The Practical Investor

7:45 am

Good Morning!

SPX futures have declined to 4266.00, on their way to trendline support at 4225.00.  SPX left a “shooting star” candle and closed just above mid-Cycle support at 4298.00. It missed the 200-day Moving Average by a point, but many will claim credit for “calling it.”  Truth is, most pundits were calling for the SPX to rise above that level.  SPX is on an aggressive sell signal above 4225.00.  Look to short on the bounce.

Today’s op-ex shows Max Pain at 4315.00, with long gamma beginning at 4325.00 and short gamma starting at 4275.00.  Today may be a gamma-induced tug-of-war between the bulls and the  bears.

ZeroHedge reports, “Futures were grinding gingerly higher, perhaps celebrating the end of the Cheney family’s presence in Congress, and looked set to re-test Michael Hartnett bearish target of 4,328 on the S&P (which marked the peak of yesterday’s meltup before a waterfall slide lower when spoos got to within half a point of the bogey), when algos and the few remaining carbon-based traders got a stark reminder that central banks will keep hammering risk assets after the UK reported a blistering CPI print, which at a double digit 10.1% was not only higher than the highest forecast, but was the highest in 40 years.

The print appeared to shock markets out of their month-long levitating complacency, and yields – both in the UK and the US – spiked…

… and with yields surging, futures had no choice but to notice and after trading at session highs just before the UK CPI print, they have since tumbled more than 40 points and were last down 0.85% or 37 points to 4,271.”

VIX futures have risen to a new post-reversal high at 20.61.  It is on an aggressive buy signal due to the  Cyclical reversal and may be confirmed above 35.00.  VIX is in the short gamma zone beneath 25.00, so we may expect a chaotic trading day as the current options expire today.

TNX futures rose to a morning high of 28.99 before easing back.  Tis chart is still a cliff hanger, since the current Master Cycle is due to end this week.  There is no breakout, so judgement is withheld until the chart resolves itself.

USD futures rose to 106.69, still within its most recent trading range.  The Cycles Model shows today as a day of strength in the USD.  The next overhead resistance appears to be the Cycle Top and trading channel trendline at 108.51.

West Texas Intermediate Crude futures appears to be consolidating on day 256 of its Master Cycle.  If correct, we may see a Master Cycle low this week, followed by a rally that may go as high as the trendline at 115.00.  This makes no sense, given the lack of liquidity in the markets.  An alternate view may be that the Master Cycle may have been complete at the touch of the mid-Cycle resistance at 95.05.  This should resolve quickly.

ZeroHedge explains, “Speaking on CNBC, Goldman’s head of commodity strategy, Jeff Currie explained why the lower the price of oil drops, the higher it will jump because – all else equal – as demand for oil rises thanks to lower prices without enough supply to match, inventories will shrink far faster and tank bottom will be hit well before the NBER admits a recession has arrived. A similar development took place in Jan 2007 more than a year before the 2008 recession… but not before oil soared to an all time high. This time won’t be any different, and an early glimpse of how the spike in demand will translate into lower inventories came moments ago from the American Petroleum Institute (API) which reported a draw this week for crude oil of 448,000 barrels, while analysts predicted a far smaller draw of 117,000 barrels.”

Gold future have fallen beneath the Lip of the Cup with Handle at 1790.00 and is challenging the 50-day Moving Average at 1788.72.  This may put gold on a confirmed sell signal, pending today’s close.  The Cycles Model calls for another month of decline with targets at the Cycle bottom at 1701.27 or the lower Lip of the Cup with Handle at 1678.00.

8:30 am

Yesterday may have been the Master Cycle high for the Ag Index.  Today will tell whether a reversal is in store.  Despite the rising fundamentals, it appears the GKX is due to decline over the next two months, mainly due to decreasing market liquidity.  The 61.8% retracement of the two-year rally is at 387.78, not far from the Cycle Bottom.  Given the time of the next Cycle, it may go lower.

Today ZeroHedge reports, “US cotton prices continued to surge above the boom days of 2010-11 after a massive crop estimate cut by the USDA, shocking Wall Street analysts and traders, due primarily to a megadrought scorching farmland of Texas, according to Bloomberg.

Futures in New York for December delivery were up 4.5% to $1.1359 a pound and up more than 21% this month.

“I don’t think you can put a top on prices right now,” Louis Barbera, the managing partner for VLM Commodities, told Bloomberg.

“I have been going to Texas for more than ten years, and this is by far the absolute worst I have ever seen, said Barbera.”

On Monday, ZeroHedge commented, “We really are reaching a major crisis point.  Thanks to soaring fertilizer prices, insane weather patterns and the war in Ukraine, global food supplies have been getting tighter and tighter.  So we really needed a banner year for agricultural production in both the United States and Europe in 2022, and that is not going to happen.  In fact, unprecedented drought is absolutely devastating crops all over the northern hemisphere.  A lot of people are complaining about how high food prices are right now, but just wait.  If some sort of a miracle doesn’t happen, agricultural production is going to be way below expectations in both the United States and Europe, and that is going to have very serious implications for 2023.”

On Saturday, ZeroHedge wrote, “The next food insecurity problem that may impact the way Americans eat could be an emerging potato shortage that began last year when yields were depressed due to a heatwave, according to Boise State Public Radio.

“I’m not sure if you remember last June, but we had some just unbelievably hot temperatures here in Idaho. It did a number on our potato crop,” Jamey Higham, president and CEO of the Idaho Potato Commission, told the Idaho-based media outlet. “And so, our yields were significantly down last year.”

7:25 am

Good Morning!

SPX futures consolidated between the high made yesterday and a low at 4282.80.  Today is day 267 in the current Master Cycle.  While it has gone beyond the median (258 days), it is still within normal deviations from the norm.  Today is day 60 from the low, completing a Trading Cycle (low-to-high).  There  is a lot of talk about reaching/exceeding the 200-day Moving Average at 4227.82.  The proximity makes it appear doable, but trending strength may have been spent, according to the Cycles Model.

In today’s op-ex, Max Pain is at 4255.00.  Long gamma begins at 4350.00, while sort gamma begins at 4250.00.  SPX is neatly “corralled” between long and short gamma which may limit volatility until a breakthrough in one direction or the other.  Tomorrow’s long gamma begins at 4300.00.  Friday’s op-ex is rife with long gamma above 4200.00.  The question is, will the market prove the majority of punters wrong?

ZeroHedge comments, “With stubborn bears refusing to capitulate to this “most hated rally”, and in fact making it even more hated by the minute as they dig in their heels and add even more shorts the higher stocks rise…

… it is virtually assured that the “max pain” trade higher will continue (at least though the end of this month as Goldman’s Scott Rubner noted over the weekend). And sure enough, today ended up being another melt up higher after a poor opening, with the SPX finishing +40bps and now ~18% off the yearly lows and closing in on the 200dma (4327).”

VIX futures are creeping higher, but still within yesterday’s trading range.  A rising VIX during a rally in equities may be a warning sign of an imminent top.  In tomorrow’s op-ex dealers would rather the VIX drop to 14.50, where open interest is in the single digits.  However, Max Pain is at 26.00, where both puts and calls are populated with over 40,000 contracts.  The strikes at 23.00 and 25.00 have over 100,000 put contracts each.  Getting “over the hump” of bearish options may allow the VIX to rise significantly.

MarketWatch explains, “Investors have endured a lot this year, and it’s not over yet with market technicians debating whether U.S. stocks are embarking on the start of the next bull market, or simply another vicious bear-market rally, as investing titans Stanley Druckenmiller and Michael Burry have warned.

For investors struggling to discern how best to position their portfolios amid a morass of confusing price action and technical signals, one in particular stands out: The Cboe Volatility Index, otherwise known as the VIX VIX, +0.45%, or the stock market’s “fear gauge,” which this week tumbled back below 20 for the first time since April.”

TNX futures are edging higher, leaving us at odds as to whether the Master Cycle ends the week higher or lower?  My leaning is lower, but that may depend on whether some event jolts investors out of stocks.

ZeroHedge comments, “What happened to QT?

Going from QE to QT was probably the most talked about macro theme in the markets at the end of last year and during parts of the spring. It was the rock the bears stood on. Now, over the past 6-8 weeks it has been eerily quiet on the QT front from both sell-side and buy-side. Credit Suisse even wrote this one month ago: “We receive almost no questions (which may hint at complacency) on QT. Could QT be the ‘black swan event’?” What has happened? Time to dust off those old QT charts. Are they still relevant and can this come back as a macro-theme?”

USD futures continue their rally, reaching a new high at 106.83.  USD is on a buy signal and the Cycles Model suggests a continued rally through September.  The Cycles Model shows trending strength beginning today.  The next resistance is the upper trendline/Cycle Top at 108.43.

3:43 pm

SPX has reached its mid-Cycle resistance at 4300.58 today.  Mid-Cycle is different from the 200-day Moving Average due to an 185-day calculation.  Cycles do not work on integers divided by 10.  However, many will claim that it has made the 200-day Moving Average at 4327.84.  And many other commonly used moving averages, such as the 50-day Moving Average are very close to a Cyclical integer.  While I had pointed out trendline resistance at 4225.00, I had no idea that it would revisit the mid-Cycle resistance, as it did on March 29 at 4637.30.  While no sell signal is being given, it is time to become aggressively short.

ZeroHedge remarks, “Last week saw more “disinflationary” US data (misses in CPI, PPI and Friday’s U Mich 1Y Inflation Expectations vs prior “peak inflation” highs and Street estimates) ‘light the match’ for yet another squeeze-driven rip higher in stocks prompted by an improvement in the odds of sticking a “goldilocks” soft-landing, via a perceived lowering the risk of further Fed “hawkish overshoot” / policy-error.

Friday saw further extension of the recently noted “un-stable” speculative behavior seen previously at peaks of the “Retail / WSB YOLO frenzy” in 2021, evidenced by ongoing aggressive short-dated Upside Call option buying in Meme stocks.

And as Nomura’s Charlie McElligott warns, the aggressive “Spot Up, Vol Up” push in the “high spec” names has tended to preempt the potential for said Meme stocks to then collapse under the weight of their own “extended” implied expectations (and prior “Gamma squeezes” then turn the opposite direction)…so this area is worth keeping one eye on.”

9:25 am

Good Morning!

SPX futures declined to a morning low of 4246.80.  A cross beneath the neckline/lip of the Cup with Handle at 4225.00 produces a confirmed sell signal.  A reader has asked about the statement that the risk of a bear market disappears once the SPX closes above the 50% level.  On the surface that may be correct, but the writer is comparing apples with oranges.  Since 1932, all bear markets were of an Intermediate Degree or Primary Degree where the bear markets were made at the end of the declines.  What we experienced in the first six months were the beginning of the next higher degree, a Cycle Degree made up of a series of Primary Degrees.  The best comparison is not even the 1929 Crash (Cycle Wave a), but the bear market lasting from April 25, 1920 to July 7, 1932 (Cycle Wave c), a 26 month decline.

Today is day 266 in the Master Cycle (59 days from the June 24 low).  The Cycles Model shows strength tapering off today.  Today’s op-ex shows Max Pain at 4245.00.  Long gamma begins at 4300.00, while short gamma begins at 4200.00.

ZeroHedge reports, “US equity futures stocks were mixed and commodities from oil to iron ore tumbled as the latest round of terrible data from China further clouded the outlook for the global economy, an unexpected rate cut from the PBOC notwithstanding. Contracts on both the S&P 500 and Nasdaq 100 were lower by about 0.5% follows gains last week that sent the tech-heavy index up 22% from June to the highest since April, suggesting a four-week stocks rally – the longest since November 2020 – may stall at least until the $13Bn in daily buying from systematic funds and buybacks kicks in.”

This morning the VIX made a substantial move higher, possibly marking the reversal out of  a rogue Wave E.  VIX options expiring on Wednesday are heavily populated in both puts and calls.  25.00 marks the cross-over between puts and calls…

ZeroHedge observes, “VIX – did you see me on Friday?

Regular readers of TME are familiar with our overshooting of equities view and the volatility puke we have been waiting for. We believe the latter has occurred and that VIX “showed” this on Friday. While the market continued moving higher over the past hours, the VIX started catching bids. This matters…

TNX fell today, indicating possible money flows into UST.  The Cycles Model indicates a probable low this week.  This may be an extension of Wave 4 with a new target near mid-Cycle support at 23.56.

7:55 am

Good Morning!

NDX futures are consolidating beneath yesterday’s high.  The bounce off yesterday’s low lifted the NDX to 13388.10, a 41% retracement of the decline off the top.  It has since eased lower.  Despite the notion that the NDX entered a bull market yesterday, it only retraced 44% of the decline from the top made on November 21.

In today’s op-ex, Max Pain is at 13310.00.  Puts dominate beneath 13300.00 with no discernible gamma zone.  Calls dominate at 13320.00 with long gamma at 13350.00.  In today’s op-ex for QQQ (324.08), Max Pain is at 321.00.  Calls rule above 322.00 while long gamma begins at 330.00.  Puts dominate beneath 320.00 with short gamma also starting at 320.00.

ZeroHedge comments, “Ten days ago, when predicting why the current rally would continue indefinitely, we quoted Goldman which said that “No One Is Positioned For Any Good News” with the bank’s Prime Brokerage also revealing that hedge fund tech shorts had hit a record, which to us ensured that this ‘Most Hated Rally‘ would continue.

We were right.”

SPX futures probed at the Lip of the Cup with Handle and was reversed at 4234.90.  It has since eased back beneath the trendline, after having achieved a 50% retracement at 4225.62.  It is consolidating near the 50% retrace, leaving analysts scratching their heads as to the direction it will go next.

In today’s op-ex, Max Pain lies at 4180.00, leaving room for a decline into the close.  Calls dominate above 4185.00 and long gamma may begin at 4205.00.  Puts rule beneath 4170.00 and short gamma starts at 4150.00.

ZeroHedge reports, “European stocks and US futures rallied on the last day of the week, however traded well off session highs in extremely low-volume trading and tracked the sudden drop in oil, as investors pressed bets that easing inflation will allow the Fed to pivot to less aggressive rate hiking (if not ease outright). S&P 500 and Nasdaq 100 contracts rose about 0.3%, with both underlying indexes set to post their longest sequence of weekly gains since November. Treasury yields were steady at 2.87% and the US dollar rose but was set for the worst week since May. Crude oil fell, reducing its biggest weekly gain in about four months. Gold headed for a fourth weekly gain and Bitcoin was summarily smacked down below the $24,000 level yet again as crypto bears fight to preserve the upper hand.

For the second day in a row an attempt to void the bear market rally narrative by pushing spoos above the 50% fib retracement level is being defended by bears, with futures trading at 4222, or right on top of the critical level, which also doubles as the 100DMA. If broken through it could lead to substantial upside gains as even more bears throw in the towel.”

VIX futures traded in a range between 19.89 and 20.35, waiting for the market to make its move.  The (former) Master Cycle has been stretched to 280 days, which is highly unusual.

Next Wednesday’s op-ex shows Max Pain at 14.50.  Puts dominate the options chain between 15.00 and 25.00 with short gamma beneath 25.00 as well.  Calls start at 26.00 and long gamma appears at 27.00.

CNBC reports, “A key measure of stock volatility is providing clues that investors should be wary of the recent market rally, according to Data Trek Research co-founder Nicholas Colas.

The CBOE Volatility Index has come off its most recent mid-June highs and now is trading around its long-term average of 20.

At the same time, the S&P 500′s top five sectors by market cap have been moving largely in lockstep up and down with the index.”

TNX is backing away from its attempt at the 50-day Moving Average at 29.68.  Next week’s proposed Master Cycle pivot suggests another low may be at hand.  Strength may not reappear until the end of next week.

ZeroHedge reports, “After two stellar refunding auctions to start the week, moments ago the Treasury concluded the sale of its quarterly refunding week with the sale of $21BN in 30 year paper. Surprisingly – after a solid 3Y and fantastic 10Y sale earlier this week – today’s auction could certainly have gone better.

Stopping at 3.106%, the high yield dropped fractionally from last month’s 3.115%, but what is more notable is that after 3 consecutive stropping through auctions, today’s sale tailed the When Issued 3.095% by 1.1bps, which is strange considering the notable selloff into the auction.

The bid to cover of 2.310 dropped from 2.436 in July and was also below the six-auction average of 2.37.”

12:15 pm

I have completed a Cycle study of the most recent events and have found that my Cycle interval of 18.5 is still at work.  From the May 20 low to the June 17 low was 28 days (18.5 X 1.5 = 27.75).  From the June 17 low to today was 55 days (18.5 X 3 = 55.5).  Cycle intervals change with the type of Wave structures.  Corrective structures (A-B-C) are ruled by 18.5, while impulsive structures 1-2-3-4-5) are ruled by intervals divisible by 4.3, such as 8.6, 12.9, 17.2, 20.5, 25.8 and 30.1 are some examples.   Wave [3] is likely to be impulsive.

11:21 am

SPX has reversed course and fallen through the trendline and Cycle Top at 4233.00.  While it may bounce around near the top, this may be considered an aggressive sell signal.  The next level of confirmation is 100 points lower, at the 100-day Moving Average at 4109.82 (not shown).  Remember, Max Pain is at 4195.00.

11:05 am

Today is day 254 in the Master Cycle and possibly the final day of strength in this retracement.  We may see the Ag Index rise to the 50-day Moving Average in the next few days, but the reversal may be swift and severe.  The final target for this Intermediate-term retracement may be the Cycle Bottom at 393.31.  The 61.8% retracement from the 2019-2022 rally is 387.60.  This may be a bit counterintuitive, but t new Master Cycle may last through mid-October.  Food prices lower into the mid-term election?

ZeroHedge comments, “Now they are trying to convince us that dramatically higher prices are good news.  Are you kidding me?  Our standard of living is being systematically destroyed, and more Americans are falling out of the middle class with each passing day.  The government just announced that in July the consumer price index was 8.5 percent higher than it was the previous July.  Of course many have challenged the value of the inflation numbers that the government is giving us because the way inflation is calculated has been changed many times over the years.  As John Williams of shadowstats.com has pointed out, if the rate of inflation was still calculated the way that it was back in 1980 it would be far higher than anything that we experienced during the Jimmy Carter era of the 1970s.  You can spin that any way that you want, but it is still a raging national crisis.

Yes, energy prices in the U.S. have fallen a bit, and many Americans are very thankful for that.

This reprieve won’t last indefinitely, and so don’t celebrate too much.”

11:27 am

It’s not just food inflation, it’s the drought in the Southwest.  ZeroHedge remarks,

“Extreme drought in northern Mexico has sparked a water crisis. President Andres Manuel Lopez Obrador addressed the beer industry in the region to shift production elsewhere because of sustainability factors, reported Bloomberg.

The water crisis is particularly critical in Monterrey, one of Mexico’s most important economic hubs and home to some of the largest beermakers in the world, such as Heineken NV.”

8:20 am

Good Morning!

SPX futures extended its rally to challenge the trendline, near 4230.00.  Today is day 262 of the current Master Cycle.  The 50% retracement value is 4225.62.  This ramp is frustrating even the most experienced traders as we prepare for an overshoot of the targets..

In today’s op-ex, Max Pain is at 4195.00.  Calls dominate above 4200.00 and long gamma starts at 4250.00.  Puts control the options chain beneath 4190.00 with short gamma possibly beginning there, as well.

ZeroHedge reports, “US equity futures extended their post-CPI miss gains (for reasons laid out last night by Goldman’s trading desk which sees $13 billion in non-fundamental demand every day and a new round of FOMO by lagging hedge funds), rising 0.4% on Thursday morning…

…. while tech stock futures were also higher changed after the Nasdaq 100 advanced 20% from its June lows, entering a new bull market, with Wednesday’s softer-than-expected inflation print bolstering hopes of less aggressive Fed tightening. Contracts on the Nasdaq 100 were 0.4% higher by 7:15 a.m. in New York after the underlying gauge soared 2.8% on Wednesday to the highest level since May 4.”

VIX futures have consolidated above yesterday’s extended Master Cycle low.  Yesterday was day 280 of the Master Cycle.  I have commented before about the potential mismatch between the VIX and SPX Cycles.  The mismatch may be finally resolved.

In yesterday’s op-ex, VIX closed beneath the Max Pain level at 20.00.  I have commented before that equities have been options-driven.  Amazing.  In next Wednesday’s op-ex,   Max Pain has fallen to 14.50.  Puts dominate from 15.00 to 26.00, while calls dominate above 27.00.  There are over 100,000 put contracts at strikes 22, 23 and 25.  Given the Cycles structure, the dealers must move the VIX above 25.00 for the least payout next Wednesday.

ZeroHedge remarks, “VIX – welcome to inverse panic

We are finally reaching the volatility puke we have been writing about for the past two weeks. VIX has not closed here in a long time. Reversal 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.”

TNX continues its slide with only a week left in the current Master Cycle.  Should it go lower, the target may be the mid-Cycle support at 23.42.  The 8.6 month support (not shown) is at 23.96, so there is some confirmation of the direction of this Cycle.

ZeroHedge reports, “One day after a stellar 3Y auction saw the lowest dealer award on record, which many said (correctly) hinted at a big CPI miss, moments ago we got the follow through to today’s massive CPI miss when the Treasury sold $35BN in 10Y paper in one of the strongest auctions on record.

The high yield in today’s sale of $35BN in paper came in at 2.755%, down from 2.94% in July and the 2nd consecutive decline; the yield also stopped through the 2.7610% When Issued by 0.6bps, the first stop through for the 10Y tenor since February!”

USD futures may be consolidating after making a Master Cycle low yesterday, on day 259.  There is no clear reversal yet, so the chances of a lower reading are still high, given today’s market action and the probability of a lower TNX.

ZeroHedge comments, “Only old people experienced real recessions–those in 1973-74 and 1980-82. Recessions since then have been shorter and less systemic.

In the good old days, a recession laid waste to entire industries which never recovered their previous employment. People who were laid off couldn’t find another job. Major sectors of the economy dried up and blew away. Jobs were scarce and there was an oversupply of people looking for work.

We’re told consumer confidence is in the dumps and everyone expects the worst: recession! Oh Lordy. Interestingly, there isn’t much evidence of this near-panic behaviorally. Everyone’s tightening their belts and battening down the hatches, but it’s not the cliff-dive we see in a real recession.”

Crude oil futures are higher this morning, reaching an overnight high of 93.69.  The Cycles Model suggests a week to go to meet the Master Cycle high, targeted for the 50-day Moving Average, currently at 104.77.  Pundits are calling for lower prices, due, in part, to a recency bias.

Zerohedge remarks, “Oil prices extended losses this morning – amid some notable volatility around US CPI – after a bigger than expected crude build reported by API, the imminent reopening of crude flows to Europe from Russia through Ukraine, and continued weakness in real wages.

“Crude oil prices rose on Tuesday on news pipeline flows of crude oil from Russia via Ukraine to Europe had been halted over a payment dispute of transit fees. The line, however, is expected to reopen within days but it nevertheless highlights and supports the current price divergence between WTI futures stuck around $90, amid rising US stockpiles and slowing gasoline demand, and Brent,” Saxo Bank said in a note on its website.“

Gold futures tumbled to a low of 1798l50 before bouncing.  Yesterday was day 267 of the old Master Cycle, so a reversal is imminent, if not already happening.  The Cycles Model suggests about seven weeks of decline, more than enough time for a significant decline.  The initial sell signal resides at 1790.00, just beneath the 50-day Moving Average at 1792.40.  The gold-as-money crowd is calling for gold at 2500.00 when the inability to legally transport gold is a major factor in making gold nothing more than another commodity, subject to market influences.

 5:00 pm

The final high was in the last hour of the day.  Will there be an Island Reversal or even a Limit Down day tomorrow?

1:10 pm

SPX rallied toward  the Cycle Top at 4213.94 and above long gamma at 4150.00.   This is a hell of a pickle for dealers counting on closing at Max Pain at 4115.00.  Will they be able to ease the SPX down out of long gamma?  The Broadening Wedge appears complete.

8:45 am

The CPI report is out and SPX futures are quickly approaching 4200.00.  This has all the earmarks of a developing Broadening Wedge formation which is a very frustrating reversal formation.

ZeroHedge remarks, “A colder than expected CPI print – driven by slowing energy price gains offsetting continued gains in shelter costs – prompted an immediate knee jerk reaction sending rate-hike odds tumbling.

September went from pricing in an 80% chance of a 75bps hike to around 30% chance instantly…

This prompted wild euphoria in stocks because surely this means The Fed pivot is back on…

8:00 am

Good Morning!

SPX futures made an morning high of 4138.20 this morning, after managing to close above the 100-day Moving Average at 4114.18.  This morning’s bounce may have been the result of dealers selling their short positions to cover the in-the-money puts in yesterday’s op-ex.  The Cycle Model suggests an increased downside momentum by the end of the week, with a full-blown decline by Monday.

In today’s op-ex Max Pain is at 4115.00.  Calls dominate above 4125.00 while long gamma begins at 4150.00.  Puts rule beneath 4110.00 while short gamma lies beneath 4100.00.  This is a very tightly wound options market where a false step may have a dramatic outcome.

ZeroHedge reports, “US equity futures reversed earlier losses and traded modestly in the green in cautious, muted overnight action before US inflation data which is expected to show headline US CPI cooled but stayed elevated in July, and which will shape investor expectations for further Fed rate hikes. S&P 500 contracts climbed 0.2% as of 715am ET, following a fourth day of declines in the underlying index Tuesday after Micron Technology followed Nvidia, and become the latest chipmaker to warn of slowing demand. Nasdaq 100 futures also rose 0.3% as Tesla hilariously gained in pre-market after CEO Elon Musk vowed an unexpected $6.9 billion sale of Tesla stock – his biggest on record – would be his last (which would be at least somewhat credible if he didn’t say that after every previous stock sale). Europe’s Stoxx 600 Index erased an initial drop, while the dollar slumped, and 10Y Treasury yields traded flat around 2.79%, while the 2s10s curve remained inverted by a massive 50bps. Crude oil dropped below $90 a barrel as a major pipeline from Russia to central Europe was set to resume flows in the coming days, and industry estimates showed an increase in US inventories. Gold and Bitcoin edged lower.”

VIX futures bounced to 22.34 this morning and remains near the top of its trading range.  It is on an aggressive buy signal after having made the Master Cycle Pivot on Friday.  Confirmation of the buy signal lies at the mid-Cycle support/resistance line at 25.02, where the buy signal may be universally recognized.

8:50 am

VIX futures are dropping to a new low, at 20.60.  The Master Cycle has been stretched to day 280.  How rogue will it go?

Today’s op-ex shows Max Pain at 20.00.  Puts dominate beneath 23.00 with no gamma in sight.  Calls dominate above 23.00 with long gamma beginning at 25.00.

ZeroHedge remarks, “What if the bear makes a come back?

Over the past few days we have presented a series about the bounce in five different thematic emails (premium subs only), Where are we in this squeeze…are we “there yet”?. Trading violent bounces like the one we have witnessed is hard and many get caught wrong, both ways. We expected an overshoot above the 4200 level and a “real” volatility puke. We never saw this play out, but trading is not perfect. Maybe we are not there yet, but we are definitely much closer. Time to put on the first bear trade.

Sentiment in a bear market: what do you expect?

Yes, sentiment & positioning data continues to look depressed and has kept us from going short over the past few weeks. However, if this truly still is a bear market one should not expect these indicators to swing from full risk-off to full risk-on. It is worth noting that some indicators actually are somewhat (and even markedly in some cases) off their extremes. This one below is at least 10%-points off the 1-month reading and even better than the 3-month reading. This actually means something. Do NOT expect to get the perfect sell signal from sentiment & positioning charts. You need to go early.

TNX dropped significantly at the benign CPI report.  This may alter the short-term outlook for both stocks and bonds.  The current Master Cycle is due to pivot on or shortly after the August op-ex.  Could a new low be ahead?

12:28 pm

The Ag Index only has a week to go in the current Master Cycle.  This looks dicey, but I am leaning toward another low, just to foil the experts.  In the meantime, some market gurus are calling for a “slight” shift to commodities.  No particular mention of food.

12:20 pm

SPX broke its modified Ending Diagonal and is now challenging short gamma at 4120.00.  The 100-day Moving Average lies right beneath it at 4114.14 as a confirmation of the sell signal.   The short position is looking less aggressive.

ZeroHedge observes, “The last few weeks have seen a dramatic rotation from an “inflation will overshoot forcing central banks to tighten financial conditions aggressively and imminently” narrative to a “fears of growth downsides/recession will bring forward the end of the tightening cycle and herald utopia” dream.

Rate-cut expectations have continued to drift dramatically higher in the last week while the expectations for Fed’s rate-hikes has also rebounded some in the short-term. The recent Fed jawboning has worked in the short-term to remove hopes of an imminent pivot but the higher rates are expected to go, the faster and more aggressive The Fed is expected to cut next year…

As Nomura’s Charlie McElligott details below, that rotation has now reached its peak as CTA-backed Bond- and Equities- legacy ‘Shorts’ in aggregate across net positions are back near ‘flat’, while the Commodities ‘Long’ is de-grossed back to ‘flat’ net as well.”

7:55 am

Good Morning!

SPX futures started what may be day 1 of its new Master Cycle by declining to test the 100-day Moving Average at 4116.53.  The Top may have occurred on day 259.

Today’s op-ex shows Max Pain at 4145.00 again.  However, it may have difficulty holding above the 100-day Moving Average at 4116.53.  Puts dominate the options chain beneath 4140.00  with short gamma beginning at 4120.00.  Calls populate the chain above 4150.00 with a possible long gamma starting at 4175.00.

ZeroHedge reports, “After a Monday which started off with a powerful rally only to fizzle and close in the red, overnight market action has seen a continuation of the muted drift lower, and S&P 500 futures have turned lower this morning, falling 0.2% to 4,132, near session lows after trading 0.2% higher earlier. Nasdaq futures dropped 0.5%, indicating that the index will extend its losses for a third session, and semiconductor companies like Nvidia and AMD slipped in premarket trading after Micron forecast adjusted revenue for the fourth quarter at or below the low end of its June 30 guidance. The fading of some meme stock euphoria that defined the past 3 days has not helped bullish sentiment. Treasuries dipped, with the 10-year benchmark yield rising three basis points to 2.79% as traders await Wednesday’s CPI report to gauge the path of Federal Reserve tightening.

VIX futures went higher in the overnight session, reaching 22.11 thus far.  The buy signal is at 25.00, so a long position here, while potentially profitable, would be considered aggressive prior to breaching the mid-Cycle resistance.  However, in favor of going long is the prior Master Cycle stretched to day 275,  This mean the VIX is very wound up and potentially ready for a very large move.  Prognosticators have been speculating on the VIX turning higher for the past month.  In addition, this week offers a double dose of strength on the upside.

One reason why VIX has been beaten down until now is that tomorrow’s op-ex shows Max Pain at 20.00.  Both puts and calls are heavily populated above that level,, an unusual tug-of-war.  Puts dominate beneath 23.00 while while calls dominate above 24.00.  Long gamma may also begin at 24.00.  25.00 is certain.

TNX has risen above 28.00 with the next overhead resistance at 29.07.  There are two weeks left in the current Master Cycle, with trending strength coming to the fore.  This may not be the final high of this Wave structure.  The Waves may need recalibration should TNX rise above its current high.

ZeroHedge opines, “Every time I open twitter these days, I see someone saying “Here comes deflation and its time to buy bonds!” and then providing some graph to back up the view. Typically it will involve the price of commodities, or perhaps some variation of PMI that leads core inflation. I think they a probably wrong – and I say that with about 90% confidence. At some point bonds will be a buy, but not today.”

12:33 pm

SPX is testing its modified Ending Diagonal trendline at 4135.00.  The odds of yet another rally higher are slim, but may not be completely ruled out until SPX breaks down beneath trendline support.  Additional confirmation of the breakdown occurs at the 100-day Moving Average at 4116.50.  There may be a bounce soon, so patience is the byword.

ZeroHedge comments, “Investors’ fear of missing out is back, stoking a rally in equity markets that most strategists say has gone too far against a gloomy economic backdrop.

The Stoxx 600 has risen nearly 9% since hitting a 17-month low a month ago, though that doesn’t tell the full story of what has been a significant rebound for many cyclical sectors in a big turnaround from the first half. Tech is up 20%, automaker stocks have risen 16%, consumer and industrials each advanced about 15%.

According to Nomura cross-asset strategist Charlie McElligott, the rally has been “an angst-ridden pain trade” that’s leading to an “increasingly unstable FOMO-type behavior” and carries potential for further equities inflows.”

10:30 am

The structure in GKX is troublesome, but the Cycles Model may have the proper outlook.  The current Master Cycle may end in mid-August with a potential new low near the Cycle Bottom at 392.82.  The 61.8% retracement level is at 387.70.  This may be due to the high profile reporting of the export of Ukrainian grain.  Should this occur, it may be a deep value buy.

Reports of the decline are belatedly coming out after nearly three months of decline.  However, the production of food worldwide is deteriorating.

• ZeroHedge reports, “The president of the largest farmers’ union in France has warned that a shortage of feedstock caused by severe drought may lead to a milk shortage.”
• ZeroHedge observes, “The effects of elevated food prices have rippled worldwide and forced governments to impose price controls and trade restrictions. Price increases are due to supply constraints driven by several variables, including high energy prices, geopolitics, and weather. Ukraine restarted maritime transport of crops to the rest of the world, forcing grain prices to slip, though the food crisis is far from over.We pointed out in April that the next challenge for the global food supply could be a plunge in rice production (read: here). Fast forward months later, and our suspicions appear to be right as India, the world’s largest rice exporter, has seen planting areas of the crop decline by 13% due to heatwaves and drought.”
• On Friday, ZeroHedge commented, “A video showing pigs eating a deceased pig on a farm in China went viral recently. Some of the pig farmers, working for a major Chinese financial group, said that the cannibalism occurred because of feed shortages. One expert believes that feed shortages are a reflection of bigger problems in China’s economy.”

8:05 am

Good Morning!

SPX futures re flirting with a possible probe higher this morning, on day 259 of the Master Cycle.  The new high this morning was at 4170.50, re-opening the possibility of SPX at 4200.00 – 4225.00. The retracement has been somewhat irregular, making it more difficult to follow.  However, the Cycles Model did point out the last bit of strength for the SPX arriving over the weekend.

In today’s op-ex, Max Pain is again at 4145.00.  Calls dominate above 4150, with long gamma beginning at 4180.00.  Puts rule beneath 4140.00 with short gamma at 4125.00.  This is a very tight market and there may be some gamma-driven fireworks.

ZeroHedge reports, “US equity futures rose to start the week as the “most hated meltup” continued just as we said it would over the weekend as stubborn bears are forced to cover and start chasing higher out of FOMO, while Treasury yields fell while investors assessed the path of monetary policy ahead of this week’s critical CPI data. Nasdaq 100 futures rose 0.7% while S&P 500 futures gained 0.5% by 7:30 a.m. in New York after the underlying benchmarks dropped on Friday following news that US job growth soared beyond expectations. Meanwhile, the yield on the 10-year Treasury dropped to 2.79% after soaring at the end of last week, while the dollar dipped and bitcoin jumped above $24K.”

VIX futures were higher this morning despite the rally in equities, reaching a morning high of 21.87 after being beaten down on Friday.  The Wave structure is unreadable.  As mentioned before, Wave Es are rogues.

Wednesday’s op-ex shows Max Pain at 22.00.  The shorts (puts) beneath that are sparse, while long gamma resides at 25.00.

Bloomberg reports, “Rising volatility may be about to test the US stock market’s 13% jump from June lows.

That’s the picture painted by technical charts looking at the Cboe Volatility Index, a gauge of implied equity swings for the S&P 500 known as the VIX.”

TNX pulled back this morning after Friday’s surge higher.  The rise in yields doesn’t appear to pose a threat, but a move above overhead resistance (50-day Moving Average) at 29.63 may paint a different picture for investors.

USD futures pulled back to test Intermediate-term support at 106.05 this morning.  It is now on a buy signal after making its Master Cycle low last week.  The Cycles Model suggests a 7-week rally, giving it the capability of retesting the July 2001 high at 121.21.

West Texas Intermediate Crude has consolidated this morning inside Friday’s trading range.  It still has about two weeks of further decline in the current Master Cycle.  The next support is the Cycle Bottom/ Broadening Wedge trendline at 66.14.

ZeroHedge remarks, “Oil prices have tumbled 25% since early June, driven by low trading liquidity and a mounting wall of worries: recession, China’s zero-COVID policy and real estate sector collapse, the US SPR release, and Russian production recovering well above expectations.

However, Goldman’s Damien Courvalin believes that the case for higher oil prices remains strong, even assuming all these negative shocks play out, with the market remaining in a larger deficit than we expected in recent months.”

Gold futures rose above 1800.00, but remained within Friday’s trading range.  It appears to have made its Master Cycle high on Thursday, day 261.  Once beneath the Lip of the Cup with Handle formation, it may have 5-6 weeks of decline ahead.  I found it interesting that there are two Cup with Handle formations on this chart.  The lower formation has extended from June 2020.

4:01 pm

Imagine that!  Closing price at Max Pain 4145.00.

2:28 pm

SPX stopped its retracement at 4151.58, short of the Ending Diagonal trendline and 2-hour Cycle Top.  It is on an aggressive sell signal with confirmation beneath the 100-day Moving Average at 4118.00.  Take appropriate action.

10:06 am

SPX has erased much of the loss seen at the open of the market.  While it has broken beneath its Ending Diagonal trendline and 2-hour Cycle Top at 4156.03, it stands as as top line resistance.  Should it exceed that level, SPX may still go higher to the 50% retracement level at 4225.00.  However, options are still dominating the market.  Remember, 4145.00 may be the Max Pain level.  We may see some strong moves on either side of that level.

8:55 am

ZeroHedge observes, “The massive beat in the payrolls print has removed any hopes of a Fed Pivot and sent rate-hike expectations soaring…

With the odds of a 75bps hike in September now topping 70% once again…

All of which stole the jam out of the market’s bullish donut with stocks plunging…”

8:37am

The Employment Situation Summary reads, “Total nonfarm payroll employment rose by 528,000 in July, and the unemployment rate edged down to 3.5 percent, the U.S. Bureau of Labor Statistics reported today. Job growth was widespread, led by gains in leisure and hospitality, professional and business services, and health care. Both total nonfarm employment and the unemployment rate have returned to their February 2020 pre-pandemic levels.”

The news of this report has sent the SPX directly down to the 100-day at 4118.20.  We have almost an hour before the market opens.  Stay alert and, provided the market remains negative find the earliest opportunity to go short.  Short gamma begins at 4120.00.

ZeroHedge reports, “We are now well and truly in bizarro world.

In a time when the US is in a technical recession, when tech companies are mass laying off thousands of people, moments ago the BLS reported that in July the US added a whopping 528K jobs, more than double the 250K expected, up solidly from last month’s upward revised 398K (up from 372K) and the highest since February’s 714K!

7:20 am

Good Morning!

NDX futures declined to 13272.20 as I write, still above critical support at 13020.00.  NDX has a structural resistance at 13450.00, which limits its upside today, on day 256 of the Master Cycle.  An aggressive sell awaits at a reversal today.  A decline beneath the Lip/Neckline at 13020.00 may confirm a sell signal.

In today’s op-ex, Max Pain lies at 13150.00 with long gamma at 13200 and short gamma at 13100.00 in a moderately populated options screen.  This may produce a very volatile options expiration.

ZeroHedge remarks, “Earlier today we said that JPM’s 7th and unstated reason why the rally would continue is that Goldman sellside desk warned that “without clear signs of a positive shift in macro momentum, temporary re-risking could actually increase risks of another leg lower in the market rather than signal the end of the bear market.” And since Goldman’s sellside desk is – whether on purpose or purely by accident – always wrong, and since Goldman is currently aligned with the Fed itself in hoping talk jawbone risk assets lower, we said that the translation is: “we are going up.”

But maybe this time Goldman is right?”

The Shanghai Composite bounced for a second day, but remains firmly on a sell signal.  The Cycles Model suggests another three weeks of decline that has the capability of making a new low.  The Cup with Handle formation remains in play.  Its Wave (2) peak was made in September, two months prior to the NDX peak in November, suggesting that the Shanghai Composite may lead the NDX in its decline.

ZeroHedge comments, “For a while, it was a popular narrative: Chinese stocks would outperform those in the US and other advanced economies. The thesis was simple. China needs to ease financial conditions, via a stronger equity market and weaker currency, to engineer an economic recovery, whereas the US and Europe are doing the opposite to cool inflation at the risk of a recession.

It was a great trade in June following Shanghai’s reopening from lockdown, but since then it has given up all the profit. That shows that China’s efforts to reflate the economy are facing considerable constraints.

US House Speaker Nancy Pelosi’s visit to Taiwan has left few scars in financial markets so far. Japan reported Thursday that China likely fired missiles over Taiwan during military drills for the first time, but markets have largely stayed quiet. Without dramatic escalation in coming days, geopolitical risks may give way to central bank policies and economic data as the major driver for markets.”

SPX futures are lfat this morning, holding above the 100-day Moving Average at 4118.20.  While the SPX may rally to 4200.00, a reversal from that level may be an aggressive sell, based on today being day 256 of the Master Cycle.  A decline beneath 4118.00 confirms the sell signal.

In today’s op-ex, Max Pain lies at 4145.00, while Calls dominate above 4155.00.  Long gamma may start there, as well with 5801 contracts.  Short gamma starts at 4120.00, close to the 100-day MA.  Dealers need the market to stay calm, but it may see a spike in volatility instead.

ZeroHedge reports, “Markets are muted this morning with US equity futures paring back modest gains, ahead of the much-anticipated US jobs report later Friday. S&P 500, Nasdaq 100 and Dow Jones futures are little changed as sentiment gets hit after China imposed sanctions against Pelosi and would halt military talks with the US over Pelosi trip, while European stocks slipped after a stronger Asian session. The Nasdaq has stopped just short of a 20% rebound from its June low that would meet the technical definition of a bull market. The dollar and Treasuries were steady. Oil and gold slipped and Bitcoin recouped much of yesterday’s losses.”

VIX futures started rising this morning after bottoming at 21.49 in the overnight market.  The Cycles Model suggests a double dose of strength beginning this weekend and lasting through next week.  This may be a great entry point for a long position.  The ensuing rally may last through late September with strength, I may add.

ZeroHedge remarks, “VIX – getting there

VIX has retraced the latest uptick, but note the VVIX is still above the most recent lows. Watch this closely as a constantly crashing VVIX could be reversing, and that matters. Let’s see if we can get some more inverse panic during Friday that could open up for trades using cheap(er) options plays.”

USD futures rose above Intermediate-term support/resistance at 105.96 this morning, confirming the rally may be back underway.  The next resistance is the Cycle Top at 107.94.

8:30 am

Good Morning!

SPX futures inched higher, to 4170.70 this morning.  Today is day 255 of the Master Cycle. This is the final phase of the rally where we may see a pullback, then the final probe to 4200.00.The 50% retracement value is 4225.00, but that target is fading.  Friday we may see a final move in strength, but a reversal may happen imminently afterward.

In today’s op-ex, Max Pain is at 4155.00, with calls dominating above 4160.00 and puts showing strength at 4150.00.  Long gamma may begin at 4165.00, so moves both up or down may be exacerbated.  Friday’s Max Pain is at 4145.00 with much heavier population of options.  Friday’s long gamma is at 4170.00 and short gamma beneath 4100.00.

ZeroHedge reports, “US futures are mixed on Thursday, first trading in the red, then turning green before moving unchanged, as investors shrugged off growth warnings from the bond market while Taiwan war fears faded further despite drills launched by China overnight. Oil bounced back from the lowest level in almost six months. Contracts on the S&P 500 were flat while Nasdaq futures were modestly green, suggesting the tech-heavy Nasdaq will extend an advance of 19% from its June 16 low on the back of a massive CTA, buyback and retail-driven buying frenzy.”

VIX futures consolidated near 22.00 as investors doze off with only modest fear of a decline in equities.

Investing comments, “Wall Street’s most closely watched gauge of market anxiety shows expectations of choppy trading ahead despite a recent snapback in U.S. stocks, though institutional investors’ low exposure to equities may help curb gyrations.

The Cboe Volatility Index, an options-based indicator that reflects demand for protection against drops in the stock market, recently stood at 23, following a sharp rally in stocks that has taken the S&P 500 index up 12% from its mid-June low on expectations that the Federal Reserve may be less hawkish than anticipated in its fight against inflation.

VIX readings above 20 are generally associated with an elevated sense of investor anxiety about the near-term outlook for stocks, while readings north of 30 or 35 point to acute fear.”

TNX has bulled back this morning.  Investors’ fear of a conflict with China has subsided.  However, China keep selling its US Treasuries, adding pressure on the yield.  The Cycles Model indicates the next Master Cycle only has two weeks left, but it may rally in strength.  However, an extension of the decline may alter the Wave structure, allowing for a much higher target (TNX over 50.00).

ZeroHedge remarks, “The Federal Reserve may have to go further than what the markets are factoring in to quell inflation in the current cycle.

Treasuries and stocks rallied after the Fed suggested last week that the monetary authority had reached the neutral rate, signaling that increases down the line may be more measured.

However, the Fed’s suggestion about the neutral rate — when the policy benchmark is neither contractionary nor expansionary — is likely flawed.

In its latest summary of economic projections made in June, the median of the longer-run Fed funds rate was 2.50%, alongside an inflation projection of 2%. In other words, the Fed is willing to set its benchmark at a real rate of 50 basis points.

However, with headline inflation running at 9.1%, it can scarcely be argued that the neutral rate would be less than where it was back in December 2018, when the Fed ended its hiking campaign in the previous cycle. It then projected a neutral rate of 2.75%, while inflation was comfortably around 2%.”

USD may be consolidating above Intermediate-term support at 105.94 as it hovers in no-man’s land.  It only has a week until its next Master Cycle pivot and, unless there is a terrific boost to the USD, it may end up lower by mid-week.  An MC low next week gives the USD the ability to rally through the entire months of August and September while equities sell off.