The Practical Investor

11:00 am

ZeroHedge gives more detail, “The template of 1929 and 1987 is coming into focus in recent trading days.

Let’s start with the 1929 crash. The Dow Jones Industrial Average began the week of October 5 with a slight gain, and then the rest of the week (October 6-9) were all down days as well. This first week down brought stocks to new intermediate lows that had held for several months. The next week, the DJIA opened up down on Monday, October 12 and traded down each day of the week. Then, bang, on October 19, 1929 we experienced a 20% waterfall decline, which carried into Tuesday. The whole 11-day episode erased 28.94% from the DJIA.”

10:06 am

With options expiration looming, the need to get SPX into the Max Pain zone is immense.  However, it may not last.  The Cycles Model suggests the next 4.3 days may be give us a real panic Cycle.  Prepare to embark on the roller coaster.

ZeroHedge remarks, “Futures surged overnight and holding gains after the cash market open this morning, having bounced almost to the tick off the ‘bear market’ trigger levels for the S&P 500.

As SpotGamma warns, outside of the very large 4000 strike, the call positions remain light. We note that in particular the strikes above hold little in the way of call gamma, and so there is little to offer resistance above 4000.

It just seems like the market is “full up” on downside protection, and chasing higher IV’s/short-sale risks remain high (ie. you can get face-ripping rallies here).”

7:35 am

Good Morning!

NDX futures rose to 12178.80 before easing down.  The decline is complex and wide-ranging, giving false signals along the way.  Today the Cycles Model suggests a severe down day despite the morning rally. Should the Model be accurate, the decline may last into Monday with a brief respite on Tuesday.  The final drawdown for Wave 3 of (3) may last through late Monday, May 23 or early Tuesday, May 24.  Options are deep in short gamma territory and may not let up until May 20.

ZeroHedge observes, “Two weeks ago, after Twitter reported disappointing earnings and admitted that it was “overestimating” millions of users since 2019, we asked whether this “merits a purchase price adjustment.”

A few days later, noted short-seller Hindenburg Research picked up on this and in a report warned that Twitter is overpriced and that there is “significant risk” that the deal could get repriced lower.”

The NDX Hi-Lo Index shows approximately 50% of NDX stocks making new 52-week lows.  In the coming week(s) we may see over 80% making new 52-week lows.

SPX futures may be hitting trendline resistance from the short-term trading channel near 3980.00 (not shown).    Today’s pm options expiration show Max Pain at 4025.00.   Expiring options turn positive at 4050.00, while expiring options turn short at 4000.00.  Short gamma begins at 3925.00.  Little wonder it closed at 3930.00 yesterday.  Options still control the flow, but as more investors bail, options expiration is becoming more painful for the dealers.  The Cycles Model suggests today may be a strong down day by the close.

ZeroHedge reports, “After dropping to the edge of a bear market, with Eminis sliding to precisely 3,855 or exactly 20% lower than the all time high, US index futures rebounded sharply from the brink (the same way they did on Dec 24, 2018 when the S&P spent a few minutes in a bear market) as the stabilization of much of the cryptosphere (where no new stablecoins suddenly cratered to 0) and an overnight easing in Treasury yields provided some relief after a two-day slide. Nasdaq 100 futures climbed 1.7% as of 730 a.m. in New York. S&P 500 futures were also higher, rising 1.1%, as high as 3976 after dropping to 2,855 yesterday. Twitter shares plunged as much as 26% in New York premarket trading after Elon Musk tweeted that his deal for the social media company was “temporarily on hold.” Yields on 10-year US Treasury yields fell for a fourth consecutive day on Thursday, reaching 2.85%, before edging higher again on Friday. The dollar index dipped but remains on course for its longest streak of weekly gains since 2018, while bitcoin and ether reversed several days of harrowing losses to rise back over 30,000 and 2,000, respectively.”

VIX futures declined to 30.25 in the overnight session.  The May 18 options expiration shows Max Pain at 29.00 while expirations turn long at 30.00 and long gamma begins at 35.00.  To the extent that VIX has remained range-bound since December makes it difficult to predict where VIX may go next.  That leaves most investors unwilling to hedge at these prices.

ZeroHedge (TME) remarks, “Muted VIX in a pic

VIX is not higher than where it was on previous sell offs this year when the index was much higher. GS writes: “Even though the VIX’s reaction to recent spot downside has been mild, its high starting point leaves vol high overall, and we like strategies with a short volatility bias, including put selling and 1×2 call spread overlays.” We agree on this point.

TNX popped above the Cycle Top resistance at 28.65 but may not stay there long.  The Cycles Model suggests the decline may last through the end of the month.

ZeroHedge reports, “After a stellar 3Y auction and a subpar 10Y sale yesterday (although judging by the plunge in yields those who bought it are quite happy today), moments ago the Treasury concluded the week’s refunding issuance where investors were eyeing to see if today’s sale of $22BN in 30Y paper would translate in the first 3% coupon since March 2019.

It did not, because the auction stopped just below 3.00%, and even though the When Issued was trading at 3.006%, the auction stopped through the When Issued by 0.9bps at 2.997%, which nonetheless was well above last month’s 2.815% and the highest since the 3.014% in March of 2019.”

USD futures consolidated beneath yesterday’s high at 104.96 this morning.  It may go higher as another burst of trending strength may be due this weekend.

Gold futures passed beneath the weekly mid-cycle support at 1828.11 yesterday and continues its decline today, hitting a low of 1799.70.  The uptrend is broken and the decline may extend to mid-June, per the Cycles Model.  The goldbugs are strangely silent, as it flies in the face of “gold as money.”  In fact, the loss of liquidity means that gold is like any other commodity that may crash with the onset of a recession.

ZeroHedge proclaims, “The paper price of the yellow rock sjust tumbled back below $1800 for the first time since early Feb…

This is well below pre-Putin-invasion levels and Gold is now underwater for 2022…

…because nothing says ‘sell paper gold’ like raging global inflation…”

3:38 pm

Some analysts believe that stocks are becoming reasonably priced at 15-16 times forward earnings.  That’s a bunch of B.S.  The attitude of the glass half full is still holding sway.  In reality bear  markets are likely to bottom at 5-7 times earnings.  By contrast, the 2009 low was at 13.7 times earnings.  We haven’t seen a real bear market since 1981,when I entered the business.  In addition, earnings estimates are still too high.  We are in a recession and margins will become much thinner.

12:14 pm

The Ag Index has launched from its 50-day Moving Average at 561.80 to begin a new Master Cycle.  This Cycle may only be about 3 weeks in length, as the prior MC stretched.  The objective is to rise above the neckline at 592.00.  Should it rise with sufficient amplitude, the neckline may then offer support in the next Cycle.  An alternate view is that it remains beneath the neckline for another test of downside support, due to market liquidity issues.  Stay posted on this one.

ZeroHedge reports, “As global food prices remain at record highs and war wages in Europe between two of the world’s largest grain suppliers, troubling videos from China show farmers slashing winter wheat production ahead of harvest times, adding even more uncertainty about food security.

Bloomberg reports China’s agriculture ministry is very concerned about the matter. The ministry is investigating if there’s illegal destruction of wheat crops.

The ministry said this comes three weeks before harvests, adding the crop was subjected to devastating floods late last year. There’s also concern that soggy field conditions in southern China due to abnormal rainfall could affect farmers’ ability to harvest.”

ZeroHedge further explains, “If you think that things are bad now, just wait until we get into the second half of this year.  Global food supplies have already gotten very tight, but it is the food that won’t be produced during this current growing season in the northern hemisphere that will be the real problem.  Worldwide fertilizer prices have doubled or tripled, the war in Ukraine has greatly reduced exports from one of the key breadbaskets of the world, a nightmarish bird flu pandemic is wiping out millions of chickens and turkeys, and bizarre weather patterns are absolutely hammering agricultural production all over the planet.  I have often used the phrase “a perfect storm” to describe what we are facing, but even that phrase really doesn’t seem to do justice to the crisis that we will be dealing with in the months ahead.

10:08 am

The Banking Index, our liquidity proxy, has been making new lows as it approaches its Master Cycle low due next week.  To pinpoint it more precisely, the Cycles Model informs us of a triple strength play around May 20.  That makes the Cup with Handle target possible, as impossible as it may seem.  It appears that liquidity may become scarce in the following week.  Don’t let it surprise you.  Note that the BKX has already fallen nearly 30% since the first of the year.

7:50 am

Good Morning!

The Shanghai Composite Index appears to be completing its last period of strength in the current Master Cycle prior to a larger decline into the end of May.  While it seems excessive, the Cup with Handle target is still in the running for the final resting place.

ZeroHedge comments, “The most recent macroeconomic figures show that the Chinese slowdown is much more severe than expected and not only attributable to the covid-19 lockdowns.

The lockdowns have an enormous impact. Twenty-six of 31 China mainland provinces have rising covid cases and the fear of a Shanghai-style lockdown is enormous. The information coming from Shanghai proves that these drastic lockdowns create an enormous damage to the population. Millions of citizens without food or medicine and rising suicides have shown that the infamous “zero covid” policy often disguises mass population control and repression.

It is easy to use the covid-19 lockdowns as the reason for the weakening of the Chinese economy but that would be a gross simplification. The problem is deeper.”

NDX futures continue the decline on heavy volume after yesterday’s failed bounce.  Tomorrow’s options are deep into short gamma beneath 12100.00.  The heavy population of puts tapers off after May 20.  While the Cycles Model suggests the Master Cycle may on or shortly after May 20, the VIX suggests a probable extended Master Cycle.  The Cup with Handle target may be achieved by then.  Analysts are still predicting a bounce, so we aren’t close, yet.

SPX futures dipped beneath 3900.00 this morning as the decline extends.  SPX is now in free fall territory and whatever happens today may only be a prelude to another very strong down day tomorrow. In tomorrow’s expiring options the Max Pain zone is 4095.00.  Puts dominate the options population beneath 4070.00 and short gamma begins at 4050.00.  While the options taper off on Monday, there is another large crowd of puts on Friday, May 20.

ZeroHedge reports, “The relentless slow-motion crash sparked by the Biden Fed (which is hoping that a market collapse will halt inflation) that has sent stocks lower for the past 6 weeks continued overnight, and Wall Street’s main equity indexes were set for more declines after losing $6.3 trillion in value since their late-March high as stubborn inflation in the world’s biggest economy bolstered the case for more aggressive monetary tightening by the Federal Reserve.

Nasdaq 100 futures were down 0.7% at 730am in New York, a day after the underlying gauge sank to its lowest since November 2020 on concerns that higher-than-expected inflation in April would lead to an even more aggressive pace of policy tightening by the Fed. S&P 500 were last down -1% and dropping below 3,900, the level. And with eminis trading around 3,900 means that stocks are now at bearish Morgan Stanley’s year-end base case price target of 3900, and 100 points away from Michael Hartnett’s Fed put of 3,800.”

While the NYSE Hi-Lo Index decline wasn’t as steep yesterday as previous days, the Cycles Model suggests a very deep day today in the Hi-Lo.

VIX futures made an overnight high at 34.76.  In the May 18 options expiration, the Max Pain zone is 29.00 .  Options turn positive at 30 and long gamma starts at 35.00.  A breakout may change the sentiment of the VIX options market and a rally above 40.00 may be unstoppable.

TNX futures dropped to  an overnight low of 28..16, but opened slightly higher.  Crossing the Cycle Top support at 28.42 creates a sell signal.  The Cycles Model suggests the decline may last through the end of May.

USD futures made yet another high at 104.74 this morning.  Today and the weekend may prove to be the high points of this corrective expansion as the USD may reverse down early next week.  The Cycles Model suggests a decline through mid-June in the current Master Cycle.

West Texas crude challenged the upper trendline of the Broadening Wedge at 106.20 this morning, then changed course to a slight loss.

Investing.com — The Organization of the Petroleum Exporting Countries cut its forecast for world oil demand this year, due to the effect of COVID-19 lockdowns in China and the war in eastern Europe.

In its monthly report for May, OPEC said it now expects global demand to grow by an average of only 3.4 million barrels a day this year, down from a prior estimate of 3.7 million b/d.

That masks a dramatic slowdown in growth between the first and the second quarters of this year. While first-quarter demand was up 5.2 million b/d, demand growth is expected to fall to 2.8 million b/d in the current quarter.

ZeroHedge remarks, “The Biden administration has canceled one of the most high-profile oil and gas lease sales which was pending before the Department of the Interior, at a time when Americans are suffering from record-high prices at the pump.

The DOI’s reasoning? A “lack of industry interest in leasing in the area” of more than 1 million acres in the Cook Inlet in Alaska. What’s more, the department also halted two leases under consideration in the Gulf of Mexico due to “conflicting court rulings that impacted work on these proposed lease sales,” according to CBS News.”

Gold futures declined to 1839.24 this morning, near the weekly mid-Cycle support at 1828.37.  Should it drop through that level, the Wave count will have to be modified.  Since recent laws have made the transport of gold illegal, it has changed it from a potential alternate currency to just another commodity.  As a result, gold may be affected by  the lack of liquidity in the market  (see BKX).  A further decline may search out support at 1675.00.  The next Master Cycle low may occur in mid-June.

8:10 am

Good Morning!

Hope springs eternal as the NDX futures rallied to a new retracement high at 12552.90 this morning.  Yesterday was “relatively” calm as the Cycles Model suggested.  Today, on the other hand, is likely to be a bloodbath, despite the short squeeze lifting stocks higher in the pre-market.  The problem is, most analysts have no idea what’s next.  “What are we reading today, tea leaves, or chicken entrails?”

SPX futures reached an overnight “squeeze high” at 4055.20, within yesterday’s trading range.  The Cycles Model calls for a day of trending strength, so the squeeze may turn into a rout by the end of the day.  In today’s expiring options, Max Pain is at 4045.00 while short gamma starts at 4000.00 where the slippery slope ends and the drop off begins.  It is little wonder the dealers and hedge funds are attempting to keep SPX in the neutral zone.

ZeroHedge reports, “US index futures and European stocks were set to extend their recovery from the longest streak of weekly declines since 2011 ahead of an inflation report that was expected to show prices cooled in April, while falling bond yields supported battered tech stocks; Asian equities also advanced, halting a seven-day slide, as new Covid cases tumbled in Shanghai with the local government saying there was basically no COVID community spread in 8 of 16 districts, and the Chinese covid scare appears set to fade.

S&P 500 futures were trading at session highs, up 1.2%, and Nasdaq 100 futures were up 1.4%, while Europe’s Stoxx 600 climbed for a second day. The dollar fell and Treasury yields slumped, with the 10Y trading a 2.91%, a 30 basis points slide in the past three days, providing further support for high duration tech names. US-listed Chinese stocks rallied in New York premarket trading after the Asian nation reported easing Covid cases. Tech stocks also climbed in Hong Kong and Europe on Wednesday.”

The NYSE Hi-Lo Index had its second worst day in two years.  The calm surface at yesterday’s close is a lie.  Investors are bailing, although this is not capitulation, yet.  The sense of defeat at the bottom may be so great that no one will be looking up.

VIX futures are spiking higher, recently hitting 34.25 and climbing.  As SPX declined beneath 4000.00, the pressure to hedge will grow exponentially.  The ratio of puts to calls is 10 to 1 beneath 4000.00, suggesting VIX may rise to 90.00 or higher this summer.

TNX is on a bounce this morning that may turn into a rout later in the day.  An alternate explanation may allow a continued rally in TNX through the end of May.  Details may be forthcoming.

ZeroHedge reports, “fter March’s surge in consumer prices, analysts’ consensus is that CPI has peaked and April was expected to show a big slowing from +8.5% YoY to +8.1% YoY, however, CPI printed hotter than expected at +8.3% YoY…

Source: Bloomberg

Bear in mind that headline CPI is still at its second highest since 1982.’

USD futures rose to 104.14 this morning, short of Monday’s high.  There is still room to go higher.  A sell-off in stocks may increase the demand for dollars as investors choose cash.  The common wisdom is the dollar should decline with a higher CPI print.

ZeroHedge comments, “Watch out for a non-textbook surprise in the dollar just after U.S. inflation data hits. In the past 12 months, CPI has mostly come in hot — yet the BBDXY has fallen more often than not. That probably runs counter to the belief that the U.S. currency should rise on a high reading as it steers the Fed toward faster rate hikes.

The one time CPI surprised on the downside in January, the dollar fell 0.2% in the first thirty minutes after the data. Here’s a breakdown of the numbers:”

Crude oil bounced this morning, testing the 50-day Moving Average at 104.56.  An alternate retracement target may be the Broadening Wedge trendline near 106.00.  However, the short-term trend may be down with the next low near the June options expiration.

ZeroHedge explains, “Global stocks of refined petroleum products have fallen to critically low levels as refineries prove unable to keep up with surging demand especially for the diesel-like fuels used in manufacturing and freight transportation. The result has been a surge in prices refiners receive for selling fuels compared with prices they pay for buying crude and other feedstocks, boosting their profitability significantly.

In the United States, refiners currently receive roughly an average of more than $150 per barrel from the sale of gasoline and diesel at wholesale prices, while paying only around $100 to purchase crude.

The indicative 3-2-1 margin of $50 per barrel is based on the assumption a refinery produces two barrels of gasoline and one barrel of diesel from refining three barrels of crude.”

9:45 am

The Ag Index may have made its Master Cycle Low yesterday on day 270.  That leave an irregular correction wit a resumption of the rally through the end of May.  The Head & Shoulder formation offers a significant target for the index that may take it through mid-August.  The bumblers in Washington don’t have a handle on it at all.

ZeroHedge remarks, “Samantha Power: ‘Never let a crisis go to waste.’ Do the World Economic Forum and China agree?

“Fertilizer shortages are real now.”

Uttered by USAID’s Samantha Power in a May 1 ABC interview with former Democratic advisor George Stephanopoulos, the words briefly drowned out the din of the news cycle.

They were not unexpected to some.

Power, who served as U.N. ambassador under Obama, mentioned fertilizer shortages after weeks of hints from the Biden administration.

White House Press Secretary Jen Psaki repeatedly alluded to challenges obtaining fertilizer in recent press briefings. So did President Joe Biden himself in a joint statement with EU President Ursula von der Leyen.

“We are deeply concerned by how Putin’s war in Ukraine has caused major disruptions to international food and agriculture supply chains, and the threat it poses to global food security. We recognize that many countries around the world have relied on imported food staples and fertilizer inputs from Ukraine and Russia, with Putin’s aggression disrupting that trade,” the leaders stated.”

8:20 am

Good Morning!

NDX futures declined further to 12104.70 before a bounce to 12415.20.   NDX is deep into short gamma territory with little energy to shake off the bears until options expiration on May 20, when a massive amount of puts fall off the books.  That agrees with the ending of the current Master Cycle in equities.  In other words, there is more downside to come.

ZeroHedge observes, “Good luck reshuffling big books

Nothing new really, but liquidity is horrible. You don’t need much size in order for this market to move. Add short gamma to the mix and pain is huge.

Source: GS

Source: GS

Welcome to “max” destabilizing territory

QQQ and SPY short gamma are basically at “max” levels. Frustrated dealers are absolutely smoked after FOMC. First we had the squeeze higher immediately post Fed where short gamma dealers had to chase deltas desperately higher. The market reversed abruptly and dealers had to sell everything they had bought much lower, plus all the additional deltas they have been desperately selling as short gamma has made them longer and longer deltas the lower we have moved (for the 1 min explanation of gamma see here). Expect the destabilizing effect to continue working. Don’t forget it works both ways as gamma does not care about direction…”

…..

This morning ZeroHedge reveals, “After tumbling as low as 3960 a few hours earlier, the lowest since April 2021, futures have reversed and are spiking higher not just due to the sporadic dip buying attempts discussed earlier but because CNBC’s Jim Cramer reported moments ago that hedge fund legend David Tepper, whose “Balls to the Wall” comment 12 year ago sent stocks soaring higher, has covered his Nasdaq – and more importantly – Treasury (which is just another long duration proxy) shorts.”

SPX futures bottomed at 3967.40 last night, then bounced above 4000.00.  There are few calls below 4000.00, meaning there is no “fuel” for a bounce, much less a significant rally.  On the contrary, at 50-point intervals where calls exist, puts outnumber them by 10X.  You may note that Tuesday options expiration has begun this week, intensifying the battle for directional supremacy.  Frankly, having daily options expiration raises the probability of a blow-up.

ZeroHedge reports, “The relentless rout that erased $3.4 trillion from the Nasdaq 100 in the past month paused on Turnaround Tuesday as battered tech names including marquee “generals” attracted scattered dip buyers, but nothing (yet) like the full-throttled BTFD buyfest observed in months gone by. Futures on the tech-heavy index rose as much 1.4% as bargain hunters returned after the Nasdaq 100 slumped to the lowest since November 2020 on Monday, capping three days of bonebreaking losses. S&P 500 futures were 0.7% higher to 4,016 after rising as much as 1.2% earlier but also after plunging to as low as 3,961.”

VIX futures rose to 34.75 in the overnight session until short covering marred its luster.  It is possible that, once  Wednesday options expiration are done, the ability to rise above the neckline will increase exponentially.  The Cycles Model suggests the next Master Cycle high in early June.

ZeroHedge comments, “Update (1700ET): As SpotGamma warned earlier, S&P’s 4,000 level was in play as a serious threat to any downside and while S&P closed around 4,120 on Friday, few believed we would get there today, but we did… and closed below it…

Interestingly, while stocks puked their guts out, VIX underwhelmed in its spike-higher-ness, closing below last week’s highs (as stocks closed below corresponding lows)…

Here is SpotGamma to explain why and suggest how today’s close below 4,000 may trigger a capitulation that leads to a new VIX high…

The NYSE Hi-Lo Index fell beneath 1000.00 for the first time since March 2020.  This is not capitulation…yet.  That may come in August.  In the meantime, selling may intensify through the balance of the month.  The Cycles Model suggests a low in early June.

TNX gapped down in a clear reversal this morning after making a new (not a Master Cycle) high.  This reversal ma lead to a decline to the 50-day Moving Average at 24.77 by the end of the month.  What is significant about yesterday’s high is that it may have broken the downtrend since October 1981. 

USD futures appear to be consolidating beneath yesterday’s (not a Master Cycle) high.  The Cycles Model suggests a decline through mid-June as it completes a correction that may decline to the lower trendline of the Broadening Wedge at 97.00.

Crude oil made a new low overnight at 100.47 before a bounce brought it back near yesterday’s close.  It is likely to test the 50-day Moving Average at 104.43 before resuming its decline through late June (Wave 3).    The likely target may be the lower trendline of the Broadening Wedge.

3:33pm

SPX has declined beneath 4000.00 where there are virtually no calls.  This is a pure short gamma play with no support.  A limit down day (or two) awaits.  Watch out below!

ZeroHedge observes, “Nasdaq is now down 3% since Friday’s rebound off-the-lows close, and down 9% in the last three days…

And the derisking of all equity exposures is dragging the S&P ever closer to the 4000 line in the sand…

All eyes are now on the large 4000 support area (total OI: 220k calls & 450k puts). SpotGamma has noted its significance for some time, as its the last strike with any meaningful call interest.

You may note in the image above that to the left of 4000 there is no call gamma at any strike (i.e. positive gamma bars).

9:30 am

The Ag Index is treading water, which is a far cry from the equities index performance.  I am still waiting to determine the Master Cycle low, although the best candidate so far is last Monday’s low.  Food prices are set to go higher as multiple inputs aggravate the supply/demand equation.

ZeroHedge reports, “A combination of delayed plantings in Northern U.S. Plains and Canada due to soggy weather, a dry spell in Western Europe, chaos in Ukraine, and severe weather in India, have disrupted global wheat markets, sending prices in Minneapolis to the highest levels since 2008.

Spring wheat is used to make bagels, pizza crust, rolls, and croissants, among other specialty items, which touched a 14-year high on Monday morning at $12.31 a bushel due to delayed planting fears across the northern U.S. Plains and Canada because of abnormally wet conditions.

ZH further observes, “A massive backlog of grain shipments is piling up in Ukraine to the tune of nearly 25 million tonnes due to ‘infrastructure challenges’ and blocked ports in the Black Sea, including Mariupol, Reuters reports, citing a UN food agency official.’

Ukraine was the fourth-largest exporter of maize (corn) in the 2020/21 season, and the sixth-largest wheat exporter in the world, according to the International Grains Council.

“It’s an almost grotesque situation we see at the moment in Ukraine with nearly 25 mln tonnes of grain that could be exported but that cannot leave the country simply because of lack of infrastructure, the blockade of the ports,” said FAO Deputy Director Josef Schmidhuber during a Geneva press briefing via Zoom.

According to Schmidhuber, the full silos could result in storage shortages for this year’s July and August harvests.”

7:40 am

Good Morning!

NDX futures made a new morning low of 12349.50 after having crossed the Lip of the Cup with Handle for the last time on Friday.  NDX is trading deep in short gamma territory and, while NDX options are light, there are no bullish pockets beneath 13000.00.

QQQ (Close: 309.25) options show Max Pain at 313.00, but short gamma may begin at 312.00.   QQQ may open today at or beneath beneath 300.00.

ZeroHedge remarks, “Even the most committed long-term investor can learn a thing or two from how traders go about their process. The core tenets of trading are: 1) respect price action, 2) manage risk so you can meet your goals, and 3) maximize the impact of your time and attention. The last 2 days tell us US/global equities still have a slog ahead of them. The only goal now, for investors and traders alike, is to make it to the turn in asset prices (whenever that is) with the least amount of incremental damage to portfolios. A little bit of traders’ discipline can help.

Ever since I (Nick) started on Wall Street in the mid 1980s, there has been a bright line between “traders” and “investors.” The stereotypes for each tell the story. Traders are momentum-chasing volatility addicts. Investors buy and hold no matter what the tape is saying.”

SPX futures declined to a low of 4037.20 this morning before a mild bounce.  The Cycles Model suggests another two weeks of decline that may bring it to its Cup with Handle target.  This may be the worst week of the decline with Monday, Wednesday and Friday shaping up to be the worst down days.  To date, the largest holdings in the SPX are passive investors, who seem confident that they are adequately allocated to absorb any shocks.  Little do they know there is no place to hide.

In today’s options expiration the Max Pain zone is at 4170.00.  Options turn positive above 4175.00 with long gamma at 4200.00.  Options turn short at 4165.00 with short gamma starting at 4150.00.  This will not be a good day to be long.  I met a shop keeper who said, “I’m in it for the long haul.”  I told him he will regret ever hearing that thought.

ZeroHedge reports, “It’s a bloodbath.

With Bank of America conveniently reminding us over the weekend that markets never bottom on a Friday, and that Mondays tend to be the worst day of the week for markets…

… that’s exactly what is playing out today as risk assets are puking across the globe, with S&P 500 futures crashing, the Chinese yuan tumbling amid a growing slowdown in China, and the US 10-year Treasury yield climbing as high as 3.2% as risk parity funds are getting monkeyhammered… again.”

VIX futures made a weekend high of 34.37, beneath Friday’s high at 35.34.  It is poised to break out above the neckline of the Head & Shoulders formation.  I do not know what will push the VIX above the neckline.  Perhaps it will be the uptick in margin calls expected today or passive investors finally throwing in the towel after seeing all the profits from the pst year up in smoke.

TNX futures hit a new high at 32.03 while the cash market opened slightly lower.  This may be an expanded correction that is yet incomplete.  Another possibility is a “running ” correction that may leave an almost imperceptible jog in the overall trend.  The expanding or irregular correction is the most favored outcome.

ZeroHedge comments, “Some have used peak inflation to create the impression that the worse of inflation news is in the rear and that the Fed has less tightening to do than what many expect. Yet, peak inflation says a lot about what the Fed has to do, which should worry the Fed and scare investors.

In three out of the last four decades, the US experienced a cyclical rise in inflation (4% and above) that compelled policymakers to raise official rates in response. It didn’t matter if the inflation cycles were broad (the early and late 1980s) or narrow (oil spike in the mid-2000s). But policymakers had to raise official rates above peak inflation on each occasion to squash the price cycle.

No one is thinking the unthinkable that the Fed has to raise rates above the 8.5% increase in consumer prices over the past year. Yet, past experiences provide painful lessons on the level of official rates required to reverse inflation cycles.

USD futures made a new correction high at 104.21 this morning.  Like TNX, this is an example to an extended correction that indicates the strength of the long-term trend.  However, there is a need to finish the correction which may come down to the bottom of the Broadening Wedge formation.  The new Master Cycle ends near mid-June.

BKX has tested the Lip of the Cup with Handle formation and is poised for a deeper decline.  The next probable Master Cycle low may be coming due in the next two weeks.  This low may correspond with the Cup with Handle target, so this may have a detrimental effect on the entire market.

ZeroHedge remarks, “A few days ago, we brought readers’ attention to the one chart which we think is the most important in setting market tone and sentiment: that of emini liquidity, or lack thereof.

This morning, Goldman’s trading desk also brings attention to this most important market dynamic, and in an early note from trader Matthew Fleury, he writes that “this chart should be on everyone’s radar. This is the top of book depth of S&P futures divided by 1mo ATM vol. It is flashing red. The set up for an equity market crash is as high as I have seen it.”

2:41 pm

What’s amazing is how badly the NYSE is being “hollowed out”  and still seems relatively orderly.  That is because a lot of passive investors do not yet realize how exposed to risk they really are.  When that happens, the bottom falls out of the market.

RealInvestmentAdvice counsels, “Buy and hold” investing. Is it truly a “one size fits all solution” to the investing conundrum? Or are there other considerations that would make such a solution less optimal?

I ask the question due to an email I received recently from one of the large Wall Street firms.

“Despite the tumble to begin this year, investors should not panic. Over the long-term course of the markets, investors who have remained patient have been rewarded. Since 1900, the average return to investors has been almost 10% annually…our advice is to remain invested, avoid making drastic movements in your portfolio, and ignore the volatility.”

As shown in the chart below, the advice given is not entirely wrong. Since 1900, the markets have averaged roughly 10% annually (including dividends). However, that figure falls to 8.08% when adjusting for inflation.

By looking at the chart above, it’s pretty evident that you should invest heavily in the market and “fughetta’ bout’ it.”

If it was only that simple.”

2:31 pm

SPX made a lower “irregular” correction barely eking out a  38.2% retracement of the decline from 4307.66.  The correction is over.  Be short or be out.

ZeroHedge informs, “Nomura’s Charlie McElligott was spot on in his explanation for why the market broke yesterday, yet even he is concerned about what is going on today, and writes that in addition to the potential shock of the aforementioned six Fed speakers today (“culminating in tonight’s Hawk-led Bullard / Waller double-banger, where there’s some Delta they could again try to talk-up 75bps hikes”), the week’s crash – which sees the S&P on track for the longest weekly losing streak since 2011 – is also “an Earnings and Valuation story, which is bearing-out again in more “rich” names and (former) favorites of the Growth crowd, and culminating in “absolute scenes” in Growth portfolios, as “obvious liquidations ripple-through the market, with outrageous -2.5- to -3.5-sigma 1-day selloffs yday in bunches of these names, full capitulation.”

7:15 am

Good Morning!

I finally planted my early garden…a month later than usual, due to the cold, wet weather we have been having.  Thank God we have a wood stove that we are still using to take away the chill and damp in our house.  This is not a good start for our local farmers, who still cannot get into their fields, due to the soggy weather.  Corn should be up to 4 inches by now.  Instead, the fields are all brown mud.

NDX futures made a low of 12742.60 this morning, within yesterday’s wide trading range.  We may see a bounce to test the Cycle Bottom resistance at 13183.86 before a resumption of the decline.  Yesterday was just an appetizer.  The main entrée will be much more substantial.

In today’s expiring options, Max Pain is at 13075.00.  Long gamma may begin at 13100.00, while short gamma starts at 12800.00.

ZeroHedge remarks, “What a crazy 24 hours!

I do want to buy risk into the close, but am still a bit cautious because

• 1) my childish charts point to more downside on nasdaq
• 2) so many people expected the FOMC meeting to mark a turning point that money got put to work yesterday and shorts came off, exposing the market
• 3) and yes, I understand, TQQQ is not “the” driver, I think it is symbolic of risk and buy the dip… it started seeing heavy inflows April 26th. It is lower than at any point since then (down 17% today as I type). On rebalancing alone, it will sell into close, but if we see capitulation from recent dip buyers, we have more downside.

I am the least bearish I’ve been in some time, but too scared to get bullish”

SPX  futures are back down to the Lip of the Cup with Handle, but it may be poised for a brief bounce as high as the Cycle Bottom resistance at 4190.44.  The whole market awaits the BLS monthly jobs report.  A weak report suggests that the Fed may go easier on future rate hikes…or not.

In today’s options expiration, SPX is deep in the short gamma zone beneath 4200.00.  This has the potential of a bloodbath.  As bad as yesterday’s decline was, the NYSE Hi-Lo “only” declined to -326.00.  It has a long way to go to meet its target.

ZeroHedge reports, “The market crash will continue until Biden’s approval rating improves.

US futures extended their slide on Friday, signaling continuation of a drop in tech stocks following the Nasdaq 100’s biggest selloff since September 2020, ahead of today’s jobs report (which bulls pray comes in at around minus 1 million to put a premature end to Powell’s market-crashing tightening) and ahead of no less than six Fed speakers, as investors grappled with fears of a stagflationary recession against tightening monetary policy. Nasdaq 100 futures were 0.9% lower and S&P 500 futures traded at session lows, down 0.7% as of 7:30 a.m. EDT as panicked traders sell first and don’t even bother to ask questions. Ten-year U.S. Treasury yield continued to climb, trading at 3.1%, near the highest since November 2018. The dollar continued its relentless ascent, while cryptos continued to tumble. Perhaps even more concerning to traders than the jobs report is that six Fed speakers are lined up including Williams, Kashkari, Bostic, Bullard, Waller and Daly.”

VIX futures rose to a new high of 33.39 this morning.  It may be poised to break through the neckline near 40.00 today.  The Cycles Model suggests a VIX high in early June, while it implies the SPX may see a Master Cycle low in late May.  It normally should match the VIX high with the SPX low, so it poses a conundrum.  Which will it be?

TNX retreated from yesterday’s extended Master Cycle high (day 274) after making the Cup with Handle target.  What follows is a 4-week decline to the 50-day Moving Average at 24.36.

ZeroHedge observes, “We argued yesterday that the sharp decline in front-end yields was exaggerated by the unwind of speculative short positions, but we did not expect for that move to nearly fully reverse today as Treasury yields rose 11-16bp.  Given this reversal, it’s tempting to say the market is coalescing on our view; however, we do not think this represents a more hawkish reassessment of yesterday’s FOMC meeting, as the long-end led the way to higher yields.

Notably, there have only been 6 instances over the last decade in which 30-year bond yields rose more than today: the top 3 were all amid the worst of market dysfunction in March 2020 which forced the Fed to intervene in unprecedented fashion, the fourth was the day after the presidential election in 2016, the fifth was a stronger-than-expected payroll release on a low-liquidity Friday around the July 4th holiday in 2013, and the sixth was in December 2015 when the ECB disappointed market’s expectations for additional stimulus.”

USD futures reversed this morning after marginally beating the March 2020 high both intra-day and closing.  It took 279 days to complete this Master Cycle.  The new Master Cycle may take the USD lower until mid-June.

11:05 am

BKX has been in an overlapping, contentious decline from January 13, 2022.  Although there may be different interpretations, the decline may be an extended one, with the worst at our doorstep.  The new Master Cycle is not due to end until the end of June.  Be prepared for the worst.

10:14 am

NDX is testing the Lip of the Cup with Handle formation near 13050.00.  The warning of a quick and sharp reversal was appropriate, as one can see.  SPX may not be far behind.  Most analysts are not aware of the Cup with Handle formation.  Thus, it is in little use in the mainstream.  One of the features is that it is similar to the Head & Shoulders, which is in common usage, but with some differences.  The main one is that the Lip is permeable and may be criss-crossed multiple times, giving the impression of no trendline at all, versus the Head & Shoulders, which has a fairly solid neckline.  Once it is crossed, there is no going back.  Since there is so little recognition of the differences, analysts often ignore the formation, to their detriment.  Another difference is that the target is a Fibonacci calculation, which is often ignored, since it can be higher or lower than the Head & Shoulders target.

NDX is also nearing its Maintenance Margin requirement for many investors.  Those on margin may soon be getting calls as losses exceed their maintenance margin.  This, plus short gamma, may sound the death knell for may overconfident investors.

10:25 am

Note that the NDX has now crossed beneath the Lip and the decline is intensifying.

ZeroHedge remarks, “After yesterday’s biggest gain on a Fed rate-hike day since 1978…

It appears short-squeeze ammo and gamma has run out as Nasdaq pukes back all of its gains…

8:00 am

Good Morning!

Where are we?  I have chosen to highlight the weekly chart to show the dimensions of where we may be.

NDX futures promptly reversed after the closing bell and made a low of 13378.30 this morning.  Yesterday’s bounce may have been a purely mechanical event, where a momentum ignition shook out the late comers to the shorting game.  The bounce did not make the 38.2% retracement at 13684.26.  Speculators have been buying short -term puts near the lows with a day-trading mindset, only to have lost it all while dealers have to buy back their shorted shares that would have covered those puts.  The Cycles Model suggests a probable 12,9 more trading days to go in the decline as the next move may break through the Lip of the Cup with Handle formation.   Note that the intended target may be the 10.5-year trendline, which was not broken in 2020.  This target may be met later this month.

ZeroHedge observes, “David Wright is known for his ability to lead his funds through periods of intense volatility, like 2008, where his fund nearly broke even on the year while the major equity index shed half of their value. His losses during the COVID rout of 2020 were also relatively mild.

But those market ructions will likely be remembered as relatively staid in comparison to the selloff that’s just around the corner. According to Wright, who shared his thoughts on the market during an interview with Bloomberg, both of these periods – along with the dotcom crash – both had nothing on the crash that lies ahead.

SPX futures made a morning low of 4265.20 as it begins the decline through its Cup with Handle formation.  In doing so, it may also re-enter the massive Orthodox Broadening Top that ultimately lands at or beneath Point 6 in late Summer.  In this Master Cycle, the Cup with Handle formation makes its play, declining beneath the weekly Cycle Bottom at 2702.32.  Investors think of buying puts as “insurance.”  It’s not.  It is simply a transfer of risk to the dealers and hedge funds.  That is why we have short squeezes, to relieve the burden of carrying the brunt of the short speculation.

ZeroHedge reports, “After yesterday’s torrid, Powell-inspired meltup which saw the S&P soar the most since May 2020 (just days after its biggest drop since June 2020)…

… U.S. futures paused their surge after Jerome Powell eased fears that the Federal Reserve will unleash an even more aggressive tightening path and took a 75bps rate hike off the table. As of 745am EDT, S&P 500 futures dropped 0.6%, while Nasdaq 100 contracts fell 0.8%, as investors digested Powell’s vow to curb inflation, while acknowledging it could inflict some “pain” to the economy. In fact, an example of just what the Fed is fearing came earlier today when the BOE hiked 25bps as expected, but warned a stagflationary recession is be imminent as the central bank now expects GDP to contract while inflation rises double digits in the coming months, which is precisely what happens when central banks are far behind the curve. ”

VIX futures are moving higher, hitting 26.54 earlier this morning.  The next step is crossing the neckline of the Head & Shoulders formation.  The minimum Target for the H&S formation is in the mid-60’s.  However,  note that Wave [3] cannot be the smallest Wave and is often a multiple of Wave [1].  With that in mind, it may be possible to see Wave [3] well over 100.00 by August.   Should that take place, another risk we may face is market closure or stiff restrictions on what we can do in the market, such as no shorting.  Should that happen, it may make matters much worse, since that will leave no buyers at the lows to cover their shorts.

The NYSE Hi-Lo Index closed at -278.00 despite the rally.  That is ample evidence of short covering rather than new money  buying stocks.

ZeroHedge observes,

“Even the most circumspect friend of the market would concede that the volume of brokers’ loans – of loans collateraled by the securities purchased on margin – is a good index of the volume of speculation.”

– John Kenneth Galbraith, The Great Crash 1929

About a year ago, I noted that the “Index of the Volume of Speculation,” also known as margin debt, was in the process of putting in a blowoff top. The absolute level had reached record highs, suggesting that we were witnessing a degree of speculative activity that surpassed anything since the late-1920’s stock market mania Galbraith was specifically referring to in the quote above.

What’s more, it’s important to note that margin debt may be merely representative of a much larger use of leverage in things like asset-backed loans, call options, futures, leveraged ETFs, total return swaps, etc. All told, the total amount of leverage employed in the markets for risk assets may, in fact, be even larger than that earlier, ominous precedent.”

TNX made yet another marginal new high on day 274 of the Master Cycle.  A reversal may be imminent.  Once it takes place, the Cycles Model suggests a decline for the remainder of the month.

10:06 am

You may recall that I had suggested a “normal” retracement may go back to 4300.00.  Well, SPX appears to have formed a Triangle this morning at a minute scale that suggests the retracement to 4300.00 may indeed happen.  Or not.  “Someone” may try to ignite a short-covering spree that may go above long gamma at 4250.00.  Then we may see 4300.00.  However, should it fail beneath 4250.00, the decline begins immediately afterward.  A decline beneath 4150.00, where short gamma begins, may propel the SPX into a panic decline.

8:10 am

Good Morning!

NDX futures rose this morning, but did not exceed yesterday’s high at 13178.74.  That may the high for this segment of the decline since it occurred exactly on day 34.4 of the potential 51.6-day decline.  By the way, day 17.2 occurred on good Friday, thus the low was at the Holy Thursday close.  Today’s expiring options turn positive at 13100.00 while long gamma appears at 13200.00.  Options turn short at 13050.00 and short gamma kicks in at 13000.00.

QQQ expiring options (close: 318.82) turn long above 319.00 and long gamma begins at 321.00 while options favor puts at 317.00 and short gamma begins at 317.00.  These are very tight parameters for a day that lends itself to high volatility and tight liquidity.

SPX futures also did not break through yesterday’s high at the 34.4-day pivot of a probable 51.6 -day decline.  This allows 17 calendar days of decline from here.  Should the Cup with Handle formation be accurate, that would give us a probable 40% decline in that period.

Today’s expiring options turn long at 4205.00 and short at 4200.00.  Long gamma begins at 4250.00 and short gamma starts at 4150.00.  These also are very tight parameters for a high volatility day.

ZeroHedge reports, “May the 4th is here, and US futures are up slightly ahead of a key Federal Reserve meeting in which the Fed is widely expected to raise rates by 50bps, the biggest hike since the dot com bubble burst in May 2000, and to release plans for balance-sheet normalization; Chair Powell’s post-meeting press conference will provide guidance on potential for bigger rate hikes at subsequent meetings and policy makers’ assessment of the neutral rate. As DB’s Jim Reid puts it, “if you’re under 43, did 3 years at university and then joined financial markets then you won’t have worked in an era of 50bps Fed rate hikes. This will very likely change tonight as the Fed are a near certainty to raise rates by 50bps. In fact it’ll be the first time the Fed have hiked at consecutive meetings since 2006. So we enter a new era that won’t be familiar to many.”

VIX futures made a new low at 28.86 and bounced, but remains beneath yesterday’s close.  Today is day 30 from the April 4 low, a half trading Cycle is being made.  While the VIX is a rough inverse of the SPX, they do not run on identical Cycles.  The Cycles Model suggests a possible Master Cycle high at or soon after the monthly options expiration on May 20.  There are indications that the high may be stretched until early June.

TNX is hovering just beneath Monday’s Master Cycle high.  The Cycles Model now calls for a probable 30-day decline to the end of May.  A likely target seems to be the 50-day Moving Average at 23.94.  This may be due primarily from the knee-jerk reaction of money fleeing from declining stocks.

Zerohedge reports, “The US Treasury said on Wednesday, just hours before the Fed unveils its balance sheet-busting Quantitative Tightening, that it trimmed its quarterly sale of longer-term debt for a third straight quarter (with the largest cuts coming in the seven-year and 20-year maturities) and also warned that it may make further reductions, citing “strong” federal tax revenues.

The Treasury said it was trimming issuance by smaller increments than in previous quarters based on projected funding needs that include strong tax receipts and potential redemptions of Treasury securities as par tof the Fed’s QT.”

ZeroHedge (Bill Blain) emotes, ““Who’s more foolish: the fool or the fool who follows him?

Central Banks have one real job: avoid inflation! It’s here, and the consequences will be devasting as conventional rate-hiking wisdom is used to fight a wholly exogenous supply side shock. There may be alternatives, but “credibility” is everything to Central Banks.

May the Fourth be with you! It’s Star Wars Day!

Which is kind of apt as the global economy feels like it’s about to do a Death Star impression: exploding in a fireball of incandescent fury… all because someone skimped on the design of a monetary policy exhaust vent… You know the rest…”

USD futures continue to trade inside yesterday’s range as the reversal evolves.  The final bit of strength may have been wrung out of the rally.  The next Master Cycle (low) may occur in mid-June.

Crude oil jumped to a high of 107.39 this morning, giving a buy signal.  The Cycles Model suggests a rally to the week of June 20.  Confirmation comes as it rallies above the Cycle Top, a reliable indicator of a strong Primary Wave [3].

Zerohedge estimates, “With earnings season underway, America’s shale producers are expected, almost across the board, to report stellar earnings, but as Bloomberg reports, they’ll also be taking huge losses from hedging against falling oil prices.

In total, BloombergNEF estimates that through next year, U.S. shale companies will face $42 billion in oil and gas hedging losses, based on 2021 data. That means that while balance sheets might remain intact, companies will spend big to exit positions. ”

11:53 am

SPX appears to be weaker than one would expect for a normal retracement.  I would revise the target for the correction to merely rise to 4220.00-4230.00, should current weakness continue.   Be aware that a reversal may be abrupt and strong.  This may be the beginning of a panic decline not seen since October 2008.

ZeroHedge remarks, “The go-to bullish indicators highlighted by pundits these days are the high levels of sidelined mutual fund cash and the AAII investor sentiment survey hitting its highest bearish reading since 2009:

Traditionally, these signals suggest that most of the carnage is priced into markets, indicating that it might be time to buy. However, these data sets only illustrate ACTIVE investor sentiment. Given that passive funds, by definition, do not strategically manage their cash levels nor do index fund patrons pay $40 per year to participate in the AAII survey, these figures give us little insight into the passive investing world. In stark contrast, Vanguard has reported net inflows to their passive vehicles of $400 million for the month of March (i.e. one behemoth is still buying). More evidence that passive investors remain all-in can be found in the lack of redemptions world-wide:”

11:16 am

SPX opted for the reversal above 4037.00 and a swift retracement.  A 38.2% retracement would rise to 4282.00 while a (less likely) 50% retracement may go as high as 4350.00.  Regardless of the target, the retracement should be over in 24 hours.  Whether you step aside to avoid the bounce or not, be prepared to go short again in the next 24 hours.

ZeroHedge warns, ““Clearly you don’t want to own bonds and stocks.”

Those were the ominous words uttered by billionaire hedge fund manager Paul Tudor Jones (PTJ) this morning during an extensive interview on CNBC’s ‘Squawk Box’.

With The Fed expected to hike by 50bps tomorrow (and the short-term interest-rate market starting to price in 75bps for June) and 10 more hikes for the full-year… as financial conditions tighten and the economy contracts, CNBC reports that the founder and chief investment officer of Tudor Investment Corp. believes that we are now in “uncharted territory” as the central bank had only eased monetary policy during past economic slowdowns and financial crises.

Specifically, PTJ warned investors to prioritize capital preservation in such a challenging environment for “virtually anything.”

7:50 am

Good Morning!

NDX futures are retesting the Lip of the Cup with Handle formation this morning.  The bounce from yesterday’s low may be complete as NDX attempts neutrality in the options market.  While options are light, tomorrow’s expiration turns long at 13060.00.  Long gamma is likely to begin at 13200.00.  They turn short at 13050.00 with short gamma starting at 13000.00.  Of course, we await the FOMC announcement on Wednesday afternoon.

ZeroHedge observes, “Last week, when we commented on corporate earnings ahead of the upcoming “week 3” deluge of earnings where a whopping 46% of S&P500 companies would announce results, we summarized the sorry state of affairs as follows: “Q1 Earnings From Bad To Dismal: Tech Earnings Sliding, Guidance Collapsing.” In the 7 days since, things have only gotten from “dismal” to even worse, and as Bank of America’s Savita Subramanian writes in her weekly Eranings Tracker now that week 3 is in the history books…

…. we have clearly reached the “end of euphoria” phase.”

SPX futures appear to be consolidating between the Lip of the Cup with Handle and the Cycle Bottom resistance at 4203.38.  There are approximately 3 weeks to the next Master Cycle Bottom in which to achieve the Cup with Handle target.  While the bounces are spectacular, the declines are far deeper.

Tomorrow’s options expiration shows Max Pain at 4140.00.  Options turn positive at 4150.00 and long gamma begins at 4200.00.  Expiring options turn short at 4110.00 and short gamma begins at 4050.00.  There is very little wriggle room for the FOMC announcement to tip the market in either direction.

ZeroHedge reports, “After initially trading higher, extending the momentum of yesterday’s last-hour meltup which saw US stocks close near session highs after plunging earlier, on Tuesday US futures hit an air pocket shortly after the European open, and slumped 0.5% at 715am EDT, as investors braced for more hawkish shocks from the Federal Reserve whose two-day meeting start today and is expected to announce its biggest rate hike since 2000. Tightening turmoil slammed bond markets: 10Y TSYs traded just below 3% after hitting the 4-year old milestone on Monday. Germany’s benchmark rate rose above 1% for the first time since 2015, while the corresponding yield on U.K. bonds climbed above 2% earlier on Tuesday. Australian bonds slid, and the currency jumped, after the nation’s central bank hiked rates costs by more than all economists had expected. The US dollar dipped, oil was lower while cryptos and gold traded flat.

VIX futures are hovering near the Cycle Top support/resistance at 32.13.  There may be a final retest of the 50-day Moving Average at 26.31.  However, it may be short-lived.

TNX is pulling back from its Master Cycle high on day 271.  The Cycles Model calls for a month-long decline that may test the 50-day Moving Average at 23.75.  The Cup with Handle target is still active with a july-August time frame for completion.

ZeroHedge remarks, “It was about a year ago, when the calendar was moving from the end of the first quarter of 2021 and into the second quarter, when we first observed something unexpected about the single biggest catalyst behind the forceful emergence of the “reflation trade” in the first quarter, which many interpreted as markets pricing in higher long-term inflation and strong growth. Yet in reality as we reported last year, the move which coincided perfectly with the end of Japan’s fiscal year on March 31..

… was largely, if not exclusively, a byproduct of Japan’s giant pension fund, the GPIF, drastically shifting out of treasuries as it slashed its US Treasury exposure by a record amount.”

USD futures eased down to a low of 103.06 this morning.  While the Master Cycle calls for a reversal, the time for a decline is about six weeks, allowing for a decline to the lower trendline of the Broadening Wedge.  Should the uptrend not be broken, the Cycles Model allows for a resumption of the rally through early 2023.

Gold futures may have started a bounce after testing its trendline and mid-cycle support at 1836.94.  The low was made on day 266 of the Master Cycle.  This allows for a final surge to a possible all-time high near 2250.00 by the end of the year.

3:19 pm

The Ag Index may have just made a very shallow, irregular correction on day 263 of its Master Cycle.  We should await a clear reversal pattern with a probe above the Cycle Top resistance at 580.63 to take action.  Once it rises above that level, the moves may be explosive.  The first Wave above the neckline may last through the end of May.

How about planting a garden?

ZeroHedge comments, “There is growing concern farmers worldwide are reducing chemical fertilizer, which may threaten yields come harvest time, according to Bloomberg. The repercussions could be huge: Lower yields may exacerbate the food crisis. 

There are alarming signs commercial farmers in top growing areas in the world are decreasing the use of essential nutrients — nitrogen, phosphorus, and potassium.

Revealed last week, SLC Agricola SA, one of Brazil’s largest farming operations, managing fields of soybeans, corn, and cotton fields in an area larger than the state of Delaware, will reduce the use of fertilizer by 20% and 25%. ”

3:09 pm

TNX finally hit 30.00, as suggested.  But it may not last.  A sharp reversal taking TNX doen to the 50-day Moving Average may be in the works.

ZeroHedge remarks, “US 10Y Treasury yields just topped 3.00% this afternoon…

That is the highest yield since Dec 2018, right before Powell flip-flopped away from his hawkish stance…

2:43 pm

SPX is approaching a possible target where Wave [v] achieves equality with Wave [i] at 4037.00.  This leaves us with two options.  The first is a possible bounce at that level or higher.  However, should it exceed that level to the downside, the second option of an extended Wave [v] is achieved beneath 3966.00.

ZeroHedge comments, “One week ago, Wall Street’s second biggest bear (after BofA’s Michael Hartnett who turned rather apocalyptic last Friday, and of course excluding SocGen’s Albert Edwards who is in a category of his own), said that “there is no place left to hide” in stocks as the rolling bear markets finally hit the broader index, and warned that the bear market rally (which he was correct about unlike all of his JPMorgan peers) was about to turn “grisly” (or is that grizzly).

Fast forward to his latest Weekly Warm-up note (available to professional subscribers in the usual place), where he takes a prompt, well-deserved (again) victory lap on his latest dismal forecast, and writes that after suggesting last week that the bear market was entering the phase when virtually nothing would work, even defensives, “based on the price action, that seems to be exactly what’s happening” with price action turning “especially vicious” last week as we enter the next phase of the bear market. Indeed, while the S&P 500 dropped “only” 3.4%, the breadth suggested the move was even worse with the cumulative advance / decline line making new lows for this bear market. Defensives were a very modest underperformer for the week (-0.5% relative) even though they remain the unequivocal leader year to date (+15% relative).”

:40 am

Good Morning!

NDX futures are deep within short gamma territory.  There was a bounce over the weekend to 12982.00, but the gains were given back by morning.  Currently the futures are plumbing new lows.  In today’s options expiration, Max Pain is at 13190.00.  Short gamma begins at 13050.00.  The Cycles Model gives us three more weeks to make a Master Cycle low.  Trending strength may be very high during that time.  The Cup with Handle target may be within reach during this Master Cycle.

ZeroHedge observes, “The Nasdaq’s 13% plunge in April was its biggest monthly drop since Lehman’s collapse in 2008.

That is the 12th worst month ever. To be the worst month ever you have to beat October 1987 that has a 27% decline. The poster-child of this bear, ARK Innovation, actually managed to (-28% in April).”

SPX futures rose to 4163.10, unable to challenge the Cycle Bottom at 4209.13.  SPX is currently challenging the Lip of the Cup with Handle formation at 4120.00.  Not shown in the Daily chart is that the SPX closed on Friday at the upper trendline of a 3.5-year Orthodox Broadening Top.  A Wave (3) low in May may bring the SPX down to its Cup with Handle target  near 2542.85.  Another potential Master Cycle low in August may bring the SPX to its Wave [1] low near 2100.00.

In today’s expiring options, Max Pain is near 4180.00 while short gamma begins at 4125.00.

ZeroHedge reports, “One trading day after epic carnage shook global markets, US index futures staged a modest recovery on Monday after Wall Street’s worst selloff in almost two years. S&P 500 Index contracts rose 0.1% from an 11-month low, while Nasdaq 100 futures gained 0.4% with volumes thinned by holidays in several markets including the UK, China and Hong Kong. European and Asian stocks fell as disappointing corporate earnings, expectations of global monetary tightening, poor data from China and the prospect of sanctions on Russian oil weighed heavily on risk appetite. The VIX remained elevated, trading above 33, as investors braced for a week that’s likely to see a global round of monetary-policy tightening that will add to concerns about global growth. 10Y Treasury yields pushed higher again, rising to 2.94% before easing ahead of this week’s key event, the Fed’s upcoming 50bps rate hike. The dollar gained as worries over high inflation and China’s Covid lockdowns contributed to investor caution, and sent the offshore yuan sliding to just shy of 6.69m the lowest since November 2020. Gold extended its slump and Brent oil dropped about $2 to trade around $104.50.”

VIX futures rose to 34.87, above its Friday high.  The ;Head & Shoulder neckline may be exceeded as the SPX declines through the Lip of the Cup with Handle formation.  Today is day 262 of the current Master Cycle with a high anticipate in the next three weeks.  As for Wednesday options expiration, VIX is in long gamma territory above 27.00.

TNX hit a new high this morning at 29.67, thus far.  As mentioned last week, TNX is going through a brief period of strength that may push it to 30.00 before a reversal.  From this point, we may see a decline through the month of May.  The proposed target may be the 50-day Moving Average at 23.56.

USD futures are consolidating within Friday’s trading range.  A full reversal may not be recognized until a decline beneath the trendlie at 102.00 occurs.  USD is in limbo.

Crude oil futures declined to 100.30, back beneath the 50-day Moving Average at 102.76 this morning.  This give crude a confirmed sell signal that may last up to 2 months.  The minimal target is the lower trendline of the Broadening Wedge formation at 70.00.  Should it exceed that,  a further decline to 50.00 is proposed by the Broadening Formation.

ZeroHedge comments, “A majority of Americans still don’t believe the Biden administration’s ham-fisted attempts to shove the “Putin’s Price Hike™” narrative down our throats.

According to a new Rasmussen poll, when asked whether Biden or Russian President Vladimir Putin is to blame for higher fuel prices, “76% of Republicans think Biden bears most responsibility for higher fuel prices, as do 24% of Democrats and 54% of voters not affiliated with either major party.”

What’s more, 84% of likely US voters believe the rising price of gasoline, home heating oil and other petroleum products is a ‘serious problem.’ 61% say it’s a ‘very serious problem.'”