The Practical Investor

2:30 pm

NDX is beneath the Lip of the Cup with Handle formation for the second time.  There is likely to be no recovery as the mutual funds are all lined up to sell in the final hour of the day.  A month ago the Cup with Handle target appeared to be dubious.  Today it appears to be realistic…and that is only Wave (3)!

ZeroHedge exclaims, “Earlier today we observed that the Nasdaq was on pace for the worst month since 2008, and judging by the ongoing collapse in the tech index which is now down more than 2% and trading reading near session lows ahead of today’s margin calls that’s pretty much assured.

But thanks to Deutsche Bank we have stumbled on an even more remarkable state.

As the bank’s head of thematic research Jim Reid writes, and sparing us the obvious TS Eliot references, today is the last business day of the month and we could see something in April we’ve only seen three other times since our data starts in 1973: a month where S&P 500 returns fall more than -5% AND US Treasuries fall more than -2%.”

9:50 am

The Ag Index continues its corrective moves with a month-long decline in the works.  The proposed target may be near 520.00-525.00 by the end of May.  The correction is a great place to accumulate shares as the breakout may be powerful.  Time to plant/expand that garden.

ZeroHedge reports, “The effects of pandemic lockdowns, related supply chain strains, and conflict in Ukraine are wreaking havoc on the world’s agricultural system. Readers have heard the likes of the UN warning that Middle Eastern countries are at “breaking points” as food prices hit record highs, and as of last week, the Rockefeller Foundation began the countdown (about six months) to a “massive, immediate food crisis.”

Now, Goya Foods CEO Bob Unanue has issued a similar warning: “We are on the precipice of a global food crisis.” 

In a Wednesday interview, Unanue told Fox Business’s Maria Bartiromo, “Americans will have to tighten their belts and consume less,” in response to her question about a potential food shortage crisis.”

9:44 am

SPX is back in short gamma territory beneath 4270.00.  This elevates the probability of a meltdown beginning today.

ZeroHedge notes, “As we noted yesterday, options positioning was extreme and provided a lot of fodder for a short-squeeze (which we saw in yesterday’s panic-bid in US equities). However, AAPL and AMZN stole the jam out of that donut overnight and as Nomura’s Charlie McElligott notes, the pivot level which folks will be watching is ES 4270, where the Street is short 9100x Put at that strike that expires today (as part of a customer’s monthly Put Spread Collar program – where they are long 9100 SPX 29Apr 3600 / 4270 PS vs short the 4695 calls, a ~$4B hedge), which obviously lost Delta into yesterday’s booming rally and was clearly a large part of the “Short Gamma” scramble and hedging-squeeze higher in the market yesterday (the 4270 Put went from an 80 Delta put at 10am to a 46 Delta put, so Dealers had to buy ~$1.25B in futures to remain neutral).

But as we all know, “Short Gamma” goes two ways, so as the Put has now gone from a 46 Delta to a 57 Delta with the move overnight, this has created ~$600mm+ of Incremental selling pressure as well; FWIW, the customer tends to roll to a similar Put Spread Collar in June month-end around 11am (h/t J Pierce and H Homes)”

8:00 am

Good Morning!

NDX futures slipped beneath the Cycle bottom support at 13359.51 to an overnight low of 13181.40.  The retracement rally, strong as it was, is over.  The question is, how long will it take to make new lows beneath the Lip of the Cup with Handle near 13030.00?

As for today’s options expiration, Max Pain is at 13460.00.  However, the gamma-weary dealers and hedge funds were delivered a serious blow after hours with diminishing liquidity.  Short gamma begins at 13300.00, so the battle lines have been drawn.  QQQ options (closing price; $328.01) offers Max Pain at 327.50 and short gamma begins at 325.00 with reinforced selling every 5 points beneath it.

ZeroHedge observes, “Update (5:45pm EDT): Just when it seemed that AAPL stock would provide the much needed pillar of support to offset the tumbling AMZN and keep the Nasdaq from plunging tomorrow, with its stock initially jumping after hours, AAPL has since sunk, fading an $8 AH gain and dropping as much as 6% to $152, after it warned on the earnings call that supply constraints would cost the company $4 billion to $8 billion in the current quarter, casting a pall on record-setting results that the company just reported.

Covid restrictions, which have swept China in recent weeks, will take a toll on the June quarter, the company said on a conference call, and even though last quarter’s sales and profit had topped analysts’ estimates, fueled by strong demand for the iPhone and digital services, and the company announced $90 billion in new stock buybacks, the stock has staged a nearly $20 reversal lower in the after hours session.

SPX futures declined to 4240.00, threatening the Cycle Bottom support at 4215.65.  Yesterday was a Cycle turn date at 30.1 days from the March 29 high at 4637.30.  In today’s options expiration, Max Pain is at 4325.00.  Short gamma begins at 4270.00.  Short covering left the SPX near short gamma territory.  Should the markets fail today, the decline may be swift and deep, regardless the oversold condition.  There are 22 days left to the bottom in this Master Cycle.  The entire 2020 crash only took 22 days.

ZeroHedge reports, “It has been an illiquid, rollercoaster session on the last day of the week and month, which first saw US index futures modestly rise alongside European stocks propped up by surging Chinese and Asian markets following Beijing’s latest vow to use new tools and policies to spur growth, however the initial move higher quickly faded as markets remembered that not only did Amazon report dismal earnings (with Apple also sliding on weak guidance) but the Fed is set to hike 50bps (or maybe 75bps) next week, and put a lit on any upside follow through. As a result, S&P500 futures dropped 0.9%, while Nasdaq futures retreated 1.1% on the last trading day of April, adding to their 9.3% decline so far this month and on pace for the worst monthly performance since November 2008 as fears of rising rates hurt bubbly growth shares and fuel risks for future profits. The yen snapped a slide while staying near 20-year lows. The yuan, euro, pound and commodity-linked currencies made gains while the dollar dipped. 10Y TSY yields rose, rising by about 4bps to 2.87% while gold moved back above $1900. Bitcoin tumbled as usual, and last traded back under $39,000″.

VIX futures declined to 28.62 as it consolidated within yesterday’s trading range.  Normally VIX would decline to the 50-day before moving higher.  However, yesterday was day 17 (a turn date) from the Wave(2) low.  The possibility of fireworks today is very high.

The NYSE Hi-Lo Index closed at -501.00.  This is not a time to be bullish.

TNX is approaching its peak this morning as a brief period of strength may push it to 30.00.  TNX is still in a correction phase and is likely to resume its decline next week, making this move a red herring.  The Cycles Model suggests a decline may last through the end of May.

ZeroHedge reports, “After a strong 2Y, and a subpar 7Y auction earlier this week, we end the week’s coupon issuance with an auction of $44BN in 7Y paper which came in just right.

The high yield of 2.908% was  a whopping 41bps higher than the March auction and was the highest since Nov 2018, just before the Fed panicked and ended its tightening (of course, inflation back then was well lower). And even though yields have been grinding higher all day, the auction tailed the 2.891% When Issued with a “decent” 1.7bps tail, the biggest since December.

The 2.41 bid to cover was in line with recent prints, and while it dipped from last month’s 2.44, it was above the 2.34 six-auction average.”

USD declined this morning, leaving the high in debate as yesterday’s close was 103.66 vs 103.61 on March 19,2020.  The intraday high on March 17, 2020 was 103.98 vs 103.95 yesterday, day 272.   The Cycles Model calls for a 6-week decline which may take it to the mid-Cycle support at 95.82.  If it stays above that level by the end of June we may see a resumption of the uptrend through early next year.

Crude oil continues its consolidation above the trendline.  It may test the Cycle Top resistance before a two-month decline.  A decline beneath the 50-day Moving Average at 102.59 gives a sell signal.

Gold futures offered some hope in the overnight market by bouncing to 1921.86.  However, is is giving up that gain and may quickly slide back beneath 1900.00 as it continues its correction.  The Cycles Model suggests that gold may continue its decline through mid-June.  The uptrend may be preserved should it remain above the mid-Cycle support at 1635.84.

3:42 pm

BKX, our liquidity proxy, is proof that liquidity is being drained from the markets.  the Cycles Model suggests the new Master Cycle may decline through the last week of June.

ZeroHedge observes, “As three of America’s largest banks kicked off the US financial industry’s annual gatherings this week, conservative activist investors are pummeling them over “woke” Marxist agendas, as corporate boards have become swept up in “stakeholder capitalism” – the World Economic Forum–endorsed concept that companies shouldn’t just serve their shareholders, but society at large.”

3:30 pm

SPX may have reached a Minute Wave [iv] this afternoon at the 4300.00 resistance level.  With all the short covering done, there is little energy to go higher.  Money flow is negative, as the NYSE Hi-Lo Index is at -362.00.  Once the dealers and hedge funds realize there is no new cash coming into the market (in fact, money is exiting), they will begin to gamma hedge.    In fact, it may begin this afternoon.

Some analysts are calling this rally bullish,  However, the retracement was less than 42% of the decline from 4512.94.

8:30 am

Good Morning!

The SPX futures roller coaster continues as they ranged from a low of 4205.0 to a high of 4263.00.  The cash market is poised to open at the 61.8% retracement of the decline from 4300.00 at 4245.45.  The Cycles Model does not anticipate reaching 4300.00.  Instead, the decline may resume to cross the Lip of the Cup with Handle near 4125.00.

Dealers are struggling to get SPX to close at Max Pain today above 4300.00 for tomorrow’s options expiration.  However, the problem is that speculators/hedgers have gotten smarter and have bought large put positions all the way up to 4300.00, while calls are lackluster beneath 4300.00.

ZeroHedge reports, “U.S. index futures, European bourses and Asian markets all rose as “good enough (if hardly stellar)” earnings reports from Facebook parent Meta Platforms and Qualcomm boosted sentiment (just don’t look at the collapse in Teladoc). As we hit the peak of earnings season, with Apple, Amazon and Twitter set to report earnings today, S&P futures jumped 1.5%, while he Nasdaq futs jumped 2.2%, fuelled by a nearly 20% surge in Meta, which would be its biggest post-earnings jump since 2013. Investors were happy after Facebook added more users than projected in the first quarter, even if revenue growth slowed to just 7%, the lowest since the IPO. The dollar continued its relentless ascent, boosted by a plunge in the yen (more here) rising to the highest level in more than five years thanks to nominal US yields which are the highest in developed markets. WTI futures traded at around $102 a barrel. The 10-year Treasury yield was down some 2 basis points to 2.8147%. Bitcoin climbed, trading just below $40,000.

VIX futures declined to an overnight low of 29.35, but have bounced back above 30.00 this morning.  This appears to be a consolidation that may still test the 50-day Moving Average at 25.96 before moving higher.  The panic buying on Tuesday must be worked off  for another day or two.

Options expiration shows Max Pain in the May 4 expiration is at 26.00, so the move back down (at least temporarily) to the 50-day makes sense.  However, the Cycles Model shows VIX “heating up” in the month of May.

The NYSE Hi-Lo closed at -574.00 yesterday.  Despite the mechanical short-covering rallies, the NYSE is decidedly weaker.

TNX is tracking higher this morning and the Cycles Model shows a surge in trending strength through the weekend.  We may se TNX hit 30.00 over the next week before moving back down through the end of May.  This may be a fake-out catching some off-guard.

ZeroHedge (TME) comments, “Rates reversing?

The move lower in yields continues getting very little attention. So far the move is relatively small, but we are about to close below the steep short term trend line. 21 day is at 2.66% and 50 day is at 2.3%! Note the negative RSI divergence.

Source: Refinitiv

US 5 year – breaking below the trend?

A close here or lower in the 5 year (yield) and the steep trend line is broken. First support is the 21 day at 2.71. 50 day is all the way down at 2.3%. The negative RSI divergence is of concern for those looking at yields moving higher in the short term.

USD futures made an overnight high of 103.95, nearly breaking out above the March 2020 high, as seen in the weekly chart.  Today is day 272 in a rather stretched Master Cycle.  Should it exceed the 2020 high, the next target may be the April 2001 high at 121.21.

I may have mistakenly marked the March 2020 top as a completed Cycle Wave II.  However, the latest moves may make that high as Primary Wave [A] of Cycle Wave II.  Primary Wave [C] of Cycle Wave II may not be complete until March 2023.  The 61.8% retracement of the USD decline is 126.87.

7:20 am

Good Morning!

I am leaving early to assist a son in a project that may take all day.  I’ll do my best with the little time I have.

SPX futures declined further to 4154.70 early this morning.  It has since made a 38.2% retracement of the decline from  4299.02 to the futures low at 4154.00.    Futures have since slipped back beneath 4200.00 where short gamma prevails.  The incursions into short gamma territory  beneath 4200.00 have tested the resolve of the dealers to remain bullish.  They may be throwing in the towel.  If so, a new low near 4000.00 may be in the cards in the next 48 hours.

ZeroHedge reports, “After the worst day for stocks in a long time, which saw the Dow plunge 800 points or 2.2% and the Nasdaq tumble almost 4% to the lowest level in nearly a year, it seemed that Wednesday would be another puke fest, with Google tumbling as much as 10% afterhours after reporting mixed earnings that missed on YouTube revenues and EPS, and dragging the Nasdaq with it. However, solid results from Microsoft as well as some long overdue stability in Chinese markets helped to reveres the dour mood, and aside for a brief but sharp selloff around the time Europe opened, US equity futures have been a diagonal line up, with the Nasdaq recovering from its lowest level in nearly a year, as dip buyers returned on corporate earnings and “all out” stimulus pledges by China.  As of 7:00am ET, S&P 500 and Nasdaq 100 contracts each rose around 0.8%, 10Y yields rose 3bps to 2.77%, the dollar rose again and Brent was flattish around $105.”

VIX futures made a low of 30.33 this morning, but appears to be resuming its climb back above its Cycle Top at 31.45.  The next target appears to be the neckline of the Head & Shoulders formation at 38.94.   Should that barrier be exceeded, the H&S target may be achieved as early as the third week of May.

TNX futures continue their decline as the correction unfolds.  The Cycles Model implies the correction may last through the month of May, so a likely target may be the 50-day Moving Average currently at 22.89.  However, the correction is very shallow thus far and a period of strength may be emerging to run TNX still higher, possibly to 30.00, in an expanded correction as early as this weekend.

USD futures made a new high at 102.83 this morning on day 271 of the Master Cycle.  The Cycle is stretched, but still within normal parameters.  It is approaching its early 2020 high at 103.96.  Should it breach that level, the next target may be the Monthly Cycle Top at 105.26.

4:00 pm

NDX just took out the March 15 low at 13020.40 and is now officially in a bear market with a loss of 22.4%.  The chances of a recovery are nil.

ZeroHedge observes, “As Elon Musk made yet more headlines today – by doing nothing today apart from tweeting this…

It appears someone decided he needed to be punished for daring to preserve free speech (oh the horror!) as TSLA shares tumbled over 11% today, raising questions from many on who was behind this move…

As Trey Henninger (@TreyHenninger) detailed, “If $TSLA stock hits $570, Elon Musk will be margin called on his Twitter purchase loan. If that occurs, he’ll have two business days to either pay the entire $12.5 billion margin loan, post $3.57 billion USD in CASH, or sell his $TSLAQ collateral shares. So, Soros has to short TSLA to 570 to kill the deal.”

TSLA’s tumble weighed heavily (given its weighting) on the major indices, with Nasdaq clubbed like a baby seal today, back below March’s lows (down 3.5% today)…Nasdaq’s worst day since Sept 2020

3:09 pm

SPX is pressing down on 4200.00 to see if it holds.  Unfortunately, the declining impulse, consisting of 5 Waves, may finish near 4033.00, where Wave [v] achieves equality with Wave [i].  A probable alternative is that Wave [v] may be a multiple of Wave [i], due to short gamma beginning at 4200.00.

ZeroHedge (TME) is afraid to say the “B” word, “SPX approaching must hold levels

SPX is closing in on the huge 4200 level. The index has remained stuck inside the 4200/4550 range for months, with a few occasional over/under shootings. Note the 100 about to cross the 200 day moving average…not a great longer term development.

Source: Refinitiv

NASDAQ – to hold or not to hold

NASDAQ has been stuck inside the 13k/15k range since late January. We are currently at the big 13200 support, and we have seen tech under shoot down to the 13k level before reversing violently. Let’s see how this develops from here, but since the 100 day crossed the 200 day, things have been rather “fluid”.”

12:27 pm

SPX bounced at the 2-hour Cycle Bottom at 4203.00 just after the European Market close.  It has since rallied and may attempt to reach Max Pain at 4310.00 at the close.  However, the NYSE HI-Lo is at -230.00 and sinking fast, suggesting that the short covering may not last.  This is a market to stay short for the duration, possibly 51.6 days from the March 29 high.

ZeroHedge remarks, “US equity markets are extending losses this morning, taking out yesterday’s lows and testing back down toward March lows…

As stocks catch down to the extremely hawkish reality priced into STIRs…

Bond yields are also tumbling and crypto is reversing alongside big-tech with Bitcoin back below $40k…

7:15 am

Good Morning!

All eyes are on China as the Shanghai Composite Index continues plumbing new lows.  The Cycles Model suggests that, while there may be a temporary bounce in the next week, the decline may not be over until the end of May.

ZeroHedge observes, “The slothlike trade moving out of Shanghai has created a short supply of raw materials traveling on the all-important intra-Asia trade route. Countries that make up this trade pipe — Vietnam, Malaysia, Taiwan, Japan, Korea, Indonesia and Cambodia — have factories waiting on crucial raw materials needed to finish goods ranging from apparel and footwear to furniture.

This pipeline saw an expansion in the trade as more American importers diversified their manufacturing out of China as a way to work around the China tariffs.

But what this pandemic has revealed is even with this “manufacturing diversification,”  the dependency on China has never been fully severed. Major raw materials such as jute, cotton, silk, wool and manmade fibers used by the textile and apparel industry are sourced in China. ”

NDX futures plunged to an overnight low of  13433.50 before rising back above the Cycle Bottom support at 13463.88.  NDX is flirting with the bear market at 13400.00, a 20% decline from the top.  Open interest in tomorrow’s options expiration is light with calls favored above 13500 and puts favored beneath 13250.00.  The Cycles Model calls for at least three more weeks of decline, with growing trending strength.

The NDX Hi-Lo closed yesterday at -595.00, the lowest since mid-March.

ZeroHedge remarks, “The last time we heard from Morgan Stanley’s chief US equity strategist Mike Wilson one week ago, he was plumbing the depths of bearishness (as much as Morgan Stanley would permit him of course: as we have long noted, Bank of America’s own in house “Michael” strategist –  that would be Hartnett – has been far more bearish), and he concluded that soaring inflation is no longer a positive catalyst for either earnings growth or stocks, to wit: the “positive effects of inflation on earnings growth have reached their peak and are now more likely to be a headwind to growth, (particularly as inflation forces the Fed to remain uber hawkish) and in that context, the growing rise in back end rates is having a meaningful impact on interest rate sensitive areas of the economy and market, like housing and impacting stocks.”

SPX futures declined to 4272.80 in the overnight markets, keeping above Cycle Bottom support at 4227.41.  Yesterday, SPX attained the 17.2-day mark which I calculate to be one-third the 51.6-day decline that the Cycles Model proposes.  A decline beneath the Cycle Bottom and the trendline at 4115.00 to 4120.00 activates the Cup with Handle formation with devastating results while liquidity tightens.

The NYSE Hi-Lo Index closed at -427.00 yesterday, a new low since the March 15 low.  Tomorrow’s expiring options turn positive above 4320.00 and negative beneath 4305.00 with Max Pain at 4310.00.  While yesterday’s cash market closed near 4300.00 as suggested, should SPX remain above the Cycle Bottom support at 4227.41, there may be another attempt to reach Max Pain at the end of the day.

ZeroHedge reports, “One day after stocks staged a remarkable rebound and closing well in the green after sliding as much as 1.5% (ostensibly after getting a boost from the latest bout of bearishness from Dennis Gartman), index futures are trading lower again despite another attempt by China’s central bank to reassure investors overnight that China’s sliding risk assets will rebound, with investors once again preoccupied by risks from aggressive monetary tightening. S&P500 futures contracts were 0.4% not too far off the worst levels ahead of a busy session of earnings releases including Google, Microsoft and Google; Nasdaq 100 futures declined 0.3%. Treasuries were steady and the dollar gained.”

VIX futures rose modestly to 27.74 in the overnight session.  The 50-day Moving Average lies near the 50% retracement value.  We should expect that level to be tested before moving higher.

ZeroHedge (TME) remarks, “They did it again?

Let’s see if the crowd managed doing “it” again: loading up on puts just when the market decides to bounce. People continue to buy protection when they must, not when they can. Think of “strategic hedging” like house insurance, you buy it before the house has started burning…otherwise the premium is very expensive. Chart shows the put call ratio vs SPX.

Source: Tradingview

VVIX remains “unimpressed” by the latest VIX surge

The gap between these two is at rather wide levels.

TNX continues its decline toward the Cycle Top support at 25.85.  The final low may be the 50-day Moving Average, currently at 22.89.  The reason for this is that the next Master Cycle (low) is anticipated for the end of May.  UST is beginning a rally due to investors’ knee-jerk reaction of buying bonds while stocks decline.  While there may be some merit in that move, it may not last.

ZeroHedge observes, “If I look at markets through the lens of financial history from 1970 onwards, I should be telling you to buy bonds. As Raoul Pal would say, “Buy bonds, wear diamonds” . Why? Well basically, buying treasuries has rarely lost you money. 2022 definitely stands out at a weak year for US treasury investing, but only after very strong returns during the Covid crisis.

Bonds have been a fantastic asset over the years. Good returns, with limited drawdowns. The financial market view, and one seemingly endorsed by central banks, is that central bank independence and vigilance was the cause of falling inflation and bond yields. The corollary of this view, was less central bank independence and less vigilance would eventually cause inflation, and rising bond yields. So if you were going to be bearish on bonds, then Japanese bonds were the bonds most fund managers chose to short. This was of course very wrong, and most of these funds and fund managers have left the industry, which is why short JGBs trade earned the moniker “widowmaker”.

USD futures have reached 102.00 in a classic throw-over on day 270 of the Master Cycle.  The Cycles Model shows trending strength possibly ending early next week, if not sooner.

11:20 am

Crude oil futures took a beating today, down over 6% this morning.  Last week I had warned that WTIC is due to collapse in an Intermediate Wave (C) of Primary Wave [2].  The Cycles Model suggests the decline may continue through the month of June.  The preliminary target may be 70.00 but, should it go lower, ultimately the current Master Cycle may end closer to 50.00.  That’s a lot of demand destruction.

10:55 am

The BKX has declined beneath the Lip of the Cup with Handle formation in a complex but bearish decline.  Tis is our liquidity proxy and it is signaling a potential crash.  Within the Cup with Handle is a Head & Shoulders formation with a minimum target of 89.00.  Take your pick.  The new Master Cycle may have a duration until the end of June where Intermediate Wave (3) may be completed.

10:38 am

SPX has bounced at its 2-hour Cycle bottom, but the decline is not yet over.  The bounce may go to as high at 4300.00 before rolling back over to complete the first impulse (Wave 1) at or near the Lip of the Cup with handle at 4114.65.  SPX is deep within short options territory beneath 4300.00 and short gamma lies beneath 4250.00.  Should SPX decline beneath 4200.00, the Cup with Handle formation may be activated at 4115.00.  Most analysts are too cautious about what is coming next.  See below.

ZeroHedge (TME) cautions, “Remember range?

Before you get too bearish it is worth remembering the following. Firstly, we are getting close to the bottom of some prominent market participants have considered to be the new range. Secondly, some fast money positioning indicators are at extreme levels, same as it was when we bounced in March. Thirdly, some sentiment indicators are at even more extreme levels than when we bounced in March.

Chart showing the SPX range that has basically dictated the entire year. Buy 4200 (or slightly below), sell/short 4550/4600. Time for the mean reversion mind again as we approach the lower part of the range?

Source: Refinitiv

Sentiment screams BUY even louder than at the March low

The Goldman Sentiment Indicator measures stock positioning across retail, institutional, and foreign investors versus the past 12 months. Out of 687 weekly readings (first recording: 2/27/09), there have only been 14 instances in which the sentiment indicator was more negative.”

7:55 am

Good Morning!

NDX futures declined to 13185.40 over the weekend and remains well beneath Friday’s close.  The next level of support may be the Lip of the Cup with Handle formation near 13060.00.  Should that level be breached, the next target is that of the Cup with Handle formation.  The Cycles Model suggests the next Master Cycle low may be on or near May 20.

In today’s options expiration, Max Pain is at 13600.00.  Short gamma begins near 13520.00 and intensifies at 50-point intervals beneath 13500.00.  This doesn’t look good at all.

ZedroHedge notes, “Hedge Fund mega cap tech exposure at 4-year low

Mega Cap Tech has had a sharp reversal lower MTD and has seen renewed selling as we head into the heart of Tech earnings next week. Most of the selling has come from longs and HF net exposure is at the lowest level in over 4 years.

Source: JPM PI

But Retail Army just keeps on buying Tech

Buy-the-dip in tech….Chart shows cumulative Tech flows

SPX futures reached a weekend low of 4220.40 followed by a shallow bounce thus far.  In today’s options expiration, Max Pain is at 4330.00 while options turn negative at 4300.00.  Short gamma starts at 4275.00.  Dealer pain takes a turn for the worse at 4200.00.  Just a reminder, should the Lip of the Cup with Handle become breached, the Cup with Handle target becomes activated.  The Cycles Model suggests the next Master Cycle (low) ends on or near May 20.

ZeroHedge remarks, “This may be one of many revaluations of capital vis-a-vis labor and resources and core vis-a-vis periphery.

You’ve heard the expression “cash is king.” Very true. But it’s equally true that “crash is king:” when speculative excesses collapse under their own extremes, the crash crushes all other narratives and becomes the dominant dynamic.

Everything that the mainstream uses to predict “value,” market action and “the future” is tossed out the window. Price-earnings, “growth,” “innovation,” cash flow, yields, the bat-guano-quatloo carry trade, etc., etc., etc.– none of it stops the crash or makes sense of the crash, which happens for systemic reasons beyond conventional explanations.

In the context of conventional concepts of “value” and central bank power, crashes are impossible. According to conventional explanations, the central banks control the markets and so crashes are brief and shallow because the banks will quickly change course and flood the financial markets with free money.

In the conventional view, markets are rational and liquid: there will always be a a buyer for every seller (i.e. liquidity) because there will always be a rational reason and cash/credit available to buy an asset at the current price.

Crashes reveal this as false: there is no buyer for every seller in crashes because it’s not rational to buy assets which have been grossly overvalued and are resetting at new valuations in a chaotic freefall. Indeed, the entire concept of “value” is in doubt, and as we all know, markets hate uncertainty.”

VIX futures hit a weekend high of 30.05 as investors seek to hedge risk.  The Buy signal is confirmed above the 50-day Moving Average at 25.71.

ZeroHedge remarks, “Put chasers are back…

…and they look “serious”. Let’s see if this time will be different, but the spike in put call ratio is big, and people tend to love puts when they should hate them and vice versa.

Source: Tradingview

VIXplosion is back

VIX moved sharply higher on Friday. The entire term structure curve moved to the upside and the short end of the curve exploded to the upside. This is pure panic as investors decided loading up on short term protection at “any” price. Charts shows the volatility structure today vs how it looked on Wednesday.”

Source: vixcentral

TNX continues ist correction with a likelihood of testing the Cycle Top support at 25.66.  The decline may last through the end of May, so it may have time to tag a lower support.

USD futures are surging higher on day 269 of the Master Cycle.  The Cycles Model suggests another day of strength before a potential reversal.

3:50 pm

SPX continues its decline.  This is not a time to take profits yet.  The next bounce may be at the trendline at 4100.00.

7:40 am

Good Morning!

NDX futures probed lower in the overnight session, to a low of 13611.80.  The 50-day Moving Average at 14257.32 proved to be resistance at yesterday’s high and now the Cycle Bottom at 13518.32 may be the next support.

Today’s expiring options show two heavy concentrations of calls at 13700.00 and 13800.00.  Puts are very concentrated (short gamma) at 13500.00.  QQQ (334.15 close) expiring options are negative beneath 340.00 and short gamma starts at 335.00.

ZeroHedge notes, “NASDAQ – the cross of crosses

Time to revisit the “cross of crosses”, the 100 vs 200 day moving average cross, that occurred right at the most recent NASDAQ resistance. With NASDAQ falling below the big 14k level today, this moving average cross is becoming “serious”. Supports are: 13.6k and the 13.2k level.

Source: Refinitiv

Tech stress refuses easing

VXN is back to recent highs, while VIX remains 2 points below those highs. Tech remains the pillar of this market…and price action is all but bullish.

SPX futures declined to 4366.10 overnight and bounced, but remained beneath 4400.00.  Max Pain is at 4420.00 and short gamma may exist beneath 4400.00.  This is not a good combination and may lead to elevated volatility today.

Zerohedge reports, “US equity futures extended their Thursday losses, and were slightly lower on Friday morning as investors fretted over the latest hawkish remarks from Jerome “Crash Stonks” Powell. Nasdaq 100 futs were down 0.1% by at 7:15a.m. EDT after the underlying gauge slumped 2% on Thursday after Powell outlined his most aggressive approach yet to taming inflation, potentially endorsing two or more half percentage-point interest-rate increases, which prompted the market to price in more than six 25bps rate hike by the end of July and 10 hikes by the end of 2022. Shorter-dated Treasury yields surged. The dollar rose to the highest level since July 2020 amid losses for the British pound with data showing the U.K.’s cost-of-living crisis is hampering consumer spending.

The overnight weakness pushed both S&P 500 futures lower by about 0.2% after cash closed down 1.5% Thursday, although trade was muted and range-bound.

VIX futures climbed to an new high at 23.62, then pulled back to a low of 22.62.  VIX is on a buy signal and, should yesterday’s low be the final low, sets up a new Master Cycle lasting up to three months.  This has the appearance of being a monster Cycle.

TNX futures hit a new Master Cycle high at 29.74, although not registered (yet) in the cash market.  Today is day 261 in the Master Cycle and there is room for further gains, possibly through the next week.  Trending strength may not be over, yet.

USD futures hit a new high at 101.10 this morning, on day 266 of the Master Cycle.  Ordinarily one would expect the USD to reverse its trend here.  However, this may be the last gasp for the USD.  In addition, the strength of the USD is still linked to the TNX.  When TNX  declines, so will the USD.

Crude oil futures declined beneath the 50-day Moving Average at 101.50 before a bounce brought it back above it.  This portends a serious loss of support that may result in a further decline.  The Cycles Model suggests a decline may go through the end of June.  In Wave relationships, Wave (C) is often equal to Wave (A), and sometimes greater than (A).  That implies a decline to the lower trendline of the Broadening Wedge at 70.00.  Should it go lower, an extended relationship may take WTIC to 50.00.

ZeroHedge observes, “A full EU ban on Russian crude oil and gas imports could have unintended economic consequences for the United States and its Western allies, U.S. Treasury Secretary Janet Yellen told reporters in Washington on Thursday. The Treasury Secretary added that such a ban could do more harm than good.

Europe does need to reduce its dependence on Russian oil and gas, Yellen said, “but we need to be careful when we think about a complete European ban on, say, oil imports.”

7:45 am

Good Morning!

SPX futures rose to a morning high at 4501.20, just beneath the mid-Cycle resistance at 4507.80 and the 50% retracement values at 4509.50.  Friday’s options expiration shows Max Pain at 4450.00, near yesterday’s close.  Options gamma turns positive near 4500.00.   Should SPX break above resistance, the 61.8% retracement value is 4439.56.  It is no coincidence that opex closes at or near Max Pain.  This is one of wall Street’s biggest money makers and also the source of greatest risk when the markets break down.

ZeroHedge reports, “US equity futures traded higher led by tech stocks, after Tesla’s results beat expectations boosting hopes for another strong earnings season and allayed fears of an imminent recession. The electric-vehicle maker’s shares jumped 7.2% in premarket trading on Thursday, while United Airlines rose 7% after forecasting it will return to profit this year. By contrast, Alcoa dropped 5.7% after reporting worse-than-expected sales and higher inventories due to supply-chain disruptions. S&P futures rose 0.85% or 37 points to 4,493 while Nasdaq 100 futs rose 1.2% to 14,175. A selloff in Treasuries resumed with a debate raging around whether inflation is peaking: the 10-year Treasury yield added 4 basis points. The euro and German bund yields rose after hawkish comments from European Central Bank officials. The dollar reversed losses, gold slumped to session lows and bitcoin jumped above $42,000.

VIX futures declined to a morning low of 19.81 on day 251 of the Master Cycle.  There is a risk of a new Master Cycle low in the next two days.  Should that be the case, this may launch the VIX into a possible 90-day surge to new (possibly all-time) highs.   I have detected a probable new pattern that may better accommodate what is transpiring.

Max Pain on next Wednesday’s options expiration is at 19.00.  Positive gamma kicks in at 21.00.  This comports with the Cycles Model which offers a buy signal above mid-Cycle resistance at 21.30.

TNX continues to consolidate beneath Tuesday’s Master Cycle top at 29.30.  Should that high persist, we may see TNX decline through the end of May.

ZeroHedge reports, “With yields tumbling all day after the 10Y seemingly peaked just south of 3.0%, many expected that today’s 20Y reopening (of 19Y-10M cusip TF5) would be a tail due to the lack of concession. Well, they were wrong, because moments ago the Treasury announced that it sold $16BN in 20Y paper at a high yield of 3.095%, which while almost 150bps higher compared to the March high yield of 2.651%, stopped through the When Issued 3.125% by 3.0bps, the biggest strop through in the (brief) history of the 20Y auction.

The bid to cover jumped to 2.80, up from 2.72 in March, and also a record high.

The internals were also record, with Indirects taking down a whopping 75.9%, up a whopping 11.5% from March’s 64.4%, and the most on record, not to mention well above the six-auction average of 63.9.%. And with Directs awarded 15.3%, modestly below the recent average, Dealers were leff holding just 8.7%, also the lowest on record!”

USD futures have declined beneath the Cycle Top support at 99.94, making a sell signal.  It as bounced back above the support, but the signal has been given.  Will consumers go on strike and weaken the USD?  The Cycles Model suggests a decline through the third week of June.

ZeroHedge reports, “American consumers are spending more, getting less, and borrowing more to fund this involuntary spending spree.

Retail sales in March were 7% higher than they were in the stimulus-fueled March of 2021, but thanks to inflation, they didn’t get as much bang for their buck.

Seasonally adjusted, retail sales were up 0.5% month-on-month in March at $677 billion.

As WolfStreet put it, “Stimulus Miracle March 2021 was a very tough month to beat. But Americans did blow by it. What they didn’t do is blow by the now raging inflation.”

Crude oil futures continue to consolidate beneath the trendline at 104.50.  Whatever is about to happen will last through the end of June, so be aware of a major firestorm looming.  The probable target appears to be near the trendline at 70.00.

9:47 am

The Ag Index continues to retest the neckline at 570.50 in preparation of another move higher.  Today is day 251 of the Master Cycle.  I am not looking for a turn yet, as there is an increase of trending strength due next week.

ZeroHedge reports, “About one-third of Ukraine’s farmlands may not be harvested or cultivated this year as Russia begins the second phase of the conflict in the war-torn country.

The Food and Agriculture Organization of the United Nations (FAO) noted in a report on Tuesday that the “vast destruction of crops and infrastructure due to the war jeopardizes food production.”

FAO estimates approximately 33% of the crops and agricultural land may not be harvested because of the escalating war.

In March, Ukraine President Volodymyr Zelenskyy urged farmers to sow as many fields as possible to protect the food supply, but that appears to be a challenging task considering the displacement of people (labor shortage), bombed-out fields, severely damaged infrastructure, and shortage of everything (diesel, seeds, & fertilizer).

Ukraine is considered the world’s second-biggest shipper of grains and the biggest exporter of sunflower oil. The planting season has already begun — its crop production is vital to the global food supply.”

On the other side of the world, yet another problem arises.  ZeroHedge observes, “Farmers in China, India, Bangladesh, Indonesia, and Vietnam — the largest rice-producing countries could experience reduced output due to soaring fertilizer prices.

The International Rice Research Institute warns that harvests could plunge as much as 10% in the next season, equating to about 36 million tons of rice, or enough food to feed a half billion people, according to Bloomberg.

Chemical fertilizers, such as nitrogen, phosphorus, and potassium, are the most applied nutrients for high-yielding rice cultivation. Farmers have been particularly vulnerable to soaring fertilizer prices as some have reduced the amount of nutrients to save costs. This threatens future harvests as production declines could stoke food inflation for a crop that feeds half of humanity.”

9:35 am

BKX has emerged above the Lip of the Cup with Handle formation.  Unlike the Head & Shoulders formation, in which the neckline is considered impermeable, the Lip of the Cup with Handle formation allows passage through it on a retest.  BKX may resume is decline this weekend, if not sooner.

8:07 am

Good Morning!

SPX futures are reaching for the 38.2% retracement level at 4479.53 this morning.  Today is a day of trending strength in the Cycles.  It may also mean a reversal is at hand once the strength is spent.  Options expiration dominates trading today, as Max Pain is at 4450.00.  Gamma turns positive at 4525.00 and short gamma prevails beneath 4400.00.

ZeroHedge reports, ” US index futures were little changed, trading in a narrow, 20-point range, and erasing earlier declines as a selloff in bonds reversed with investors also focusing on the catastrophic Q1 earnings report from Netflix. Nasdaq 100 Index futures slipped 0.2% by 7:15 a.m. in New York, recovering from an earlier drop of as much as 1.2%; the Nasdaq 100 has erased $1.3 trillion in market value since April 4 as bond yields have been surging on fears of rate hikes. S&P 500 futures also recouped losses to trade little changed around 4,460. Treasuries rallied and 10Y yields dropped to 2.86% after hitting 2.98% yesterday. The dollar dropped for the first time in 4 days after hitting the highest level since July 2020, and gold was flat while bitcoin rose again, hitting $42K.

In perhaps the most notable move overnight, US 10-year real yields turned positive for the first time since March 2020, signaling a potential return to the pre-pandemic normal. But that was quickly followed by a global drop in bond yields as investors assessed growth challenges from the Ukraine war and the potential for a peak in inflation.”

VIX futures declined to a new retracement low of 20.21 on day 250 of the current Master Cycle.    Trending strength comes back at the end of this week and continues to build into May, suggesting an extended Master Cycle.

TNX is consolidating just beneath its peak at 29.30 on day 258.  The problem is that the EW pattern is incomplete, suggesting an extension is probable.  The Master Cycles are allowed up to 17 days of variance (plus or minus) while the average remains at 258 days.

USD futures are consolidating beneath the upper trendline and yesterday’s high at 101.03 on day 263 of the Master Cycle.  A reversal is anticipated at a decline beneath the Cycle Top support at 99.98.

Crude oil futures are bouncing back to retest the trendline near 104.00.  It may retest Intermediate-term resistance at 105.58.  A decline beneath the 50-day Moving Average at 101.98 confirms the reversal and may position crude oil for a two month decline.

ZeroHedge reports, “America’s liquefied natural gas (LNG) exports are booming amid a global energy crisis and a European drive to wean itself off Russian gas. U.S. shipments of natural gas have jumped to all-time highs this year as the United States is intent on helping Europe cut its dependence on Putin’s gas.  As demand for natural gas grows, export facilities along the U.S. Gulf Coast are operating at capacity and cannot ship more LNG than they are currently doing—at least not now. ”

Gold futures are trading lower beneath Intermediate-term support/resistance at 1952.54 this morning.  Gold is on a sell signal that may last for another two months, as well.

2:30 pm

Market Has Reached “Exhaustion Equilibrium”, Gamma-Hedging Flow Impacts Will Only Get Worse From Here

Make sure you are short beneath the 50-day Moving Average at 4420.00.

1:37 pm

The Ag Index is back-testing a probable support line at 570.50 prior to completing its current Master Cycle by the end of next week.  The Support may be a neckline that has been generated in March 2011 during the last Solar Minimum.  Tis one may be considerably worse.

Zerohedge reports, “A confluence of circumstances has come together to create a “perfect storm” for global food production, and now that “perfect storm” is about to get even worse.  For months I warned that this crisis was coming, and in recent weeks I have been documenting how dire conditions have already become all over the globe.  The head of the UN World Food Program is warning that this is going to be the worst worldwide food crisis since World War II, and even Joe Biden is admitting that the approaching food shortages “are going to be real”.  Unfortunately, there have been some new developments which threaten to significantly escalate things.”

ZeroHedge also observes, “A combination of factors has sent corn futures in Chicago to the highest level in a decade as investors fret over dwindling supplies.

Corn futures haven’t exceeded $8 a bushel since September 2012, following a devastating drought that damaged crops across the U.S. Midwest. Now supply risks return but for different reasons.

The global outlook for corn supplies has plunged since Russia’s invasion of Ukraine began in late February. The war-torn country supplies a fifth of the world’s corn and could experience a 50% decline in output this year.

Soaring fertilizer costs have forced some farmers in the U.S. to increase plantings of soybeans this growing season versus corn as the crop requires fewer nutrients. ”

1:10 pm

SPX is nearing the completion of a top-to-top Cycle in 12.9 market days (21.5 calendar days).  Should it go no higher, it will have made a 30% retracement.  Weakness prevails.  The next Cycle may take 21.5 market days (30.1 calendar days) to the bottom.

RealInvestmentAdvice prognosticates, “Is there a bear market lurking in the shadows?

Such seems to be the question everyone is asking me as of late. Over the last couple of weeks, we have reviewed the bullish and bearish cases for the market.

• Sentiment Is So Bearish. It’s Bullish
• Bullish Or Bearish? Where Are We Now?
• Bear Squeeze Or The Return Of The Bull?

In those discussions, I tried to balance the bullish and bearish arguments into some actionable strategies over the next few weeks. The purpose of analyzing both views is to minimize confirmation bias, which can negatively impact portfolios over time.

“When investors seek out information that confirms their existing opinions and ignore facts or data that refutes them, such may skew the value of their decisions based on their own cognitive biases. This psychological phenomenon occurs when investors filter out potentially useful facts and opinions that don’t coincide with their preconceived notions.” – Investopedia

While analyzing the shorter-term probabilities of a further advance or decline, the case for a more significant lurking bear market within the next 18-months solidified. Such is the context of today’s post.”

8:00 am

Good Morning!

NDX futures were on a roller coaster in the overnight session, ranging from 13828.00 to 14017.90.  Overhead resistance appears to be the Intermediate-term resistance at 14224.45.  It has since then settled back down beneath 14000.00, which appears to be the maginot line.

As for tomorrow’s options expiration, Max Pain is at 14000.00.  There is an especially large number of puts (101) at 13910.00, suggesting a decline beneath that level could spark a firestorm of selling.  In the meantime, the roller coaster continues its mission of frustrating both the bulls and the bears.

ZeroHedge observes, “Morgan Stanley’s runner-up in the “Biggest Wall Street Bear” category (to BofA’s Michael Hartnett whose weekly Flow Show doom and gloom is now a source of inspiration for bears everywhere) is out with his own weekly dose of pessimism and in his latest US Equity Strategy note, Morgan Stanley chief US equity strategist Michael Wilson writes that “Q1 earnings season will be more disappointing than thought” and that “inflation is no longer a net positive for earnings growth.”

Wilson, whose bio and message header speaks for itself, and hints that bulls are now “the greater fool”…

… predicts that “earnings revisions will decelerate amid 1Q reporting season as the MS Business Conditions Index (a survey of industry analysts) just fell further and margin headwinds mount / are not fully reflected in consensus estimates. Stocks should discount this risk via the ERP channel.”

Worse, Wilson argues against of the most recurring (and perplexing) arguments spread by the bears, namely that inflation is actually positive for stocks – which it is, to a point –  and according to Wilson, that point has now been reached and writes that “inflation is no longer a net positive for earnings growth given the impact on costs that are now showing up in margins.”

SPX futures are flat after an overnight range between 4376.70 and 4415.80.  Tomorrow’s expiring options show Max Pain near 4400.00.  Expiring options turn positive at 4450.00, but negative beneath 4390.00.  Gamma turns short at 4350.00 and more so each 25 points beneath it.  Dealers and hedge funds may be walking a tightrope to keep options from spinning out of control.

ZeroHedge reports, “After some jerky rollercoaster moves in Monday’s illiquid trading session, which jerked both higher and lower before closing modestly in the green, US futures resumed their volatility and at last check were trading flat after earlier in the session rising and falling; Nasdaq futures retreated 0.1%. as investors weighed the risks to economic growth from hawkish Federal Reserve comments. Stocks in Europe dropped as markets reopened after the Easter holiday, while bonds around the globe slumped as investors weighed the prospect of aggressive policy action to curb inflation. Asian stocks also dropped as did oil, while the dollar extended its gains .  Treasuries extended declines, with the 10-year yield hitting a fresh three-year peak north of 2.90%. German and U.K. 10-year yields climbed to the highest since 2015 as bonds across Europe plunged.”

VIX futures consolidated in a narrow range between 22.19 and 22.92 as it awaits the breaking of the stalemate in stocks.  Tomorrow’s options expiration shows Max Pain at 26.00 with short gamma beneath 23.00.  Long gamma kicks in at 30.00.

The NYSE Hi-Lo Index closed at -164.00, solidly in bear country.  While on a sell signal, confirmation is added beneath -200.00.

TNX futures made an overnight high of 29.09 before pulling back at the open.  Today is day 258, and we should be looking for a reversal in the next few days.  Getting a sell signal here may be difficult since TNX is so high above support.  However, unless a phase shift occurs, we may see TNX pull back to the 50-day Moving Average over the next six weeks.

USD futures made a new high at 101.01 this morning as it wraps up its Master Cycle on day 263.

WTIC futures made an abrupt reversal at the Cycle Top resistance at 109.46, suggesting that may have been the Master Cycle Top on day 262.  The significance of that is a potential 2-month decline into the end of June.  A 50% retracement of the rally from April 2020 takes WTIC down to 68.20.  A 68.2% retracement may decline to 63.07, near the Wave (4) low of 61.74.  The question is, “What would make crude oil do that?”

Gold futures made a sudden breakdown, declining beneath the Cycle Top at 1966.96, making a low of 1959.85.  That suggests a probable decline to the mid-Cycle support at trendline at 1831.11 may be made over the next two months.

3:20 pm

SPX could not rise to the 50-day Moving Average at 421.14 today, showing profound weakness.  Should SPX decline beneath 4370.00, it may continue the decline to new lows.  Otherwise, there may be another attempt to retrace more of the decline.

ZeroHedge reports, “There are other types of stock market leverage, and no one knows how much leverage there is in total. Margin debt is the only reported indicator...

Margin debt – the only type of stock market leverage that is reported regularly – dropped by another $36 billion, or by 4.3%, in March from February, and by 12.4% over the past three months, to $800 billion, according to FINRA which collects this data from member brokers. Margin debt has now fallen below the year-ago level. But leverage is still gigantic and has a long way to go.

After peaking in October at $936 billion, margin debt started falling in November, which was also the month that the Nasdaq started falling. Margin debt has since fallen by 14.5%. The Nasdaq has fallen by 17.6%.

And many of the highfliers have collapsed by 60%, 70%, and even over 90%, some of which I track in my collection of Imploded Stocks. Stock jockeys that were margined in those trades got turned into forced sellers to raise the cash to pay down their margin debt. A margined portfolio specialized in these stocks can get wiped out.”

10:44 am

BKX continues to make new lows, with one of two possible outcomes.  The first is a potential stretch of the Master Cycle to day 273, the most likely scenario, as the decline completes its fifth Wave of an impulsive decline.  Should that be the case, BKX may bounce above the Lip of the Cup with Handle, possibly to the 50-day Moving Average at 124.85, in a brief retracement.  The second outcome is that BKX may decline even lower in an oversold panic decline.  Note the Target for the Cup with Handle.  This target may be due by the end of June.

9:58 am

GKX has clearly broken above its previous high at 570.50 made in March 2011.  This may be interpreted as a possible Head & Shoulders formation, although a long one, with a target in the range of 900.00.  There are about two weeks left in the current Master Cycle, after which it may retrace back down to the trendline at 570.50.  The alternate formation may be a Cup with Handle formation, with a slightly lower target.

ZeroHedge reports, “The bird flu outbreak has only been spreading around the US for two months, and some industry experts are warning the rate of spread could be worse than the devastating 2015 outbreak.

On Friday, the US Department of Agriculture (USDA) announced yet another state where the contagious strain of highly pathogenic avian influenza has been detected. Idaho is the 27th state where the virus has been found since February.

WaPo spoke to Gro Intelligence (ag data experts) senior research analyst Grady Ferguson who tracked the last outbreak in 2015, saying this one could be more disruptive to the poultry and egg markets.

Ferguson said that 66 days into the outbreak, 1.3% of all US chickens had been affected, and 6% of the US turkey flock. In 2015, he said, only .02% of total chickens were affected at this same time. The number rose to 2.5% of chickens infected at the outbreak’s peak, and more than 50 million were culled.

So far, the bird flu tsunami wave across 27 states has infected 27 million chickens and turkeys, forcing farmers to “depopulate” or cull flocks to prevent spreading.

ZeroHedge observes, “There is a high probability that a self-perpetuating wage-price spiral will develop in the next few years. Households have already become less resistant to paying higher prices and firms have become less resistant to offering higher wages. Prices and wages will continue to spiral upward until the cumulative erosion in inflation-adjusted incomes causes the economy to collapse in recession. It is like the children’s game of musical chairs: Everyone knows the game will end, but they feel compelled to keep racing around the circle at an ever-faster pace hoping their forced exit will leave them in the best possible position—even if it still means an inflation-adjusted loss.

This situation has been termed “inflationary psychology.” Consumers purposely advance their purchases in order to beat anticipated future price increases. Firms readily pass along higher costs to consumers, including the future cost increases that they anticipate. That’s what happened in the last inflationary age, which started in 1965 and ended in 1982: Expected inflation became a self-fulfilling prophecy. Many commentaries assert that the current situation is nothing like the situation faced in 1978-80. That’s true, but irrelevant. The more apt comparison would be to the five to ten years prior to that period, when inflation had not yet reached crisis levels. Government officials claimed they had the policy tools that could easily reverse inflation, just as they claim now.”

Making for a potentially worse outcome, ZeroHedge reports, “A fertilizer supply shock is imminent for US farmers as CF Industries Holdings, Inc. warned Thursday that rail shipments of crop nutrients would be reduced to top agricultural states, which couldn’t come at the worst time as the Northern Hemisphere spring planting season is underway.

The world’s largest fertilizer company said Union Pacific had hit it with railroad-mandated shipping reductions that would impact nitrogen fertilizers such as urea and urea ammonium nitrate shipments to Iowa, Illinois, Kansas, Nebraska, Texas, and California. Union Pacific told CF Industries without advance notice to reduce the volume of private cars on its railroad immediately. This means CF Industries had to decrease shipments by a whopping 20% to stay compliant.

“The timing of this action by Union Pacific could not come at a worse time for farmers,” said Tony Will, president and chief executive officer of CF Industries.

“Not only will fertilizer be delayed by these shipping restrictions, but additional fertilizer needed to complete spring applications may be unable to reach farmers at all. By placing this arbitrary restriction on just a handful of shippers, Union Pacific is jeopardizing farmers’ harvests and increasing the cost of food for consumers,” Will said. “

8:00 am

Good Morning!

NDX futures continue to lead the stock indices lower.  The weekend low was 13731.70 and the bounce has stayed beneath 13900.00.   In today’s options expiration, Puts currently dominate with an especially large put position (172 contracts)  right at 14000.00.  However, there is also a large position of calls (150) at 13750.00.  Should the NDX slide beneath 13750.00 today, the the outcome may be dramatic.  NDX is on a sell signal.

ZeroHedge observes, “Observations From A Week On The Road

1. General skepticism from the trading community on equity markets. Most conversations center around the deep challenge faced by global central banks: how to move with serious force on inflation, without provoking an asset bust or a recession. While most acknowledge that its hard to foresee a near-term US recession when jobs are so plentiful and wage growth is so strong, the crowd struggles to envision how the Fed can ultimately pull off a soft landing. To be sure, this wariness is reflected in survey work and positioning metrics: AAII bull sits at the lowest level in 30 years, and length held at GS PB by fundamental hedge funds sits at the lowest level since April of 2020.”

SPX futures bounced at a low of 4361.60 only to be repelled at Thursday’s lows.  The outlook for next two weeks appear to be dismal and the decline may last into mid-May.  Today’s expiring options are short beneath 4440.00 and short gamma takes over beneath 4360.00.  While a bounce over the next three days may help to neutralize the effects of options on the markets, there seems to be no willpower to make it happen.  SPX is on a sell signal.

ZeroHedge reports, “Equity futures fell, Treasury yields rose and nat gas prices soared to the highest since 2008 as US markets reopened after a three-day holiday weekend while the U.K. and euro-zone markets remain closed. Nasdaq 100 futures led the retreat, falling 0.3% at 730 a.m. EDT after tumbling as much as 0.8%, and signaling a bearish start to the week after the U.S. market was closed on Friday for a holiday. S&P 500 futures also dropped 0.2%, while European markets remained closed on Monday. Oil was flat, while a cautious overall investor mood bolstered the dollar and gold. The USDJPY was set for the longest winning streak on record.

Nat gas soared another 3%, rising to the highest level since 2008.

“We think inflation is no longer a net positive for earnings growth given the impact on costs that are now showing up in margins,” Morgan Stanley strategists led by Michael Wilson wrote in a note. The effects of soaring prices “are now more likely to be a headwind to growth.”

VIX futures reached a morning high of 24.60.  VIX is on a buy signal above mid-Cycle support at 21.26 with confirmation above 25.00.  Today’s options expiration is dominated by puts from 17.00 to 25.00.  The short-vol trade appears to be very popular.  An emergence over 25.00 is likely to change the tenor of the market with a potential wipe-out of a massive number of puts.

The NYSE Hi-Lo Index closed on Thursday at -136.00.  It is on a sell signal.

TNX futures reached a weekend high of 28.84 before pulling back.  This morning’s high may be the Master Cycle high on day 257 of the current Cycle.  It may take another day or two to confirm it.

ZeroHedge advises, “When the system can’t borrow more and distribute the insolvency, it implodes

I started writing about debt saturation back in 2011. The basic idea is we can continue to borrow and spend as long as one of two conditions hold: 1) real (inflation-adjusted) income is rising, so there’s more income to service additional debt, or 2) the cost of borrowing declines so the same income can support more debt.

After 13 long years of declining interest rates and stagnant incomes for the bottom 90%, we’ve finally reached debt saturation: after dropping to near-zero, interest rates are now rising, pushing the cost of debt service higher, while wages are losing purchasing power (a.k.a. inflation), so there’s less disposable income left to service debt.”

USD futures rose to 100.76, not overcoming Thursday’s high at 100.77.  Should USD not go higher,  Thursday’s Master Cycle high on day 258 may be confirmed by declining beneath the Cycle Top at 99.66.

Crude oil futures surged to 108.00 this morning, approaching its Cycle Top resistance at 109.95.  There may be a pullback at the Cycle Top resistance, but the trend is higher.  Trending strength returns in May.

ZeroHedge reports, “On the heels of lower Russia output (sanctions and snubs of Urals crude, despite record discounts) and Libya’s oil production plunging by more than half a million barrels a day amid a wave of political demonstrations engulfs the OPEC member’s energy industry, oil prices have extended their gains this morning, with WTI now erasing all of the lower price benefits from Biden’s SPR Release Plan announced in late-January. It also appears Biden’s relenting on Ethanol and land leases has done nothing at all (for now).

WTI Crude topped $108 this morning..

This is a major problem for President Biden as ‘the largest release’ in history has achieved nothing at all in terms of his endgame hope of reducing gas prices at the pump, which are now turning up once again, following crude and wholesales gasoline prices back towards record highs…