Market Analysis - Tuesday, March 3

SPX futures took a nosedive to 6737.80 in the overnight session before bouncing back above the neckline at 6770.00. This is the second day that the SPX futures have fractured the Head & Shoulders neckline.  But will the attempts to open above it succeed?  As investors buy more downside protection the struggle to maintain equilibrium intensifies. In addition, the 10-year Treasury yields have climbed  well above their Cycle Bottom adding volatility to both bonds and stocks. The overnight futures are thinly traded, making them susceptible to manipulation.  Can calm be maintained after the open?  The Cycles Model suggests the decline may resume beneath the Head & Shoulders neckline with potential widening swings developing later in the week.

Today’s options chain shows Max Pain at 6875.00. Long gamma begins above 6900.00 while short gamma strengthens beneath 6850.00.

ZeroHedge reports, “US equity futures are down sharply, along with all global markets, as the Iran war expands and escalates (attack on US embassy in Saudi Arabia; uncertainty over duration of Strait of Hormuz closure; targeting non-military infra / businesses) rattling markets and sending oil and the dollar surging.”

The premarket VIX rose to 27.30 this morning  before settling back near 35.00.  Many traders view 25.00 as the “breakpoint” between a bull market and bear market.  While investors have purchased the largest amount of put protection in recent history, we may see even more hedging above this point.  The Cycles Model suggests increasing strength in the rally by the weekend.   Buybacks begin to taper off this week, offering less resistance to the VIX rally.

The March 11 options chain shows Max pain at 19.00.   Short gamma continues to dwindle while long gamma begins at 20.00.  Conviction in long gamma tapers off above 30.00.  Much of the new activity is centered around the March 18 expiration.

The US 10-year Treasury bond yield surged again this morning, reviving bond volatility. The rally may intensify into an outright panic as the new trend strengthens. TNX has the potential to rise above its cluster of resistance between 41.57 and 42.00 by this weekend. Bond longs may be squeezed in that scenario.

The USD index rose to 99.38 this morning, breaking above the Ending Diagonal trendline near 99.00. USD may rise to the Cycle Top at 100.07 before it pulls back to mid-Cycle support at 98.31. The trend is higher and may intensify over the next couple of weeks. Dollar shorts are at risk.