Nobody Believes This Market

Can you believe this?  Despite the greatest market rally since 1987, investors were liquidating shares, non-stop for the past 12 weeks.

ZeroHedge explains, “For the past two months, we have been highlighting what emerged as one of the greatest paradoxes of this market in 2019: even as stocks kept grinding higher, having almost wiped out all their Q4 losses as recently as last week, investors were locked in non-stop liquidation mode, selling stocks and pulling money out of equity funds week after week after week, for 12 consecutive weeks since December.

We noted most recently this in “How Are Markets Higher: Buyers’ Strike Continues For 11th Straight Week“, “Buyers’ Strike Continues For 12th Straight Week“, “This Is Strange”: Despite Historic Rally, Investors Continue To Dump Equities“, and even though we identified the “buyer” in the form of a persistent short squeeze and another record wave of stock buybacks, the question remained: who would be proven right – the market, which had successfully risen above the critical 2,800 level (if only briefly), or investors whose boycott suggested that few had any trust in the biggest market rally to start the year since 1987.”

So the question remains, are investors ahead of the curve in a new bear market, or just scared silly by the swings in the market?  The answer may be written in future history books.

VIX put in a lower (Master Cycle) low at 13.38 on Monday, challenging Long-term support/resistance at 16.31. It made a 37% rally from its low to the high before settling back beneath it at the close. The Cycles Model shows VIX making more impressive gains next week.

(BloombergTV) VIX Traders Are Betting On The Upside

SPX reverses beneath Long-term support.

After nearly a month above Long-term suport at 2747.53, SPX declined and closed beneath it this week.  This puts it on a sell signal with a potential of retesting the December low.

(Bloomberg)  A $10 trillion global stock rally is showing signs of fragility, and you can blame the economy.

Both the American and European benchmarks posted their biggest weekly losses since the darkest days of December’s sell-off, with the S&P 500 dropping 2.2 percent. While the week ended with the European Central Bank’s dovish turn and President Donald Trump predicting a “very big spike” in U.S. markets once a trade deal with China is reached, stock declines were a sign that after a sharp two-month rally, risk appetite has weakened and the bar for positive surprises has been raised.

Reality is starting to bite. Riskier stocks are falling back to Earth. Investors are pulling money from equities and pouring it in bonds. And trend-following quantitative funds are cutting their U.S. equity positions.

NDX makes a key reversal.

NDX made a daily Key Reversal on Monday, then a weekly Key Reversal, closing beneath Long-term support at 7035.42 on Friday. It may now be on a sell signal. There is a potential Head & Shoulders formation beneath it that, if triggered, may erase up to 3 years of gains. Stay tuned!

(ZeroHedge)  Elizabeth Warren has finally found some common ground with President Trump.

In her latest soaring policy pronouncement, Elizabeth Warren on Friday is preparing to announce a new plan calling for the breakup of the biggest tech firms – with a focus on Alphabet, Facebook and Amazon – to combat their abusive practices and anti-competitive behavior. Her proposal comes as the Trump Administration takes its first tentative steps toward breaking up big tech with a new FTC task force. President Trump has repeatedly accused Amazon of being a monopoly and accused it of killing jobs and stifling competition.

According to the New York Times, Warren plans to officially announce the policy during a stump speech in Long Island City, the Queens neighborhood where Amazon had planned to open one of its HQ2s before pressure from local progressive politicians prompted the company to pull out.

High Yield Bond Index reverses.

The High Yield Bond Index also had a Key Reversal on Monday. However, the weekly decline following was not as deep as equities’. The potential Head & Shoulders formation appears to be still in play.

(Barron’s) High-yield bonds outperformed investment-grade debt in the first two months of this year—and are now so expensive that Martin Fridson, chief investment officer at Lehmann, Livian, Fridson Advisors, says that investors should shift their cash into higher-quality bonds.

The back story. After a steep selloff put a deep freeze on high-yield bond issuance at the end of last year, the market has rebounded. The high-yield bond market posted a 6.4% total return in the first two months of the year, and the iShares iBoxx $ High Yield…

Treasuries reverse after a fake-out breakout.

The 10-year Treasury Note Index made a fake-out move last week that was quickly reversed. It closed above mid-Cycle support at 122.50, putting it on a buy signal. The Cycles Model calls for a continuation of the rally with the Cycle Top as the target.

(Bloomberg) Bond-fund managers are starting to whisper about the prospect of more Federal Reserve quantitative easing to fight the next U.S. downturn, underscoring just how acute concerns over flagging global growth have become less than three months after the central bank last raised interest rates.

Gene Tannuzzo at Columbia Threadneedle says the likelihood the Fed resumes bond buying in 2020 is increasing as a rising tide of risks prompt monetary officials the world over to pivot toward more accommodative policy. Thomas Atteberry of First Pacific Advisors sees the next U.S. recession occurring in one to two years, and is positioning for the return of QE by moving into three- and four-year Treasuries, as well as mortgage pools with 10- to 15-year amortizations.

The Euro loses its perch…again.

The Euro gapped lower on Monday, losing its perch atop Intermediate-term resistance at 113.69.  Three separate attempts to ignite a momentum-based rally have failed.  There is a potential Head & Shoulders formation near 110.00 that suggests a downside target that may be attained in the next month.

(Reuters) – The euro tumbled on Thursday to its lowest against the dollar since June 2017 after the European Central Bank postponed the timing of its first post-crisis rate hike to 2020 at the earliest and launched a new round of cheap loans to banks.

The single currency suffered its worst day versus the greenback since the ECB previously delayed its rate-hike plan almost nine months ago.

The ECB’s decision to tweak its forward guidance on rates was a surprise for many investors. The central bank also cut its growth and inflation forecasts through 2021.

EuroStoxx also makes a Key Reversal.

The EuroStoxx rally abruptly ended on Wednesday, when it also made a Key Reversal.  It closed beneath both the major trendline and Long-term support/resistance at 3292.50.   The Cycles Model suggests Cyclical strength has peaked this week, with weakness to follow through the end of March.  An aggressive sell signal appears to have been made.

(CNBC) Stocks in Europe fell during Friday’s session amid poor U.S. data and as investors continued to digest news of further stimulus in the euro zone.

The pan-European Stoxx 600 was provisionally down 0.78 percent percent during Friday trade, with every sector but telecoms in the red. All major European bourses were in negative territory too.

Market sentiment was influenced by weaker-than-expected Chinese trade data. Chinese exports dropped 20.7 percent in February from a year ago, which has raised questions about broader economic growth in the region — a key element to global growth. Friday also saw disappointing data from the U.S., with numbers showing job growth almost stalled in February.

The Yen appears to have lost its last support.

The Yen appears to have made its Cycle low on Tuesday and it has risen to resistance since then.  However, while challenging Long-term resistance at 89.90, it closed beneath it.  Rising above Long-term support/resistance may give a powerful buy signal.

 

(Reuters) – The dollar slipped to an eight-day low against the yen on Friday as the region’s equities slid on the back of risk aversion in the broader markets.

The greenback fell more than 0.5 percent to 111.015 yen , its lowest since Feb. 28. The yen, a perceived safe haven, often attracts demand in times of political tensions and market turmoil.

Asian stocks retreated across the board on Friday after shockingly weak February export data from China heightened fears in a market already burdened by worries of a global economic slowdown following the European Central Bank’s dovish signals.

Nikkei has a Key Reversal.

The Nikkei made a daily Key Reversal on Monday and a weekly Key reversal as well, closing beneath Intermediate-term support/resistance at 21093.24. The Cycles Model remains negative through late March. The Nikkei is on a sell signal.

(YahooFinance) Japan’s Nikkei closed at a three-week low on Friday as downbeat views on European growth and poor China February export data sharply reduced risk appetites.

The Nikkei share average ended 2 percent down at 21,025.56, the lowest closing level since Feb. 15. It was the biggest one-day percentage fall since Feb. 8.

The index, which fell for a fourth day, declined 2.7 percent this week, the largest weekly drop since mid-December.

The broader Topix dropped 1.8 percent to 1,572.44. Declining issues outnumbered advancing ones 2,003 to 107.

U.S. Dollar rallies to a new high.

USD rallied to a new t high this week, retracing nearly 61% of the 2017 decline.  The Cycles Model suggests that the short-term strength may have passed and a reversal may be in order.  Once back beneath Intermediate-term support/resistance, it may develop a sell signal.

(Barron’s)  The U.S. dollar is rising—and it’s helping to drag down the stock market.

The U.S. dollar index had gained 0.4%, to 97.29, as of late Thursday morning. While that might not seem like much, in currency terms it’s huge. The move was driven by the European Central Bank, which announced plans to stimulate the European economy earlier Thursday.

Unlike stocks, currencies trade in pairs—one against the other—based on factors like interest-rate and growth differences between countries. As a result of Europe’s surprise decision to ease monetary policyEuropean bond yields have tumbled, and the extra yield an investor gets for buying a U.S. bond instead of a European one has gotten wider. That’s caused the euro to drop 0.7% against the dollar.

Gold bounces off Intermediate-term support.

Gold declined to Intermediate-term support at 1279.84 on Friday and bounced back to the rising trendline and short-term resistance at 1307.13, closing beneath them.  Today’s test of support resulted in an oversold bounce.  However, there may be another 2 weeks of decline ahead.  The Head & Shoulders formation matches targets with the already existent Broadening Wedge formation.

(Reuters) – Gold rose a percent to a one-week high on Friday, briefly breaching the pivotal $1,300-per-ounce ceiling, as weak U.S. payroll data dented the dollar and risk sentiment, while also exacerbating a gloomy global economic picture.

U.S. job growth almost stalled in February with the economy creating only 20,000 jobs amid a contraction in payrolls in construction and several other sectors.

Spot gold was up 1 percent at $1,298.66 per ounce as of 1:56 p.m. EST (1856 GMT), en route to a weekly gain of 0.4 percent. Prices on Thursday fell to $1,280.91, within striking distance of a more than five-week low touched earlier this week.

U.S. gold futures settled up 1 percent at $1,299.30.

Crude loses momentum.

Crude oil has been steadily losing momentum since its peak on March 1. It hasn’t gone above the mid-cycle resistance at 57.86 and the weekly trading range is decidedly lower.  The Cycles Model calls for a 1-2 week decline that may challenge the Cycle Bottom at 40.43.

(OilPrice) Crude oil and natural gas imports to China continued rising in February although they were off the all-time highs booked a few months ago, Reuters reports, citing customs data.

Crude oil imports stood at 39.22 million tons, or 10.23 million bpd, which was a 21.6-percent increase on the year and the fourth consecutive month of an import rate above 10 million tons. The hefty increase at the end of 2018 was a result of independent refiners’ rush to fill in their import quotas before the year’s end, but now imports have remained strong even at lower quotas that the Chinese Ministry of Commerce issued in January.

In natural gas, Chinese customs data showed the total intake, including LNG and pipeline shipments, stood at 7.55 million tons last month, which was down from January, when China imported 9.81 million tons of natural gas, but up on February 2018, by 8.8 percent.

Shanghai Index challenges, then reverses at mid-Cycle resistance.

The Shanghai Index made a 60% retracement while challenging the mid-Cycle resistance at 3062.31.  However, on Friday it gave back all of its gain and then some.  The Cycles Model now suggests a potential decline to new lows with the next Cycle Bottom approaching in late March.

(ZeroHedge) The question whether Beijing will tolerate another stock market bubble – one which it appeared to carefully cultivate until now – got an answer on Friday when Chinese stocks crashed, tumbling the most in five months. And it all started with a single sell rating. 

The Shanghai Composite tumbled 4.4% to close below the key 3,000 point level, ending an 8 week rally, with the Shenzhen Composite and Chinext all following.

The drop was catalyzed by a limit-down plunge in state-owned insurer People’s Insurance Company of China, which had become a poster child of the ramp-up in equities, and which saw its shares sink by the 10 percent daily limit, after state-owned brokerage Citic Securities advised clients to sell the shares, saying they are “significantly overvalued” and could decline more than 50% over the next year.

The Banking Index reverses at Long-term resistance.

— BKX tested Long-term resistance at 101.84 on Monday, but was rebuffed.  It then declined to Short-term support at 96.61, closing above it.  The Cycles Model suggests a probable decline over the next 3 weeks.  Should BKX decline beneath the neckline, the structure may become extremely bearish.

(TheEconomist) The money-laundering scandal that struck Danske Bank last year was staggering. The Danish lender’s Estonian branch is suspected of handling up to $230bn of iffy funds from former Soviet states. Aftershocks are rumbling under other European banks. Shares in Austria’s Raiffeisen Bank International tumbled by more than 12% on March 5th after a complaint was filed accusing it (and, to a lesser extent, other Austrian banks) of “gross negligence or acquiescence” in connection with suspicious flows from Danske. Raiffeisen says it is investigating.

Raiffeisen is just the latest bank to be suspected of channelling dirty money from Europe’s eastern fringes. Helsinki-based Nordea and Sweden’s Swedbank are among those embroiled in the Danske affair. Swedbank’s share price has shed 18% since it was linked to Danske last month (see chart). Some banks have been stained by a separate scheme, the “Troika Laundromat”. European banks caught up in such allegations have lost €20bn ($22.6bn) or so in stockmarket value in the past six months.

(ZeroHedge) Now that Cerberus Capital (which owns a large slug of Deutsche Bank shares) has joined the German Finance Ministry (a major shareholder in Commerzbank) in pushing for a merger between the two troubled German megabanks, the long-anticipated tie-up – a deal that would spawn a new German “national champion” to combat the creeping influence of JPM and other US investment banks – is looking increasingly likely.

According to reports in German newsmagazine Focus, which were cited by Reuters and Bloomberg, the CEOs of both banks, who once sounded apprehensive about the prospect of a merger, have resumed deal talks.

(ZeroHedge) As those who follow our monthly consumer credit updates already knew, aggregate household debt balances jumped in 4Q18 for the 18th consecutive quarter, and were $869 billion (6.9%) above the previous peak (3Q08) of $12.68 trillion. As of late December, total household indebtedness was at a staggering $13.54 trillion, $32 billion higher than 3Q18. Overall household debt is now 21.4% above the 2Q 2013 trough, according to quarterly data from the Fed.

“The increase in credit card balances is consistent with seasonal patterns but marks the first time credit card balances re-touched the 2008 nominal peak,” according to the report.

There are approximately 480 million credit cards in US circulation, that is 1.47 credit cards per citizen, and up more than 100 million since the 2008 financial crisis.

(ZeroHedge) Some of the biggest banks in the United States are quietly closing branches in low income areas, and nobody more so than the people’s JP Morgan.

As one example, JP Morgan is shutting it outlet in Aberdeen, Washington, where it has just one branch. And now that the bank is going to be leaving the town, the closest Chase branch is going to be 40 miles away. This is part of a broader move that banks are making, as they shift their attention in the age of online banking to wealthier areas, according to a new Bloomberg article.

As this branch closes, JP Morgan is planning on opening 70 branches in the vicinity of Washington DC. Places like McLean Virginia, the 25th richest town in the US, will be getting a branch. This comes amidst a larger move from banks to shrink their vast branch networks, cutting back in “relatively poor neighborhoods”. As online banking spreads, major banks have still claimed that serving all of their customers at branch locations is important, regardless of income – a requirement of the Community Reinvestment Act.

All the best!

Tony

 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 2019, Weekend Update. Bookmark the permalink.

Leave a Reply

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