The Practical Investor

1:48 pm

Exactly 8.6 market days have elapsed from the March 3 high at 4416.78.  I had originally considered this to be a low, but it turns out to be the final bounce before the decline beneath the Lip/Neckline at 4200.00.  It would be no surprise to see a lower close from yesterday.  Since the Cycle is indicating a continuation, we may expect another 4.3 days of decline into the afternoon of March 21.

ZeroHedge observes, “In late 2021 we noted a gaping divergence in one of Wall Street’s most closely watched surveys, the BofA Fund Manager Survey: while the number of respondents seeing a stronger economy had collapsed, the allocation to stocks remained near record high levels, resulting in what we called a “historic divergence“.

Well, the divergence is no more: after several months of tentative declines, Wall Street sentiment in March has finally hit rock bottom and according to the latest BofA Fund Manager Survey conducted by Chief Investment Strategist Michael Hartnett in which some 341 panelists with $1 trillion in AUM were polled, global growth optimism has crashed to the lowest since July 08, two months before Lehman crashed.”

8:10 am

We have not paid a lot of attention to China recently, to my regret, since the Shanghai Composite Index is nearing a bear market with a 17.7% decline from it’s September high.  I had previously mentioned that, as the Tech-heavy China stocks go, go goes the NDX.

In reality, the Chinese indices may have followed the NDX, which is down over 22% from its November high, but did not beak support until today.  NDX futures declined to a low of 12944.10, clearly piercing the Lip/Neckline of the doubly bearish formation.  The futures have bounced to 3140.50 this morning, but are losing their upward impetus.  What we are witnessing is a probable Phase-shift, where the trendline acts as a dam, holding back the rising water until it is breached.  Today may be such a day.  Despite the bounce, the technical damage is already done.

ZeroHedge reports, “Welcome to another rollercoaster session where US equity futures first tumbled alongside the second consecutive day of stocks plunging in China, which also dragged Europe lower, only to hit a U-turn around 5am at which point sentiment reversed higher, ahead of tomorrow’s expected Federal Reserve rate hike and amid mounting risks from the war in Ukraine and a Chinese equity rout. Nasdaq 100 contracts trade 0.5% higher at 7:15 a.m. after earlier slumping as much as 0.8% following the first bear-market close for the first time since March 2020. S&P 500 futures also turned 0.3% green, as did Dow futures.

VIX futures made a new overnight high at 33.83 before easing back.  It is likely that Friday’s low on day 255 of the Master Cycle may have been the bottom.  It is not always the highest or lowest reading that finishes a Master Cycle.  In this case, it announces a potential Phase-shift into high gear, as it may be launching Wave (iii) of [iii] of 3 of Intermediate Wave (C) of Primary Wave [3] of Cycle Wave 3 of Super Cycle Wave (c).  This seven-degree Wave may denote a panic developing with tremendous strength, possibly not seen since the Great Depression.  Wave 3s and Cs are never the smallest and often the strongest of the series.

The NYSE Hi-Lo Index has been problematic in the last three months, partially due to the wide-ranging swings from highs to lows in short periods of time.  In this case, it may be providing a warning of what’s to come.  The Orthodox Broadening Top offers a target for this particular decline which may not be ignored.  The targeting methodology suggests a deeper low than the March 2020 low at -2375.00.  In fact, it may rival the October 2008 low at -2891.00.

TNX is rapidly declining, suggesting a possible decline to the trendline at 17.00 before snapping back.  This may cause huge liquidity issues that may spill over to equities.  I am having difficulties with my charts that don’t seem to have a solution yet.  Thus, the change to a 2-hour chart in TNX.

9:45 am

The Ag Index is in a correction/consolidation that may only last about two more weeks.  This may be the last chance to buy shares of a commodity that may double in the next six months.  As they say, buy the dip.

ZeroHedge reports, “A massive fire has broken out at a northern Taiwan logistics center for the 8th largest retailer in the world.

According to Taiwan News (citing CNA), officials in the northern Taiwan city of Taoyuan received a report early Monday of a massive blaze at the warehouse in the city’s Yangmei District at the Carrefour Logistics Center.

73 firefighters, 23 fire trucks, 8 tanker trucks and 4 ambulances were dispatched to the scene, where according to reports, nobody has been trapped in the facility.

According to the fire department, the fire appears to have started on the first floor of the two-story structure. There are no hazardous items believed to be inside.

The entire facility is currently engulfed in flames, and smoke can be seen billowing into the sky from several kilometers away. An investigation into the cause of the fire and damage assessment are currently underway. –Taiwan News

Further, ZeroHedge observes, “Two weeks after the Russia-Ukraine crisis began, the world is quickly moving toward a food crisis that could affect millions of people. A spillover of the crisis could soon spark agricultural mayhem in the US.

The curtailment of agricultural exports from Russia and Ukraine will have dramatic knock-on effects on global food supplies. Both countries are known as the ‘breadbasket of the world’ and are responsible for a quarter of the international wheat trade, about a fifth of corn, and 12% of all calories traded globally. Another major problem is access to fertilizers, as Russia has banned exports of the nutrients.

It’s not whether or not there will be a food crisis. It’s how big that crisis will be.”

Adding insult to injury, ZeroHedge tells us, “On top of everything else, now a highly pathogenic avian influenza pandemic is ripping across the United States, and it has already resulted in the deaths of almost 2.8 million birds.  Most of the birds that have died have been chickens or turkeys.  And since this was just in the very first month of the pandemic, there is no telling how bad it could eventually become.  What will the eventual death toll look like?  Will it be in the tens of millions?  That is definitely a possibility.  And what would happen if the bird flu mutates into a version that spreads easily among humans?  We might want to start thinking about that, because that is possible too.

I knew that the bird flu outbreak was bad, but I didn’t know that it had gotten this bad.  The following comes from a prominent farming website…

With new outbreaks in Iowa and Missouri, nearly 2.8 million birds — almost entirely chickens and turkeys — have died in one month due to highly pathogenic avian influenza (HPAI), the Agriculture Department said on Monday. The viral disease has been identified in 23 poultry farms and backyard flocks in a dozen states since February 8, when the first report of “high path” bird flu in a domestic flock was reported.

2.8 million dead birds in just one month.

Will next month be even worse?

8:45 am

Good Morning!

SPX futures rose to a weekend high of 4254.20, then declined to the flat line this morning.  Today’s expiring options are negative beneath 4250.00 and gamma turns short beneath 4200.00.  SPX has closed above 4200 for the past seven weeks, but the Cycles Model says the break should be conclusive today or tomorrow.

ZeroHedge reports, “US equity futures held on to modest gains overnight as the market desperately clung on to hope that the latest ceasefire talks between Russia and Ukraine which started on Monday, may yield results (clearly forgetting how the rug was pulled from under the market on Friday in an identical setup), which initially sent stocks higher especially in Europe, despite a surge in 10Y TSY yields to 2.10%, the highest since July 2019, two days ahead of the first Fed rate hike, and a complete collapse in Chinese stocks. And while U.S. index futures were still pointing to a positive open around 8am ET this gain is fading fast, with spoos now up just 0.5% after rising 1% earlier…

… as headlines from the Kremlin suggested that a ceasefire is the last thing on Putin’s mind.

• *KREMLIN: RUSSIA WILL REALIZE ALL ITS PLANS IN UKRAINE OPERATION
• *KREMLIN: UKRAINE OPERATION WILL BE COMPLETED ON SCHEDULE
• *KREMLIN: RUSSIA DIDN’T REQUEST CHINA MILITARY AID FOR OPERATION *KREMLIN: RUSSIA HAS RESOURCES NEEDED TO COMPLETE UKRAINE ACTION

And while futures would normally be deep in the red by now, and will be shortly now that AAPL is at LOD…

• APPLE FALLS TO SESSION LOW, DROPS 1.6% IN PREMARKET TRADING”

VIX futures rose to a morning high of 31.45 as it closed above its Cycle Top on Friday.  There has een an effort to keep markets in a narrow range ahead of the FOMC announcement and options expiration on Wednesday (VIX) and Friday.

ZeroHedge observes, “As Goldman’s head of FX sales Tony Pasquariello said on Friday, “next week is a huge one, featuring the FOMC on Wednesday and a major derivatives expiry on Friday.”

While much digital ink will be spilled in the next 48 hours dissecting the Fed’s next move which will most likely be the first 25bps hike in over two years, instead we will focus on next Friday’s March options expiration, which sees a massive $3.3tln of derivative notional expiring, not only right after the FOMC decision but also in the midst of a complex geopolitical situation.

Overall, some 30% of S&P open interest expires on March 18.”

TNX broke out above its February 15 high at 20.65 this morning.  The Cycles Model calls for 5 more weeks of levitation into the next Master Cycle (high).  This may be a rally with exceptional strength, as the Cup with Handle formation implies.

USD futures pulled back to 98.74 as it consolidates prior to its final push higher.  This week may gather strength as USD may actually make a throw-over above the upper trading channel trendline at 100.00.  This panic move into the USD may meet with a sudden reversal late next week, so don’t be fooled.  This may be the final surge before a massive decline.

Crude oil futures have come down to 102.56 this morning as WTIC may test the upper trendline of its Broadening Wedge formation.  The Cycles Model suggests a quick decline beneath its trendline and Cycle Top at 98.73 in the next week.  This implies a sudden decline in liquidity over that same period.

1:40 am

The range of the SPX appears to be defined by the Lip/Neckline at 4200.00 on the bottom and Short-term resistance at 4292.88 at the top (Max Pain zone is at 4280.00).  Today’s options go negative at 4250.00, so there is not a lot of wriggle room.  The Fed may be concerned about the bullishness that seems to underlie the market with massive stock buybacks, keeping the SPX buoyant.  Most speculators simply don’t know what to make of our current predicament, so they have become day traders in options, trying to front-run the next move.  The turnover is nearly triple the underlying positions.   There is no need to explain the consequences of a serious breakdown.

ZeroHedge explains, ” The earlier spike in US futures – following somewhat optimistic tones from Putin – have all been erased by actual events and the reality of significantly more unhappy America than expected (from UMich)…

However, as Nomura’s Charlie McElligott details below, there is a much stronger dynamic at play that is driving the daily roller-coaster in stocks – and may well continue through the FOMC next week (and the massive $3.3 trillion options expiration next Friday).”

8:55 am

Good Morning!

SPX futures are are testing Short-term resistance at 4296.30 this morning as dealers look for an excuse to bull up the SPX out of the put-heavy zone beneath 4275.00.  Now they must maintain this level throughout the day as options expire at the close.

ZeroHedge reports, “Here comes another rollercoaster of a day for markets.

In a rerurn of last week’s (transitory) Ukraine war “ceasefire” euphoria which fizzled almost as fast as it emerged, a little after 6am ET on Friday morning, futures which had been trading rangebound for much of the overnight session, soared 60 points in seconds after Interfax reported that according Putin told his Belarusian counterpart Alexander Lukashenko that “there are certain positive developments, as far as negotiators from our side informed me” adding that “Talks are happening almost daily.”

VIX futures were pushed down to a morning low of 28.84 as options play an important part of the VIX, as well.  Calls dominate the March 15 expiration at 30 and above, so todays smash-down may have been an effort to manage market sentiment and smooth out volatility.

ZeroHedge comments, “We were wondering when we would see a Jerome Kerviel-inspired prop trading blow up as a result of the recent market turmoil, and this morning we got it. According to Bloomberg, Morgan Stanley derivatives trader Hamza El Hassani, is leaving the firm after racking up tens of millions of dollars in losses following the recent burst of market volatility.

El Hassani, who traded dividends in the New York-based bank’s equities division, is leaving the bank after his trading book blew up racking up losses “less than $50 million”, Bloomberg reports citing people with knowledge of the matter.”

TNX opened above the Cycle Top support/resistance at 19.84 and may trade above this support for the duration of Wave 3.  The current Master Cycle may continue through the week of April 18, according to the Cycles Model.

8:00 am

Good Morning!

SPX futures have declined to a low of 4229.80 as I write, giving back nearly half of yesterday’s bounce before the open.  This attests to the grip that the dealers and hedge funds have on the market, as the SPX closed at Max Pain again.  Note that the rally closed in the correction zone, about 89% of the top in January and the 50% Fibonacci retracement was 4287.32.  The vast majority of options buyers are buying short-dated options that can whipsaw investors.  The dealers may soon have their comeuppance.  We will know the time has arrived when they start crying for a bailout.

ZeroHedge reports, “After yesterday’s optimism-inspired, negative-delta triggered melt up in stocks, futures have slid significantly overnight as lack of options market ‘rampage’ collateral (until the cash open) combined with a material lack of progress in the first high-level peace-talks between Russia and Ukraine stole the jam from the market’s donut.

VIX futures staged a comeback, rising to 34.02 this morning.  Commentators observe that the market may be near peak capitulation and a recovery may be around the corner.  A true capitulation (bear market bottom) would see none of this malarkey.

Zerohedge comments, “If you are short and want to feel really stressed

The move yesterday was brutal. Shorts were carried out on stretchers. It sure looks like we are “past peak” capitulation in terms of hedge fund flows. AND there is a wall of money that will support equities. AND you can make a case that valuations are attractive. AND maybe mega-cap tech is waking up again as proper bull market generals. OR maybe this was just a classic bear market squeeze and we should once again sell the rip very soon.

Closer to the end than the beginning of the discretionary de-risking

JPM loves the smell of capitulation among hedge funds. JPM Position Intelligence team: “Among Equity L/S funds, we’ve seen 7 consecutive days of active de-grossing as longs have been sold and short covered. Looking back over the past few years, the level of active de-grossing is the biggest aside from Mar ’20 (Covid) and Jan ’21 (Retail Squeeze). Furthermore, the duration of the de-grossing is nearing the duration of past big events, which lasted from 8-12 days)”

NDX futures dropped to a morning low of 13510.00, brutalizing the longs taking the plunge at the end of the day.

TNX is challenging the Cycle Top resistance at 19.75 this morning.  This move may be spent, as there is no indication of strength left in the Cycles Model.  In addition,   the EW structure suggests a pullback.

ZeroHedge reports on yesterday’s auction, “After yesterday’s disappointing 3Y auction, which was rocked by the rollercoaster swing in markets on a day-old AFP report, moments ago the US Treasury just sold $34BN in 10Y paper (in a reopening of Cusip CDY4) which came just as the FT was sending out fake news that the UAE had reached out to OPEC+ to urge a production boost, which sparked a flash crash in oil and unleashed a new volatility shockwave across assets.

And, just like yesterday, today’s auction left a lot to be desired, with the bond stopping at 1.92%, tailing 0.3bps to the 1.917% When Issued, and just above last month’s 1.904% high yield.This was the highest yield on a 10Y auction since July 2019.

The Bid to Cover predictably dipped from 2.68 to 2.47, the lowest since December, and  below the 6-auction average of 2.53.”

USD futures made an overnight low of 97.70 and bounced.  It may be due for a (minor) Trading Cycle low in the next couple of days, followed by the final probe to 100.00 during the week of March 21.

Crude oil bounced to 114.84 this morning, raising hopes of investors of a resumption of the bull market.   Crude is on day 247 today leaving another 1-2 weeks for a final push higher.  The EW structure appears complete, but the top may be extended in the corrective phase (Wave B).  On the other hand, should WTIC decline beneath the Cycle Top support at 98.48, a significant decline may follow.

ZeroHedge observes, “It was just last June when we asked if “ESG will trigger energy hyperinflation“, explaining that the progressives’ ESG agenda, “is unwinding the shale oil revolution. As recent events at Exxon and Shell have shown, the pressure on oil companies to reduce oil and gas exploration and adapt their business models has increased significantly over the past few months” (incidentally the answer to our rhetorical question was “yes”).

We added that “ESG is a negative supply shock that internalizes the climate cost of the production of goods and services. This negative supply shock will be inflationary until technological progress absorbs these costs. That could take years.  Moreover in Europe, it could garner enough of political support to justify a more aggressive fiscal policy despite the constraints at the German or EU levels.”

Meanwhile, the impact of ESG on oil companies has been to depress Capex spending to the lowest level in decades, leaving the energy sector entirely unprepared for any energy price spike, as it simply did not have the capacity to pump as much oil as may be needed.”

Gold futures bounced to 2015.00 as a brief period of strength ends the week.  However, a consolidation may have begun.  Gold may have begun a 6-week correction period before resuming its uptrend.  A correction this long suggests a possible triangle formation that ma frustrate investors.  Support is at the Cycle Top support at 1905.50.

ZeroHedge remarks, “Gold – everybody sucked in?

The “easy” trade in gold is long gone (outlined here on Feb 11). Now comes the “frustrating” part for most that have missed buying at decent levels and/or sell at recent euphoria levels. Gold needs to consolidate before anything meaningful can occur again according to us. If you are running “must be longs” here but think we are due for a consolidation, we see overwriting as interesting set ups. Gold volatility has exploded higher and offers great yield enhancement plays.”

12:32 pm

SPX may have stalled near the 50% retracement level at 4287.32 at the 4.3-day mark from the Wave 2 high.  The dealers and hedge funds may have quit covering their shorts (buy high and sell low).  The main issue for the rest of the day is to keep the SPX out of short gamma territory.

ZeroHedge explains, “Why such a violent equity squeeze on such ‘meh’ Ukraine / Russia headlines?

Nomura’s Charlie McElligott summarizes the long and the short of it succinctly below (Spoiler alert – Same shit, different day!)

As we’ve repeated numerous times, stocks are so deeply-immersed in Negative Gamma and critically, EXTREME “Short Delta” location for Options Dealers from all that downside hedging (after yesterday’s session, $Delta for SPX / SPY 0.2%ile, 0.0%ile for QQQ, 0.4%ile for HYG, 4.1%ile for IWM) that this means violent rallies which have to be “bot into” as Dealers cover shorts in futures.

Accordingly, McElligott has noted that any rally would have potent kindling for a short-squeeze from said “negative Delta,” as all those downside Puts are torched as we rally away from lower strikes, and the coupled “short hedges” from Dealers in futures will be bot back / covered.”

9:45 am

GKX may have made its Master Cycle high yesterday, on day 257.  This may be a case of the lack of liquidity in the market trumping supply and demand, at least temporarily.  Should that be the case, we may see GKX correcting down to the mid-Cycle support at 514.65 by the week of March 21.

ZeroHedge remarks, “The world is heading for a “catastrophic” global food crisis as a result of the war in Ukraine, which will cause “hell on earth” for food prices, according to experts.

“Half the world’s population gets food as a result of fertilisers… and if that’s removed from the field for some crops, [the yield] will drop by 50%,” Svein Tore Holsether, head of agri company Yara International, told the BBC.

Known as “the breadbasket of Europe,” Russia and Ukraine export around a quarter of the world’s wheat and half of its sunflower products, such as seeds and oil.

“For me, it’s not whether we are moving into a global food crisis – it’s how large the crisis will be,” said Holsether, noting that increasing gas prices were causing a steep rise in the cost of fertiliser.”

8:10 am

Good Moring!

SPX futures have rallied to a morning high of 4251.70, a strong 77.5% retracement of the decline from yesterday’s high.  Today’s options expiration is in short gamma beneath 4250.00.  Dealers and hedge funds are attempting to gain elevation above that level, so as to cause the least damage to their book.  Never mind the investors.

Equities are near the half-way point of a minimum 8.6-day decline potentially ending on March 15.  The next 4.3 days are the most intense, giving way to multiple probabilities of limit down days.  The key is the final and decisive decline beneath the neckline/Lip of the doubly bearish formation.

ZeroHedge reports, “After two days of sheer market insanity, including Monday’s furious plunge and Tuesday’s rollercoaster session, U.S. equity futures jumped after 4 straight days of losses, following European equities higher, as Ukraine optimism won, at least initially, over fears about high inflation and global stagflation as a result of soaring commodity prices, sparking a furious Delta squeeze (as we will show shortly in a subsequent post).

At 730am ET, Nasdaq 100 contracts were up 2.1% while S&P 500 futures gained 1.6%. The underlying benchmark fell for a fourth straight session on Tuesday to close at its lowest since June 2021. Dow futures rose 1.5%.  A bond selloff extended as investor focus turned to upcoming central-bank rate decisions, while oil prices reversed a rally driven by President Joe Biden’s ban on fossil-fuel imports from Russia. . The dollar weakened for the first time in five days, as haven demand waned. Bitcoin soared more than 10% over $42,000 spurred by optimism about an impending U.S. overhaul of crypto oversight that Treasury Secretary Janet Yellen called “historic.”

VIX futures made an overnight ow at 32.38, stepping back from a steady march upward.  It may be suing Short-term support (not shown) at 31.33 as a base for its continued advance.  The Model suggests a high likelihood of testing the neckline in the next 24 hours.

The NYSE Hi-Lo Index made a deeper low at -392.00 at the close.

ZeroHedge comments, “What if the world survives – the VIX guy is back

We haven’t heard from the VIX guy in a while, but he called us earlier today. He hasn’t sounded this bearish pretty much ever. When you hear about nuclear wars from the VIX guy you really start thinking about whether or not fear has gone ahead of itself? To summarize: he sees all commodities surging further, the geopolitical situation spiraling out of control, Europe basically going back to stone age etc. His biggest take is that VIX and the European version, V2X, are going to the moon. We strongly disagree. It is time for a thread on fear…

What fear is the market pricing here?

Regular readers of TME know that the crowd tends to load up on protection too late and at way too rich levels as they tend to confuse direction with pace. Don’t forget that a 1% daily move translates to 16% implied volatility (approx). People have been paying very high premiums for protection lately. We find selling premium interesting plays here, both for overwriting positions, adding longs or simply selling people some rich fear. One example is the SX5E 3500/3800 strangle going for just above 200. That is collecting around 5.5% premium with “happy” to buy more at 3300 and happy to sell at 4000. We find this strategy extra interesting for people that want to add to longs, but are happy to sell a rip…”

TNX continues to make new highs off the Master Cycle low.  It may be due for a pullback over the next week, especially when stocks resume their decline.  However, the appears to strengthen over time, especially in April, as Wave 3 develops.

ZeroHedge comments, “The Federal Reserve has all but cemented expectations for a 25bps rate hike next week. But, events have changed a lot in the last couple weeks that raise a faint hint that the Fed may not hike, despite elevated, persistent inflation.

What makes us question whether the Fed achieves lift-off next week? Three things: 1) deterioration of growth expectations for 2022, 2) the VIX, and 3) fed funds futures.

Since the peak in September of 2021, expectations for real GDP growth for 2022 has been steadily getting marked down. This helps explain the slide in the average stock this year—as measured by the Valueline equal weighted index. Does the Fed tighten into slowing growth?

USD futures retreated to an overnight low of 98.39 as it forms Wave [iv].  We may see USD decline further to its Cycle Top at 97.94 before its final push to 100.00 during the week of March 21.

Crude oil futures declined to 115.53 this morning, confirming the Master Cycle high on Monday.  This may be an excellent entry point for a short position.  However, the chart does not offer any support levels until the Cycle Top at 97.79.  Pick our best level or wait for a bounce to place you order.

OilPrice.com reports, “IEA Chief Fatih Birol: Our members are ready to release more crude from their SPR’s to tame surging crude prices.

Join Our Community

Gold may have made its belated Master Cycle high at day 280 yesterday, as suggested.  Gold futures dropped to an overnight low of 1981.20, potentially confirming that event.  Spike highs such as this are hard to negotiate at the turn, especially after being late.  However, the Master Cycle immediately preceding this was 250 days, yielding an average at 265 days for the two Master Cycles.  The probable target for a Wave (4) correction appears to lie near the Cycle Top at 1901.37.

12:21 pm

SPX opened lower, but formed a corrective bounce that has come within points of a 38.2% retracement at 4256.77.  The 50% retracement is at 4287.32, but I wouldn’t count on it.  The decline may soon be re-established after dealers finish unwinding their shorts…only to pick them up again at the end of the day.  Gamma remains short beneath 4350.00.  Selling pressure may soon pick up.

ZeroHedge comments, “Picking up where he left of with his “stuff is beginning to break” magnum opus yesterday, this morning Nomura’s Charlie McElligott writes that on top of the already well-established macro supply-demand “inflation shock” catalysts of the past 2 year period, the Ukraine-linked Commodities price/collateral/dollar funding squeeze -> “margin-call exercise” (which left a prominent Chinese trading tycoon significantly poorer after billions in margin calls), further amplifies the recent price-action in pockets of Energy, Metals and Ags.”

11:30 am

It appears that my “itchy trigger finger” on the sell button (GKX) last Friday wasn’t such a bad call after all.  GKX has now declined beneath the Cycle Top support at 579.25 and a massive Head & Shoulders neckline at 570.50 that appears on the monthly chart.  It appears that the loss of liquidity overrides the growing food crisis temporarily.  The next Master Cycle (low?) comes up during the week of March 21, only two weeks away.  GKX is now on a sell signal with the potential target at the mid-Cycle support at 509.36.

I have been an avid gardener all of my life, so the following missive from ZeroHedge comes as no surprise, “Spring in the northern hemisphere is two weeks away, and interest in planting gardens could rise as the breadbasket of Europe was choked off by the Russian invasions of Ukraine, jeopardizing global food exports resulting in skyrocketing prices.

Even before the turmoil in Ukraine, American households were under pressure due to soaring food and gas prices. The invasion just made things a lot worse as commodity prices jumped the most last week since the stagflationary period of the mid-1970s.

New UN global food price, released on Friday, showed global food prices in February surpassed a previous record set in 2011. About a quarter of the international wheat trade, about a fifth of corn, and 12% of all calories traded globally come from Ukraine and Russia. Food exports in the region have been halted due to conflict and sanctions.

This leaves us with a shrinking global food supply that may further price increases. Since spring is just weeks away, Americans will be in for a shock at the supermarket as the latest round of food inflation makes it to the store shelves. To mitigate the impact of grocery bills tearing apart household finances — interest in farming and planting gardens could take off and help expand the food supply.”

7:30 am

Good Morning!

Those of you who woke up this morning to see the SPX futures higher missed an exciting night.  The roller coaster went down to 4142.80 before bouncing back to 4235.40.  The breadth of these moves is staggering.  Within 24 hours, the SPX declined 4.3%, then rallied 2.2%.  That completes Wave [i] of 3 of (3).  The next decline is a   triple play Wave [iii] of 3 of (3).  Wave threes are never the smallest, suggesting a high probability of a limit down in the next few days.

ZeroHedge reports, “Futures rebounded from yesterday huge loss, and after touching a session low of 4,138, S&P futures bounced shortly after the European when Bloomberg reported that the European Union was set to reveal a quasi “Marshall Plan” this week to issue issue “potentially massive” joint bonds to fund energy and defense and help counter the fiscal fallout from Russia’s invasion of Ukraine (how Europe will do that at a time when QE is ending and buyers for global debt are shrinking fast amid surging rates remains unclear). S&P 500 futures gained 0.7% following the benchmark index’s biggest loss since October 2020, while Dow futures rose 0.6%.  Contracts on the Nasdaq 100 were up 0.6% at 7:15 a.m. Bonds and the dollar dropped, and the euro strengthened. The commodity melt up continued: nickel was halted on the LME after soaring 250%, oil traded just shy of $130 and gold was above $2000.”

VIX futures retreated to a low of 34.40, remaining within yesterday’s trading range, the highest close since the week of October 26, 2020.  Tis now has traders concerned, being the eighth close over 30.00 since February 23.  This is no longer being viewed as a one-off event.   The target for Wave 3 has become imminent.

The NYSE Hi-Lo Index closed at -300.00.  The Hi-Lo has awakened to a new plunge with a possible target of -2450.00.

NDX futures declined to an overnight low of 13107.20.  It did not take out the trendline at 13065.40.  However, it only bounced to 13420.40, unable to reach the 2-hour Cycle Bottom resistance at 13483.25.  The decline appears to have resumed.

ZeroHedge observes, “Hedge Fund Panic selling (#1)

Equity L/S Flows: de-grossing accelerated last week and net selling also picked up

Source: JPM

Hedge Fund Panic selling (#2)

The L/S de-grossing in N. Am. last week was about a 3z event and the largest of the past 2 years aside from late January 2021 and mid-March 2020 (which were about 2x the current magnitude). Net flows were also negative throughout last week for this strategy—the 5-day net selling was >1.5z and the largest since the week ending December 17, 2021. Alongside the selling, net leverage for Equity L/S funds fell almost 3% last week to put it back in line with mid-December lows and the lowest since 3Q20.

USD futures pulled back to 98.88, still within yesterday’s trading range.  The Cycles Model suggests a steady rally until the week of March 21, where it may make a final burst before its reversal.  Depending on the strength of the final probe, the target appears to be near 100.00.

TNX gapped higher this morning, confirming yesterday’s buy signal.  TNX is showing unusually large moves due to its high level of trending strength in the Cycle.  This may last for the balance of the week.  The rally may last until the week of April 18, leaving plenty of time for new highs.

West Texas Intermediate Crude pulled back from a high of 130.50 to an overnight low of 117.25 on the news of the prospective energy bond being floated by the EU.  This has all the marks of a trend reversal on day 244 of the Master Cycle.  While this is two weeks early from the average length of a Master Cycle, consider this; The Master Cycle immediately prior to this was 277 days long.  The average of the two is 260.5 days, which falls in line with the Cycles Model.

ZeroHedge reports, “Confirming yesterday’s speculation that a ban on Russian oil imports is imminent, moments ago Bloomberg reported that the Biden administration is set to impose a ban on U.S. imports of Russian energy as soon as Tuesday without the participation of European allies, who as we discussed yesterday have been vocally – especially in the case of Germany – against such a blanket ban (because the import much more Russian oil and gas than the US).

The ban will include Russian oil, liquefied natural gas and coal, according to two Bloomberg sources who noted that the decision was made in consultation with European allies, who rely more heavily than the U.S. on Russian energy. In other words, the allies agreed to disagree on how important Russian oil is to them.

ZeroHedge observes, “Canada’s oil could replace American imports of Russian crude, the top officials of the oil-producing province Alberta said this weekend.

As talks about banning Russian oil imports in the United States and its European allies intensify, reports have started to emerge that the U.S. Administration could be looking to persuade Saudi Arabia to pump more oil or lift some sanctions on Venezuela to help fill the gap that a Russian oil embargo would open.

On Sunday, U.S. Secretary of State Antony Blinken said that the United States and its European allies were in “very active discussions” about banning the import of Russian oil over Putin’s war in Ukraine.

Even without sanctions on Russian oil, some of the biggest U.S. importers of Russian crude oil have started suspending their purchases of the commodity.”

Gold futures made a new panic high of 2027.80.  This may indeed be the Master Cycle high, as the next one isn’t due for two months.  I will keep you posted.  In the meantime, the EW pattern appears complete.  Consider taking profits in gold at this time.

3:23 pm

Liquidity is leaving equities quickly as BKX indicates today.  It crossed the neckline on Friday and is now on its way to a minimum 20% decline from the neckline.  The 2-year Ending Diagonal formation and the Orthodox Broadening Top both suggest s probable target nearer to 50.00 by June.

3:13 pm

NDX is beneath its 2-hour Cycle Bottom at 13496.13 and SPX is beneath its Cycle Bottom  at 4220.00, increasing the probability of a melt-down going into options expiration today.  SPX breaks at 4200.00, its Lip/Neckline.

ZeroHedge observes, “One look at today’s absolutely bananas explosion in LME Nickel prices which soared  82% in one day to a record $52,700…

… shows that commodities inflation panic was in full-swing earlier overnight, where war-related price-shocks are trading through what Nomura’s Charlie McElligott writes was “escape velocity” on likely stop-outs from “Shorts” (think commodity producers and traders who were short futures to hedge prices, similar to the margin call experienced by Peabody), and with the market seemingly realizing there is little that CB monetary policy can do to control it.”

12:56 pm

Last Friday I suggested taking early profits as GKX stumbled after appearing to have completed its rally.  That was day 253.  Today is day 256.  I don’t have anything to add, other than the possibility of reaching 600.00 in the next couple of days.  A correction here is likely to take GKX down to its mid-Cycle support at 504.69.

ZeroHedge reports, “The condition of China’s winter wheat crop could be the “worst in history,” the agriculture minister said on Saturday according to Reuters, raising concerns about grain supplies in the world’s biggest wheat consumer. Speaking to reporters on the sidelines of the Chinese regime’s annual political meetings, Minister of Agriculture and Rural Affairs Tang Renjian said that heavy rainfall last year delayed the planting of about one-third of the normal wheat acreage.

A survey of the winter wheat crop taken before the start of winter found that the amount of first- and second-grade crop was down by more than 20 percentage points, Tang said.

“Not long ago we went to the grassroots to do a survey and many farming experts and technicians told us that crop conditions this year could be the worst in history,” he said. “This year’s grain production indeed faces huge difficulties.”

12:45 pm

SPX may be primed for a bounce off the 2-hour Cycle Bottom at 4220.00 and the Lip of the Cup with Handle at 4200.00.  The bounce may last until tomorrow’s open.  The only visible resistance is Short-term resistance at 4341.16.  The SPX is in short gamma beneath 4250.00.  Should it continue to decline beneath the trendline, we may see a panic decline that may last up to a week.

ZeroHedge remarks, “Unlike the Trump Administration, where even the smallest dip in stocks was met with a furious barrage from the now-banned presidential twitter account urging Americans to BTFD, the Biden administration has been silent on the recent tumble in risk assets, which is understandable since it is far more preoccupied with containing soaring inflation. However that changed today, when Nellie Liang, Under Secretary for Domestic Finance, delivered remarks to the Institute of International Bankers’ Annual Washington Conference, in which among broad remarks about the state of the US financial system including stablecoins and climate change, and she touched upon the growing strain in the financial system, to wit:

• markets showing some signs of strain
• investors are meeting elevated margin calls without delay
• investors are showing little concern about solvency or liquidity stresses at domestic financial institutions”

8:30 am

Good Morning!

SPX futures declined to a low of 4240.80 before bouncing on news of a possible cease-fire in the Ukraine.  It has rallied above 4300.00 where there are 4404 put contracts expiring today.

ZeroHedge reports, “ot much has changed since our market update last night which saw all risk assets collapse and in many cases set to open in bear markets, amid a soaring panic that the US will impose a unilateral oil embargo on Russia leading to an energy supply shock and global stagflation, while safe havens such as gold, treasuries, and the dollar are exploding higher not to mention crude which was last trading at $125 after briefly rising above $139 at the start of the session. Commodities from grains, metals have also surged on concerns of chaos in raw-material flows due to the invasion and sanctions on Russia that are turning the resources powerhouse into a global pariah. Commodity-linked currencies strengthened.

S&P 500 e-mini futures were down as much as 2.1% earlier before trading 1% lower 7am in New York after a faint glimmer of hope of de-escalation when the following headlines hit Reuters:

• KREMLIN SPOKESMAN SAYS UKRAINE MUST AMEND CONSTITUTION AND REJECT CLAIMS TO ENTER ANY BLOC
• UKRAINE MUST RECOGNISE CRIMEA AS RUSSIAN, AND DONETSK AND LUGANSK AS INDEPENDENT STATES
• IF THESE CONDITIONS ARE MET, THEN RUSSIAN MILITARY ACTION WILL ‘STOP IN A MOMENT’ – SPOKESMAN

And now we wait for the latest Ukranian refusal of these conditions. Meanwhile Nasdaq futures retreated 1.7%. Brent oil was up as much as 18% today, trading around $125 a barrel as the Biden administration is considering whether to prohibit Russian oil imports into the U.S. without participation of allies in Europe, at least initially, according to a Bloomberg report.

Update:  ZeroHedge reports, “Belarusian state TV has said the Russian delegation has arrived at the location where on Monday at about 14:00GMT/09:00EST the third round of talks with the Ukrainian side are set to begin. So far the ongoing talks have been focused on establishing and maintaining humanitarian corridors for the safe evacuation of civilians still trapped in cities under siege by Russian forces. But these have been erected and collapsed in various locations with limited effectiveness, given Kiev has accused Russia of breaking the temporary ceasefire pauses through the resumption of shelling, something which Russia’s military has rejected.

Just ahead of the meeting, the Kremlin issued a list of demands to be accomplished if Ukraine wants the Russian invasion to be halted immediately. These includes, according to the Kremlin spokesman, the recognition of Crimea as part of sovereign Russian territory, as well as Donetsk and Lugansk as independent states. ”

VIX futures rose to a high of 36.52 this morning before scaling back on the latest Ukrainian development.  The Cycles Model shows growing trending strength this week with a possible Master Cycle peak next week.

ZeroHedge comments, “When VIX at 35 looks tiny…

Our long term take of Europe being the “always sucker” remains intact. You don’t need much explanations, but when VIX at 35 looks “tiny” compared to Eurostoxx 50 “VIX”, V2X, you know things are not fine. V2X at 57.5 as of writing is very extreme. Sure we are far from the corona panic highs, but back then the world was ending. This is pure panic. The question is: “enough blood on the streets here”?”

TNX futures have risen to a morning high of 17.97 this morning and threaten higher  levels as trending strength returns.  It has exceeded the 50-day Moving Average at 17.88 and is on a buy signal.

NDX futures declined to 13532.60 this morning before bouncing back above the Cycle Bottom support at 13763.00.   The bounce may be fully resolved in the next 24 hours as the decline resumes.

ZeroHedge observes, “Last week, some on Wall Street were quietly gloating when the “Lehman Weekend” consequences predicted by repo guru Zoltan Pozsar failed to materialize and central banks did not flood global markets with a torrent of liquidity, in a repeat of what happened in September 2008.

In his latest not published late on Friday, the Credit Suisse strategist admits that “Yes, we got central banks’ need to step in to calm funding market pressures this week wrong (still no need yet)” but he counters that “we got the direction of spreads right – on February 24th we warned about an imminent sentiment shift in funding markets. There was no premium last week but there is some funding premium now, and it feels that things can get worse still.” So net-net, he concludes, “our call was absolutely right.”

USD futures hit a new high at 99.42 this morning before easing back.  The Cycles Model calls for a week of consolidation before moving higher.  The next Master Cycle pivot (high) may be due the week of March 21.  The final target may be the weekly Cycle Top at 100.47.

WTIC futures are coming down from a weekend high at 130.33 as tensions over the Ukraine ease.  The Cycles Model suggests a week-long consolidation with a probable Master Cycle top during the week of March 21.  The Possible target may be as high at 150.00

ZeroHedge reports, “One day after we reported that Germany had warned against a ban on energy imports from Russia, quoting Germany’s Economy Minister Robert Habeck who said “I would not advocate an embargo on Russian imports of fossil fuels. I would even oppose it,” adding that “we need these energy supplies to maintain the price stability and energy security in Germany,” and warning that “a shortage in supply could threaten social cohesion in Germany”, moments ago Bloomberg reported that Germany now openly opposes the push to stop Russian oil, gas imports.

“I’m not ruling out anything for the further development of this year,” German Finance Minister Christian Lindner tells reporters in Berlin when asked about the next steps against Russia. “At the current time, however, there is no new decision to be made.”

“The government insists that we do not take the initiative to end our imports of oil, gas and coal to Germany”

12:20 pm

GKX appears to have completed its Wave 5 of (1) today at 579.02 on day 253.  It may still rise for a few days, but taking profits may be the better option.  Sell all Ag-related ETFs.

12:02 pm

NDX is probing its daily Cycle Bottom support at 13764.00.  Once beneath it, the next target appears to be the Lip/Neckline at 13065.00.  It is tiptoeing into short gamma territory.

QQQ (336.38) is well beneath the Max Pain zone for today’s options expiration.  Short gamma begins at 335.00.  Will it bounce before the close, or give it all up?  Today’s action doesn’t look good.

11:05 am

Our liquidity proxy, BKX has declined beneath the neckline of its Head & Shoulders formation at 126.00.  This gives all the indications of an impending crash in the markets.  What’s curious about this formation is that the current Master Cycle may have landed on February 24, on day 251.  The bounce took only a day before a reversal to a lower low.  Should that be the case, the new Master Cycle may run the entire month of March.

ZeroHedge reports, “…many did not think the EU would play the SWIFT card on Russia. It turns out they were correct…

SWIFT is the international payment system. Cutting off a top country from SWIFT access is a very big deal.

When the US and EU trotted out the SWIFT sanction card, I thought I got that one wrong. Closer inspection by Eurointelligence and others shows it’s Not So Swift After All.

FAZ informs us that the Swift sanctions are essentially dead in the water. Only seven banks, representing a quarter of the Russian banking sector, are subject to the sanctions. What happened is that once this sanctions list went through the mill of talks with member states, only this pared-down lists survives. The EU originally promised to hit 70% of the Russian banking system. One reason for the exclusion of Sberbank is the deposits held by savers in the bank’s EU subsidiaries. It would have triggered massive deposit insurance claims.”

10:37 am

The Ag Index is on a tear with another week to go in its Master Cycle.  Calculating targets for a rogue Wave may be an exercise in futility, as my previous target of 570.00 has already been exceeded.  GKX now exceeds its prior high made in March 2011 at 570.50.  At this point the best reference points are the round numbers.  The next round number target is at 600.00 with the next Master Cycle pivot due on March 9.

ZeroHedge reports, “This morning we listed some of the countries that are dangerously (and almost exclusively) reliant on Russia and Ukraine for their wheat imports, highlighting Turkey, Egypt, Tunisia and others…

… which are facing an “Arab Spring” style food crisis (and potential uprising) in the coming weeks unless the Ukraine conflict is resolved.

And unfortunately, we can now confidently predict that the coming food crisis will strike every country that is using food fertilizer – which is all – because moments ago, Russian Interfax reported that as part of Moscow’s countersanctions, Russia has recommended fertilizer makers to halt exports, a move which will sent not only fertilizer prices orbitally higher, but all food prices will soon follow.”

10:30 am

Crude oil futures are consolidating within yesterday’s wide trading range.  The Cycles Model suggests another two weeks to the end of the current Master Cycle.  This Wave may rise to a range of 133.00 to 150.00 in that time.  The war is creating a rogue wave in commodities.

ZeroHedge reports, “Another day, another record discount for Russian Urals crude, which was offered at a price more than $22 below spot by oil trader Trafigura and still could find no giant…

… confirmed what we previously observed, namely that the commodity world is splitting in two: a bidless market for Russian oil, and (increasingly) offerless for non-Russian.

8:20 am

Good Morning!

I thought I’d start this Friday with a “big picture” chart showing the DJIA breaking down beneath the upper trendline of its 38.7 month-old Orthodox Broadening Top.  This morning’s DJIA futures have also broken beneath the daily Cycle Bottom support at 33548.41 for a second time, signifying a significant loss of liquidity and a loss of institutional support.  It is hovering near that area as I write.

8:35 am  ZeroHedge reports, “As noted earlier, it was difficult to get worked up about today’s jobs report in light of the barrage of geopolitical development, and yet if anyone needed a confirmation that the Fed will hike by 25bps in two weeks, they just got it when the BLS reported that in March, total jobs surged by a whopping 678K, much higher than the 423K consensus forecast, higher than last month’s upward revised 481K and the highest since last July’s 689K. However, offsetting this surge was the unexpectedly weak wage data, which saw a flat print in the monthly change in average hourly earnings vs expectations of a 0.5% increase (and down from 0.6% in February).

SPX futures have declined to an overnight low of 4287.00 before a bounce bringing it back above 4300.00.  Today’s options expiration is critical, since open interest is bearish (favoring puts) at 4350.00 and below, while gamma turns short below 4250.00.  The Cycles Model suggests a steep decline to the week of March 14, likely to be at least 8.6 days in duration.

ZeroHedge reports, “It has been another rollercoaster session, which saw futures tumble around 7pm ET following news that a Ukrainian nuclear power, Europe’s largest, had caught fire after alleged Russian shelling, and even though it largely turned out to be a false alarm with no damage to the NPP reactors or any radiation leaking, futures still have failed to recover much of the loss and were trading about 1.1% lower on concerns that the escalation of the war in Ukraine could have a stronger economic impact than anticipated. Contracts on the Nasdaq dropped 0.8% and Dow futures were 0.93% lower. As futures sold off, treasuries and gold climbed amid haven demand, while oil headed for its biggest weekly surge in almost two years. A dollar gauge rose to its highest level since July 2020, while the euro extended its decline below $1.10 for the first time since May 2020.”

VIX futures made an overnight high at 34.49, reaching for the Head & Shoulders neckline.  A breakout suggests the minimum target at 63.78 may be met in the next two weeks.  The Cycles Model suggests this may be accomplished by the week of March 14.  The 17.2-month Ending Diagonal may be completely retraced by June. The Wave [3]  high for the VIX is likely to be over 90.00, since Wave threes cannot be the smallest Waves.  The monthly chart shows a massive Head & Shoulders with a possible target of 162.38.  Don’t hold your breath on this one.  I’m only saying it’s possible.  A rogue Wave, perhaps?

TNX beat a hasty retreat and may challenge the trendline again.  Doing so could extend the Master Cycle bottom, as today is day 266 in the old Master Cycle.  The decline in the 10-year T-note yield may be a result of a knee-jerk habit of switching from stocks to bonds in times of distress.  However, this is only a correction, not a new trend, as it may be in stocks.

USD futures just exceeded the 61.8% retracement target at98.31 I had previously been referring to.  This may be due to the panic flight of assets from Europe to the United States.  Next in line is a target near 100.00 over the next two weeks as the current Master Cycle winds down.

12:58 pm

We may have seen the Wave 2 high in stocks at 10:00 am as recent good news could not “pop” the index to new highs.   Today is day 258 in the Master Cycle, so be on the alert to go short.  A reasonable level may be the short-term support at 4360.00, as short gamma begins at 4350.00.

ZeroHedge observes, “Reuters reports that Ukrainian negotiators have said the two sides have reached an understanding on a joint provision allowing humanitarian corridors for evacuating civilians.

The same negotiator reportedly said that the agreement involved a temporary ceasefire during evacuations.

A Russian negotiator was quotes as saying this is “substantial progress,” and Tass reports that a 3rd round of talks will take place in coming days.

The reaction was immediate as we suspect the algos only read the first few words of the headline…

We further suspect the algos are making a little too much of this – especially given Putin’s remarks just minutes before about “de-nazifying the nation.”

9:50 am

GKX is trending higher, but may see an end of its current Master Cycle in the next week.  A probable target may be 570.00, although it could streak to 600.00 under critical circumstances.

7:45 am

Good Morning!

Those of you who read my 4:40 pm post yesterday will notice that the NDX does not have an expected Master Cycle high in the next two days, while the SPX does.  At the same time, the NDX had a Master Cycle low in early January, while the SPX was just coming off its high.  Normally, the two indices go hand-in-hand, but at critical points, they diverge.  This would be considered a half-Cycle high in the NDX.  It’s target may only be Intermediate-term resistance at 14663.83, 2,000 points below the 200-day Moving Average.  At this rate of decline, we may not see a bottom in stocks until early June, which makes this a decline for the record books, since the average bear market lasts only two months.

NDX futures are flat this morning.

ZeroHedge observes, “For what may be the most vivid example of how central planning has turned the market into one giant (and so far successful) experiment in Pavlovian conditioning, look no further than the following chart from Bank of America which shows that during the current 10% correction which started in early January and continues to this date, Bank of America’s ultra high net worth, or “private” clients, have allocated the most dip buying capital on record.

And last week was no different: according to BofA quant Jill Carey Hall, during last week’s market rollercoaster, where despite the break out of the Russia-Ukraine conflict the index ultimately closed +0.8%, the bank’s clients returned to buying US equities ($4.6B) after selling the prior week.”

SPX futures are flat beneath 4400.00 as the market prepares for another options day on Friday.  Friday options turn positive above 4400.00, so it appears that dealers are in a sweet spot at or near Max Pain (for options investors, that is).  While both call and put options are sparse above 4400, gamma turns long at 4500.00.  Short gamma begins at 4350.00.

The Cycles Model calls for a Master Cycle high in the next two days. The target may be near the 200-day Moving Average at 4463.83.

ZeroHedge reports, “US stock index futures were flat on Thursday as investors assessed the impact of a surge in commodity prices on inflation and economic growth while eyeing news that a Ukraine delegation was headed to talks with Russia offering some hope of a ceasefire as the war in Ukraine enters its second week. Contracts on the Nasdaq 100 were down 0.2% by 7:15 a.m. in New York, after the underlying technology-heavy index rallied Wednesday to its highest level in two weeks. S&P 500 futures were flat and Dow futures declined 0.1%.

VIX futures are at the morning low at 30.32.  While VIX appears weak this morning, support lies at the Cycle Top at 29.63.  The Cycles Model suggests that the next Master Cycle high may be during the week of March 14 where the Head & Shoulder target may be met.

In tomorrow’s options, expiring VIX calls have predominance at 30.00 and above, with long gamma at 35.00.  VIX calls become a runaway train above 35.00.

TNX continues its climb higher.  UST shorts are still licking their wounds, but may soon notice the declining share values.  The next Master Cycle (high) ends in the third week of April, so this rally may have legs.  Trending strength comes back to TNX with a vengeance on Monday so bond investors should have made their positions by then.

USD futures are challenging the Cycle Top resistance at 97.41 and appear to have broken out above it this morning.  The current Master Cycle may continue its rally through the week of March 21.  98.30 is the nominal target for this Master Cycle.  However, it could just as easily go to 100.00.

ZeroHedge comments, “Over the weekend, the world gasped in shock when Western powers announced that the nuclear option would be used against Russia in retaliation for its invasion of Ukraine – sanctions against the country’s central bank and targeted expulsions of key banks from SWIFT, a move which has effectively locked Russia out of the western financial system and left its vast oil export industry – a key lifeline for the Putin regime – in limbo. But the real reason for the shock is that this was the first time the global reserve currency was weaponized against a G20 economy, setting a clear precedent for how the west would and could respond to any other nation that followed in Russia’s footsteps (something which China is clearly contemplating vis-a-vis Taiwan, and is carefully studying just how the west responds to Moscow),

As a result, and following this week’s dramatic freeze of the Russian central bank overseas assets, has prompted some to question just why countries build foreign currency reserves at all and, more broadly, whether the unprecedented western response to Russia hasn’t jeopardized the dollar’s reserve status.”

WTI futures consolidated this morning, declining to 106.51 as it regroups for its next probe higher.  The Cycles Model implies a continued uptrend to the week of March 21.  A possible target for this rally appears to be as high as 137.00.  Further probes higher may not have the same strength as the most recent week.

ZeroHedge reports, “(Update 9:05am ET) – Not so fast with that rumor. Moments after oil tumbled as speculation of an imminent Iran deal spread, Reuters and Bloomberg blasted headlines suggesting that the IAEA remains unhappy with Iran, which continues to grow its stock of enriched uranium, and remains in breach of many key limits set by the 2015 nuclear deal.

• IRAN RAISES STOCK OF HIGHLY-ENRICHED URANIUM BY 83%: IAEA
• IRAN HAS CONTINUED RESTRICTING IAEA ACCESS TO DATA
• IRAN CONTINUES TO BREACH MANY KEY LIMITS SET BY 2015 NUCLEAR DEAL, INCLUDING URANIUM ENRICHMENT LEVEL AND ENRICHED URANIUM STOCK -QUARTERLY U.N. ATOMIC WATCHDOG REPORT
• IRAN’S STOCK OF ENRICHED URANIUM IS ESTIMATED TO HAVE GROWN BY 707.4 KG SINCE LAST QUARTERLY REPORT TO 3197.1 KG -IAEA REPORT SEEN BY REUTERS
• IRAN’S STOCK OF ENRICHED URANIUM INCLUDES AN ESTIMATED 33.2 KG OF URANIUM IN URANIUM HEXAFLUORIDE (UF6) FORM ENRICHED TO UP TO 60% PURITY, NEAR WEAPONS-GRADE -IAEA REPORT
• IRAN’S STOCKPILE INCLUDES AN ESTIMATED 182.1 KG OF URANIUM IN UF6 FORM ENRICHED TO UP TO 20% PURITY, PLUS 36.5 KG OF URANIUM ENRICHED TO UP TO 20% IN OTHER FORMS -IAEA REPORT

So don’t hold your breath for an immediate Nuclear deal, especially since Iran is already selling most of its product to China.”

4:40 pm

The Cycles Model has been a puzzle to me until today.  It had projected a Master Cycle Pivot on Thursday, March 3.  I had anticipated a low on that day.  However, the VIX and Hi-Lo don’t agree.  Today’s marginal new high suggests a MC high is more likely.  Waves (1)-(2) took 21 days.  The current Waves 1-2  have thus far taken 19 days.  This suggests that tomorrow or Friday may be a Master Cycle high (instead of a low).  The target for that high may be the 200-day Moving Average at 4463.11.

Until today, I just didn’t see this coming.  I can repeat Charlie McElligott’s sentiment, “This is getting exhausting.”

11:36 am

Dealers struggled to move SPX higher for the close of today’s options.  The bounce missed making a new high by 6 basis points.  Anything can happen now.  Traders are getting sick and tired (and squeezed) by all the hijinks.

ZeroHedge explains, “After yesterday’s epic rollercoaster in rates, where we first a dual VaR shock, first in the front-end of the curve as eurodollar exploded higher sending rate hike expectations plunging, and then moved to the long end with coupon bond yields crashing, especially in Germany, where the 10Y bund saw the biggest one day drop in yields in a decade…

… today we are seeing a sharp reversal in much of yesterday’s move – to be expected after Biden’s SOTU address yesterday when he again tasked Powell with easing inflation (even if it means an even sharper economic slowdown, although Biden’s speechwriter was unfamiliar with the trade-offs of monetary policy and so this particular part wasn’t mentioned) with Dec 22 Eurodollars sinking, and leading to one of the sharpest one day drops in the past year, although we are still nowhere near where we were just last week when absolutely everyone on Wall Street was convinced the Fed would hike as much as 7 times this year alone, and who knows how much in 2023.”

11:31 am

TNX ripped higher after making its Master Cycle low yesterday.  Powell’s comments did not raise the confidence level.  The next Wave higher will have legs.

ZeroHedge remarks, “Rest in Peace 50bps March rate hike.

Moments ago, Fed Chair Powell said that he is “inclined to support a 25 basis point rate hike” in March, which immediately killed any market expectation of a 1+ rate hike in two weeks.

However, in the very next sentence, Powell said that if inflation stays hot, he could move more than 25 basis points at upcoming meetings, which in turn pushed the full year rate hike expectations sharply higher, from 5.2 to 5.6.

Of course, this is not the end of this story, and should oil continue to surge – and it will – unleashing inflationary shockwaves and crippling global growth, expect this hawkish consensus to once again unwind… but not yet, because as noted earlier, the VaR shock in the STIR space is now in full-blown reverse mode, with Dec 2022 ED futs collapsing and undoing their entire Tuesday move…”

8:15 am

Good Morning!

SPX futures rose to 4346.30 in an attempt to achieve Max Pain at 4350.00 during today’s options expiration.  However, that level could not be sustained and SPX slipped back lower.  Today we may see a challenge of the Lip and Cycle Bottom at 4182.03 as the panic Cycle evolves.  Wave (1) and Wave 1 each took 12.9 days to complete, so if we use that same algorithm, Wave (3) may not be complete until March 16, where the VIX and Hi-Lo are proposed to have their Master Cycle low.   However, we cannot rule out a panic decline of 4.3 to 6.45 days for Wave 3, leaving the Completion of Primary Wave [1] by mid-March.  Much of this has yet to be sorted out.

ZeroHedge reports, “U.S. futures and European stocks rose on Wednesday after the Kremlin said Russia was ready to resume negotiations with Ukraine. Nasdaq 100 contracts were up 0.7% by 730 a.m. ET reversing earlier declines of as much as 0.8%. S&P 500 futures rose 0.5%, while Dow futures gained 0.7%. Oil soared with Brent trading above $111 as traders realized that Russian oil output will be substantially reduced despite sanction loopholes. The dollar rose and 10Y yields rose.”

VIX futures pulled back to 32.31 early this morning, but have bounced pack to positive territory. VIX has a massive open interest at 25.00 with 15,098 call contracts expiring today.  That position alone has a $12.6 million liability at the end of the day at current prices.

The NYSE Hi-Lo Index closed at -24.00 after ranging as high as 102 at mid-day yesterday.

TNX leaped above the 50-day Moving Average at 17.65 this morning after Jerome Powell’s prepared remarks were released.  This puts TNX on a buy signal (UST on a sell signal).  Having made its Master Cycle low yesterday, the new Master Cycle appears to be active until late April.

ZeroHedge reports, “Fed Chairman Jerome Powell will testify before the House Financial Services Committee on Wednesday, part of the Fed chair’s semiannual testimony to Congress about the state of the economy. Most analysts expect Powell’s interlocutors to focus on his outlook for inflation as expectations for Q1 GDP growth continue to slide, stoking fears of stagflation.

Oil prices in the US have climbed to levels unseen since 2011 in the wake of Russia’s invasion of Ukraine, and global equity markets have been whipsawed as a result. Faced with this, investors have abandoned bets on the likelihood of a 50 basis point hike in March as the Fed struggles to balance geopolitical concerns with its domestic mandates to guarantee stable prices and strong job market.”

USD futures rose to 97.83 this morning, before easing back down to the Cycle Top support at 97.69.  The current Master Cycle may continue its run to the week of March 21 before it pivots.

WTI futures reached an overnight high at 112.47 as the upward trend continues in oil.  The Cycles Model suggests the current Master Cycle may not end until the week of March 21.

ZeroHedge reports, “In what one observer called “the fastest one yet” – the meeting lasted just 13 minutes, beating last month’s record for brevity – OPEC+ 23-nation coalition led by Saudi Arabia ratified an increase of 400,000 barrels a day on Wednesday, continuing the gradual restoration of output halted during the pandemic, according to delegate sources.

This was merely ratifying the plan – as expected – and notably gives no deference to President Biden’s urgings for the cartel to raise production to rescue his approval ratings at home.”