The Bell Is Ringing.

Don’t let this market fool you.  The DJIA and SPX have rallied 168 days and still have been unable to completely retrace a 14-day decline.  This is the longest time both the DJIA and SPX have been in correction since 1984, when it took the SPX 122 days to emerge out of a correction…and it isn’t out of it yet.  In the SPX down days are 20% larger than up days, on average, since January 26.  Facebook just had the largest one day drop in the history of the NYSE for a single issue.  Something has fundamentally changed, yet no one seems to get it.  Do you hear the bell ringing?

After testing Intermediate-term resistance at 14.36, VIX pulled back again, closing beneath its Short-term support/resistance at 13.21. The buy signal is triggered when it closes above Short-term resistance. The Cycles Model shows probable strength for the VIX through mid-August.

(Reuters) – Speculators increased their net shorts in Cboe Volatility Index futures to the highest levels in about six months this week, signaling their bets the U.S. stock market would stay in a narrow trading range, according to Commodity Futures Trading Commission data released on Friday.

The amount of short or bearish bets on futures of the VIX index, commonly referred to as Wall Street’s fear gauge, exceeded long or bullish bets by 86,161 contracts on July 24, CFTC’s latest Commitments of Traders data showed.

 SPX tests the upper 2-year trendline.

SPX challenged the upper trendline of the 2-year trading channel at 2840.00.  This final bit of strength also coincides with an important Cyclical turn date.  This may be one of the longest SPX corrections in history, having rallied 166 days from bottom (February 9) to top (July 25) without making a new high.  Equities are entering their negative season, so care should be taken to protect what small profits there are in 2018.

(Reuters) – The ability of the U.S. stock market to keep an edge this year over equities elsewhere in the world hinges on the United States maintaining its economic and earnings growth advantage, the strength of the dollar and how global trade tensions resolve, investors said.

Spurred by fiscal policy benefits including a corporate tax cut, the U.S. economy’s standout momentum relative to other regions has underpinned Wall Street’s advantage this year, investors said.

“The outperformance of U.S. stocks reflects not just earnings, but expectations about U.S. economic growth versus other regions,” said Kristina Hooper, chief global market strategist at Invesco.

 NDX reverses at its Cycle Top.

NDX rallied to its Cycle Top resistance at 7502.27 on Wednesday, but reverse dramatically on the Facebook earnings call.  The Cycles Model suggests that the next several weeks may bring pain to equities.  The period of weak seasonality may be about to begin.

(ZeroHedge)  Nomura’s head of cross-asset strategy Charlie McElligott writes today that he is seeing heightened equity fund manager consternation right now, as there are indications of potential catalysts on the horizon for a reversal of what has been the most important trade of the past 11 years – “growth over value” – with the recent breakdowns in FB, NFLX, TWTR further contributing.

Why are they concerned? Because consensual “long growth, short value” positioning has dictated performance over the past few years, and with it, this portfolio construct became “momentum” as well.

Two catalysts going-forward which could escalate this:

  • escalation of Chinese stimulus / easing impacting creating a potential commodities / cyclicals ‘melt-up’, and/or,
  • steepening of yield curve, as tighter financial conditions begin to drag the real economy and ultimately force the market to remove Fed hikes currently priced-into the front-end.   

High Yield Bond Index rallies to a 61.8% retracement level.

The High Yield Bond Index rallied to a 61.8% Fibonacci retracement of its February decline before reversing on Thursday. MUT remains on a sell signal beneath the trendline. The sell signal is confirmed beneath Intermediate-term support at 190.01. Sideways consolidations such as this imply a continuation of the previous trend.

UST drops beneath critical support.

The 10-year Treasury Note Index declined beneath Intermediate-term resistance at 119.80, to make a probable Master Cycle low on Thursday. If so, we may see UST rally back toward the Head & Shoulders neckline near 123.00. The Commitment of Traders shows the Commercial traders remain heavily long while Speculators remain heavily short the 10-year Treasury futures.

(CNBC) The yield on the benchmark 10-year Treasury note slipped on Friday after the government reported that economic growth jumped 4.1 percent in the second quarter, its best pace in nearly four years.

The gross domestic product data matched expectations from economists polled by Reuters and was buoyed by an uptick in consumer spending, exports and business investment. The GDP growth rate is the fastest since the third quarter of 2014 and the third-best growth rate since the Great Recession; the Department of Commerce also revised its first-quarter reading up to 2.2 percent from 2 percent.

The Euro consolidates beneath resistance.

The Euro appears to be consolidating after a Master Cycle low last week, closing beneath Short-term support/resistance at 11.71.  The Cycles Model suggests a possible 2-3week rally that may challenge Long-term resistance at 119.81.

(Reuters) – The euro fell on Thursday, declining the most in a month, as the European Central Bank clung to its easy money policy and signaled no change in its timetable to move away from ultra low rates or end its bond purchase program.

Sterling, already pressured by a strong dollar, fell on the European Union’s rejection of key elements of Britain’s new trade proposals after it leaves the EU, known as Brexit.

ECB President Mario Draghi said at a press conference following the ECB’s policy decision while he was confident regional inflation would reach the ECB’s 2 percent target, rising tariffs and other trade barriers would hurt the growth of the 19-member economic bloc.

EuroStoxx rises above Long-term resistance.

The EuroStoxx resumed its rally above Long-term support/resistance at 3509.31.  The Cycles Model calls for any strength to be dissipated in the next week, even if it should break above its prior high.

(CNBC) European stocks closed higher Friday, tracking their fourth straight week of gains, as investors digested fresh earnings and growth data from the U.S.

The pan-European Stoxx 600 closed provisionally 0.4 percent higher. Basic resources jumped as trade concerns eased and corporates brought positive news to the market. Oil and gas stocks were also higher, after BP agreed to buy U.S. shale oil and gas assets from global miner BHP Billiton. The latter rose 2.044 percent. Telecoms were the best performing sector, up by 2.2 percent, on strong earnings. BT shares rose 4.959 percent after announcing an increase in profits.

Looking across the European benchmark, Carrefour rose 12.01 percent after reporting a profit increase in the first half of the year, whereas Kering fell 7.72 percent after Gucci sales came in slightly weaker than forecasts.

The Yen loses momentum.

The Yen appears to have lost momentum in its second week of a bounced out of its Master Cycle low.  However, the Cycles Model suggests that strength may revive over the next two weeks or longer.  A likely target for the bounce may be near 92.50.

(MarketPulse) The Japanese yen has posted slight gains in the Friday session. In the North American session, USD/JPY is trading at 111.00, down 0.23% on the day. On the release front, Tokyo Core CPI edged higher in July, posting a gain of 0.8%. This beat the forecast of 0.7%. In the U.S, Advance GDP gained 4.1% in the second quarter, just shy of the estimate of 4.2%. This marked the strongest quarter of economic growth since 2014. Later in the day the U.S releases Consumer Sentiment, which is forecast to drop to 97.1 points.

It’s been a quiet week for the yen and the trend has continued in Friday trade. There was good news on the inflation front, as Tokyo Core CPI improved to 0.8%, its strongest gain in four months. Earlier, in the week, Services Producer Price Index improved for a third straight month, jumping to 1.2% in June.

Nikkei retests the trendline.

 

The decline out of the Nikkei Master Cycle high on July 18 bounced at the Long-term support at 22312.51, allowing it to close positive for the week. However, it appears to have set up a powerful reversal pattern that may be triggered beneath Long-term support at 22312.51.

(EconomicTimes) Japanese shares closed higher on Friday, taking comfort from signs of rapprochement between the United States and Europe over trade issues, though investors remained cautious ahead of next week’s Bank of Japan policy review.

The benchmark Nikkei share average hit a one-week closing high of 22,712.75, and ended the week 0.56 pct firmer.

“Worries over trade problems have somewhat faded. Above that, the market moved into a positive direction overall, while earnings were mixed,”

U.S. Dollar makes a probable reversal pattern.

After hitting the mid-Cycle resistance at 95.42 USD made what may be a reversal pattern.  It closed just above Short-term support at 94.18 and may offer a sell signal on a decline beneath that level.  The Cycles Model calls for a potential 2-3 week decline that may challenge the Cycle Bottom at 87.97 along the way.

(MarketWatch)  The U.S. dollar turned negative on Friday, giving up early gains in the wake of a report of second-quarter gross domestic product which underperformed lofty expectations, but underscored a buoyant economy.

U.S. GDP came in at an annual rate of 4.1% in the three-month period between April and June, compared with average economists polled by MarketWatch for 4.2%. That pace of growth comes after 2.2% print in the first three months of the year, raised from an original reading of 2%.

“It’s hard to describe 4.1% GDP growth as disappointing,” Lee Ferridge, head of macro strategy for State Street, told MarketWatch. But after the second-quarter number had been so hyped up by the administration of President Donald Trump, the actual print fell below market’s lofty expectations, he added.

.Gold retests the neckline.

Gold appears to have retested the neckline before resuming its decline.  The Cycles Model and Head & Shoulders formation agree that there is stiff resistance at 1238.00.  The failure to break through confirms that formation and allows gold to decline much lower.

(BullionVault) GOLD PRICES popped $5 but held on track for the 7th weekly drop in 9 against the Dollar on Friday after new US data matched analyst and President Trump’s forecasts with the fastest GDP growth since 2014.

Falling within $6 of last week’s 1-year low at $1211.89 this morning in London, gold prices then bounced above $1224 after the world’s largest single economy reported annual GDP growth of 4.1% for April to June.

That was in line with both Wall Street consensus and the “number with a ‘4’ at the front” suggested yesterday by Trump.

With domestic cost inflation slowing to 2.3% per year, “The acceleration in real GDP growth in the second quarter reflected accelerations in [personal consumption] and in exports,” said the Bureau of Economic Analysis.

Crude consolidates at Intermediate-term support/resistance.

Crude consolidated near Intermediate-term support/resistance at 68.63, closing above it.  There may be an additional attempt at a bounce to test the Cycle Top and trendline before a continuation of the decline through the month of August with a possible 50% loss.

(OilPrice) Oil could be back to US$45 a barrel within 12 months, Citigroup’s commodities chief Ed Morse said in an interview with the Financial Post, noting that the bullish case for crude is based on a faulty analysis.

The top oil forecaster who warned about the 2014 price collapse and also accurately predicted that the OPEC+ club would end its production cut deal earlier than everyone expected, has said that the capital efficiency and technological advancements that have improved oil recovery goes against the bullish scenario, because the better the recovery rate, the more oil that can be produced on the cheap. Also, he said, the bulls make a mistake in estimating a global acceleration in total oil production decline when this acceleration will only take place in mature fields, which represent about 45-50 percent of the global total.

Shanghai Index tests Short-term resistance.

The Shanghai Index rallied to Short-term resistance at 2909.18, but was unable to close above it.  The Cycles Model suggests a possible burst of strength early in the week, but no follow-through afterwards.  Exhaustion of the decline may not set in until early September.

(ZeroHedge) The brief rebound in the Yuan is over as a barrage of headlines from China and US spark renewed concerns at Beijing’s ability to withstand Washington’s war. Just when you thought the trend had reversed, Yuan has started tumbling back towards cycle lows…
Take your pick of what is driving this yuan weakness:

  1. Trump’s ‘deal’ with Juncker, as Goldman notes, seems likely to give the Trump Administration more political flexibility to impose additional tariffs on imports from China…
  1. The failure of Chinese regulators to agree to the Qualcomm-NXP deal has prompted notable reactions with NXP CEO confirming his view that“the China decision was absolutely political,”and prompting broad-based concerns that all China-related M&A is off the table for now.

The Banking Index rallies above Long-term resistance.

— BKX rallied above Long-term support/resistance a 107.00 to a Master Cycle high. The Cycles Model suggests the strength may last into next week, but should give way to a decline through the Head & Shoulders formation.

(Forbes)  As interest rates change, and even move to the left of the decimal point, you decide to act on savings and take out a CD at bank you’ve never used before.

You quickly get a Welcome note asking how the experience was, could it be improved, and then asking a few questions about any upcoming life events such as buying a home, retirement planning or if there might be a grandchild on the way.

“When a customer takes on a new product, we thank them right away,” said Paula Tomkins, CEO of ChannelNet which in March launched OneClick Financial, to provide the messaging for smart, personalized digital interaction with customers of banks and credit unions.

(CNBC) After months of speculation over the health of Italy’s banking sector, another Italian lender is in the spotlight after the European Central Bank (ECB) demanded Banca Carige to see new capital plans as it tries to overcome a management crisis.

The Genoa-based bank Banca Carige said on Sunday that the ECB has requested to see how the bank will meet minimum capital thresholds amid an ongoing management crisis. The ECB has also said that such capital plans can be submitted later, if the lender decides to merge with another institution. Banca Carige has lost its chairman and deputy chairman in recent weeks, alongside two board members, over disagreements with the bank’s chief executive.

This crisis adds up to the pile of problems in the Italian banking system, where crisis-legacy issues remain, with one of the biggest problems being a build-up of non-performing loans.

(Bloomberg)  Analysts are taking note of the struggles in China’s banking industry, which is being battered by an official deleveraging drive.

At least five smaller lenders have been downgraded by credit-rating companies this year, a record pace for the sector. Spikes in the volume of non-performing loans and an increase in loans overdue are among the reasons. One of the lenders — Guizhou-based Guiyang Rural Commercial Bank Co. — saw its bad debt balloon nearly tenfold in the space of two years, according to the assessor that slashed its rating.

China’s campaign to clean up its financial industry and crack down on a $10 trillion shadow-banking system is a double whammy for smaller lenders: it’s pushing up the costs for them to seek funding from each other, and makes their investments in opaque asset-management plans less secure. Recent regulatory moves to widen the definition of non-performing loans also added to the strain, forcing some banks to report more bad debt and a reduction in their capital-adequacy ratios.

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. 

This entry was posted in 2018, Weekend Update. Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *