February 2, 2018
VIX vaulted through the upper trendline of its 2-year Ending Diagonal formation, which puts it on a confirmed buy signal. A breakout above the Ending Diagonal trendline suggests a complete retracement of the decline from January 2016, and possibly to the August 2015 high.
(ZeroHedge) There’s “buying-the-dip”… and then there’s this!!!
After a couple of days of volatility in stocks, prices falling and VIX rising, ‘investors’ – if that’s what one calls them – have decided to pile back into one ETF in a size that is utterly unprecedented.
They’ve poured a record $520 million into an exchange-traded note that gains when VIX drops…
SPX signals the rally may be over.
SPX began on Monday retracing its parabolic rally, declining to its Cycle Top and upper Diagonal trendline at 2762.45. This action suggests the rally may be over and profits should be taken. A break of the Intermediate-term support at 2668.35 and the trendline nearby, generates a sell signal. Should that happen, we may see a sharp decline in the next week or more.
(CNBC) U.S. stocks fell sharply on Friday after a stronger-than-expected jobs report sent interest rates higher.
The Dow Jones industrial average dropped 665.75 points to close at 25,520.96, capping off the index’s sixth-largest points decline ever. The 30-stock index also fell below 26,000. Friday also marked the first time since June 2016 that the Dow fell at least 500 points.
The S&P 500 fell 2.1 percent and finished at 2,762.13, with energy as the worst-performing sector. The Nasdaq composite plunged 1.96 percent to 7,240.95 as a decline in Apple and Alphabet offset a strong gain in Amazon shares.
NDX declines beneath its Channel trendline.
The NDX declined beneath the trendline at 6890.00 suggesting that the rally may be over. A further decline beneath lower Diagonal trendline and Intermediate-term support at 6457.82 may produce a sell signal.
(ZeroHedge) With positioning at extremes, and leverage at extremes, and valuations at extremes, Deutsche Bank’s Binky Chadha raises the red flag as the correlation across asset-classes soars to record highs signaling extreme contagion risk.
Very strong momentum across asset classes has seen oil up, the dollar down, equities and bond yields up, with the average correlation between them rising to 90%.
As Chadah conclude, whatever the fundamental case for each of the asset-class trades, extended positioning argues at a minimum for a breather and more likely a pullback soon.
Moreover, the tight correlation in the moves across the major asset classes (oil up, dollar down, equities and bond yields up) suggests a pullback in one for idiosyncratic reasons would likely spill over to the others.
High Yield Bond Index slides down to its Cycle Top.
The High Yield Bond Index slid down to challenge its Cycle Top support at 196.27. In the process it declined beneath its Short-term support at 198.45. The Uptrend and a sell signal may result from a decline beneath its Cycle Top or Intermediate-term support at 192.54. Monday’s open may tell the whole story.
(ZeroHedge) That high-yield bonds have decoupled from stocks (despite both their valuation-bases being driven from underlying business volatility) is not a new factor in the melt-up manic-manipulated markets we experience every day.
But, as DoubleLine’s Jeffrey Gundlach notes, the size of the divergence is becoming extreme to say the least.
“JNK chart looks like death. No way to win here, folks…”
UST breaks down beneath the Cycle Bottom Support.
The 10-year Treasury Note Index plunged through its Cycle Bottom support, leaving no visible support at hand. A Master Cycle low may have been made last week, but is only seen as a hesitation in the decline. If so, UST may not see another bounce until late February.
(CNBC) The 10-year Treasury yield jumped to a four-year high after a better-than-expected jobs report reflected rising wages. Yields also got a boost from higher-than-expected consumer confidence numbers as investors began to bet on accelerating inflation from this growing economy.
The U.S. Labor Department reported Friday that the U.S. economy added 200,000 jobs in January, topping economist expectations of 180,000 jobs added. Average hourly earnings posted a 0.3 percent gain for the month and an annualized gain of 2.9 percent, the best gain since the early days of the recovery in 2009.
The Euro had an “inside week.”
The Euro had an “inside week” after turning down last Friday. That can either be the “pause that refreshes,” or an early warning of a reversal. A decline beneath the Cycle Top at 121.71 suggests the rally may be over. A sell signal lies at the trendline and Intermediate-term support at 120.62.
(Yahoo) The euro neared multi-year peaks on Friday as talk of policy tightening in Europe and expectations that inflation is set to gear higher drove up borrowing costs globally.
Yields on 10-year U.S. Treasuries jumped to a near four-year peak, markedly steepening the curve and squeezing out investors who had feverishly bet on a tighter spread between longer-dated and short-dated yields.
Global central banks have recently struck a more hawkish tone with impressive economic data and buoyant oil prices driving up long-term inflation expectations.
EuroStoxx break all supports.
The EuroStoxx 50 Index broke down through all support, including Long-term support at 3547.05. That action puts Stoxx on a confirmed sell signal.
(CNBC) European equities closed lower on Friday afternoon as investors digested further earnings reports.
The pan-European Stoxx 600 closed Friday provisionally 1.38 percent lower with every sector trading in negative territory. The index recorded its biggest weekly loss since November 2016 mainly driven by banking stocks and higher yields.
Deutsche Bank reported a net loss of about 497 million euros for 2017 — its third annual consecutive loss. The stock fell more than 11 percent over the week. Caixa Bank also fell heavily after reporting its latest numbers. The Spanish bank reported a quarterly net profit that was down by 70 percent from the third quarter.
The Yen falls back to mid-Cycle support.
The Yen fell back to mid-Cycle support/resistance at 90.56 in a retest of support. The Cycles Model suggests another surge of strength for another week, possibly longer.
(NikkeiAsianReview) A double-barreled blast of bond buying by the Bank of Japan did little to weaken the yen on Friday, as the test of wills continues between the central bank and the investors who suspect it is readying to retreat on massive monetary easing.
Market watchers were surprised by the timing of Friday’s fixed-rate purchasing operation, in which the BOJ names a yield and offers to buy an unlimited amount of Japanese government debt at that level. Since its introduction in 2016, this has been regarded as the bank’s ultimate weapon for keeping the 10-year yield at its target of around zero.
Nikkei declines to Cycle Top.
The Nikkei declined to close beneath Short-term support at 23334.98, but above its Cycle Top at 23223.16. The rally may be over, producing an aggressive sell signal beneath the Cycle Top. Confirmation comes at the crossing of the lower Diagonal trendline near 21500.00.
(BusinessLine) Japan’s Nikkei share average fell on Friday on weakness in most sectors, with banking stocks down on worries that domestic bond yields would be kept low after the central bank conducted a special bond purchase operation to curb rising yields.
Kyocera Corp tumbled 6.6 per cent and was the biggest negative contributor to the Nikkei after it cut its annual net profit outlook.
The Nikkei dropped 0.9 per cent to 23,274.53. For the week, it dropped 1.5 per cent. The broader Topix shed 0.3 per cent to 1,864.20, with 26 of its 33 sectors falling.
U.S. Dollar hovers above its target.
USD consolidated without reaching its “Point 6” target at 88.20. The fact is, the Cycles Model calls for a probable continuation of the decline to the week of February 5 with a likely overshoot of its goal. Having said that, reaching the target may be reason enough to take downside profits. As Sir John Templeton once said, “I like leaving a little on the table for the next guy.”
(CNBC) The greenback slid further Thursday after the Trump administration was seen as stepping back from the strong dollar policy that has been in place since the 1990s.
The dollar index was slightly lower, after falling sharply Wednesday on the initial comments from Treasury Secretary Steven Mnuchin that a weak dollar was good for U.S. trade. But when given the opportunity to clarify his comments at the World Economic Forum early Thursday, Mnuchin did not latch on to the strong U.S. dollar rhetoric used by past Treasury secretaries.
.Gold has an inside week.
Gold consolidated under last week’s close, but did not make a new low. Gold is still very extended and may not give a tradable signal until it declined beneath Short-term support at 1308.19. However this action suggests the end of a trend,
(Bloomberg) Gold may be heading for the biggest weekly loss since December, but bulls are keeping the faith, confident that the dollar’s biggest advance in more than a year won’t last.
The greenback jumped as much as 1 percent after stronger-than-expected U.S. jobs data bolstered the case for the Federal Reserve to raise interest rates. Gold dropped after the report. While higher rates damp the appeal of non-interest bearing bullion, Tai Wong, the New York-based head of base and precious metals trading at BMO Capital Markets, is skeptical the greenback’s gains will hold.
Crude consolidates beneath resistance.
Crude pulled back from its high, consolidating beneath its Fibonacci 50% resistance at 66.64,. The rally may be considered over beneath its Cycle Top at 62.84. The fly in the ointment mentioned last week turned out to be a Master Cycle Inversion, suggesting the probable end of this uptrend. A decline beneath the Short-term support at 61.58 gives a probable sell signal.
(CNBC) Crude just posted its best start to a year since 2006, but some traders say the run is unsustainable. “I’m bearish on crude oil. The production is up over 10 million barrels. That’s the highest level since 1970,” Phil Streible, senior market strategist at RJO Futures, said Thursday on CNBC’s “Trading Nation.” Noting that the most recent federal data showed that U.S. crude production broke 10 million barrels per day in November for the first time since 1970, Streible pointed to crude’s significant long position among speculators. “You’ve got the net speculative long positions at its highest level since 2006; I think it’s got nowhere to go from here but down,” he said.
Shanghai Index reverses from its Cycle Top.
The Shanghai Index reversed from its Cycle Top resistance at 3536.88 to test Intermediate-term support at 3384.85. A continued decline beneath that support may result in a sell signal. The potential for a sharp sell-off rises as the Shanghai Index may continue its decline beneath the Pennant trendline, activating that long-standing formation..
(ZeroHedge) Chinese stocks are down for the fifth day in a row (something that hasn’t happened since May 2017) with the tech-heavy Shenzhen Composite is now down 5% YTD and the Shanghai Composite is tumbling back towards unchanged.
The decline is happening at the same time as Bitcoin is in freefall… And chatter about bankers using WeChat to ask for Deposits. In other words – a liquidity crisis.
And that anxiety is only increased by the latest report from Reuters that cash withdrawals at Hong Kong ATMs have surged, prompting scrutiny from monetary authorities, the banking industry, and police amid media reports that mainland Chinese are withdrawing hundreds of thousands of dollars using up to 50 cards at a time.
The Banking Index peaks, then eases to its Cycle Top.
— BKX peaked on Monday, then eased down beneath its Cycle Top support at 114.84 at the close of the week. This suggests the rally may be over. A decline beneath the Ending Diagonal trendline and Short-term support at 109.91 suggests a potential sell signal. If the Orthodox Broadening Top formation is correctly identified the next move may be beneath the trendline near 80.00.
(ZeroHedge) Is this what a “soft nationalization” looks like?
Wells Fargo may be Warren Buffett’s favorite bank, but the endorsement of America’s favorite benevolent plutocrat hasn’t spared it from an unusually severe punishment: two hours after markets closed on Janet Yellen’s last day in office, the Fed announced unexpectedly harsh sanctions against Wells for a host of consumer and oversight abuses dating back to its infamous cross-selling scandal, barring the bank from growing until it fixes its criminal culture.
In a late Friday press release – one which is certain to exacerbate today’s selloff when markets reopen on Monday- the Fed said it would bar Wells from expanding its assets beyond their end-2017 level until it “sufficiently improves its governance and controls.”
(ZeroHedge) It is safe to say that after years of disappointment, investor expectations were low ahead of today’s Deutsche Bank earnings report. Yet somehow, the biggest German lender failed to beat even the most pessimistic one.
Deutsche Bank, which had already guided for a slump, shocked markets when revenue that missed the lowest estimate and fell to the lowest in seven years amid declines at businesses from transaction banking to equity derivatives, and pretty much everything else. Even cost control – supposedly a key feature of CEO John Cryan’s tenure – was worse than expected. The company also reported a €1.3 billion loss for Q4, which while better than the company’s disastrous report last year, was €100mm worse than the lowest forecast and far worse than the consensus loss of €478mm.
“The results are disappointing again and we don’t see anything encouraging in them, reinforcing our doubts in the bank’s strategy and management,” said Michael Huenseler at Assenagon. “There’s no silver lining.”
(ZeroHedge) At the turn of the year, and just over 2 months ahead of the Italian elections on March 4, we presented a stunning observation from Citi, one suggesting that even before any potential political risk emerges in March, private investors had long ago fallen out of love with Italian BTPs and had taken to the hills.
As illustrated in the chart below, just about every other major investor type has become a net seller (to the ECB) or a non-buyer of BTPs over the last couple of years. Said differently, for well over a year, the only marginal buyer of Italian bonds has been the ECB (dark blue).
Have a great weekend!
Anthony M. Cherniawski
The Practical Investor, LLC
2205 Hopkins Avenue
Lansing, MI 48912
Office: (517) 331-5200
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