The Practical Investor

2:30 pm

SPX indeed has had a strong day…in both directions.  It first tested short gamma, then reversed higher to test long gamma.  It has shown a reluctance to go above 4150.00, since the dealers would be chasing longs in a bear market, leaving Tuesday’s high intact.  Imagine that.  While the SPX may go higher, there may be a stronger likelihood of the SPX closing nearer the Max Pain zone at 4100.00.  Be prepared for the decline.

ZeroHedge observes, “Is the great retail puke finally over?

Regular readers will recall that about a month ago, JPMorgan found that ahead of the mid-May burst of selling dragged the S&P briefly into a bear market, the retail buying impulse showed signs of slowing and after adjusting for inverse ETFs, not only did the May retail net flow turn negative for the first time since Mar 2020, but also the monthly inflow in April was smallest since Sep-2020.

However, despite that sharp reversal in recent retail optimism, JPMorgan quant and flow expert Nick Panigirtzoglou wrote in mid-May that he was skeptical of the idea that April’s equity fund outflow, the highest outflow since March 2020, was only the beginning of a likely more protracted phase of equity fund outflows in reversal to 2021’s record inflows.

Indeed helped by strong inflows over the past week, May has seen a small inflow into equity funds, partially reversing the April outflow.”

7:50 am

Good Morning!

NDX futures consolidated in the overnight session, retracing approximately 50% of yesterday’s losses.  The Cycles Model calls for a day of trending strength today.  The question is, has the decline already begun?  If so, the strength may be in the decline.  Otherwise, NDX may make a new retracement high near 13000.00.  NDX is on an aggressive sell signal.

NDX does not offer options on Tuesdays and Thursdays.  Friday’s options expiration shows the puts in control up to 12650.00.  Long gamma starts at 12800.00, while short gamma begins at 12520.00.

ZeroHedge reports, “Microsoft shares are sliding in the pre-market after its cut top- and bottom-line guidance due to a strong dollar (seeing an additional $460 million FX impact in Q4):

On June 2, 2022, Microsoft Corporation updated our guidance for the quarter ending June 30, 2022 due to unfavorable foreign exchange rate movement in the quarter through May.

A slide deck with our revised guidance is furnished as Exhibit 99.1 to this report.”

SPX futures also bounced, but were stopped at the Lip of the Cup with Handle near 4125.00.  Should it stay beneath that level, the trending strength today may be to the downside.

Today’s SPX options show the Max Pain at 4100.00.  Expiring options turn positive above 4130.00 with long gamma possibly beginning at 4150.00 (definitely over 4200.00).  Expiring options turn short at 4050.00 and short gamma controls the scenario beneath 4000.00.  For the time being, the options market wags the indices, but they are ripe for a blow-up.  Should the SPX stay beneath the Lip of the Cup with Handle this morning, the risk of a panic decline is elevated.

ZeroHedge reports, “US futures advanced for the first time this week, as investors tentatively bought the dip and were cheered by a drop in oil prices. S&P 500 futures were 0.6% higher by 7:30 am in New York, while Nasdaq 100 futs gained 0.7%. Already light trading volumes are even lower, with UK markets shut for a long weekend holiday to mark Queen Elizabeth II’s Platinum Jubilee. Stocks slumped Wednesday after JPMorgan CEO Jamie Dimon’s warning to investors to prepare for an economic “hurricane”, reversing his cheerful comments from just one week earlier, and disagreeing with JPMorgan’s permabullish strategist, Marko Kolanovic, who expects stocks to rebound by the end of the year and the US to avoid recession. Treasuries held losses, with 10-year yields above 2.90%. The dollar slipped while the yen held near 130 per dollar after its recent decline on the prospect of widening interest rate differentials with the US.”

The NYSE Hi-Lo Index closed right at the trip wire yesterday after completing its Master Cycle High on day 254.  The next probable Master Cycle low may not happen until the first week of July.

VIX futures consolidated yesterday, remaining near the low.

The Wednesday, June 8 options show Max Pain at 25.00.  Long gamma begins at 30.00 while short gamma is indeterminate.  There are a few pockets of VIX shorts, but it appears that participants are less willing to short the VIX.

USD futures are lower, but within yesterday’s trading range.  The bounce appears to have been deflected at Intermediate-term resistance at 102.57.  The Cycles Model suggests a Master Cycle low in about two weeks.  Should the 50-day Moving Average at 101.33 be broken, the intended target may be the lower trendline of the Broadening Wedge near 97.50.

Crude oil futures went lower to 114.38 this morning after crossing beneath the Cycle Top support at 118.12 yesterday.  It is now on a sell signal.  The Cycles Model suggests a decline may be in store for crude until the end of July.  Loss of liquidity and market forces conspire to make a potentially significant decline to near 50.00 this Summer.  Afterwards, oil prices may rise like never before.

ZeroHedge informs us, “Update: confirming earlier specuilation that OPEC+ would boost output by more than expected, moments ago we learned from Energy Intelligence reporter Amena Bakr that the OPEC+ JMMC will recommend an output increas of 648K for July and August, a 50% increase to the 432K b/d increase expected. Bakr notes that all JMMC members are in agreement on the recommendation which will soon be reviewed by OPEC+ ministers, who are expected to accept it promptly.”

Gold futures may be making a strong bid of strength as they probe toward the 50-day Moving Average at 1899.50.  It may go considerably higher.  The Cycles Model suggests another 1-2 weeks of strength as it completes its retracement rally.

ZeroHedge observes, “Demand for American Gold Eagles exploded in May according to the latest data from the US Mint.

The mint sold 147,000 ounces of American Gold Eagles in varying denominations totaling 200,500 coins. That was a 67% increase from March.

So far this year, the US Mint has sold 661,500 ounces of American Eagles. For the year, gold bullion demand is up a staggering 617%. When you factor out COVID-19-related sales disruptions, bullion sales are up 400% over the 5-year average between 2015 and 2019.”

11:48 am

VIX is on the rise after making a potential Master Cycle low this morning on day 254.  Should that be correct, tomorrow’s period of strength may propel the VIX to or above its neckline in a possible “limit down” day.  June monthly options expiration is two weeks away and is very highly populated on both sides.

ZeroHedge observes, “Mark June 15th (VIX exp.) & June 17th (options exp. OPEX) as a key turning point due to very large expirations and the FOMC (6/15).

Until then, SpotGamma warns, rallies should be categorized as “short covering” and subject to failure.

It turns out, as Bloomberg reports, that distrust of any tentative rebound in global stocks is at the highest in a decade.”

11:42 am

The Ag Index extended its decline to day 263 of the Master Cycle.  This action may lead investors to believe that it is also participating in the decline.  Not so.  The lack of news about our food supply may lead investors to look elsewhere, but this may be the most critical component of our economy going forward.

11:27 am

TNX has exceeded its Intermediate-term resistance at 28.78 and is now on track to breach its Cycle Top at 30.29.  The question of “How far?” is on everyone’s minds.  The next resistance is the November 2018 high at 32.48, but it may go even higher.  Wave relationship guidelines suggest a possible high near 34.30.  The Cycles Model suggest the next Master Cycle high may occur during the first week of July.

11:16 am

BKX has ended its retracement at the 50-day Moving Average at 116.60 and the nearby Lip of its Cup with Handle formation at 116.00.  This proxy for liquidity is looking seriously downward and may confirm the reversal in equities and bonds.

11:10 am

SPX has breached the Lip of the Cup with Handle formation and declined beneath 4100.00, giving a probable sell signal.   It may decline to 4070.00 or lower before a bounce that may remain beneath the Lip.  The period of strength anticipated for tomorrow may invert, giving us a possible limit down day.

ZeroHedge remarks, “US equity and bond markets just lurched lower (in price) and the dollar spiked higher as a combination of headlines hit.

• Stagflationary signals from manufacturing surveys – inflation is sticky and degrowth is not slowing it
• Bank of Canada hike – CAD yields spike knocking into USTs
• JOLTS printed super strong – Fed has more work to do
• JPMorgan’s Jamie Dimon warned on the economy, “It’s a hurricane, you’d better brace yourself.”
• oh and Fed QT started today.

Put all that together and equities tumbled…”

8:30 am

Good Morning!

NDX futures appear to be consolidating beneath yesterday’s high.  While the retracement appears complete, it may extend until Thursday, per the Cycles Model.  Today’s expiring options show Max Pain at 12650.00.  Calls dominate above 1270.000, while puts dominate beneath 12600.00, with short gamma at 12500.00.

QQQ (308.28) is also in the Mas Pain zone, with calls dominating above 309.00 and long gamma at 310.00.  Puts dominate beneath 303.00, where short gamma appears.

SPX futures have risen modestly, but no new high.  We may expect equities to linger near the top, at least until the last bit of trending strength is past.  A sell signal appears beneath the Lip of the Cup with Handle near 4120.00, with confirmation beneath 4100.00.  The 38.2% Fibonacci retratement lies at 4126.00, while the 50% retracement value is 4223.84.

Today’s expiring options show that puts dominate beneath 4100.00 with short gamma at 4050.00.  Calls dominate above 4140.00 with long gamma at 4175.00.  The Cycles Model suggests a top may yet be made near 4175.00 to 4195.00.

ZeroHedge reports, “Stocks traded off session highs as weaker-than-average volumes mark the beginning of summer, and as traders awaited the jobs report later this week and eyed the official start of the Fed’s second Quantitative Tightening program (which will end as “gloriously” as the first one) which will drain the Fed’s balance sheet by $95BN per month.

Contracts on the S&P 500 were 0.2% higher by 730 a.m. in New York, after the underlying index finished May up exactly 0.1%;  Nasdaq 100 futures were up 0.1%. European bourses and Asian stocks were modestly in the red to stgart the new quarter. The latest drop in Treasuries pushed 10-year yields closer to 2.9% as traders raised bets on Federal Reserve interest-rate hikes. The dollar advanced against major peers, and bitcoin traded around $31,500. Oil rose as investors assessed the future of OPEC+ unity, just as ministers from the group prepare to meet on Thursday to discuss its supply policy for July. Crude advanced about 10% in May, stoking more inflation worries.”

The NYSE Hi-Lo Index may have made its Master Cycle high yesterday at day 253.  However, the Hi-Lo may go higher in the next day or two.  Note that the deeper low made on May 23 did not register as strongly as the May 12 low.

VIX futures made a new low at 25.85 this morning and is now “in the zone” for a Master Cycle low.  The Cycles Model also shows a possible low-reversal on Thursday.   This new low may be the Master Cycle low on day 254.  We may know for certain by the end of the week.

TNX futures challenged Intermediate-term resistance at 28.78 this morning, then eased back beneath the line.  The Cycles Model suggests the correction may be over and TNX awaits the impulse that may send it through resistance.

ZeroHedge notes, “It appears that not even progressive democrats are dumb enough to believe Biden’s glorious lie that Putin is to blame for the explosive inflation of the past year, best encapsulated by the farce that is this quote…”

USD futures consolidated overnight, remaining within yesterday’s trading range.  USD is being supported above the 50-day Moving Average at 101.24, but may beak through soon, as the current Master Cycle may yet decline to mid-June.  The trendline and mid-Cycle support at 97.05 may be the target for this decline.

12:51 pm

Today the Ag Index finally may have made its Master Cycle low on day 263.  I had warned last week that the low might be in by the end of the week, but the extension needed to be made.  For those who would prefer being long and to diversify away from shorts, this is a good choice.  The next Master Cycle high may occur in mid-August, but it may not be the final high for the year.  The last Master Cycle high of this series may be near Thanksgiving Day.

ZeroHedge remarks, “Concerns over potential shortages of eggs nationwide are growing due to inflation and supply chain issues made worse by avian flu.

“Like many sectors of the economy, egg farming is impacted by inflation and experiencing some limited supply chain challenges due to a variety of factors,” the American Egg Board (AEB) said in a May 24 statement in response to an Epoch Times inquiry.

The AEB was created by an act of Congress in 1976 at the request of egg farmers as a way to pool resources for national-level marketing.

Regarding avian flu, the AEB said, “It is important to note that less than 5 percent of commercial layer flocks have been impacted by avian influenza and those farms affected are working with state and federal agency partners to safely resume operations.

“Our farmers continue to work diligently to ensure that Americans nationwide have consistent access to their favorite protein: the incredible egg.”

12:38 pm

While the Cycles Model suggests a high on Thursday, it may invert to a low instead, should the downtrend re-establish itself.  Wave C of (2) may be complete between 4175.00 and 4195.00.  In addition, Wave C will have completed 43 hours of rally by 2:00 pm.  This may be a good time to re-establish or add to your short positions with minimal risk.  Sell beneath 4100.00.

7:55 am

Good Morning!

SPX futures reversed to the Lip of the Cup with Handle formation at 4124.30 before bouncing.  There may be another attempt to go higher on Thursday, a day of trending strength.  Friday may be the high for this Cycle, but the probability of a new retracement high exists.  Should Friday mark the high, it will have completed this Cycle of decline-and-bounce in 59 days.  Thus, I have restated the degrees of decline in the chart.  Since [1]-[2] took 86 days, it is now labeled as a Primary Degree Cycle.  (1)-(2) takes an average of 60 days, therefore it is an Intermediate Degree Cycle.  The next potential decline is a Minor Degree decline that may take 30-34 days.  The Decline in 2020 was an Intermediate Wave (C) of Primary Wave [4].  The Entirety of Wave [4] was 6 months.  The next degree higher is the Cycle Waves.  Cycle Wave I may take 10.45 months, ending in mid-October.  These are the building blocks (Cycles) making up the current decline.

In today’s expiring options, the Max Pain zone is at 4070.00.  Don’t be surprised if SPX declines beneath 4100.00, since the options market is still influencing the closing levels.  Puts are favored immediately beneath that level, but short gamma kicks in at 4000.00 in a big way.  Above that level is a mixed bag, with a sizeable number of puts at 4200.00.  There may be an effort to rally the SPX to 4200.00 to neutralize the cache of puts.  The next possible Master Cycle low may occur during the week after the June monthly options expiration.

ZeroHedge reports, “After posting solid gains on Monday when cash markets were closed in the US for Memorial Day, boosted by optimism that China’s  covid lockdowns are effectively over, and briefly topping 4,200 – after sliding into a bear market below 3,855 just over a week earlier – on Tuesday US equity futures fell as oil’s surge following a partial ban on crude imports from Russia added to concerns over the pace of monetary tightening, exacerbated by the latest data out of Europe which found that inflation had hit a record 8.1% in May.  As of 7:15am ET, S&P futures were down 0.4% while Nasdaq futures rose 0.1% erasing earlier losses. European bourses appeared likely to snap four days of gains, easing back from a one-month high while Treasury yields climbed sharply across the curve, joining Monday’s selloff in German bunds and European bonds. The dollar advanced and bitcoin continued its solid rebound, trading just south of $32,000. Traders will be on the lookout for any surprise announcement out of the White House after 1:15pm when Joe Biden holds an Oval Office meeting with Fed Chair Jerome Powell and Janet Yellen.”

NDX futures declined to a low of 12602.00 this morning and appears to be lingering near that low.  It has not risen to the Lip of the Cup with Handle formation.  But, as mentioned earlier, there is a possibility of another probe higher on Thursday.  The Cycle Bottom support at 12319.48 appears to be the level at which the new decline may be confirmed.

Options expiration is a mixed bag in the NDX.  QQQ (309.10)  favors calls above 305.00 and puts beneath that level.  Gamma is difficult to ascertain, but may have potency beneath 300.00.

ZeroHedge comments, “NASDAQ – 900 points above Tepper “lows”

Last week NASDAQ broke above the trend channel that has been in place since early April. The squeeze has been powerful, destroying a lot of “smart” p/l. 13k is the first bigger resistance to watch. Next one above that level is the 13400 where the 50 day comes in. So far Tepper’s 12k has proved to be the significant support.

VIX futures reached Memorial Weekend high at 28.21 before easing back.  Today is day 253 in the Master Cycle, which means we are close to a turn higher.  However, Thursday comes as a day of weakness in the VIX Master Cycle, while it is a day of strength for equities.  It is likely that the Master Cycle may end at or near mid-Cycle support at 23.08 on Thursday.

TNX rallied today (day 258) after potentially making its Master Cycle low last Wednesday (day 252).  It tested Intermediate-term resistance at 28.75 and is easing back down.  It is still possible that TNX may make a new low, so the confirmation of the reversal lies above Intermediate-term resistance.  Everyone is watching the Fed, as if they control the markets.  The Cycles Model suggests otherwise.  The Cycles Model suggests the Primary Wave [5] high in early July, after which rates may go down.  Thus, the Fed is more likely to follow the 10-year Treasury Cycle.  However, it may take until October for the Market to start recovering.

ZeroHedge remarks, “Will the Fed pause its rate hikes as markets correct? That is the question that everyone is trying to answer. Of course, after more than a decade of monetary interventions, investors have developed a “Pavlovian” response to market declines and the “Fed Put.”

Classical conditioning (also known as Pavlovian or respondent conditioning) refers to a learning procedure in which a potent stimulus (e.g. food) is paired with a previously neutral stimulus (e.g. a bell). What Pavlov discovered is that when the neutral stimulus was introduced, the dogs would begin to salivate in anticipation of the potent stimulus, even though it was not currently present. This learning process results from the psychological “pairing” of the stimuli.

Importantly, for conditioning to work, the “neutral stimulus,” when introduced, must be followed by the “potent stimulus,” for the “pairing” to be completed. For investors, as each round of “Quantitative Easing” was introduced, the “neutral stimulus,” the stock market rose, the “potent stimulus.” 

Each time a more substantial market correction occurred, Central Banks acted to provide the “neutral stimulus.”

So, with the market having one of the roughest starts ever to a new year, investors are asking the question:

“What does this mean for the economy and how bad does it need to be for the Fed to pause?”

USD futures are on a bounce to 102.19 over the weekend.  There are about two more weeks left in this Master Cycle, so the bounce may be limited by Intermediate-term resistance at 102.40 before going lower.

1:30 pm

GKX (Ag Index) is on day 256 of its current Master Cycle, suggesting an imminent reversal may be at hand.  It has made a classic “running correction “where Wave C is higher than Wave A.  We are so close to the reversal that an immediate long position may be made.  Confirmation of the reversal comes at the trendline at 590.00.

ZeroHedge reports, “A food insecurity expert said the world has only about 10 weeks of wheat supplies left in storage amid the conflict in Ukraine and as India has moved to bar exports of wheat in recent weeks.

Sara Menker, the CEO of agriculture analytics firm Gro Intelligence, told the United Nations Security Council that the Russia–Ukraine war “simply added fuel to a fire that was long burning,” saying that it is not the primary cause of the wheat shortage. Ukraine and Russia both produce close to about a third of the world’s wheat.”

12:00 noon

SPX fell to 3875.00 this morning, then bounced.  Thus far the bounce is under the 31.8% retracement at 3916.06 as I write.  While the decline appears to be impulsive, it must decline again beneath 3875.00 to maintain the crash scenario.  Most analysts are expecting a rip-your-face-off rally back to 4100.00 as this week is seasonally one of the more positive weeks of the year.  A further decline to new lows is not expected and will cause the most pain among the unprepared.  Should the rally continue above the 61.8% retracement level at 3941.20, the chances of a rally to 4100.00 are heightened.

ZeroHedge comments, “Following the cataclysmic drop in new home sales, notably weak PMIs, and ugly Richmond Fed data, reality is starting to bite this morning as ‘real’ economic data confirms the apparent collapse in ad-spend that Snap’s warning signals.

The reaction to all this was dramatic to say the least.

Stocks puked back all their gains from yesterday and then some, with Nasdaq and Small Caps now at Friday’s lows (before the late-day melt-up)…

7:50 am

I will be on a week-long hiatus from the markets and, hopefully getting a much-needed rest.  I’ll be back in a week.

Good Morning!

NDX futures declined to 11762.30 after making a 50% retracement of the decline.  All of yesterday’s gain has been lost as I write.  In tomorrow’s expiring options, Max Pain is at 12060.00, with puts ruling the levels beneath that, intensifying beneath 12000.00.   Short gamma begins at 11750.00.  Calls ae scarce at nearly all levels.

ZeroHedge comments, “Equity liquidity is horrible

S&P 500 futures top-of-book depth now nearly matches the lows reached in 2008 and 2020

Source: Goldman

Liquidity generational lows

The picture in bonds mirrors the one in equities. Chart shows Top-of-book depth, 5-day average, $ mln.

SPX futures declined to a morning low of 3912.20, erasing all of yesterday’s gains.  In today’s expiring options, Max Pain sits at 3955.00-3970.00.   SPX options are now traded 5 days a week.  Long gamma resides above 4000.00.  Short gamma begins at 3925.00.  Margin become a problem beneath 3900.00.

ZeroHedge reports, “It’s not every day that a relatively small social media company (whose market cap is now less than Twitter) slashing guidance can send shockwaves across global markets and wipe out over a trillion in market cap, yet SNAP’s shocking crash after it cut its own guidance released one month ago which hammered risk assets around the globe, and here we are. Add to this the delayed realization that Biden was just spouting his usual senile nonsense yesterday when he said Chinese trade tariffs would be discussed and, well, wave goodbye to the latest dead cat bounce as futures unwind much of Monday’s rally.

US futures declined as technology shares were set to come under pressure after Snap warned it would miss second-quarter profit and revenue forecasts amid deteriorating macroeconomic trends. Nasdaq 100 futures slid 1.5% at 7:30 a.m. ET and S&P 500 futures retreated 1.0% just as the benchmark was starting to pull back from the brink of a bear market amid fears the Federal Reserve’s tightening could hurt growth. Meanwhile in other markets, Chinese tech stocks fell by more than 4%, while Europe’s Stoxx 600 Index dropped 1%, led by losses in shares of utilities and retail companies. The dollar was little changed, while Treasuries advanced.

VIX futures are rising, but remains within yesterday’s trading range.  In Wednesday’s  expiring options Max Pain resides at 29.00.  VIX appears to go into long gamma above 30.00.

ZeroHedge reminds us, “The sheer relentlessness of the equity market sell-off continued apace last week with the Dow capping off its first run of 8 successive weekly declines since 1923. Meanwhile, the S&P 500 saw its first run of 7 successive weekly declines (tumbling 15.1% over this period) since the dotcom bust aftermath in 2001.

As DB’s Jim Reid notes in his Chart of the Day on Monday, there have only been three previous declines of 7 or more successive weeks. We had a 7-week losing stretch ending in March 1980 (total -15.8%) and two 8-week stretches ending in March 2001 (-16.9%) and May 1970 (-21.5%). We have never had a 9-week stretch of losses: will Biden take the the first ever credit for that? In any case, we are around record-breaking territory.”

TNX has declined beneath Intermediate-term support/resistance at 28.66.  The Cycles Model suggests another week of decline, most likely to (or beneath) the 50-day Moving Average at 26.74.

USD futures continue to slide with a new overnight low of 101.75.  The Cycles Model suggests a continued decline through mid-June.  There may be a bounce at the lower trendline of the Broadening Wedge formation.

2:50 pm

SPX is testing its 61.8% Fibonacci retracement level at 3983.61 and may have exhausted its short squeeze for the day.  Max Pain is at 3950.00, but it may not hold at the close.  Short gamma begins at 3900.00.  Some analysts are catching on to the “Head & Shoulders” formation with a target of 3400.00.  However the new Master Cycle decline has just begun.  What happens when it goes lower?  The first Master Cycle decline went 704.00 points from top to bottom in 51 days.  The last Master Cycle decline went 779.00 points in 44 days.   If the Cycles Model is accurate, the next Master Cycle decline may be 34.4 days long with a potential decline near 1550.00 points.

ZeroHedge explains, “A curious trend has emerged in Bank of America’s monthly Fund Manager Survey: with every passing month, as the S&P grinds lower and lower until it finally briefly dipped into a bear market on Friday, the prevailing consensus among Wall Street investors for where the “Fed put” is has also declined with every passing month…

… and is currently at just 3529, down from 36347 in April, and from 3698 in February.”

7:45 am

Tomorrow morning will be the last day of blogging this week.  I have a commitment to attend a state-wide convention on Wednesday through Friday and a memorial service for my deceased mother on Saturday, followed by an extended family gathering.  A very busy week, indeed.

Good Morning!

NDX futures have rebounded over the weekend to a high of 12042.33, very near the 50% retracement value at 12036.00, but short of the Thursday retracement high of 12066.90.  Friday’s action appears to be an expanded correction and not a recovery.  The decline (crash) is due to resume shortly.  Whether there is more to the correction is to be determined.  A further rally above 12066.90 is possible, but not anticipated at this time.  The 61.8% retracement value is at 12164.00.

Today’s expiring options in NDX show Max Pain at 12100.00.  While positive above that level, calls are sparse and positive gamma is not evident.  Today’s expiration favors puts at 12050.00, while short gamma starts at 11750.00.

ZeroHedge comments, “Citing estimates from JPMorgan, over the weekend Bloomberg wrote that courtesy of a Biden administration terrified of what soaring inflation will mean for the Democrats in the midterms, and a Fed that is determine to do anything – even crash the market and spark a recession – to do Joe Biden’s “kill inflation” bidding, the US faces a new scary threat: a plunge in wealth which JPM estimates at least $5 trillion, and could reach $9 trillion by year-end.

In short, the world’s richest nation is waking up to an unpleasant and unfamiliar sensation: It’s getting poorer… and worst of all, it’s getting poorer at the behest of its own leaders.

Since the start of the year, the S&P 500 Index is down 18%, the Nasdaq 100 has lost 27% and a Bloomberg index of cryptocurrencies has plunged 48%. That all amounts to “a wealth shock that is set to drag on growth in the coming year,” JPMorgan economists led by Michael Feroli wrote in a note Friday.”

SPX futures hit a weekend high of 3957.30, but has receded back beneath Thursday’s high of 3945.96.  The bounce may be complete, leaving an expanded flat correction.  The 50% retracement level is at 3950.52.  This leaves a trap for the unwary, since the decline may resume imminently.  We may find ourselves is a “no bid” environment.

Today’s options expirations show Max Pain at 3950.00.  Options turn positive at 4000.00.  Short gamma begins at 3875.00-3900.00.

ZeroHedge reports, “S stock futures advanced for a second day after staging a furious rally late on Friday having slumped into a bear market just hours earlier, after President Joe Biden said China tariffs imposed by the Trump administration were under consideration, although concerns about hawkish central banks and record Covid cases in Beijing continued to weigh on the sentiment.  Contracts on the S&P 500 were up 1% by 7:15 a.m. in New York, trimming earlier gains of as much as 1.4% following remarks from Christine Lagarde that the European Central Bank is likely to start raising interest rates in July and exit sub-zero territory by the end of September which sent the euro sharply higher and hit the USD. Meanwhile, Beijing and Tianjin continue to ramp up Covid restrictions as cases climbed. Nasdaq futures also jumped, rising 1.1%. Europe rose 0.6% while Asian stocks closed mostly in the green, with Nikkei +1% and Hang Seng -1.2%. The dollar and Treasuries retreated, while bitcoin jumped to $30,500 as the crypto rout appears over.”

VIX futures are consolidating within Friday’s trading range, suggesting little appetite for risk-on behavior.  Trending strength may begin as early as tomorrow, while it may build exponentially after the Memorial day holiday.

In the May 25 expiring options, Max Pain is at 29.00.  Calls are heavily favored at 30.00 and above, while long gamma begins at 37.50.

TNX is on a reflexive bounce to retest Intermediate-term resistance at 28.58 before moving lower.  A resumption of the decline, with strength, may begin as early as today or tomorrow.  The next Master Cycle low may come in next week.

USd declined beneath its Cycle Top support at 102.97, confirming its well signal.  The Cycles Model suggests the decline may continue to mid-june.  The probable target appears to be the lower trendline of the Broadening Wedge formation at 97.00.

1:00 pm

SPX has now fallen into a bear market.  In addition, it is embarking on Wave [iii] of 3 of (3) of c, a lethal combination.  We may expect this Wave alone to reach 3000.00.  Most analysts are reading this formation as a Head & Shoulders with a minimum target of 3400.00.  The Cup with Handle is much more  bearish.   Short gamma is in full force and may intensify over the next couple of weeks and may last as long as mid-June.

ZeroHedge remarks, “Traders will close old positions for an estimated $1.9 trillion of derivatives while rolling out new exposures on Friday. This time round, $460 billion of derivatives across single stocks is scheduled to expire, and $855 billion of S&P 500-linked contracts will expire according to Goldman.

As SpotGamma notes, this expiration is not particularly large for SPX or QQQ with our models showing ~15% of delta & gamma expiring, but sizeable for SPY (37% of gamma, 20% of delta).

The impact of the sizable 3900 strike gamma exposure cannot be understated however…

Most of this position expires today, as does a large percentage of the at-the-money SPX/SPY/QQQ options position (seen in light grey). The expiration of these positions reads as less support for next week.”

8:00 am

Good Morning!

SPX futures reached a morning high of 3952.20, under the 38.2% (cash) Fibonacci level of 3958.38.  SPX is still deep within short gamma territory beneath 3975.00 in the morning options.  Oddly enough, a huge put holding at 4000.00 has been removed, easing the downward pressure.  Both am and pm options are positive above 4000.00, with Index options lighter in the pm.

SPY (close: 389.46) options, which close this afternoon, favor puts at 412 and below, with short gamma starting at 400.00.  Should the SPX open lower, a firestorm of volatility may ensue.

ZeroHedge reports, “Contracts on the S&P 500 advanced 1.1% as of 7:15a.m. in New York suggesting the index may be able to avoid entering a bear market (which would be triggered by spoos sliding below 3,855) at least for now, although today’s $1.9 trillion Option Expiration will likely lead to substantial volatility, potentially to the downside.

Even with a solid jump today, should it not reverse as most ramps in recent days, the index – which is down almost 19% from its January record – is on track for a seventh week of losses, the longest such streak since March 2001. Futures on the Nasdaq 100 and Dow Jones indexes also gained. 10Y TSY yields rebounded from yesterday’s tumble while the dollar was modestly lower. Gold and bitcoin were flat.”

NDX futures rose to 12094.00 in the overnight market and has eased lower   It’s 38.2% retracement value is 12092.69.  This morning puts are favored beneath 12150.00 with short gamma at 12100.00.  An open beneath that level may cause increased volatility.

In tonight’s expiration, QQQ (289.58) is loaded with puts beneath 300.00, with short gamma starting at 290.00.

ZeroHedge remarks, “An interesting way to exercise the brain is to imagine what some of us might consider the unimaginable. That is what I ask you to do now. Many investors continue to believe that even if the stock market drops they will be smart enough to get out after taking only a minor hit. Others simply think no way exists for these markets to fall sighting a lack of investment alternatives and what they see as the Fed put having their back.

After the financial crisis in 2008 when the market took nasty and violent swings many investors came away with the feeling they learned a few things that will enable them to leap to safety before it is too late. That brings us to today.

Almost everyone agrees that after years of moving ever upward this bull market is long in the tooth. Today with  the economy rapidly slowing and debt across the world having exploded it seems any opportunity to panic the bears should not go unexploited. It is against this backdrop that one allows optimist fellas to think, this time is different.”

VIX futures reached a low of 28.41 this morning, but has regained some of its losses.  Most analysts watch the top of the chart and observe that VIX is no higher than it was in January.  However, they fail to observe the rising lows, adding upward pressure on the VIX.  A breakout may be explosive.

TNX is retesting Intermediate-term resistance at 28.47 this morning prior to heading lower.  The Cycles Model is warning that a very large surge of liquidity may be heading into Treasury notes as it leaves equities through the end of the month.  Let me warn that a Wave 4 may descend to the top of Wave 1, should the conditions be met.

USD futures may be bouncing off its Cycle Top support at 102.87 as it consolidates beneath its high.  The Cycles Model has USD declining through mid-June.

3:25 pm

After the institutions sold this morning, there was an expectation that foreign and retail investors would pick up the buying.  That did not happen and now institutions and mutual funds have stepped in to sell again.  Unfortunately the dealers and hedge funds supporting the options market are under-hedged and must sell/short.  This may not end well for them.

1:58 pm

SPX reached the 38.2% (futures) retracement at 3939.00 given this morning.  There may be another attempt at the 38.2% (cash) retracement at 3958.00 before the close.  Should stocks go down from here, there may be a firestorm of selling.  35% pf SPX short gamma comes off tomorrow, but only if SPX can rally back above 4000.00 in the next 24 hours.  Otherwise all of those puts must be hedged by the dealers.  I am not sure I agree with Charlie McElligot, but his comments are always interesting.  It appears that the May 12 low was the Master Cycle low after all, as today would be day 266, 12 days into a whole new Cycle.  That gives us a very short, 4.3-day retracement  and  the beginning of new decline lasting several weeks, should the market fail here.

ZeroHedge observes, “Yesterday was different.

Bond yields tumbled with stocks (they have tended to rise recently as stocks tanked)…

…and VIX spiked as stocks were spanked (it has been decoupling, exuding calmness for a few days until then)…

The change was catalysed by two factors:

1) “Hard-Landing” / “Recession” narrative keeps gaining-steam, so bonds are beginning to “work” as a risk-asset hedge, and

2) Yesterday’s VIX-piry (and tomorrow’s Op-Ex) removed much of the overhang suppressing vol, crushing hopes for some form of ‘stabilization’

So given the ‘change’, what happens next?”

11:15 am

I have had three failed attempts to log in to my brokerage account.  On the third attempt, they messaged me back, asking that I call them (for my protection).  My attempted call was refused by my cellular company, saying they were taking emergency calls only.  I wonder if this is a nationwide phenomenon???  So far, the internet and email are still working.

10:29 am

SPX made a 22% retracement to 3923.90, then gave up the ghost in an epic failure of a retracement.  I have often mentioned that the institutions make their largest play in the first hour of the day, then return in the final hour for the “mop up.”  Having been unable to regain the morning losses, the big players must determine whether to go short or not for the rest of the day.  Will this be a 10% down day?

8:30 am

Good Morning!

NDX futures dove to 11700.90, just above the previous low, which should put us on high alert for a retracement back to 12573.00.  Remember, Friday is a huge options expiration day and all the indices are in serious short gamma.   While yesterday’s decline was clearly impulsive, the powers-that-be may make every effort to redeem their predicament.  The 50% retracement value is 12200.00.  Should the bounce exceed that, the chances of an even higher  retracement may prevail.  I would prefer the bounce to stay beneath the 38.2% retracement at 12100.00.

SPX futures did similarly, pausing at 3858.90, just .03 above the previous low.  Should the SPX break down further, the decline remains intact.  However, should the low hold, the probability of a strong retracement arises.  The 50% retracement is as 3974.00, while the preferred 38.2% retracement lies at 3939.00.  Thus far the futures are lingering near the low, so we wait for a move to clarify the situation.  Should the cash market gap down beneath yesterday’s close, it may be favorable to an extended decline from here.

ZeroHedge reports, “US stock futures slumped again, extending yesterday’s brutal selloff that erased $1.5 trillion in market value on concerns about everything from slowing growth, to Chinese lockdowns, to soaring inflation and tightening monetary policy. Contracts on the S&P 500 were down 1.2% 7:30 a.m. in New York, having earlier dropped to 3,856, one point away sliding 20% from January’s all time highs, and triggering a bear market. The underlying index tumbled 4% on Wednesday, the most since June 2020, as consumer shares cratered after Target slashed its profit forecast due to a surge in costs. Nasdaq 100 futures were down 1.2%. 10Y TSY Yields slumped about 7bps, dropping to 2.833, while the dollar also dropped after yesterday’s surge; bitcoin was flat around $29K.

VIX futures rose to a new high at 33.11, possibly testing Cycle Top resistance, but not yet threatening the neckline near 40.00.

TNX opened beneath Intermediate-term support at 29.28, indicating a continued decline.  The Cycles Model suggests a continued decline through the end of the month.

ZeroHedge observes, “There’s an alarming lack of conviction in the way markets are flip-flopping all over the place, and that’s a tribute to the epoch-making transformations occurring across the global economy.

In case you think that’s an exaggeration, consider what’s been going on in Treasuries, often cited as the world’s deepest market and a potential haven for investors panicked into prizing return of capital over returns on capital.

The past two days saw the benchmark 10-year yield jump 10 basis points and then drop by the same amount, as traders gyrated between inflation and recession fears.

USD futures sank to a new low at 102.95 this morning.  The combination of lower confidence and lower yields are taking their toll on USD.

ZeroHedge remarks, “In a recent ‘Chart of the Day’ from DB’s Jim Reid, the credit strategist makes it very clear not only what comes next to the US economy (that would be stagflation for anyone who happens to be an idiot, or is a central banker, but we repeat ourselves), but also how much the consensus has moved for the US economy over the last year.

And while Reid would still not call real GDP growth at just below 3% this year “stagflation,  he admits that the direction of travel is clearly moving in that direction, especially for 2023, which is when DB’s base case for a recession kicks in (to this day, DB remains the only bank which has recession penciled in as its 2023 base case; we expect every other bank to follow suit in the next 2-3 months).”

12:38 pm

As ZeroHedge mentioned, liquidity coming out of stocks is pushing the 10-year T-Note yield down beneath the Cycle Top support at 29.16.  The 10-year yield may go considerably lower over the next three weeks.

12:28 pm

This decline is beginning to show its legs as the last two days’ lows have been taken out.   The next level of support may be at the 2-hour Cycle bottom at 3870.86.   Should it be exceeded, the May 12 low at 3858.87 is the next candidate.  The bear market in the SPX begins at 3855.00.  Good luck with that.  The possibility of a retest of yesterday’s high remains until support is taken out…

ZeroHedge advises, “Remember the rally yesterday and how great that felt… “is the bottom in?” etc… yadadadada… Well… it’s gone…

US equity futures are tanking after the cash markets open, taking out yesterday’s lows…

As Nomura’s Charlie McElligott notes, it appears this is the potential unwind of the “TINA” phenomenon, as, thanks to the repricing of the risk-free rate – then pushing into yields on spread-product – “there is an alternative” to equities once again.”

8;10 am

Good Morning!

NDX futures hit a morning low of 12407.00 and appears to remain near the bottom.  The current Master Cycle is not due until the end of the month.  Today’s action may determine whether that is a new low or not.  this may be a minor Wave 2 retracement and may be smaller in size and duration.  If so, the correction may be complete and a panic decline may be in the works.

ZeroHedge remarks, “One month after the April Fund Manager Survey was downright “apocalyptic” with the majority seeing a bear market and stagflation – yet nobody rushing to sell – and with optimism plunging to levels right before Lehman, today Bank of America published the latest, May FMS (available to pro subscribers in the usual place) in which the bank’s doom-and-gloomy Chief Investment Strategist Michael Hartnett (who most recently warned that the bear market will end when the S&P hits 3,000 in October) found that his view is shared by a growing number of even more apocalyptic Wall Street professionals, because the survey which polled 331 panelists managing $986 billion in AUM, revealed global growth expectations plunged even more compared to last month, and dropped to fresh all-time lows (net -72%) …

… with profit expectations slumping past the COVID lows to net -66% (from 63%), the weakest since Oct’08, smack in the middle of the Global Financial Crisis. (note lows in global profit expectations consistent with other crisis moments such as LTCM, Dotcom bubble burst, Lehman bankruptcy, and COVID)…”

SPX futures touched 4097.50 after the close, then hit a low of 4053.10 this morning as the reversal appears to be underway.  From a technical point of view, the Lip of the Cup with Handle near 4015.00 was due to be retested.  In addition, from a Cyclical point of view, the Cycle bottom must also be retested before proceeding to much lower levels.  This may be the beginning of a panic Cycle that everyone has been fearing.  today is day 258 of the Master Cycle.  The two choices are (1) the MC was made last Thursday or (2) it may be made in the next 4.3 days.  A panic decline here will undoubtedly move the MC low to next Tuesday.

In today’s expiring options, the Max Pain level is 4090.00.  Calls dominate above 4100.00, but only by a thin margin.  In other words, long gamma is nowhere to be seen.  Short gamma appears at 4000.00, but the lack of calls may cause a slippery slope at a higher level.

ZeroHedge reports, “The brief bear market rally in US stocks was set to end with a whimper following Tuesday’s strong dead cat bounce, after Fed Chair Jerome Powell gave his most hawkish remarks to date. Hope that China lockdowns would soon end turned to skepticism, as the yuan slumped after its biggest gain since October, while dismal guidance from Target – which warned that inflation was crushing margins – confirmed what Walmart said yesterday, namely that the US consumer is running on fumes. An 11% plunge in the latest weekly mortgage applications only reaffirmed that a hard-landing is inevitable and just a matter of time. Nasdaq 100 futures dropped 1%, while S&P 500 futures slipped 0.7% after US stocks surged on Tuesday. Treasury yields hit session highs, rising back to 3.0%, and the dollar snapped a three-day losing streak. Bitcoin got hammered again, sliding back under $30k.”

VIX futures rallied above the 50-day Moving Average, hitting a morning high of 26.97 thus far.  Once the VIX exceeds the Neckline of the Head & Shoulder formation, a reasonable target may be 55.00 for Wave 3 of (3).  Wave 5 usually follows quickly on the heels of Wave 3, so an MC high in the VIX may occur in early June.

TNX futures spiked to 3.015 before pulling back beneath 3.000 this morning.  What follows may be a powerful drawdown, as Wave 4 may decline as far as the top of Wave 1.  the Cycles Model suggests that this may happen between now and the end of the month.  This may be the last month to lock in a favorable mortgage rate as rates go down before the final push higher this summer.

ZeroHedge comments, “Following March’s modest rise in Housing Starts and Permits, analysts expected reality to catch up with the homebuilder market in April (just as we saw in the NAHB sentiment survey slumping to 2 year lows). Housing Starts and Building Permits both dropped in April but the picture was mixed with Starts falling just 0.2% MoM (against -2.1% MoM exp), but that was due to a huge downward revision in March Starts from +0.3% to -2.8% MoM?!

Building Permits tumbled 3.2% MoM (more than the expedcted 3.0% MoM drop) with only minimal revisions to March.”

USD futures consolidates in the overnight market as they approach the Cycle Top support.  That may soon be broken as the USD is due for a decline through the middle of June.

9:25 am

The  GSCI Ag Index broke through the neckline of its Head & Shoulders formation yesterday.  This is a fresh buy signal that cannot be ignored.  While the new Master Cycle may top out on or near May 27, the Cycle following it may quickly recover and continue its rise through mid-August.  While liquidity may have a part to play in this asset class, shortages may be the real culprit.

ZeroHedge reports, “Italian League party leader Matteo Salvini has warned that if the war in Ukraine does not end soon, chronic food shortages will cause an immigration wave that will lead to 20 million African migrants trying to enter Europe.

If Ukrainian grain supplies continue to be impacted, Salvini cautions, “Significant hunger is expected on the African continent, which will be a humanitarian, then a social, and finally an Italian problem.”

“Without peace there will be famine in the autumn and 20 million Africans will be ready to go,” he added.”

ZeroHedge states further, “If you think that the food and diesel shortages are bad now, then you will be absolutely horrified by what the globe is experiencing by the end of the year.  All over the planet, food production is being crippled by an unprecedented confluence of factors.  The war in Ukraine, extremely bizarre weather patterns, nightmarish plagues and a historic fertilizer crisis have combined to create a “perfect storm” that isn’t going away any time soon.  As a result, the food that won’t be grown in 2022 will become an extremely severe global problem by the end of this calendar year.  Global wheat prices have already risen by more than 40 percent since the start of 2022, but this is just the beginning.  Meanwhile, we are facing unthinkable diesel fuel shortages in the United States this summer, and as you will see below there are “no plans” to increase refining capacity in this country for the foreseeable future.”

7:45 am

NDX futures rose to 12540.90 as it seeks to retest either the Cycle Bottom resistance or the Lip of the Cup with Handle formation.  NDX and SPX are on slightly different Cycle patterns, where the SPX appears to be indicating bottoms, while NDX Cycles indicate tops.  In this case, the NDY Cycle suggests a potential Master Cycle high on or near May 25, eight days from now.

ZeroHedge observes, “In addition to the mauling suffered by the OG of all tech investors, Tiger Global, which we profiled earlier and which saw widespread sales and liquidations in its tech-heavy portfolio, a rundown of the latest 13F data reveals that many other hedge funds also cut their exposure to the stock markets worst performing sectors in the first quarter – primarily tech – while significantly increasing their holdings of surging energy shares, according to a Bloomberg analysis of the data. Overall, the moves have been beneficial to the funds with the sectoral trends continuing into the second quarter, and adverse to those funds – like Tiger and its offspring – which retained an overweight exposure to tech.”

SPX futures made an overnight high of 4086.00, then eased down, a bit.  There is a distinct probability that this bounce is a Wave [a], while Wave [b] may reverse down to a deeper low by the end of the week, which may be a closer fit to the Master Cycle (day 258).  Today is day 257.

Today’s options expiration shows Max Pain at 4005.00.  While options are positive above that level, the call population is thin and long gamma doesn’t kick in until it hits 4100.00.  Puts are favored beneath 4000.00, with short gamma at 3900.00.  That gives the dealers wriggle room all the way up to the Lip of the Cup with Handle without suffering serious damage until Friday.  You will notice that there are options expirations every day of the week, now.  The key is Friday’s options expiration, in which calls are virtually nonexistent and  puts are favored beneath 4200.00 with short gamma starting at 4100.00.  Considering the overhead resistance at 4100.00, Friday’s options pose a serious threat to the longs.  Spot Gamma thinks that capitulation risk lies at 4000.00.

ZeroHedge reports, “Another day, another dead cat-bouncing, bear market rally.

After Monday’s flattish session which saw tech names slump on fresh inflation fears, Nasdaq futures rebounded on Tuesday, setting up technology stocks for solid gains after a six-week rout as investors were encouraged by China’s easing covid lockdowns and amid speculation that Beijing regulators may ease a yearlong clampdown on internet companies at an upcoming meeting with tech executives. Nasdaq 100 futures jumped 2% by 7:00 a.m. in New York after the underlying gauge sank on Monday on concerns about a slowdown in economic growth; S&P 500 futures rose 1.6%. Treasury yields rose modestly above 2.90%, and the dollar retreated. Bitcoin managed to rebound back over $30K.”

VIX futures made a low of 26.49, testing the 50-day Moving Average at 26.36 and making a 55% retracement.  The Wave structure reaches parity and the 61.8% retracement value near 24.50.

ZeroHedge reminds us, “Abandoning “free puts” hurts

There has been three puts working in favor of the “longs”: the Fed put, the BTD put and the bond/equity diversification put. All have failed over past months. As BofA writes: “The Fed, in fact, has gone from suppressing vol and supporting risk assets to supporting vol and suppressing risk assets (from long Fed put to short Fed call)”. The investment bank argues for put collars as a favorable hedging strategy. We are slightly higher to when they recommended the strategy of buying the SPX Sep 3875/3375 put spread and selling the 4375 calls. From a vol point of view we like the logic.”

TNX has bounced back above the Cycle top support/resistance area.  This may be indicative of money flowing back into stocks, temporarily.  The Cycles Model suggests the decline in TNX may resume until the end of the month.

USD futures decline to 103.25 in the overnight session, confirming that the correction may end in a decline through the middle of June.  The target may be either the Broadening Wedge trendline at 97.00 or the mod-Cycle support at 96.52.

3:14 pm

Today’s action implies that the Master Cycle low may have been made last Thursday, May 12, on day 252 of the Master Cycle.  There is a strong alternate outlook that there may actually be a lower low in the next 8-9 days that may qualify as the actual MC low.  Thursday’s low occurred on day 44 from the Wave (2) high, making this decline a shorter one than the Wave (1) decline that was 52 days in length.  Should that be the case, a retracement back to the Lip of the Cup with Handle may follow.

8:15 am

Good Morning!

The Shanghai Composite Index has begun its decline into Wave 5 of Wave (3) of Primary Wave [C], a very strong degree.  This may have a great influence on the tech-heavy NDX.The Cycles Model suggests the decline may last through the end of May, which may stretch the decline in U.S. stocks, especially the NDX.

ZeroHedge reports, “Three things we learned last week:

1. China’s credit growth plunged. Friday’s data showed banks lent 645 billion yuan ($94.9 billion) of new loans in April, when Shanghai was locked down. It was less than half of the amount expected, and the lowest since 2017. The credit slump creates a strong case for policy easing, as Bloomberg economist David Qu wrote. Indeed, nine of 14 economists surveyed by Bloomberg expect the benchmark one-year loan prime rate will be cut this week.

Lower rates may help on the margin, but when Covid restrictions disrupt the economy and life, business and households may remain reluctant to borrow to expand production or buy homes. The biggest stimulus would be a turnaround in public-health policies.”

NDX futures are coming down after reaching a high of 12496.00.  Despite the massive rally on Friday, the rate of decline is steepening.  In today’s expiring options, the Max Pain zone is near 12425.00. Puts are favored in the options at 12400.00 and below.

In the NDX options (301.94), Max Pain is at 306.00 and puts are favored at 305.00 and below, with short gamma starting at 300.00.  You can see that the dealers and hedge funds supporting the options market avoid short gamma at all costs, since that is the trip wire for a panic decline.

ZeroHedge reports, “Friday’s bear market rally dead-cat bounce appears to be over, and global stocks have started the new week in the red with US equity futures lower after a “huge miss”, as Bloomberg put it, in Chinese data fueled concerns over the impact of a slowdown in the world’s second-largest economy. As reported last night, China’s industrial output and consumer spending hit the worst levels since the pandemic began, hurt by Covid lockdowns.”

SPX futures rallied to 4045.00 before easing back down to the Max Pain level at 4025.00.  While the call are thin above that level, puts begin in earnest at 4000.00 and short gamma kicks in at 3950.00 to 3975.00.  Note that current market valuations are being compared to 5 and 10-year averages, precisely when the Fed was pumping liquidity.  Things will get much worse…

ZeroHedge remarks, “Wilson now worried about bear market rally

In the short term that is. The real bear has not fully revealed himself yet…Wilson: “The bottom line is that this bear market will not be over until either valuations fall to levels (14-15x) that discount the kind of earnings cuts we envision, or earnings estimates get cut. However, with valuations now more attractive, equity markets so oversold and rates potentially stabilizing below 3%, stocks appear to have begun another material bear market rally. After that, we remain confident that lower prices are still ahead. In S&P 500 terms we think that level is close to 3,400, which is where both valuation and technical support lie” (Morgan Stanley Strategy)

Not expensive

The forward 12-month P/E ratio for SPX of 16.6 is below the 5-year average (18.6) and below the 10-year average (16.9).”

VIX futures have begun a rally from Friday’s low that may trigger the Head & Shoulders neckline.  The Cycles Model suggests a burst of trending strength on Tuesday that may break the range-bound consolidation that has been in place since December.

TNX may be retesting the Cycle Top at 28.82 this morning.  The Cycles Model suggests the decline may continue through the end of May, with the 50-day Moving Average as the prime target.  This falls in line with the idea that the stock market decline may also extend to the end of the month.

USD futures show that it reached a weekend high of 105.15.  This morning it has eased back down.  The Cycles Model shows trending strength today and again at the end of the week.  This may be due for the demand for USD from the liquidation of stocks.