“50 Cent” Has Returned To The Market

VIX rallied through the mid-Cycle at 13.21 and Short-term resistance at 13.46 to close right on Long-term support/resistance at 13.77. It is now on a buy signal. The Cycles Model shows great strength next week for the VIX..

(Bloomberg) Trading patterns associated with the volatility buyer nicknamed “50 Cent” have returned to the markets.

Throughout 2017, this trader made massive buys of out-of-the-money calls on the Cboe Volatility Index for $0.50 apiece as protection against a plunge in the S&P 500 Index. That strategy paid off spectacularly when volatility went haywire in February.

SPX retreats from the two-year trendline.

SPX declined from its 2-year trendline at 2790.00, closing closing at a loss for the week. A decline beneath its upper 7-year trendline and Short-term support at 2721.37 creates a sell signal.  Equities are entering their negative season, so care should be taken to protect profits.

(Reuters) – U.S. stocks rose on Friday with the Dow Jones Industrial Average looking to snap its 8-day losing streak, powered by a surge in oil prices, but losses in technology stocks curbed some gains.

The benchmark Brent crude jumped $1.83 to $74.88 a barrel, following three days of losses, after OPEC agreed to modest crude output increases to compensate for losses in production at a time of rising global demand.

Exxon Mobil rose 2.4 percent and Chevron gained 2.7 percent, lending the biggest boost to the S&P 500 and the Dow. The S&P energy index was up 2.9 percent, eyeing its best day in nearly a month.

 NDX reverses at the Cycle Top.

The NDX reversed at its Cycle Top resistance at 7344.93 to close the week at a loss.   The Cycles Model suggests that Thursday may have been the last day of strength in equities. If so, the period of weak seasonality may be about to begin.

(ZeroHedge)  One week after the second biggest ever weekly tech inflows, in Bank of America’s latest weekly fund flow report, CIO Michael Hartnett shows what the annualized tech inflows in 2018 look like, and it is surely a surreal sight for an entire generation of traders, as the last time we observed such sheer uniform panic to plow cash into tech names was just before the dot com bubble… only this time it’s even worse, as the annualized inflows into tech have never been greater, and as shown below, are now almost “off the chart.”

What is odd, is that while traders, investors, algos and passive capital allocators are flooding the FAANGs with money, virtually every other sector is hurting, in what BofA defines as “Risk-off flows” after $12.9bn pulled out of equities, $5.9bn out of bonds, and $0.8bn out of gold.

High Yield Bond Index challenges Long-term support.

The High Yield Bond Index ventured beneath Long-term support at 188.60 but closed above it for the week. MUT remains on a sell signal beneath the trendline. The sell signal is confirmed beneath Long-term support.

UST tests Intermediate-term resistance.

The 10-year Treasury Note Index tested Intermediate-term resistance at 119.96 before closing beneath it. The Cycles Model calls for at least a week of rally toward the Head & Shoulders neckline. If so, we may see UST rally back toward the Head & Shoulders neckline near 123.00.

(CNBC) U.S. government debt yields rose on Friday as investors tried to shake off concerns of a potentially impending trade war.

The yield on the benchmark 10-year Treasury note was higher at 2.906 percent at 2:43 p.m. ET, while the yield on the 30-year Treasury bond rose to 3.048 percent. Bond yields move inversely to prices.

Markets around the globe have been on a roller-coaster ride this week as tensions surrounding a tit-for-tat trade dispute between the U.S. and China continue to escalate.

The Euro resumes its corrective rally.

The Euro resumed its bounce toward Long-term resistance at 119.99 after the pullback.  The Cycles Model suggests another two weeks of strength to achieve that target.

(Reuters) – The euro climbed on Friday as traders were encouraged by improved regional economic growth data and new assurances by Italian politicians that their nation would not leave the single currency.

The euro registered a weekly gain of nearly 0.5 percent against the dollar, reversing the prior week’s 1.35 percent drop tied to the European Central Bank’s hint it would hold interest rates through the summer of 2019.

The euro’s advance, together with a rebound in commodity-linked and emerging market currencies, pressured the dollar which ended lower on the week.

EuroStoxx fails at Intermediate-term support.

The EuroStoxx 50 Index failed to challenge Long-term resistance at 3515.26.  Instead, it declined to close beneath Intermediate-term support at 3456.71.  It remains on a sell signal beneath Long-term and Intermediate support.

(CNBC) European stocks finished Friday on a high note, as investors cheered on news coming out of an OPEC meeting in Austria.

The pan-European STOXX 600 finished the session up 1.09 percent provisionally, with all but two of the sectors closing in the black.

Looking to Europe’s bourses, the FTSE 100 jumped 1.67 percent, the French CAC 40 popped 1.34 percent, while the German DAX closed up just 0.54 percent, as pressure from German automakers weighed.

Sentiment over international trade disputes has shown signs of improvement compared to earlier on this week, allowing investors to edge back into riskier assets. In spite of today’s positive session, on the weekly measurement, the STOXX 600 finished down 1.06 percent.

The Yen consolidates at Long-term support.

The Yen consolidated at Long-term support at 90.88 this week.  The Cycles Model suggests a possible bounce to Intermediate-term resistance at 92.52 over the next week or so before a resumption of the decline toward “point 6.”

(DailyFX)  After the Japanese Yen rose cautiously on Thursday as sentiment deteriorated, the currency looked to a local inflation report to start Friday’s session. In May, Japan’s National CPI clocked in at 0.7% y/y which is more than the 0.6% estimated result. The rest of the results were in line with expectations. National CPI excluding fresh food was 0.7% y/y. Cutting out energy as well has inflation running at 0.3% y/y.

The mostly in-line CPI data was not much of a surprise and the Yen barely budged on the outcome. For the time being, Japan inflation is still persistently below the BoJ’s target. In fact, the central bank downgraded their assessment on CPI last week at their rate announcement. With the central bank still looking for sustainable 2 percent inflation, it will probably take a significant beat in CPI to nudge the Yen.

Nikkei declines beneath the two-year trendline.

The Nikkei fell beneath the two-year trendline and Short-term support at 22590.52, closing beneath it and renewing the sell signal. The potential for a decline over the next two months to the Cycle Bottom is very high.

(JapanTimes) Stocks lost ground on the Tokyo Stock Exchange Friday, pressured chiefly by the yen’s strengthening against the dollar.

The 225-issue Nikkei average lost 176.21 points, or 0.78 percent, to end at 22,516.83. On Thursday, the key market gauge rose 137.61 points.

The Topix index of all first-section issues closed down 5.80 points, or 0.33 percent, at 1,744.83. It fell 2.12 points the previous day.Tokyo stocks met with selling from the outset of Friday’s trading, with investor sentiment dampened by the yen’s rise against the dollar and overnight declines in U.S. and European equities, market sources said.

U.S. Dollar reverses from mid-Cycle resistance.

USD tested mid-Cycle resistance on Thursday before reversing on Friday, leaving the week at a loss.  While the USD made a new retracement high, it did not break out above mid-Cycle resistance at 95.44.  As a result, a decline may develop with up to a three-week duration.

(DailyFX)  Last week, haven demand lifted the US Dollar amid worries about the escalating trade tensions as expected. The move higher would prove short-lived however. The currency touched an 11-month high against an average of its top counterparts only to retreat and close the week essentially flat.

Traders appear willing to overlook growing tensions between the US and its top trading partners for now. Perhaps they have reasoned that bellicose tactics employed by President Donald Trump will yield to deal-making before long, echoing recent rapprochement with North Korea after months of intense sparring.

.Gold begins a bounce.

Gold appears to have made a Master Cycle low on Thursday.  It reversed on Friday, initially on its way to test the lower trendline of the Broadening Wedge and mid-Cycle support at 1279.23.  Should it succeed the test, the Cycles Model allows a two week rally that may go as high as Long-term resistance at 1308.62.

(MarketWatch) Gold futures edged higher on Friday, registered a decline for the week as investors focused on expectations for higher interest rates ahead, a headwind for metals, and the U.S. dollar, which has strengthened over the past month.

August gold GCQ8, +0.05%  tacked on 20 cents to settle at $1,270.70 an ounce, for a weekly slide of 0.6% based on last Friday’s closing level. Gold was on track for a month-to-date fall of 2.6%. It’s finish on Thursday at $1,270.50 was the lowest since December.

A popular gold exchange-traded fund, the SPDR Gold Shares GLD, +0.24%meanwhile, aimed for a weekly decline of % and a decline of 2.4 so far in June.

Crude rallies back to the trendline.

Crude rallied back to the Broadening Top trendline, a 63% retracement of its decline from the May 22 high. It may resume a confirmed sell signal beneath Intermediate-term support at 66.31.  The Cycles Model now suggests a probable month of decline in oil.  Should the lower trendline be exceeded, crude may hit the Broadening Wedge target.

(CNBC) Oil prices surged as much as 5 percent on Friday as OPEC agreed to a modest increase in output to compensate for losses in production at a time of rising global demand.

U.S. West Texas Intermediate (WTI) crude futures finished Friday’s session up $3.04, or 4.6 percent, at $68.58 a barrel. The contract posted its biggest daily jump since November 2016.

Brent crude oil futures rose $2.50, or 3.4 percent, to $75.55 per barrel.

The Organization of the Petroleum Exporting Countries said in a statement that it would go back to 100 percent compliance with previously agreed output cuts but gave no concrete figures.

Shanghai Index tests the Cycle Bottom.

The Shanghai Index appears to have made a half-Trading Cycle low at its narrowed Cycle Bottom.  Should the Cycle Bottom support hold, there may be a rally back to the Head & Shoulders neckline.  However, rallies usually don’t last during a Head & Shoulders decline and round number resistance lies at 3000.00.  The narrow Cycle bands indicate the probability of higher volatility once the band is broken on the downside.

(ZeroHedge) Following reports yesterday that Chinese trade officials had “quietly” approached the US about finding a way to avert a worsening trade war by restarting negotiations, Bloomberg reported Friday that the effort isn’t entirely one-sided: Some White House officials are also pushing to restart talks with China to try and avert a trade catastrophe when US tariffs take effect on July 6. National Economic Council staff believe now is the time to try and hammer out a diplomatic solution, before the gap between the proposed and implemented tariffs shown in the chart below, starts to narrow.

However, the chances of the US returning to the table with China are “slim”, as senior administration officials – a group that presumably includes President Trump – feel that Beijing needs to pay for decades of “economic aggression.” 

The Banking Index caught between support and resistance.

— BKX appears to be consolidating in a narrower band, caught between Long-term support at 105.96 and Intermediate-term resistance at 108.60. The Head & Shoulders neckline is at 105.00 which, when broken, confirms the sell signal for BKX.

(Bloomberg)  If this year’s bank stress tests were graded on curve, Wells Fargo & Co. would be at the bottom.

It didn’t fail. No bank did. For the second consecutive year, all of the banks examined were able to survive the Federal Reserve’s hypothetical worst-case economic scenario, according to results of the first round released on Thursday. Next week, the Fed will examine the banks’ own capital plans and approve or reject their proposed dividends and buybacks. That portion of the test, given that the economy is not in a recession, has become more significant than the first round.

But on this portion of the test, nearly 10 years after it was introduced, it’s not clear “passing” is the right benchmark for success. Nor is it how high a bank scored above the minimum set by the Fed. The best measure is how much effort was required to pass. Wells Fargo had to cram the most — another fallout from all of its problems in the past year.

(ZeroHedge) Like many of you, I spent part of the late afternoon reading through the results of the Federal Reserve’s annual stress test of the US banking system. At first blush, everything looks good. Everyone passed. Now investors can look forward to next week’s Comprehensive Capital Analysis and Review, when we hear what sorts of buybacks and dividends these institutions can pay in the year ahead.

It’s difficult not to gasp a little when you look at the “Severely adverse” scenario the Fed used in this year’s review:

  • A 7 quarter recession that leaves GDP 7.5% lower than prior highs
  • Unemployment rises to 10% over the same period
  • Inflation drops to 1% and short term Treasuries yield close to zero
  • At the same time, investors shun long term Treasuries and yields there remain unchanged
  • Investment grade and mortgage yield spreads blow out to 5.75% and 3.5% respectively
  • US stocks drop by 65% in early 2019, and the VIX goes over 60
  • House prices drop 30% and commercial real estate by 40%

I don’t know about you, but to me that looks like the recipe for revolution more than a regulatory what-if scenario, but let’s go with it.

Have a great weekend!

 Disclaimer: Nothing in this email should be construed as a personal recommendation to buy, hold or sell short any security.  The Practical Investor, LLC (TPI) may provide a status report of certain indexes or their proxies using a proprietary model.  At no time shall a reader be justified in inferring that personal investment advice is intended.  Investing carries certain risks of losses and leveraged products and futures may be especially volatile.  Information provided by TPI is expressed in good faith, but is not guaranteed.  A perfect market service does not exist.  Long-term success in the market demands recognition that error and uncertainty are a part of any effort to assess the probable outcome of any given investment.  Please consult your financial advisor to explain all risks before making any investment decision.  It is not possible to invest in any index. 

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