The Practical Investor

3:11 pm

SPX has fallen into short-gamma territory.  Short-term support at 4048.00 may provide a bounce, but it remains on a sell signal beneath 4120.00.  Buckle up for the ride.

The NYSE Hi-Lo Index opened at -11.00 and has declined to -44.00, confirming the sell  signal.

7:50 am

Good Morning!

SPX futures retraced to an overnight high of 4144.40 before losing its momentum.  It is likely that the move was a mechanical reaction to dealers and hedge funds unloading their shorts needed to cover yesterday’s op-ex.  SPX is caught in a trading range from 4075.00 to 4175.00, looking for a way out.  Last Friday’s high remains in a countdown to the week of June 20 in the current Master Cycle.  It is possible that this morning may bring a final resolution, since 4.3 market days from the high will have elapsed near 11:00 am, leaving a probable 8.6 market days to the low.

Options buyers appear to be narrowing the range, with 4110.00 being Max Pain and 1063 call contracts at 4115.00 due to expire today.  However, calls dominate above 4150.00 and long gamma starting at 4175.00.  Puts dominate at 4100.00 and below with short gamma beginning at 4075.00.  Thus, long and short gamma are bracketing the trading range.

ZeroHedge reports, “US index futures turned positive on Thursday, even as European stock slipped ahead of the ECB decision at 745am ET, with Nasdaq 100 contracts outperforming as oil prices and bond yields stabilized and strategists at Goldman and JPMorgan gave more bullish comments on equities. Sentiment was boosted after Bloomberg reported that China’s crackdown on internet companies may be easing with a revival of the Ant Group IPO, which boosted the country’s US-traded stocks (the news was since refuted by China, but moments later Reuters re-reported what Bloomberg said). S&P 500 futures traded 22 points or 0.5% higher, and Nasdaq 100 futs were 0.4% higher. The dollar slid, and 10Y rates were flat at 3.02%.

Markets remain fixated on the risk that central banks intent on cooling inflation snuff out economic recoveries in the process. Money markets have priced in 36.5 basis points of tightening to the ECB’s rate by next month’s meeting, just short of a 50% chance of a half-a-percentage point increase, which would be the first since 2000.”

VIX futures dipped to an overnight low of 23.82, then began a recovery into positive territory.  Yesterday’s low at 23.74 occurred on day 261 of the Master Cycle.  It is overdue for a reversal.

Next Wednesday’s op-ex is massively covered with puts ranging up to 27.00.  Calls dominate at 28.00 and higher.  This is a market due to catch the vast majority of investors wrong-sided.  No one seems to be buying protection, except yours truly.

The NYSE Hi-Lo Index made a high of 115.00, but closed at 40.00.

ZeroHedge observes, “Following The ECB’s statement, traders have moved rate-hike expectations up to around 150bps by December 2022…

All eyes will now be on what Lagarde says at the press conference as she tries to thread a needle of a fragmenting European bond market, ending bond-buying, and hiking rates into her own stagflationary forecast (lower growth and higher inflation). As Bloomberg Economics’ Geoff King points out:

“The most closely scrutinized part of the press conference will be any comments made by Lagarde on the likelihood of a 50 bp interest rate increase instead of a 25 bp move. She has published a roadmap for her preferred course of action and it’s consistent with 25 bp increases in July and September. We don’t expect her message to differ, but she’s changed tack before after inflation surpassed expectations.”

TNX is rising this morning, approaching the Cycle Top resistance at 31.18.  However, it may be due for a pullback to the 50-day Moving Average at 28.14 or possibly lower.  It is yet unclear how much influence an equities sell-off will have on rates.  The current Master Cycle ends in 30 days and may target mid-Cycle support.

Yesterday, ZeroHedge reported, “Heading into today’s 10Y auction, one day after yesterday’s mediocre, tailing 3Y and with yields moving back higher after yesterday’s slump, JPMorgan’s rates strategists said that they expected the $33bn auction to be digest smoothly, “given the sector looks rich, has seen a strong move higher in yield, and that the auction size is smaller in size.” They were right, more or less.

Pricing at a high yield of 3.03%, today’s 9-Year, 11-Month repoening of CUSIP EP2 priced at a high yield of 3.030%, rising by 9bps from last month’s 2.943%, the highest since Nov 2018, and tailing the When Issued 3.018 by 1.2bps. The tail, which was somewhat unexpected since there was a generous concession into today’s auction, was the 4th consecutive tail for the 10Y which has seen just one stop through in the past 8 auctions (in Feb 2022).”

USD futures have declined to a morning low of 102.15.  There is about a week left to end the current Master Cycle.  There may be a retest of the Cycle Top resistance at 103.69.

1:20 pm

SPX is challenging the Lip at 4120.00 after what appears to be a “failed” Wave [v] of Wave C.  Dealers don’t want to let go of their grip prior to op-ex, but I suspect their hold on the market is slipping.  Sell beneath 4120.00 if you haven’t already done so.

ZeroHedge observes, “Confirming what we reported two days,  SEC Chair Gary Gensler said he has asked agency staff to consider requiring brokerages to route individual investors’ orders to buy or sell stocks into auctions, as part of an effort to increase competition in the market. These proposed (and unprecedented) changes to market structure would make it virtually impossible to frontrun retail orders.

“Right now, there isn’t a level playing field among different parts of the market: wholesalers, dark pools, and lit exchanges,” Gensler said in remarks prepared for an event hosted by Piper Sandler.

11:14 am

SPX has completed a second, smaller Triangle formation visible on the hourly or 10-minute charts.  Triangles “buy time” to stall the inevitable final move within a series or formation.  After a bit of fine tuning, the final target may be 4194.00.  Be prepared to go short, if not already positioned.  This rally must be sold.

8:20 am

Good Morning!

SPX futures retreated this morning, but remain well above the Lip of the Cup with Handle at 4120.00.  The Triangle formation is playing out, indicating a final probe in Intermediate Wave (2) before the reversal.  Wave relationships suggest a possible high near 4190.00.  Today is day 248 in the Master Cycle. possibly leaving 8.6 more market days to the low  on day 260.  The Lip is the tripwire for this formation.

We have continually been teased by the grip of options expiration and the dealers’ machinations to avoid more than the minimum payout ()Max Pain for investors).  Today’s op-ex shows Max Pain at 4130.00.  Calls are favored above 4140.00 and long gamma lies at 4200.00.  Puts are favored beneath 4110.00 with short gamma starting at 4100.00.  Today may be a very volatile day in equities.

ZeroHedge reports, “After yesterday’s bizarro rally, US futures and European bourses dipped ending two days of gains, as yields reversed Tuesday’s slide and climbed ahead of highly anticipated CPI data on Friday and a hawkish ECB meeting tomorrow, as traders try to predict the Federal Reserve’s policy path. Nasdaq 100 futures were flat at 7:30 a.m. in New York, with contracts on the S&P 500 and Dow Jones also modestly lower. European markets also dipped, with Credit Suisse shares tumbling after the Swiss bank announced that it expects a loss in the 2Q and is weighing a fresh round of job cuts. Meanwhile, Asian stocks rose as Beijing’s move to approve a slew of new video games bolstered bets that the outlook is improving for the Chinese technology sector. The yield on the 10-year US Treasury resumed its advance, climbing to 3%, while the dollar rose as the yen cratered to fresh 20 year lows, flat and bitcoin traded around $30K again.”

VIX futures are modestly higher, inferring that yesterday’s move may have put in the Master Cycle low at 23.88 on day 260.  In today’s op-ex, puts are favored at 24.00 and below while clls are favored at 25.00 and above.  Long gamma lurks at 30.00.  Short gamma is not discernible.

The NYSE Hi-Lo Index topped out at 110.00at mid-day yesterday, but closed at 32.00.  I’m looking for a reading below zero for a sell signal.

ZeroHedge (TME) observes, “The new JPY crash

JPY continues moving like a small cap stock, despite being the world’s third most traded currency. These moves are serious. Note that JPY 1 month vols have started to move rather violently again. Big currencies aren’t supposed to move like this, unless…

Source: Refinitiv

Will sleepy VIX start to move (again)?

The latest surge in JPY volatility matters. Last time it spilled over with a time lag. Let’s see if VIX decides to focus on stuff beyond the SPX moves. The gap between JPY 1 month vol and VIX is rather wide again.

TNX spiked to 30.40, matching yesterday’s high but not exceeding the Cycle Top resistance at 31.02.  Trending strength returns early next week.  Should TNX not break out this week, it is likely to do so next week.

Yesterday ZeroHedge reported, “Unlike last month’s stellar 3Y auction, today’s sale of $44 billion in 3 year paper, the first auction of the QT era (if not really because the first actual TSY maturity does not take place until June 15), was mediocre at best.

Starting at the top, the high yield of 2.927% was above May’s 2.809% by 12bps, the highest since Nov 2018 and also tailed the When Issued 2.917% by 0.1 basis point, the first tail since march, and only the second tail for a 3Y auction of 2022.

The bid to cover of 2.453 was well below last month’s 2.595 but in line with the six-auction average of 2.470%.”

USD is still consolidating, with a potential Master Cycle low by mid-June.  The next move in the Broadening Wedge formation is a decline to the lower trendline/mid-Cycle support at 97.32.

7:45 am

Good Morning!

NDX futures are retesting Intermediate-term resistance at 12732.89 after reaching for the Lip of the Cup with Handle formation on Friday.  Friday’s reversal from the Lip may be the triggering event for the new decline over the next two weeks.  It has the same expectation as the SPX, with an anticipated 38.2% decline from the Lip.  It may go deeper.

In today’s expiring options, Max Pain is at 12560.00 and calls dominate starting at 12600.00.  Puts dominate beneath 12350.00 and short gamma starts at 12250.00.  Should NDX not bounce at the Cycle Bottom at 12192.40, the race for the target is on.

ZeroHedge comments, “Yesterday we shared the bullish view from Goldman’s trading desk courtesy of flow trader, Scott Rubner. Today, we take a look at the other side of the trade by way of Tony Pasquariello, Goldman’s head of hedge fund sales, who has been turning increasingly more bearish over the past three months. We excerpt the below from Tony’s latest note available to professional subs in the usual place.”

SPX futures are looking positive this morning, challenging Intermediate-term support/resistance at 4126.11.  Traders may go short with confidence beneath that level, and especially beneath the Lip of the Cup with Handle at 4120.00 which is the triggering event for the Cup with Handle formation.

Today’s expiring options show Max Pain at 4110.00.  Options favor calls at 4150.00, while puts dominate beneath 4075.00 with short gamma lurking at 4000.00.

ZeroHedge reports, “Global markets and US equity futures pushed sharply higher to start the new week (at least until some Fed speakers opens their mouth and threatens a 100bps emergency rate hike) as Beijing’s latest move to ease Covid restrictions injected a note of optimism into markets rattled by inflation and rate-hike concerns. Nasdaq 100 futures climbed 1.4% at 7:15 a.m. in New York after the underlying index erased more than $400 billion in market value on Friday amid renewed concerns about tightening monetary policy, as Beijing rolled back Covid-19 restrictions, boosting global risk appetite after reporting zero local covid cases on Monday while also finding no community cases for three straight days…

… while a Wall Street Journal report that China is preparing to conclude its probe on Didi Global boosted sentiment further, with Didi shares surging 50% and sending the Hang Seng Tech index soaring. S&P 500 futures also climbed, rising about 1% and trading near session highs. Treasuries and the dollar slipped.”

VIX futures reached a weekend high of 25.42, still short of the 50-day Moving Average at 26.04.  The 50-day is the go-ahead for VIX longs.  While the SPX shows a possible “crash low” in two weeks, the VIX does not show its next Master Cycle high until mid-August.  That agrees with the thesis that equities are caught in a complex decline that may not end until the Fall.  The Cycles Model shows the VIX may not peak in Intermediate Wave (5) of Primary Wave [3] until mid-October.

The NYSE Hi-Lo Index has been hovering above its “zero” trigger since making its Master Cycle high on May 31.  I may be monitoring it to see when it declines into negative territory.

TNX is rising, but not yet above Friday’s high.  A breakout above the Cycle Top resistance at 30.72 will confirm the rally.  The next proposed Master Cycle high may be anticipated in mid-July.

ZeroHedge comments, “Since central bankers are enacting monetary policy by acting like market participants, let’s analyze them like investors,” said Lindsay Politi, PM for One River’s inflation-strategy.

“Central banks are the biggest whale in financial market history. And we’ve all seen what happens when a whale needs to exit. The catalyst is always an unaccounted risk, a surprise event, or an incorrect assumption,” said Lindsay. “Whether it’s a margin call that can’t be met, a risk officer shutting it down, or client redemptions; there’s a point where every ordinary investor is forced to liquidate.”

If the position is big enough, a bubble bursts, and risks shift from being idiosyncratic to systemic.”

USD futures are fading after a brief consolidation inside Friday’s trading range.  USD has about two weeks of further decline into the next Master Cycle low.  The most likely target is the bottom trendline of the Broadening Wedge.

8:30 pm

While other analysts are trying to “map out” the decline based on prior crashes, each one is different.  What I am attempting to do is compare the magnitude of bearish formations, primarily the Cup with Handle.  There are still some noteworthy differences and the final outcome may not be the same.

First, the differences:

1.  The 1987 crash was an A-B-C/ Wave (4) formation which quickly ended after the crash.  Today’s decline is part of a complex, multi-staged impulse of 5 waves.  The Intermediate Wave (3) we are about to see today is is the same degree as the Intermediate Wave (4) of the 1987 crash.  In other words, we are only comparing a singular move within the larger Cycle, not the entire anticipated decline.
2. Which leads me to the next point.  The current decline may be a Cycle Wave I of a Super Cycle Wave (c) of a Grand Super Cycle Wave [IV].  For comparison purposes, the entire decline from September 3, 1929 to July 10, 1932 was a Grand Super Cycle Wave [II] with a 90% total loss in the DJIA.  Grand Super Cycle Wave [IV] began on March 23, 2000.  Thanks to the Fed intervention in 2009, the SPX enjoyed a 16.4% annual compound return in Super Cycle Wave (b).   However, the compound return since March 23, 2000 to January 3, 2022 is a sub-par 5.3%.

Now for the similarities:

1. The 1987 crash [Wave(C)] lasted from October 3 to October 20, 1987.  A 17.2 calendar- day, 12.9 market-day decline.  Today’s decline shows an identical potential with the decline possibly ending June 21 from last Friday’s high.
2. The Cup with Handle formation in 1987 projected at 38.2% decline.  The same formation in 2022 also projects a 38.2% decline.  And its likely to do so in the same amount of time.
3. Both the 1987 crash and the projected decline may go through a very heavy op-ex.  See the article below.  Should the SPX decline  beneath 4000.00 before options expiration, all bets are off.
4. The target is only an estimate.  The decline may go lower or not as low as projected.

In summary, the coming decline is not the end of the bear market, as many believe.  It is a multi-staged event that may last to mid-October or mid-November.  That will only end Cycle Wave I of a 5-Wave Cycle.  I have speculated earlier that the decline may last a total of 2.58 years.  That may be early August, 2024.  An alternate date for an end to the decline may be in January 2026.  The Chart below visualizes the outcome.

ZeroHedge informs us, “A feud is erupting within the Goldman trading floor, where a group of traders led by the bank’s head of hedge fund sales, Tony Pasquariello, are turning more bearish by the day and appear to be set on a ideological convergence crash course with BofA’s Michael Hartnett (of “The Market’s Summer From Hell Begins, And Just One Thing Can Stop It” fame), while what’s left of the bulls finds solace in the weekly musings from flow trader Scott Rubner, who did not disappoint (his fan group) and as he writes in his first June Tactical Flow of Funds note (which is a must read for all bulls, and is accessible to professional subs in the usual place), he is extending his “tactical, unloved, equity rally call for another few weeks into June.” Rubner notes that “the number #1 question to hit my inbox this week: Could we rally through the end of the quarter?, a view which he explains “is not consensus”, and which he answers with a decisive yes, adding that “this is the best market technical set up for a rally that we have seen in 2022, and the buyers come out higher. Outflows just flipped to inflows”, but perhaps more importantly, in less than two weeks the market faces a gargantuan op-ex where over $3.2 trillion (near an all time high) in options expire, and which will spark a historic “gamma unclenching”, which if tactically coupled with a surge in buybacks and a short squeeze, could see this market explode higher into the third fourth of the month.”

11:41 am

NDX gapped through mid-Cycle support at 12752.97 and retested it on the bounce.  It is on a sell signal with a probable decline to the week of June 20, per the Cycles Model.

10:55 am

SPX has crossed beneath the Lip of the Cup with Handle formation, setting off a sell signal.  It has bounced back to retest the line at 4120.00, but is unlikely to go back above it.  Confirmation may occur beneath the mid-Cycle line at 4088.70.

ZeroHedge offers an explanation, “After ramping for days despite all the ‘bad’ news from US macro data, today’s ‘good’ news from the BLS (with payrolls printing better than expected) has prompted a deeper sell-off in stocks…

It appears that the Fed Hawks have regained the narrative this week, and rightfully so. As Nomura’s Charlie McElligott the Bostic “September Pause” meme last week was a “low Delta” fiction which required multiple Fed-speakers (and Bostic later himself) to forcibly “clean-up” as it created a counter-productive impulse “easing” of financial conditions.”

7:00 am

Good Morning!

I am jotting a few things this morning before an 8:00 am appointment.  I may be returning after the open.

SPX futures declined to a morning low of 4152.50 and is lingering near that low.  This morning’s Employment Situation Summary may be pivotal to a probable reversal.

In today’s expiring options, Max Pain is at 4170.00.  Calls dominate at 4180.00 and above, while puts dominate beneath 4130.00.  Short gamma begins at 4100.00.  The question is, how much control do the dealers have in the event of a bad jobs report?

ZeroHedge observes, “When will the bear market end? That is the question to which everyone wants an answer. While there is no specific answer to that question, there are indicators and technical measures that provide some guidance. From the portfolio management perspective, those are the parameters we must operate from to minimize capital destruction and limit emotionally driven mistakes.

2022 has been a year unlike many investors have seen in their investing lifetimes. While there are some that went through the 2008 bear market, there are fewer still who lived through the “Dot.com” crash. Such is the nature of “real” bear markets that tend to destroy investors and drive them from investing in the financial markets permanently.

While there are many “buy and hold” practitioners suggesting investors just dollar-cost-average their way through a downturn, reality tends to be far different. When markets decline enough, there is a point where every investor changes from “Buy The F***ing Dip” to “Get Me F***ing Out.”

VIX futures are higher after making a probable Master Cycle low yesterday on day 255.  You may notice that the Uptrend remains intact and the correction appears complete.

The NYSE Hi-Lo Index made a small corrective move higher, closing above 0.00 at the end of the day.  However, it is very close to triggering a meaningful downdraft beneath zero after making its Master Cycle high on Tuesday.  The decline in the highs since November is striking.

TNX futures are flat thus far, but the Cycles Model call for a day of trending strength.  A breakout above the Cycle Top at 30.42 may not be out of the question.

ZeroHedge comments, “After Thursday’s ADP employment data, expectations from today’s non-farm payrolls print are somewhat muted. However, unless we get a shockingly low number, Treasury traders may look through it.

The median forecast for jobs expansion in May is 320k, a much slower pace of expansion than the 428k we got for April. However, the scatter of expectations is considerable, ranging from 250k to 450k. If the actual print comes in around the upper end of the forecasts, it would be hard to make a case for an emphatic selloff in rates. The markets are already pricing in almost 200 basis points of increases from the Fed in the remainder of the year. Given that the monetary authority has promised to go at 50-basis point increments both this month and next, we are essentially talking about another 100 basis points from the three subsequent meetings, meaning there is already another 50-basis point move lurking in the calculations. So it would be a really unrealistic ask to go beyond that for now.

If the number is shocking low, say, about four standard deviations away from the mean (giving us a print below 150k), we may get a big rally in rates, for the markets would start worrying about whether the economy can hold its poise amid the Fed’s hiking cycle. However tenuous the correlations are between ADP and NFP, yesterday’s lower-than-forecast print on the former should have already made traders scale down their expectations somewhat.

2:30 pm

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

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

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

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

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

7:50 am

Good Morning!

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

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

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

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

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

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

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

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

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

VIX futures consolidated yesterday, remaining near the low.

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

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

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

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

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

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

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

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

11:48 am

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

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

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

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

11:42 am

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

11:27 am

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

11:16 am

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

11:10 am

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

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

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

Put all that together and equities tumbled…”

8:30 am

Good Morning!

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

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

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

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

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

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

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

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

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

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

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

12:51 pm

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

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

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

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

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

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

12:38 pm

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

7:55 am

Good Morning!

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

1:30 pm

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

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

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

12:00 noon

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

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

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

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

7:50 am

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

Good Morning!

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

ZeroHedge comments, “Equity liquidity is horrible

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

Source: Goldman

Liquidity generational lows

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

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

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

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

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

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

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

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

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

2:50 pm

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

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

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

7:45 am

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

Good Morning!

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

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

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

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

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

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

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

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

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

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

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

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