Key Technical Month Ahead

Higher Rates and Lower FRB Balance Sheet is the base case expectation

With September out of the way our focus becomes the seasonality of October. We know that the first part of the month is the weak link and overall October could be dicey but Q4 overall the seasonals for equities is positive. We present this only as a special notation of overall seasonality and not as an expectation of trajectory. Do not be deceived the fundamentals nor the technicals point in a positive direction, and we believe at this point the overall large investor is a better seller than buyer at this point:

All of this does not change the fact that the fundamentals of the global economy are all pointing to a recession, to much tighter credit conditions in the face of continued higher rates and central bank balance sheets that continue to fall. We put this chart out last week and we have yet to see a breach of the $8T marker on the FRB assets:

In regards to tighter credit conditions, well this chart does a great job of expressing the point:

So with all this said, let’s see where the month settled out last Friday, we included Thursday with our updated SOFR settle:

Bitcoin and Nasdaq continue to be the YTD winners +62.8% and 29.1% respectively with Nat Gas and the UltraBond the biggest losers at -34.7% and -17.25%. You can see that the Nikkei is +25.1% but we just posted the 3rd consecutive negative monthly candle chart…not good:

Source: CQG, Magnelibra

As far as our GFBP futures tracker it posted a decent gain on Friday and is now up 3 months in a row. There aren’t any changes of note but the Crude/RBOB spread continues to perform but nearing some key technical spread levels we will show later in this post:

As far as our MEGA8s, we will work the 363Calls this week if we can get a price greater than 3.00 this would be our hedge for the week. You can see the hedged program is 10% greater than the static long only MEGA8. Nvidia short covering has led to the stock to trade back near $440 resistance where we expect sellers to reassert themselves:

As far as the numbers this week, of course the Non Farm Payrolls report will be a big one for us as we await the first real reported below expected print, but we also have some inflation data tomorrow and who knows what our government will do, its open, its closed, congress is as inept as ever and just a mere reflection of the lack of leadership overall in DC:

Source: MarketWatch

Ok on to some of the technical charts. First up let’s look at that RBOB/Crude Oil spread, The GFBP positions tracker will reverse this spread on a move toward that reversion line we have noted in brown below:

Source: CQG, Magnelibra

As far as Crude Oil, its a bit heavy and there were obvious sellers on Thursday after reaching a new high at $95 and all day Friday:

Source: CQG, Magnelibra

When we look at the US Bond market, we can see the 5s30 Curve has started to base out and has reached a critical bull takeover point. This area may see a pause but overall a breakout to the upside will correspond with a breach and then defense of this area. This is a 4:1 spread meaning if you were to buy this spread on a duration weighted basis you would buy 4 contracts of the Five Year futures and sell 1 contract of the US Bond future and vise versa if you were to go short this spread:

Source: CQG, Magnelibra

When we look at the SP500 and Dow we would suspect any rallies to the 200pVwap to be used as selling points and we can see that that level comes in at 4371 for the SP500:

Source: CQG, Magnelibra

As for the Dow well 33832 is important and we have had this line in place for some time, its holding for now and actually trading right on it:

Source: CQG, Magnelibra

Finally we have been hearing chatter out of the BOJ and we know this sell off in the Yen has been mechanical just baiting the BOJ, maybe we need a push to 66.84 in the Yen Futures first:

Source: CQG, Magnelibra

Ok that is it traders, we hope you have a great week, keep things simple, stay sharp and be prepared for a lot of dumb moves as it seems a lot of hope for recovery are giving way to some stronger players willing to dump into that hope and this is a great recipe for volatility. We have noticed sellers in most markets across the board and we know the buy and hold crowd is formidable and its those types that give the cannon fodder of free money to the fast money sellers, so to do the falling knife grabbers who are always and forever conditioned to believe markets go up forever. We have said it time and time again, who is prepared for a 1967 to 1982 type of stagnation to nowhere? Probably not many!

DISCLAIMER: For educational purposes only. This is not a solicitation to buy or sell commodity futures or options. The risk of trading securities, futures and options can be substantial and is not for everyone. Such investments may not be appropriate for the recipient. The valuation of futures and options may fluctuate, and, as a result, clients may lose more than their original investment. Nothing contained in this message may be construed as an express or an implied promise, guarantee or implication by, of, or from the author Michael Agne owner of Magnelibra Capital Advisors. Magnelibra the CTA and its Global Futures Benchmark Program may hold long and or short positions in the various futures and markets that Magnelibra covers. We will never claim that you will profit or that losses can or will be limited in any manner whatsoever. Past performance is not necessarily indicative of future results. Although care has been taken to assure the accuracy, completeness and reliability of the information contained herein, we make no warranty, express or implied, or assume any legal liability or responsibility for the accuracy, completeness, reliability or usefulness of any information, product, service or process disclosed.