Market Analysis - Monday, May 4

SPX futures declined to 7186.00, but did not cross beneath the Cycle Top support at 7147.20. Today is a trending strength day, suggesting SPX may go to the next resistance at 7300.00.  However, the Master Cycle is running on fumes.  Often at this stage of the Cycle a quick run-up may be sold into, causing a reversal.  SPX has had three consecutive weeks of new highs on negative breadth, with hedge funds selling and commercial traders neutral. The IRA buying season is over while pension funds are uncomfortably long and may rebalance. The Cycles Model suggests a possible shallow retracement  (Wave b) to the 52-day Moving Average at 6823.82 over the next 2-3 weeks. The mid-Cycle support at 6760.51 may provide a further bounce platform.

Today’s options chain shows Max Pain at 7230.00.  Long gamma may emerge above 7250.00 while short gamma becomes strong beneath 7200.00.

ZeroHedge reports, “US futures whipsawed and crude oil spiked higher as tensions flared up again in the Middle East, taking the focus off a run of strong earnings by megacap tech companies.”

The premarket VIX has risen to 18.94, above the mid-Cycle resistance at 18.41, creating a potential buy signal. The Cycles Model suggests that VIX may revive over the next 2-3 weeks  to retest the neckline at 35.30. While Friday’s low was beneath the April 17 low, if may not qualify as a Master Cycle low. What this may show is a change in orientation with future Master Cycles ending in strength.

The May 6 options chain shows a minor holdout of short gamma at 17.00. Long gamma may begin above 19.00 and extends to 40.00.

The US 10-year Bond Yield has gone above the Cycle Top resistance at 43.93. Should it remain there, it may proceed to challenge the neckline of the head & Shoulders formation at 44.84. A decline may develop a bounce at Intermediate support at 43.25. The Cycles Model shows growing strength this week that may lead to a breakout.

USD emerged from a minor retracement, remaining beneath mid-Cycle resistance at 98.56. There may be another probe lower to complete the retracement before resuming its uptrend. Otherwise, USD may consolidate until it emerges above the mid-Cycle resistance.