the negative.  The 50% retracement value is 4222.62 with the trendline not far above it.  Today’s op-ex shows Max Pain at 4175.00 with long gamma beginning at 4200.00 and short gamma starting at 4150.00.

ZeroHedge reports, “The day we’ve all been waiting for has finally arrived as Jerome Powell prepares for his keynote hawknado speech at the
“Action Jackson” Hole.

After yesterday’s unexpected last hour rally, US stock futures dropped and interest rates rose as jittery investor nerves took hold before Federal Reserve Chair Jerome Powell’s much-anticipated (hawkish) speech at the Jackson Hole symposium. S&P futures dropped 0.4% in a subdued session, while Nasdaq 100 futures fell 0.5% as of 7:15 a.m. ET. Both underlying indexes jumped Thursday, paring losses from earlier in the week, as bond yields dropped. Still, the benchmark S&P 500 is set for its second straight weekly decline as Fed policy makers sounded more hawkish about their outlook on rate hikes, even amid growing fears of a recession.”

VIX futures rose to a morning high of 22.48 as it awaits the final pronouncement fro Jackson Hole.

Wednesday’s op-ex shows Max Pain at 22.00 with long gamma starting at 23.00 and short gamma at 21.00.

ZeroHedge comments, “Almost nothing Powell can say will have the Equities market “hear” anything less than a “de facto dovish” message, versus an impossible “balancing act” expectation that he cannot fulfill without likely easing FCI (re-iterating focus on inflation but unable to ‘Forward guide’ tighter, while also acknowledging slowing growth and fading Commods / Inflation Expectations Surveys as tailwinds to ‘past peak’story)…

Remember, financial conditions are now EASIER than they were when The Fed STARTED TIGHTENING…

… all of which is why Nomura’s Charlie McElligott believes Powell’s speech is largely being viewed as a “nothing-burger”.”

TNX futures bounced off a morning low at 30.17, leaving yesterday’s high as the terminus for the Master Cycle at day 265.

USD futures pulled back beneath the trading channel trendline to a low of 107.66.  The Cycles Model suggests weakness down to Intermediate-term support at 106.86 during the next week.  Strength may return in the  ifrst week of September. as the USD probes higher.

9:57 am

GKX has hit its Master Cycle high yesterday, on day 267.  The next move appears to be counter-intuitive, as agriculture prices decline in the face of growing shortages.  This may be due, in part, to declining liquidity.  The Cycles Model suggests declining prices through mid-October.  This may be a result of dealers selling off last year’s inventory and the lack of information on the true yield of this year’s crops.  The Ag Index may decline as far as 300.00 before the next leg up.

ZeroHedge reports, “Major grain traders have drawn concerns over profiteering and speculation in global food markets, prompting calls for a windfall tax.

According to The Guardian, the world’s top four grain traders (Archer-Daniels-Midland, Bunge, Cargill and Louis Dreyfus, known collectively as ABCD) have seen record or near-record profits or sales, and are forecasting demand to outstrip supply until at least 2024 – likely leading to even higher sales and profits over that period. The four companies control between 70% and 90% of global grain trade.”

ZeroHedge further observes, “The Ukrainian Agriculture Ministry reported Tuesday that a total of 33 cargo ships carrying about 720,000 tonnes of foodstuffs have left Ukraine since a deal to facilitate the export of grain out of Ukraine’s Black Sea ports was implemented.

The numbers show that the deal between Russia and Ukraine that was brokered by the UN and Turkey and signed in July has been a success. Ukraine’s Agriculture Ministry said that in addition to the 33 ships that have left, another 18 are loading and are preparing to depart from Ukraine’s Black Sea ports.”

7:35 am

Good Morning!

SPX futures rose to an overnight high of 4185.20, but since have backed away from their retracement.  There may be another probe lower with a potential target near the 100-day Moving Average at 4082.00 or possibly Intermediate-term support at 4066.13.

In today’s op-ex, Max Pain is at 4145.00, while long gamma begins at 4175.00.  Short gamma starts at 4100.00.  Dealers are walking a tightrope.

ZeroHedge reports, “Futures jumped overnight after China revealed its latest massive stimulus (which however is still woefully insufficient to prop up the country’s crashing housing sector) steadied nerves in the nervous wait for Fed Chair Jerome Powell’s key speech at 8am tomorrow.

Shortly after 2am ET, China stepped up its economic stimulus with a further 1 trillion yuan ($146 billion) of funding largely focused on infrastructure spending, support that analysts quickly agreed won’t go far enough to counter the damage from repeated Covid lockdowns and a property market slump.  The State Council, China’s Cabinet, outlined a 19-point policy package on Wednesday, including another 300 billion yuan that state policy banks can invest in infrastructure projects, on top of 300 billion yuan already announced at the end of June. Local governments will be allocated 500 billion yuan of special bonds from previously unused quotas. However, as has been the case for the past 2 years with Beijing’s drip-drip stimulus, economists were downbeat on the measures, while financial markets were muted. The yield on 10-year government bonds rose 2 basis points to 2.65%. China’s CSI 300 Index of stocks rose as much as 0.6% before paring gains to trade up 0.3% as of 2:28 p.m. local time. A similar reaction was observed in US futures which initially spiked by nearly 30 points, reaching a high of 4187.5 before fading most of the gains; emini futures traded +0.6%, or 25 points higher, at 7:30am  ET, while Nasdaq futures were up 0.85%.  Emerging-market stocks also rallied the most in two weeks on the Chinese stimulus news, only to see gains fade. Treasury yields and a dollar gauge dipped, while the crypto space rose on China’s stimulus.”

VIX futures are probing lower, at 22.26 this morning.  However, this may be the prelude to a show of strength this weekend with the VIX rising above its nearby resistance level at 25.12.

Yesterday’s op-ex cleared much of the negativity in the VIX.  Next Wednesday’s op-ex shows Max Pain at 22.00 and long gamma beginning at 23.00.  Short gamma has all but disappeared.

TNX has eased away from what may be the Master Cycle high yesterday, on day 264 of the former Cycle.

ZeroHedge reports, “After yesterday’s ugly 2Y auction moments ago the Treasury completed the week’s second coupon issuance when it sold $45 billion in 5Y bond due Aug 31, 2027, and which saw the yield surge to the second highest on record, up from July’s 2.860% to 3.230%, and just shy of the record 3.271% print in June; the high yield (74.56% allotted at high) also tailed the When Issued 3.220% by 1bp – this was the fourth tailing 5Y auction of the past five.

The bid to cover was ugly, slumping to 2.30 from 2.46 in July, and far below the six-auction average of 2.437. In fact, with the exception of June’s 2.28, today’s auction had the lowest bid to cover since Feb 2021.

The internals were also ugly, with Indirects sliding to 61.2% from 66.4%, although not that far below the recent average. And with directs taking down 18.2% (the second lowest since January), Dealers were left holding 20.6%, up from 16.8% last month and above the six-auction average 18.0%.”

USD futures are consolidating beneath their Cycle Top at 109.19.  A pullback may be due, but the trend may be higher through the month of September.

WTI futures reached an overnight high of 95.67 as it overcomes Intermediate-term resistance at 94.39.  The next resistance is the mid-Cycle at 96.50.  A breakout above the mid-Cycle confirms the buy signal.  The Cycles Model suggests a continued rally through the end of October.

OilPrice.com observes, “Some early investors in the Texas shale patch are now reaping the benefits of not giving up on the Permian basin over the past decade and sticking with their bet on oil through thick and thin—two oil price crashes, an increasingly louder global campaign for ditching investments in fossil fuels, and triple-digit oil prices following the Russian invasion of Ukraine.

Despite early hardships and thoughts of ditching the business of acquiring drilling rights across Texas when COVID crippled fuel demand in 2020, Cody Campbell, co-CEO at Double Eagle Energy, for example, has stuck with his guns, the Financial Times reports in a feature article. ”

7:30 am

Good Morning!

NDX futures are easing lower after struggling against the Lip/Neckline at 13020.00 yesterday.  There may be no turning back after the miserable attempt at a retracement.  The Cycles Model gives this decline 55 calendar days, of which only a week has transpired.  Primary Wave [3] has begun.  It would behoove us to discuss one of the few Elliott Wave rules.  That is, Wave threes are never the smallest in the series.  From that we may deduce that Wave [3] may be at least as large as Wave [1], or 5727.00 points.  This puts the Wave [3] target at or near 7994.00.  That is why the two bearish formation targets still stand.

In today’s QQQ (314.10) op-ex, Max pain is at 316.00.  However, QQQ is already in short gamma beneath 315.00.

ZeroHedge observes, “Following today’s dismal new home sales data and “deep recession” Service PMI print, there was some reprieve from the multi-day blast of FCI tightening (to be expected with hedge funds piling into record hawkish rate bets ahead of Jackson Hole), with the dollar, real yields and equity vol either pausing their charges or pulling-back modestly, while European credit spreads also incrementally tightened overnight, easing the recent strain on broad risk-assets.

Critically for this risk stabilization, we are seeing European Energy prices or pull-back from the “exponential extremes” touched yesterday at the peak of the panic, which has acted as the key global Rate Vol catalyst in recent days.

However, as Charlie McElligott notes, the past week has seen a resumption in the prior 1H22 “momentum” regime among the CTA community, and accordingly, we have seen a sudden impulse back into the 3 of the big “trend trades” from the first 6 months of 2022: i) short bonds/rates, ii) short equities and iii) long dollar, or as the Nomura x-asset strategist puts it, “the CTA Trend is back into their G10 Bond / STIR “Shorts.”

SPX futures remain in a consolidation mode “in range”  after 5 days of decline.  If there is a chance of a bounce, today may be it.  The Cycles Model suggests trending strength (weakness) may resume on Friday.

In today’s op-ex, the Max Pain zone may be at 4155.00.  Long gamma begins at 4200.00, while short gamma starts at 4125.00.

ZeroHedge reports, “he downbeat market mood continued for a fourth day, with US stock futures turning red and erasing earlier gains after a three-day drop saw the S&P 500 lose $1.4 trillion in market capitalization amid renewed concerns about a hawkish Fed and a potential J-Pow bomb during Friday’s J-Hole symposium (that said, with expectations so bearish, there is almost no way Powell can sound hawkish). S&P 500 futures dropped 0.1% at 7:00am ET after falling as much as 0.5%. Nasdaq 100 futures were also modestly red as the yield on the 10-year Treasury hit 3.05%. The US dollar reversed yesterday’s sharp drop and extended its recent surge as the EURUSD resumed its plunge trading ever farther from parity, and at 0.992 last. Oil meanwhile has continued its ascent, pushing Brent above $100, and leading to the first Diesel price increase at the Pump since mid-June.

“Globally we haven’t seen a deceleration like this that has been so synchronized in many decades,” Frances Stacy, director of strategy at Optimal Capital Advisors LLC, said on Bloomberg Television. “I don’t want to be directional” in picking trades, she added.”

VIX futures rose to an overnight high at 24.86 before easing back.  While VIX remains beneath the mid-Cycle and the 50-day Moving Average at 25.12, it may be gearing up for another burst of strength later this week.

TNX is backing away from yesterday’s high, a probable Master Cycle high on day 266.  The Cycles Model suggests the new Cycle to last until mid-November.  A probable target may be as low as the Lip of the former Cup with Handle, near 17.00.

ZeroHedge reports, “While the recently concluded TSY refunding auction week passed with flying colors, the same could not be said for today’s sale of $44BN in 2Y paper (to be followed by 5Y and 7Y auctions later this week) on a day when 10Y yields have been pushed and pulled by the 3.0% level on the 10Y.

The auction was ugly, stopping at a high yield of 3.307%, the highest since at least 2007, and well above last month’s 3.015%; it also tailed the 3.293% When Issued by 1.4bps, the biggest tail since Feb 2020 (when it hit 1.6bps) just as the bond market locked up ahead of the covid crash.

The bid to cover of 2.488 dropped from last month’s 2.583 and was the lowest since March.”

8:50 am

Good Morning!

SPX futures remained flat in the overnight session, but are weakening as the morning cash session is about to open.  This is quite a departure from the activity of only a week ago.  Any hopes for a quick recovery may be dashed as the SPX may have begun a potential 55-day decline.

In today’s op-ex, Max Pain is at 4170.00, while long gamma starts at 4180.  Short gamma starts at 4150.00.  Today is a light session in the options.

ZeroHedge reports, “After Monday’s furious selloff which sent stocks tumbling the most in two months when the yield on 10-year Treasuries breached 3%, S&P futures have stabilized overnight, and after earlier dropping as low as 4,120 – or some 200 points below last week’s 200DMA resistance – have since rebounded to unchanged, if near the bottom of Monday’s range as nervous traders increasingly fear Powell will unleash a Hawk-ano during his Friday Jackson Hole speech. The 10-year Treasury yield held above 3% and the Bloomberg dollar index hovered at a five-week high as the EUR briefly dropped to 0.99, a fresh 20-year low, amid exponentially increasing energy costs. Oil futures climbed another 2% amid fears OPEC+ will cut output, as the market finally grasped what we were saying back in July 8 in “Inside The Oil Market’s Jekyll-And-Hyde Moment” after the Saudi Energy minister said that “The paper and physical markets have become increasingly more disconnected.”

VIX futures have consolidated at the upper end of yesterday’s trading range.  A breakout above the mid-Cycle resistance and 50-day Moving Average at 25.15 may be imminent.

In tomorrow’s op-ex, Max Pain is near 24.00, while short gamma begins at 22.00.  Long gamma begins at 28.00.

ZeroHedge remarks, “VIX – gradually then suddenly

On Aug 10, when VIX puked below 20 and some strategists were telling us that SPX should catch up, we reminded our readers and wrote the following:

“Several strategists are pointing out the VIX vs SPX gap, but these people do not trade volatility, nor do they understand what volatility is. Volatility is mean reverting by “nature”, so don’t buy into the “last time VIX was here…” arguments. Time to get busy when it comes to using cheap(er) volatility in your overall strategy.” Fast forward to today and the VIX has exploded to the upside and hedges are suddenly not that cheap. If you played the “follow up” logic on Aug 15 (), where we suggested the VIX Sep 23/29 call spread, we remind you of not being “lazy” and roll those strikes (and keep part of the profit).”

TNX continues its rally on day 263 of its Master Cycle.  Be warned that, while investors pile on to the higher yields, a reversal may be imminent.   The Cycles Model suggests a rally is USTs through mid-November.

USD futures pulled back to 107.99 before bouncing.  The Cycles Model suggests that trending strength may re-emerge during the first week of September.  The rally may continue through the end of September.

9:55 am

The Ag Index has begun yet another decline, despite being one of the fundamentally most sound investments of the decade.  Look at BKX and you will understand the depths of illiquidity that the markets may be about to experience.  The current target for this decline is the Cycle Bottom at 393.77.  However, it may go much lower.  The Current Cycle is due to last through mid-October, so brace yourselves for lower prices.  At some point, we will have to pick a spot to hop aboard and hang on for the ride.

ZeroHedge remarks, “Extreme droughts across Europe are revealing thousands of years of lost history.

In some regions, centuries-old warning messages etched into boulders have been exposed. As StrangeSounds.org reports, these rocks – known as “Hungersteine” or “Hunger Stones”

One stone, embedded in the Elbe River, which runs from the mountains of Czechia through Germany to the North Sea, dates back to a drought in 1616, is once again visible in the dry riverbed.

The warning reads, “Wenn du mich seehst, dann weine” – “If you see me, weep.”

9:42 am

Watching the BKX (our proxy for market liquidity) has been an exercise in frustration.  However, the banks know how to protect their own.  Now that earnings season and all that window dressing is past, the powers-that-be have started to relax and show their true colors.  The much-delayed Master Cycle has peaked on August 16 and the new Cycle may not bottom until the end of September.  Crossing the neckline may produce some dramatic results.  Be aware and be prepared.

7:55 am

Good Morning!

I still have the aftermath of a terrific Covid attack.  I wouldn’t wish it on anyone.  At least my mental faculties are no longer blurred (I hope!)…on to the markets.

SPX futures dipped to a morning low of 4173.70 before making a mild bounce.  While SPX may go lower, the ultimate action today is t retest the trendline near 4225.00.  Those not already short may find it more profitable to wait for the bounce.

In today’s op-ex Max Pain is at 4225.00, so don’t be surprised to see SPX close near there.  In the meantime, things may become volatile, since short gamma begins at 4200.00.  The dealers may do their best to ramp the SPX out of short gamma.  Should they fail, the gamma-driven market may look like a runaway train.

ZeroHedge reports, “The staggering “most hated rally” melt-up, which we warned back in June would steamroll shorts, and which ended up being one of the biggest summery rallies on record, is officially over…

… with BofA superstar strategist Michael Hartnett proven correct again this morning, as stocks retreated further from the bear market peak he called at 4,328 last week, with US equity futures sliding more than 1% on Monday along with stocks in Europe as a risk-off mood took hold at the start of a critical week for global markets when central bankers gather at their annual Jackson Hole symposium starting on Thursday.  Both S&P and Nasdaq futures slumped more than 1.1%, with spoos down 50 points to 4,180, as 10-year Treasury yields are little changed after briefly kissing 3.0%, while two-year yields rose about six basis points, deepening the yield-curve inversion that’s seen as a harbinger of a recession. The dollar spot index climbed to a five-week high, while gold and bitcoin slumped.”

VIX futures vaulted to a morning high at 23.42 as it now makes its move toward the mid-Cycle resistance and the 50-day Moving Average at 25.12.  It is on an aggressive buy which may be confirmed above 25.00, due to the long tail.  The new Master Cycle has about 4 weeks of rally in store and is likely to probe the Head & Shoulders neckline at 40.00 before it is over.

TNX futures touched 30.03 momentarily, then eased back down, leaving Friday’s cahs high intact and the probable completion of its Master Cycle on day 259.  This is an early indicator of investor money escaping the clutches of declining equities and parking in treasuries.  This is an old habit that dies hard.  In this case UST futures may continue to rally through mid-November.

I’m soaked as a wet dishrag, so I’ll call it done until a new observation presents itself.

1:04 pm

Good Afternoon!  I’m back, but without all my faculties. So let’s go.

SPX declined to the Major trendline at 4225.00.  It is likely to be complete on Monday.   It is due for yet another decline to the short-term suppo5t at 4192.08.

3:18 pm

I came back from my morning appointment with a pounding headache that put me out of commission for the whole day.  Still not recovered.

SPX took all day riding the Diagonal trendline as it made its final retracement high.  The daily mid-Cycle resistance is now at 4293.97.  I tis likely to be repelled at that level, if not beneath it.  The trendline is near 4275.00.  A decline beneath that level gives us a stronger sell signal.

6:30 am

I have a morning appointment and won’t return until after the  market open.

SPX futures have recovered from the decline and may retrace to the mid-Cycle resistance at 4296.00.  It may go higher.  However, it would be a good location to add short positions.

VIX futures are consolidating within their trading range.  The Cycles Model calls for growing strength next week and through the month of September.  Patience may be needed at this stage until a breakout occurs.