SPX futures dropped to 7413.50 before bouncing off the lower Ending Diagonal trendline. It is hovering above the trendline as I write. Today is monthly options expiration and the morning options are about to expire. The further the SPX declines, the more options expire worthless, which may cause a selling feedback loop as remaining call holders scramble to unload. This may be further exacerbated in the leveraged ETFs. A further decline beneath 7400.00 issues a sell signal that should not be ignored. The Cycles Model allows a possible 2-3 week decline. Possible targets may be the 52-day Moving Average at 6906.99 or the mid-Cycle support at 6806.60.
This afternoon’s options chain shows Max Pain at 7465.00. Long gamma begins at 7470.00 while short gamma prevails beneath 7460.00. There is a put wall at 7400.00. Should the SPX go beneath it, prices may go over a cliff.
ZeroHedge reports, “Bond yields, oil and the dollar are surging this morning as US futures tumble from all-time highs, with Tech underperforming driven by a series of factors including i) surging energy prices on lack of Iran war progress, ii) elevated positioning into options expiry; iii) Central bank repricing, iv) Tech sell-off driven by higher yields, and v) strikes at Samsung Electronics.”
The premarket VIX rose to 19.24 this morning and may close in on the 52-day Moving Average at 21.80 in short order. Should the VIX reach the neckline by May 20, the Master Cycle may be adjusted from May 6 to May 20 to reflect that move, called a “double reversal”.
The May 19 options chain shows Max Pain at 22.00. Short gamma resides between 16.00 and 20.00. Long gamma begins with a call wall (over 250,000 contracts) at 25.00 and runs with call walls nearly every 5 points to 95.00, signifying institutional interest.
The US 10-year Bond Yield burst through its neckline at 44.84 to exceed the dreaded 45.00 level. The Japanese 10-year rate is also rising, causing potential destabilization in the equities markets.
USD vaulted above the 52-day Moving Average, cementing the buy signal. The Cycles Model suggests the rally may last to early June, causing grief to the dollar shorts. A further rally from here may instigate a short squeeze that may propel the USD above the Head & Shoulders neckline, with knock-on effects.
Bitcoin tested the horizontal trendline yet again this morning, then fell away. The Cycles Model calls for a short, but possibly deep decline to a lower support before resuming its rally. It may be targeting the Cycle Top currently at 99837.00 by the end of June.
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