June 29, 2018
VIX remains above its vital supports at 14.36 and on a buy signal. We must accept drawdowns in this type of market (in fact, any type). The question is, where do you draw the line the sand.
The NYSE Hi-Lo Index has remained beneath its 50-day Moving Average at 31.67 with a backup control at the mid-Cycle resistance at 50.95. It remains on a sell signal, which gives us some confidence to sell the rally.
SPX has rallied to challenge mid-Cycle resistance at 2742.6 and has since eased down. There is no reversal pattern yet, so we cannot conclude that the rally is finished, other than it had achieved its target, on time I might add. NDX has also achieved its mid-Cycle target and has eased down. For those who wish to “sell the bounce,” this is about as good as it gets. Se my comments on the VIX above.
Window dressing day.
SPX futures went as high as 2737.00 (~2732.00 cash) this morning before pulling back. There is still a probability of the retracement rally probing the mid-Cycle resistance at 2742.03, which is an approximate 50% retracement of the decline. Thus far this quarter has seen nearly a 3% gain in the SPX and today would be an important window dressing day.
Wave [i] of 1 would be considered a Leading Diagonal, while Waves [iii] and [v] appear to be impulsive. There is a cluster of Cycle Pivots starting today and going through the weekend. The first Cycle Pivot occurs around 1:00 pm today.
ZeroHedge reports, “On the last day of a volatile, tumultuous quarter European stocks rebounded sharply following a broad-based rally in Asia on hopes for an upbeat end to the week and quarter, with risk on sentiment further unleashed by an early morning (“vaguely worded”) European deal on migration which sent the Euro and 10Y Italian bonds surging. Indeed, it was nothing but green across global markets this morning:
However, the sense of precarious peace was shattered shortly after 6am ET when Axios reported that after several days of calm, President Trump has repeatedly told his advisers he seeks to withdraw the US from the WTO – a decision that would “throw global trade into wild disarray.”
NDX futures went as high as 7113.25, exceeding the mid-Cycle resistance at 7074.40. It did not quite reach the top of Wave [iv] of 1 at 7128.77, leaving an irregular correction, should that be the final print. We’ll see just how resilient the equities markets are today.
You may wish to read Bloomberg’s “Pulling Billions Out of Equities Is the New Thing: Taking Stock”
VIX futures are pulling back toward mid-Cycle support, but may have already bottomed.
Bloomberg observes, “It’s summer. But in the Florida offices of Raymond James & Associates and at brokerages around the U.S., February is still in the air.
Repercussions from that month’s rout won’t go away — not in chats with clients, not in the market itself. Gone are the days when you could buy an exchange-traded fund tracking the S&P 500 and turn off the ringer. Look away for five minutes, and some customer is on the phone demanding to know what the latest swerve did to his portfolio.
“It’s not an investor’s market anymore. It’s a trader’s market,” said Andrew Adams, 32, an equity strategist for Raymond James in St. Petersburg. “There’s definitely much more hand-holding. I do a lot more talking than before.”
USD futures appear to be pulling back from its new retracement high at 95.25 yesterday. Yesterday was also day 258 in the current Master Cycle. It appears that USD may have made its time target but not price, so far. But it hasn’t pulled back enough to consider it a reversal, so let’s give it some time to see if it makes the final probe to the Cycle Top at 95.92.
Bloomberg comments, “For steadfast dollar bears, a two-month uptick in the currency does not a trend make.
Despite a 5.8 percent advance since March for Intercontinental Exchange Inc.’s U.S. Dollar Index, long-term outlooks are trending downward once again, indicating many strategists aren’t buying the greenback’s recent rally. In fact, forecasts compiled by Bloomberg suggest the U.S. currency is set to decline by 11 percent through the end of 2019.”
TNX appears to be flat this morning after trading in a narrow range overnight. This may be the final day of strength for TNX, which is in a high correlation with the USD. This suggests both may turn down today, taking equities with them. The Master Cycle low in TNX is due the week of July 23.
Crude oil futures have eased back from yesterday’s high, which appears to have been an inverted Master Cycle high. The June 18 low was a few days early, while yesterday’s high was 7 days late. Of the two, the inversion makes more sense. This was a difficult call, since it appeared that the decline had begun already. However, the market is always right.
June 28, 2018
A lower neckline and target.
(Update) The decline to 2691.99 took exactly 10.75 days. It appears that we have a new Minor Wave 1 and a lower neckline due to the rebound to the 50-day Moving Average at 2716.75 making Wave [iv]. The Wave 2 retracement may take the SPX as high as Intermediate-term resistance at 2741.23 but don’t be surprised if it falls short. The Head & Shoulders target is only 23 points from “point 6,” so that may be the target for Intermediate Wave (1).
SPX futures challenge the 50-day Moving Average and fail.
SPX futures attempted a rally, challenging the 50-day Moving Average, but couldn’t break through. They have since slipped beneath the Head & Shoulders neckline and most likely have triggered that formation. That should send the SPX beneath the 200-day Moving Average at 2666.78 and possibly beneath the lower trendline of the Broadening Wedge formation at 2625.00.
ZeroHedge reports, “US equity markets are looking to undo yesterday’s bearish reversal, with index futures higher this morning, reversing the trend from earlier markets where Asian stocks flirted with a 9 month low and Europe was mixed.”
NDX futures have also slipped beneath its Head & Shoulders neckline. A more likely target may be at 6322.60, the origin of the Ending Diagonal.
VIX futures had early morning losses, but is staging a comeback.
Bloomberg reports, “Options bets on stocks and exchange-traded funds are piling up around key deadlines in President Donald Trump’s trade crusade and at least one strategist doesn’t think it’s a coincidence.
Six of the 11 most-active contracts on the U.S. exchanges Tuesday had a June 29 expiration. That’s a day before the Treasury Department is scheduled to propose restrictions on Chinese investments in the U.S. It’s also the last session before Congress can block renewal of a measure known as the trade-promotion authority, which provides for a yes-or-no vote by lawmakers on trade deals.”
TNX appears to be stalled at mid-Cycle support at 28.26. Should a breakthrough happen, the Head & Shoulders neckline may be the next target. TNX has about three weeks until its next Master Cycle low, which may simultaneously conform to an UST high. One fly in the ointment is the $30 billion of US treasuries that need refinancing on or around June 30.
ZeroHedge comments, “It’s that time again. At the end of this month, the Federal Reserve has over $30 billion of notes maturing. I won’t rehash what this might mean for the market, rather for those not familiar, I ask you to go read Pink Tickets On QT Days.”
USD futures appear to be consolidating. My best analysis suggests there may be a final run-up to the Cycle Top resistance at 95.89 in the next few days. Another inverted Master Cycle high is due.
Gold futures reached a new low at 1249.80 this morning, testing the Cycle Bottom before pulling back. This may be the final low since it is overdue for a Master Cycle low. The subsequent rally may be Wave [c] of 2. The likely target may be the mid-Cycle resistance at 1306.22.
June 27, 2018
Pressing on the neckline…
SPX is pressing toward the Head & Shoulders neckline 2700.00. Once through, it may have the year-old Broadening Wedge trendline in its sight at 2600.00.
NDX is also pressing toward its neckline. These are the ultimate sell signals, since they give concise targets. You will notice however, that they are minimum targets, since other chart formations may have more influence. For example, the Ending Diagonal formation has a target of 63.22.60.
Stocks are flat, but DB slides to new lows.
SPX futures spent most of the morning beneath the 50-day Moving Average, but at 7:45 ramped back above it.
ZeroHedge reports, “Confirming yesterday’s report that Trump was ready to offer China an “olive branch” following the sharp market drop following reports that the US would crack down on Chinese investment, moments ago Trump administration officials said that the White House would push Congress to strengthen the CFIUS inter-agency panel that it will employ as its main tool to curb Chinese investments in sensitive U.S. technologies.”
NDX futures have the same reaction, possibly stronger, due to the involvement in technology stocks. However, the index remains negative as I write.
ZeroHedge observes, “Trade fears have returned with a twist, as global market weakness has spread to European banks while safe havens including the yen and sovereign bonds are broadly higher amid renewed risk-off sentiment.
Once again, it started in China where the Shanghai Composite slumped for another session, dropping 1.1%, and falling deeper into a bear market.
The weakness was prompted by a renewed decline in the “weaponized” Yuan, which fell for a 10th consecutive day, matching a record losing stretch, and prompting questions whether Beijing is seeking to retaliate to Trump’s protectionism with another round of devaluation.”
The Shanghai Composite has made a new low this morning after crossing the neckline of the Head & Shoulders formation. I currently have the Master Cycle low at an early May 30. Should a bottom be found in the next day or two, we may consider it to be a possible MC low. However, time is running out, which means that the next significant low may not occur until the end of July.
VIX futures are flat this morning, after being higher in the overnight session. It remains on a buy signal.
The NYSE Hi-Lo Index closed beneath its 50-day Moving Average for a second day, maintaining its sell signal. Should it continue its decline, it may not find another Master Cycle low until the end of July.
TNX is heading lower, approaching the mid-Cycle support at 28.23. There appears to be a new Head & Shoulders formation that appears to attract TNX to its neckline over the next few days. The Cycles Model appears to suggest either a bounce at the neckline may occur by the weekend or it may fall through it.
The probability of a bounce may occur should China sell its treasuries. ZeroHedge reports, “The ‘weaponized’ yuan continues its collapse – back above 6.6 per USD for the first time since December and down 6% from the March highs.
The last time the yuan devalued this fast, it unleashed hell on the world’s financial markets
Chinese stocks are fading at the open after yesterday’s bounce in Shenzhen and CHINEXT (tech-heavy) indices…
And this comes shortly after Bloomberg reports that, according to a macro-research firm SGH Macro Advisors, China is girding for a full-scale trade war, and U.S. Treasuries may not be immune to the skirmish.”
USD futures bounced off Intermediate-term support at 93.78 and appears to be heading toward the Cycle Top at 95.86.
Bloomberg reports, “U.S. President Donald Trump has said that “trade wars are good, and easy to win.” In the $5.1-trillion-a-day foreign-exchange market though, it’s not so obvious that America’s currency will triumph over its peers.
The dollar has risen about 6 percent from the three-year low it touched in February as investors ponder the impact of protectionism, and has remained buoyant amid the recent escalation in trade tension. But that rebound came after a slide of about 10 percent over the preceding 12 months, and analysts are divided over the strength of the greenback’s rally and the long-term effects of the tariffs spat.”
Crude oil futures may be winding down their retracement rally this morning. Thus far it has made an 84% retracement. This is a bit excessive, but not unusual for a Wave 2 retracement. The best time to short commodities is at the top of Wave 2 for that reason. The confirmation is at the decline beneath the Diagonal trendline near 70.00.
Deutsche bank is back in the news as it plunges to new all-time lows. The Cup with Handle target is a likely minimum with a potential as low as 8.38, should the decline continue through the end of July as indicated in BKX.
ZeroHedge reports, “Global systemic fears re-emerged this morning, when in addition to ongoing concerns about trade wars which dragged Chinese stocks deeper into a bear market as the Yuan fell for a 10th consecutive day, now there are European banks to also worry about.
Having been relatively stable for much of the recent slide, on Wednesday morning, Deutsche Bank came under heavy selling pressure, tumbling 5% shortly after the start of trading, and dropping to a new all time low of €8.76, and bringing its market cap to just $21BN. By comparison, JPMorgan’s market cap is $357BN.”
June 26, 2018
US Banks are down 12 days in a row…
BKX has declined beneath the neckline of its Head & Shoulders formation. The index (BKX) has had three mild up days in the past 12, but XLF hasn’t been as lucky.
ZeroHedge comments, “‘Stress Tests would be the catalyst’, they said… and now ‘CCAR will be the catalyst’, but US financials ETF (XLF) is now down 12 days in a row – by far the longest losing streak in its 20 year history…
Equities may be consolidating…
SPX challenged the 50-day Moving Average yesterday, closing above it. The SPX futures are modestly down this morning without breaking new lows, indicating a possible correction to the decline in progress. The Cycles Model suggests the first Wave of the decline may find a low on July 2.
ZeroHedge reports, “If the global trade war was merely a race between the US and China whose stock market will slide into a bear market first, then Trump could take a victory lap today.
Also, if it was Peter Navarro’s intention to halt the market selloff with his last hour appearance on CNBC on Monday, in which he toned down investor concerns by saying that the US restrictions on foreign investment won’t be as sweeping as markets are anticipating, he succeeded, and this morning calm has returned to European markets which suffered their biggest one-day drop since the start of March, while US equity futures halted their slump and were stable in another relatively quiet session, trading fractionally in the red one day after the Dow Jones slid below its 200DMA for only the first time since June 2016, while Treasuries were flat even as the dollar regained all of yesterday losses after four days of declines.”
NDX futures are mildly higher this morning. This suggests a consolidation may be in progress. The Cycles Model also suggests a July 2 low may complete an impulse in NDX.
VIX futures are positive, suggesting a heightened concern about the direction of the SPX. It appears that Wave 1 of (3) may finish near the Cycle Top at 24.12.
TNX futures are lower, challenging the trendline. They may decline to the mid-Cycle support at 28.17. However, the Cycles Model is quite positive for the rest of the week.
USD futures appear to have bounced from Intermediate-term support, as suggested. We may see a new high by the end of the week. he probabilities are high that the Cycle Top at 95.84 may be challenged, completing the target for point 7.
June 25, 2018
A Panic Decline may develop…
After a brief consolidation, SPX is now beneath the 50-day Moving Average at 2715.44. That increases the probability that the next target may very well be the 200-day Moving Average at 2664.35. This could easily turn into a panic situation.
ZeroHedge observes, “Increasingly more trading professionals are becoming worried about some “terminal” event in market liquidity, one which sees stocks breaking lower and failing to snap back.
One week ago, we quoted Goldman’s co-head of trading, Brian Levine, the man responsible not for some weekly research periodical but running arguably the most sophisticated trading floor in the world, said that his biggest concern is that the market may “break” and not snap back:
… in a situation with actual bad news, the current US market structure may not be able to handle it, and there could be a downward spiral.
Now, the head of Global FX Strategy at Nomura, Bilal Hafeez, picks up where Goldman left off and in a note titled “the market risk no one is talking about, but should have everyone worried“, confirms that the biggest threat facing the market is the market itself.
VIX just broke above its May 29 high, cementing the bullish argument for the VIX. It could go considerably higher as the Commitment of Traders indicates (as of 6-18-2018) Large Speculators have -57,550 short contracts and Small Speculators own -8,729 Short contracts,, the largest such holdings since February 5. This is in line with my June 16 statement that, ” The Cycles Model calls for exceptional strength in the VIX over the next two weeks, especially through the week of June 25.”
ZeroHedge comments, “VIX is spiking this morning, back above 16 for the first time since May…
and inverting the term structure…
For the first time since April…
This surge is coming right after Large Specs have rebuilt the largest net short vol position since the Feb XIV collapse.
Is the next short-vol-squeeze coming?
FAANG Free-Fall continues.
NDX appears to be bearing the brunt of the change in attitude on the market that was called a “safe haven” is now a trap for the unwary.
ZeroHedge comments, “‘Safe-haven’ FANG stocks are getting slammed this morning, extending Friday’s losses as China trade war rhetoric tamps down the market’s enthusiasm for piling money into no-brainer extreme multiple stocks…
This is the biggest drop in FANG stocks in almost 3 months…
Sell signals are being confirmed.
NYHL is negative again this morning. From the looks of it, we may more down side action this morning in the Hi-Lo.
VIX gapped through all resistance levels, confirming its buy signal.
ZeroHedge observes, “VIX has spiked above 16 for the first since since May as trade war concerns spark derisking across global stocks. While The Dow sank red for 2018 last week, Transports just joined them…
And with Dow Futs down almost 300, VIX is back above 16…
The highest VIX since May…
SPX gapped through the mid-Cycle support and appears to be heading for the 50-day Moving Average.
ZeroHedge observes, “Whether it is Trump’s trade threats (and potential Yuan ‘weaponization’), Fed tightening, or global synchronous economic slowing, there are plenty of reasons to be less sanguine than the always-sunny Nasdaq portends (hey, just look at the Dow) but that is not why former fund manager Richard Breslow thinks “markets look really ugly this morning.”
It’s not about equities being down or yen up, as Breslow notes, it’s the dearth of liquidity!
The next support level is being challenged.
SPX futures have been down as many as 20 points in early trading, challenging the mid-Cycle support at 2741.33. A break beneath that level opens up the 50-day Moving Average at 2714.41 for the next challenge.
ZeroHedge reports,” Global stocks are diving in what has been a generally quiet session, amid renewed trade war fears following reports that the Treasury Department is planning to heighten scrutiny of Chinese investments in sensitive U.S. industries under an emergency law, putting Washington’s trade war with Beijing on what Bloomberg dubbed a “potentially irreversible course”, while at the same time Trump threatened “more than reciprocity” to trade barriers.
According to overnight news reports, the US Treasury is devising rules to block firms with 25% Chinese ownership from acquiring companies involved in industrially significant technologies and that it plans using International Emergency Economic Powers Act 1977 to impose investment restrictions. “This one could well result in an escalating trade war,” Lee Ferridge, a macro strategist at State Street Corp., told Bloomberg TV in Hong Kong. “Volatility is going to continue to rise from here.”
NDX futures have declined beneath Short-term support at 7181.89 after challenging it on Friday. The next support is the mid-Cycle support at 7059.27, then the 50-day Moving Average at 6923.57.
VIX futures challenged Thursday’s high at 15.18 this morning. An open at or above that level would confirm the buy signal in VIX.
Bloomberg observes, “As U.S. stocks enter a more tranquil era, currency markets are looking jittery.
The asset class that directly influences the terms of global trade is restive on the heels of protectionism, monetary tightening and fissures in the synchronized growth story.
The JPMorgan Global FX Volatility Index is higher on the week — heading to its second consecutive monthly gain — while gauges in interest-rate and equity markets are relatively subdued.”
TNX still appears to be held by the trendline near 28.50. The Cycles Model suggests a potential week of strength that may challenge the Cycle Top (completing Wave 5?). I will re-label the Waves as the intent becomes clear.
Bloomberg observes, “Investors have seen the peak of the U.S. 10-year Treasury yield this year as brewing trade tensions and a stronger dollar curb its advance, according to Morgan Stanley.
“3.12 percent was it,” Morgan Stanley global head of interest-rate strategy Matthew Hornbach wrote in a note to clients Friday. “We suggest investors buy 10-year Treasury notes outright,” he said, with the 2.9 percent level used in his trade recommendation.
Morgan Stanley’s bullish call clashes with other financial titans who reckon the benchmark yield may climb higher as rising inflation and U.S. interest rates prompt investors to sell American debt. JPMorgan Chase & Co.’s Jamie Dimon and Franklin Templeton’s Michael Hasenstab have suggested yields are headed toward 4 percent, while Pacific Investment Management Co. is targeting a 3 percent to 3.5 percent range for the rest of the year.”
USD futures have challenged the 93-handle this morning as it eases down to test Intermediate-term support at 93.70. The Cycles Model suggests that the USD may regain its strength later in the week to make an inverted Master Cycle high. It may hit the Orthodox Broadening Top “point 7” after all.
The Shanghai Index May have made its Master Cycle low on Friday. This morning’s activity appears to be a consolidation leading to a bounce. The Cycles Model shows no strength in the 2-3 week period that usually follows a Master Cycle low. This suggests either the bounce may be short in duration and strength or the MC bottom may extend further. My personal view is that the Master Cycle low may arrive later in the week.
June 21, 2018
NDX may have declined beneath the lower trendline of its Ending Diagonal formation near 7250.00. This action gives the sell signal for the NDX. Good luck and good trading!
SPX is less than 2 pots away from punching beneath Tuesday’s lo 2743.19. Should that happen, the Wave pattern to the upside is finished. This also confirms the sell signal.
The NYSE Hi-Lo Index appears to be nearing its close beneath the mid-Cycle resistance at 59.10 and the Diagonal trendline at the same time. This would also confirm a sell signal for the Hi-Lo.
VIX is now elevated above its 50-day Moving Average at 14.54 which puts it on a confirmed sell signal.
Earlier today ZeroHedge wrote, “Something’s different today…
Instead of the ubiquitous panic-bid open (after overnight weakness)…
…that is not happening today…
And VIX is running notably back above 14.00…
As a reminder, should the Dow closed red today, this would be the 8th losing day in a row – a streak that hasn’t been beaten since 1978.
SPX bouncing off trendline support in the Pre-market.
SPX futures have been bouncing along the two trendlines near 2760.00 this morning. Should the break down, we may see a decline to the 50-day Moving Average at 2710.37. However, the Cycles Model is unclear about near-term direction. We should be open to the possibility of another probe of the Cycle Top. Depending on the strength of the potential move, we may see a challenge of the March 13 high.
ZeroHedge reports, “It started off well enough, with S&P futures in the green and the Nasdaq set for another all time high after trade war concerns eased further after Commerce Secretary Wilbur Ross told the Senate neither the U.S. nor China want a trade war, while President Donald Trump said he expects to announce new trade deals with unspecified countries soon.
However, it did not last long, and the risk-off move across asset classes started as soon as Europe opened for traders, and accelerated after the appointment of two prominent euroskeptics to Italian parliamentary positions, sending global markets in the red.”
NDX made a new all-time high on the strength of the FAANG stocks. There is room for another probe higher to finish off the EW pattern.
Lance Roberts writes, “With roughly 98% of the S&P 500 having reported earnings, as of mid-June, we can take a closer look at the results through the 1st quarter of the year. During the most recent reported period, 12-month operating earnings per share rose from $33.85 per share in Q4-2017 to $36.43 which translates into a quarterly increase of 7.62%. While operating earnings are widely discussed by analysts and the general media; there are many problems with the way in which these earnings are derived due to one-time charges, inclusion/exclusion of material events, and outright manipulation to “beat earnings.”
Therefore, from a historical valuation perspective, reported earnings are much more relevant in determining market over/undervaluation levels. It is from this perspective the news improved markedly as 12-month reported earnings per share rose from $26.96 in Q4-2017 to $32.81, or a whopping 21.7% in Q1. This jump, of course, is directly related to the reduction in corporate tax rates following the passage of the “tax reform” bill in December of 2017.
However, as shown below, top-line revenue growth (sales) has also improved since the market bottom in early 2016. The issue is that while sales are indeed rising, the price investors are paying for each dollar of sales has grown exponentially since 2009. In other words, it is already well “priced in.”
VIX futures are running higher this morning, supporting the bearish analysis. It has not crossed above either of the resistance area, however.
The Commitment of Traders reports that the Commercials have increased their long position in the VIX from 40,538,000 long contracts to 57,117 this week. It appears that they are in an accumulation phase.
TNX appears to be supported at the trendline at 29.09 thus far this morning. A breakdown would suggest an increased money flow into Treasuries.
USD futures reached an overnight high of 95.22 before reversing back down. There is a good probability of a Cycle Inversion that may take the USD to its daily Cycle Top at 95.78. A decline beneath Intermediate-term support at 93.59 may have us reassess the outlook.
June 19, 2018
VIX sailed past the mid-Cycle resistance at 14.13 and challenged the 50-day Moving Average at 14.60. It is on a buy signal that is confirmed at a close above the 50-day Moving Average.
The NYSE Hi-Lo Index made a third new low at the open today. The key for a confirmed sell signal is to close beneath the 50-day Moving Average and Diagonal trendline at 36.85. It appears that the algos are in neutral, since the usual response the last couple of days was to start buying at the low, thereby ramping up the Hi-Lo.
Stocks gap down. Signals may be triggered.
The lead index to watch this morning is the Shanghai Index. It probed down nearly 5% before closing at a 3.78% loss.
Bloomberg reports, “In a stock market where investors are used to being disappointed, Tuesday’s plunge still shocked.
China’s benchmark equity gauge sank almost 5 percent at one point and by the close, the escalating tensions with the U.S. had sent 1,023 stocks down by the daily 10 percent limit — or more than one in four. Greasing the losses was the Shanghai Composite Index’s slide below 3,000, a level previously breached during market crashes in 2015 and 2016.
With Washington and Beijing threatening tit-for-tat moves over import tariffs, investors are worried a trade war will act as a brake on China’s economy and hollow out an already deflating equity market.”
It appears that SPX futures have declined beneath both Short-term support at 2751.44 and the 2-month Ending Diagonal trendline. It is likely that we will get sell signals from this move. Where I gave aggressive sell signals last week, suggesting partial short positions, this means we should be 100% short with the trendline, the VIX and Hi-Lo in agreement.
ZeroHedge reports, “The headline news that dominate markets today are not that different from yesterday, especially since it is really just one: the escalating trade war between the US and China. Only unlike yesterday, when futures were modestly lower and levitated higher all day, with the Nasdaq closing in the green and the S&P barely lower, today’s tripling down by the Trump administration, which has now threatened to re-double down and set 10% tariffs on up to $200BN in Chinese imports has finally spooked US equity futures and global markets, with the Dow futures down 340 points this morning, and global markets a sea of red, while safe havens such as the dollar and US Treasurys are sharply bid.”
NDX futures have given us a double Ending Diagonal trendline break, our first sell signal. The NASDAQ Hi-Lo Index has not yet gone into negative territory, although a lot of NDX stocks are beneath their 200-day Moving Average already, with only 10 stocks holding up the entire index.
ZeroHedge comments, “If you watch the mainstream business media frequently enough during the day, you will be reminded, almost incessantly, that ‘stocks’ are at record highs, Amazon and Apple are fighting it out in the trillion-dollar-market-cap chase, and Netflix calls are safer than Treasuries.
Trade wars are shrugged off, slumping economic data is ignored, and the flaccidity of the broadest stock market measures is brushed off because only ‘losers’ don’t buy the biggest, momo-est, rich-est stocks because they’re a no-brainer.”
VIX futures gapped up to 14.20 this morning, giving it the buy signal we have been looking for. A rally above the 50-day Moving Average may confirm that signal.
We will be looking for a serious breakdown in the NYSE Hi-Lo Index after the open. When that happens we will have a trifecta of signals to confirm our short positions.
TNX gapped beneath its trendline after a series of challenges. This also is confirmation that money flows have switched from stocks to bonds.
The six-month T-bill auction had a rough go of it yesterday. The reason is that the outlook for interest rates in an economic slowdown favor longer-term notes and bonds.
ZeroHedge comments, “While demand for US Treasurys remains brisk at primary auctions (if more questionable in the secondary market where we recently learned that Russia dumped half of its Treasury holdings, or almost $50BN, in April), the same can hardly be said for the short-end of the market, where moments ago we saw what happens to auction demand in a time of rapidly rising rates.
As shown in the chart below, while the yield on 6 Month Bills auctioned off today came in largely as expected at 2.075%, the demand did not, and after a solid Bid to Cover of 3.59 last week, today’s 6M auction suffered one of its biggest drops on record, tumbling to just 2.78, with $116.9BN in bids tendered for $42BN in paper, down sharply from $150.6BN on June 11. This was the second lowest Bid To Cover this decade, and only better than the 2.74 BTC printed on the February 12, 2018 auction.”
Gold futures dropped even more this morning as the Master Cycle gets extended another week. It is possible that the current Master Cycle may not end (bottom) until July 3.
(Reuters) – Gold on Monday held close to 5-1/2-month lows, with a strong dollar offsetting the
upward influence of an escalating trade dispute between the United States and China.
Spot gold prices were hemmed in a tight trading range after Friday’s selloff because of competing pressure and support on Monday, forcing investors to reassess their positions, said
Phillip Streible, senior commodities strategist at RJO Futures. “We saw such an excessive washout on Friday. Speculators are reassessing their positions and consolidating for about 48 hours until we get news to wash the market,” Streible said.
More after the open.
June 18, 2018
Stocks are gapping down again. This time they may not be able to recover.
SPX futures appear to challenge the upper trendline of the Orthodox Broadening Top near 2760.00 as well as testing Short-term support a 2748.43. ow the market opens is very important. A gap beneath those two levels and possibly the Diagonal trendline may do irreparable harm to the bullish arguments.
ZeroHedge reports, “Global stocks and US index futures are a sea of red this morning amid growing concerns over the escalating trade war between China and the U.S., which on Friday launched tit-for-tat $50BN in tariffs, coupled with the growing risk that Merkel’s government is on the edge of collapse.
As Bloomberg notes, it’s pretty risk-off this morning no matter where you look: it’s blow for blow in the U.S.-China trade spat sending European and Asian stocks sharply lower, metals have been melting, EM currencies remain under pressure with Argentina’s peso sinking further.”
NDX futures appear to be testing the lower Diagonal trendline of the rising Wedge formation. Should it break through, there is little doubt that it may continue at least to Short-term support at 7093.69, if not further.
ZeroHedge observes, “Several weeks ago, Goldman’s Chief Markets Economist Charlie Himmelberg became the latest Wall Street strategist to admit the threat to the market posed by HFT. Picking up on our original warning from April 2009, the Goldman strategist warned that HFTs – due to their inability to process nuanced fundamental information – may trigger surprisingly large drops in liquidity that exacerbate price declines, and result in flash crashes.
Himmelberg highlighted the growing market share of HFT and algorithmic trading across all markets, and warned that the growing lack of traditional, human market-makers has made the market increasingly fragile”
VIX futures appear to have broken out above Friday’s high. There is no signal from VIX, but a rally above mid-Cycle resistance at 14.09 may give a buy signal for the VIX. The VIX continues making a base at the two-year trendline and the Master Cycle low was put in on June 7. The Cycles Model calls for exceptional strength in the VIX over the next two weeks, especially through the week of June 25.
TNX appears to have made it beneath its trendline at 29.08. Should the decline continue, it appears that TNX may be a candidate for a flash crash, especially during the week of June 25.
ZeroHedge comments, “At the beginning of April, JPMorgan’s Nikolaos Panigirtzoglou pointed out something unexpected: in a time when everyone was stressing out over the upcoming inversion in the Treasury yield curve, the JPM analyst showed that the forward curve for the 1-month US OIS rate,a proxy for the Fed policy rate, had already inverted after the two-year forward point. In other words, while cash instruments had yet to officially invert, the market had already priced this move in.
One way of visualizing this inversion was by charting the front end between the 2-year and 3-year forward points of the 1-month OIS. Here, as JPM showed two months ago, a curve inversion had arisen for the first time during the first week of January, but it only lasted for two days at the time and the curve re-steepened significantly in the beginning of April.”
June 15, 2018
SPX may be setting up for a panic decline starting as early as this afternoon. The pattern we see here closely follows the Orthodox Broadening Top on a smaller (10-minute) scale. If so the SPX may be in for a 25-30% decline in a matter of days. This also completes a reversal pattern off the top…and a possible aggressive sell signal.
ZeroHedge wonders what it’s all about, “Presented with little to no comment…
US equity markets just went vertical (this is performance from the first China trade tariffs headlines)…
Which melted the S&P up to unchanged on the week…
VIX is charging for an 11 handle and The Dow ramps 200 points on nothing…
The Hi-Lo issues a sell signal.
The NYSE Hi-Lo Index declined beneath both the Diagonal trendline and the 50-day Moving Average this morning. The Cycles Model indicates that the Hi-Lo is due for a Master Cycle low in the next week or so. Since this decline is also a third Wave, it has the potential of being very deep. I will update you as the decline progresses. Is a panic developing? The potential is there.
Stock futures are lower. Bonds are higher.
SPX futures are lower on Quad-Witching day (Options Expiration), testing yesterday’s low in the overnight session. The action appears to be an impulse, suggesting a possible continuation after the open.
ZeroHedge reports, “With the US set to finally launch trade war with China, when Trump today announces some $50BN in tariffs on up to 900 Chinese products, the Trump administration is already preparing for the inevitable in-kind retaliation by Beijing with Reuters reporting early on Friday morning that the US has nearly completed a second list of tariffs on $100 billion in Chinese goods.
The second wave of tariffs is part of Trump’s decision to go forward with “pretty significant” tariffs, an administration official said on Thursday.
Like with the first round of tariffs, so the $100 billion expansion will be subject to the same public comment and hearing process as the $50 billion list, so it will take at least 60 days or more to put into effect. According to Reuters sources, the list is intended to minimize the impact on U.S. consumers and businesses by selecting goods where there are ample alternative supplies from other countries.”
NDX futures turned lower after challenging yesterday’s high of 7291.31 (cash market). The September futures contract is nearly 30 points higher than the cash, accounting for the difference that you see between them.
Bloomberg reports, “Clinging to their own version of “America First,” global investors are tilting further away from European and Asian assets.
Fresh money poured into U.S. equity and bond funds during the week ended June 13, extending the longest net inflow streak for the country’s stocks “since the aftermath of President Donald Trump’s election victory” in 2016, according to a report from EPFR Global. The findings strike a similar note as Bank of America Merrill Lynch’s June survey, which showed fund managers overweight U.S. stocks for the first time in 15 months.”
VIX futures are modestly higher, but not challenging any new highs.
Investors are discovering fresh ways to bet volatility across asset classes will tumble anew even as hawkish monetary policy, emerging-market turmoil and February’s vol-mageddon underscore headwinds to the complex trade.
Hedge funds hold the most number of short positions on the Cboe Volatility Index since late January. And they’re now punting on a slew of hot derivatives trades across global equity and debt markets.”
USD futures appear to be challenging the May 29 high. There appears to be a 37 tick difference between the cash and futures market at yesterday’s close, so the overnight ramp to 95.15 does not appear to have made a new high in the cash market. But we may prepare ourselves for that possibility. I have changed the chart to allow for that possibility. Point 6 may still be in the works by the end of June.
TNX appears to be challenging its trendline at 29.10 this morning. A breakthrough may send more cash into Treasuries. If so, the huge Treasury short positions held by the Speculators may be in jeopardy.
CNBC reports, “U.S. government debt prices rose on the final trading day of the week, as investors monitored political developments and digested major announcements from the European Central Bank in the previous session.
The yield on the benchmark 10-year Treasury note was lower at around 2.932 percent at 7:36 a.m. ET, while the yield on the 30-year Treasury bond was in the red at 3.054 percent. Bond yields move inversely to prices.”
June 14, 2018
…and the Euro plunges.
Yesterday I commented, “The Euro appears to have been stopped at Intermediate-term resistance at 118.30. The period of strength may have passed, leaving the Euro in a potential decline through the end of the month.” It appears to be coming to pass. Euro futures are plunging.
ZeroHedge comments, “Update: Draghi is not pulling this back from the edge as is typically the case during his presser.
Danske Bank’s Piet Christensen sums it up:
‘Overall, Draghi has been very dovish so far despite ending QE. No rate hike is imminent at all.’ “
Is the ECB ending QE a good thing? Markets seem to think so.
SPX finally made its Master Cycle high at 11:30 am at 2791.47, just 10 points shy of its March 13 high. Nevertheless, this counts best as the “top” of Wave . SPX futures put in an overnight high of 2789.00, testing the trendline, but have eased down. The decline from the top so far is miniscule, so any (short) positions taken here would be considered to be aggressive.
Should the Orthodox Broadening Top be accurate, the next target would be “point 6” near 2570.00. The Ending Diagonal agrees, since a break of the lower trendline near 2740.00 may send the SPX to its target at 2553.80. This would give the SPX a clear break of its 200-day Moving Average at 2652.40.
ZeroHedge comments, “US futures are flat after a torrid 24 hours, which saw European and Asian stocks decline led by China, HK and South Korea, as weak economic data, a Fed rate hike and U.S. tariff threats spooked emerging markets and sucked the life out of a rally spurred by the Chinese central bank unexpectedly deciding not to follow the Fed in raising interest rates amid what Rabobank said was “shockingly weak” Chinese data as the global economy is now on its last legs. Of course, the looming ECB rate decision, in which Draghi may announce the beginning of the end of QE, is adding another layer of uncertainty (full ECB preview here).
This is the amusing preview of today’s main ECB event from UBS economist Paul Donovan
Now it is the turn of the ECB. ECB President Draghi’s extensive rehabilitation to overcome an addiction to easing seems to have paid off. There are hopes of either 1) an announcement of the timetable to end bond buying, or 2) an announcement of an announcement of the timetable to end bond buying.”
NDX futures are modestly higher. The reaction to the ECB announcement is coming in with stocks rising, but yields falling. This is a direct disconnect that needs resolution. Why would stocks celebrate the end European QE?
VIX futures are taking a hit by revisiting yesterday’s low. This could be a false flag used to increase long positions by the Commercials. VIX should not go beneath its trendline at 11.95.
After a brief skirmish with the 3-handle yesterday, TNX is moving back down after the ECB announcement. Could it be that European investors find US Treasuries to be a “safe haven” or possibly even a bargain?
Having explained that the combination of rising U.S. interest rates and fiscal deficits is like a “suicide mission” – which notably escalated the intensity from last month when he referred to the trend as a “pretty dangerous cocktail” – Gundlach concluded that the debt burden will rise to such a level that borrowing costs will surge.”
Tony – Ultimately Jeff will be right, but yields don’t go in a straight line. In addition, a Wave  can go an awfully long distance (all the way back to the start of Wave  at 13.36) before a Wave  takes it to 6%. The Commercials may be right in going long bonds.
USD futures swung higher this morning, but did not exceed yesterday’s high as I write. The consolidation should end shortly, followed by a probable decline to the next Master Cycle low at the end of the month.
June 13, 2018
Another Broadening Top formation…
You can see the algos at work in the SPX in yet another Broadening Formation. This on would qualify as a rare 7-point reversal instead of the usual 5-point reversal pattern that most traders are familiar with. Broadening formations are emotionally laden. The so-called breakout give fresh fodder for the sellers. It’s too bad that the Commitment of Traders is having a blackout this week. Aggressive traders may short the SPX beneath 2777.00, but expect a strong bounce once the decline is over.
What’s driving this market? ZeroHedge comments, ”
A few weeks ago, we reported that far from representing improving fundamentals, blockbuster earnings or a stronger economy, the “second quarter has been just one giant short squeeze.”
As we noted at the time, Goldman’s prime desk had aggressively covered the most crowded short positions, and as we showed in the chart below, stocks with the highest short interest relative to float strongly outperformed their peers in most sectors. The outperformance was particularly dramatic in the Energy sector, which experienced a large increase in hedge fund net positioning during 1Q and has been the best-performing equity sector thus far in 2Q.
Waiting for the FOMC.
TNX has had every chance of going higher during the Treasury auction, yet it stopped at a 61.8% retracement. Does this mean that when the FOMC announces, rates will go down? This may be a classic “sell the news” move by the market.
Bloomberg reports, “Hours before a crucial Federal Reserve decision, a bullish trade is gaining momentum in the market for options on Treasury futures.
A Flat Wave ?
SPX has completed or nearly completed Wave 5 of Wave (C) of . Cyclically, Wave  was only 14 calendar days long, while Wave  was 124 days long. The Wave  pattern is called a flat, which means that the tops of Wave (A) and Wave (C) of  are level with each other. While the Wave structure appears complete, there is room for a small rally between now and 2:00 pm.
Bill Blain writes, “Fed, Stratospheric dangers, US corporate leverage and the greater competition to manage funds.
“Of all extinct life-forms, dinosaurs are the most popular. Why that should be is not clear… ”
All eyes on the Fed today. They will hike by 25bp to 2% – the 6th hike in 7 quarters. Slow and gradual. This is something of a one-off in terms of the economic environment – unconventional being the word. Easy financial conditions in terms of growth, inflation, jobs and the ongoing fiscal spending and tax boosts. Plus, we’ve got the positive sentiment effects of strong equity and real estate markets – when folk feel rich they feel positive! Plus plus, with the rest of the world still on negative or zero interest rates, then money continues to pour into Treasuries making the ballooning deficit a SEPT (Someone Else’s Problem Tomorrow). Asset prices are inflated, but still weakness in consumer prices and wages. This remains an “interesting” space in terms of the potential policy pitfalls, and the “swing” moment – when suddenly balance is lost and the centre cannot hold…”
June 12, 2018
SPX appears to be testing its 2-year trendline at 2778.00. It may make another attempt in the final hour or overnight. Beneath that level would be considered an aggressive sell signal without the benefit of the VIX or Hi-Lo index offering confirmation. Considering the rate hike to be a slam-dunk, the real reaction may be the forward-looking guidance given by the FOMC after the meeting that may move the markets.
ZeroHedge highlights a CNBC interview with Paul Tudor Jones,
“Traditionally one of lowest-profile hedge fund managers, this morning legendary trader Paul Tudor Jones allowed CNBC to interview him from his trading floor in a broad discussion covering everything from North Korea, to Fed policy, to what keeps him up at night and what he is investing in, to the risks facing the current economy, to socially responsible investing and ETFs.
Among the numerous topics covered, several stood out. The first was what PTJ would do if he were Fed chair. The answer: an overnight hike of interest rates by 150bps: “it’s where they should be” because “we’ve got 3.8% unemployment and negative real rates. And we have a 5% on the way to a 7% budget deficit. The last time that we had the unemployment rate where it is now was 2000. And we are running a budget surplus at that time of 2.5%. We were talking about bond scarcity at that time.” The result is the cause for the stock bubble that Jones has complained about in the past:
“we’ve got fiscal policy that literally came from another galaxy and we have monetary laxity. And that brew is what has got the stock market so jacked up.”
NDX rose 2 points higher than yesterday’s high, making today its all-time high on a very stretched Master Cycle inversion. There is no sell signal on this afternoon’s reversal. We may consider an aggressive sell signal beneath the Diagonal trendline at 7100.00.
ZeroHedge reports, ” The last few years have seen the so-called FANG stocks (Facebook, Amazon, Netfliz, & Google (Alphabet)) have dominated the markets…
Which has dragged technology stocks to dot-com peak levels relative to financials…
And this momentum has done what it always does – spark mom-and-pop to chase the quick buck as Tech stocks have seen record inflows as they have emerged as the “defensive growth” sector of the late market cycle…
But while ‘average joe’ is busily loading up on hyper-valued tech in his 401k like never before, insiders at the FANG stocks have been puking their own shares at a record pace this year…
Senior executives and directors of Facebook, Amazon, Netflix, and Google parent Alphabet have dumped $4.58 billion of stock this year, according to data compiled by Bloomberg. They’re on track to exceed $5 billion for the first six months of 2018, the highest since Facebook went public in 2012.
Also, read the Bloomberg article.
SPX futures appear to be challenging the 2-year trendline, but haven’t broken through. A break may set a new decline in motion. SPX is at a ½ Trading Cycle Pivot, which is generally a high. There is no update on the Commitment of Traders information. The information should have been updated yesterday, June 11. I cannot speculate on why it isn’t available.
ZeroHedge comments, “Markets shrugged off the much anticipated historic” Singapore summit, with the global stock rally fading, US futures and Asian currencies falling amid a buoyant dollar, and the S. Korea won reversing an earlier gain after the Trump-Kim summit didn’t result in any major breakthroughs and culminated with a document signed by the two leaders including unspecified security guarantees and a vague, unenforceable denuclearization commitment.
“Despite the historic event, the markets haven’t moved much because they’ve already discounted the risk of military conflict,” Goldman’s co-head of Korea research Goohoon Kwon told Bloomberg Television. What’s more important going forward is the “follow-through, execution, implementation” of any agreements, he said.”
NDX appears to have made a 78% retracement of its decline as of yesterday. It has the appearance of a reversal pattern, so we wait for the follow-through. If a Wave [iii] is to follow, it should break through the Ending Diagonal trendline at 7100.00.
RealInvestmentAdvice observes,” How an advisor should talk to clients and what rhetoric leads to big sales are often at odds. It can be death to an advisory business if the advisor is negative. Although this isn’t universally true, clients tend to want reassurance from an optimistic advisor. That’s why economist Andrew Smithers refers to broker happy talk as “stockbroker economics.”
The two rules of stockbroker economics are:
- All news is good news, and;
- It’s always a good time to buy stocks.”
VIX futures are flat this morning. However, the VIX was surprisingly buoyant during yesterday’s session. This may confirm Thursday’s belated Master Cycle low in the VIX.
TNX is moving higher this morning. It has already made a 65% retracement at 29.92, but we cannot rule out a higher move.
Yesterday’s Treasury Note auction was well received. There was $54 billion in notes being auctioned with no complications. That being said, that is a lot of liquidity to be soaked up in a day.
ZeroHedge observes, “In some ways, today’s 2 coupon auctions were mirror images of each other: while the $32BN, 3Y auction tailed modestly, its internals were impressive, with the highest Indirect award in 4 years. Fast forward 90 minutes when the Treasury just sold another $22BN in paper, this time in 10Y notes, at a yield of 2.962%, stopping through the When Issued 2.965%, and below last month’s 2.995%, when there was must angst whether we would see the first 3% cash coupon in years ( we did not). Well, with the yield dropping further, today’s coupon was a boring, old 2.875%.
Meanwhile, as the yield dropped, the internals deteriorated, and Indirects were left with 56.0% of the takedown, down from last month’s impressive 63%, and well below the 6 month average of 63.1%. And while Indirects slumped, Directs surged to 16.3%, nearly doubling from 8.3% last month, leaving Dealers with 27.7%, in line with the 6 month average of 29.7%.
But despite some modest internal weakness, the auction was digested relatively easily, and just like that the US government has placed another $54BN in coupon paper with willing investors who are happy to fund the US persistant budget deficit.”
Reuters comments, “With the Federal Reserve virtually guaranteed to raise interest rates this week, investors are focused on how the U.S. central bank characterizes its monetary policy as borrowing costs return to more normal levels amid an ongoing economic expansion.”
USD futures are trading in a narrow range this morning. There is some indication that it may be nearing the end of its consolidation and preparing for the next decline. It is due for a Master Cycle low by the end of the month. The mid-Cycle support at 91.84 or the 50-day Moving Average, if higher, may be the intended target for this decline.
Bloomberg reports, “The U.S. has a surplus of $20 billion with China and $1.4 trillion with the rest of the world.
That’s not a normal trade balance, of course, where the U.S. registered an annual deficit of more than $330 billion with China and about $550 billion with the world last year, but an “aggregate sales surplus” which measures both direct trade and the sales of multinational companies, according to research by Deutsche Bank AG.”
ZeroHedge reports, “Last night’s Singaporean show was the prelude to the rest of the week’s real action – central banks – and nothing drives The Fed more than inflation anxiety as exhibited by Core CPI this morning… and it printed hot.
For the 32nd consecutive month, the consensus estimate on the street was +0.2% MoM – and expectations were met – pushing the headline CPI to +2.8% YoY (as expected) – the highest since December 2011…”
June 11, 2018
Futures are flat ahead of “the week from hell.”
SPX futures are flat this morning, although they appear to have challenged the Cycle Top at 2785.43 over the weekend. This week is Options Expiration (OpEx) week. Although options expiration weeks are generally positive, there are a lot of events happening this week that may move the markets. We also see the Commitment of Traders’ Commercial exposure increase their short contracts from -514,792 to -559,849 contracts on the SPX E-Mini. There may be an update later today, since the June 11 contracts match the June 4 figures.
ZeroHedge reports, “Bulletin Headline Summary From RanSquawk
- European bourses higher ahead of Trump/Kim summit and as Italy reiterates plans to stay in the Eurozone
- Sterling slides as industrial production has biggest monthly fall since October 2012 and trade deficit widens
- Looking ahead, highlights include 3- and 10-year note auctions from the US
The “most important week of the year” started off with a session that has been a study in contrasts, with risk-off trades emerging early on in Asian trading, as Asian markets and US futures slipped pressured by the higher Yen in the aftermath of this weekend’s G-7 debacle which resulted in a communique that for the first time ever, was not signed by the US; concerns about a potential trade war, however, quickly morphed into optimism as investors shifted their attention to the historic summit between U.S. and North Korea as well as the meetings by three of the world’s three most important central banks, with the EUR spiking ahead of what may be the ECB’s announcement that it will end QE in early 2019, while Sterling returns to center stage with tomorrow’s critical Brexit vote.”
NDX futures are also flat after making a weekend high of 7184.50, possibly testing the upper trendline of its 2-month Ending Diagonal formation. The Elliott Wave pattern appears complete. The Commitment of Traders shows the Commercial exposure to be short -9,231 contracts in the NDX E-Mini futures.
ZeroHedge comments, “Earlier this week, Goldman Sachs, whose market-timing calls leave much to be desired, declared that tech stocks are “not a bubble”, and went so far as to predict that the secular increase in tech names could continue for decades, spawning vivid memories of Goldman’s May 2008 prediction of $200 oil just months before the start of the second great depression, and before oil crashed more than $100/barrel, wiping out a generation of muppets.
However, it is now safe to say that with the exception of some truly naive individuals, virtually nobody believes Goldman any more, and thus Goldman’s “all clear” may be just the top-tick so many had been waiting for.”
VIX futures have moved higher this weekend as the summer heats up. However, perception has it that all is well with the markets. The Commitment of Traders show a slight decrease from 42,941 to 40,538 contracts in the long VIX positions held by Commercials over the last two weeks.
Ten paragraphs down in today’s article, Bloomberg says, “And yet even with all of the tensions bubbling up around the world, the fears related to the European bank sector, the sovereign bond blowouts, and the whippy movements in Treasuries (33bps reversal in the 10-year yield from May’s peak to trough) and emerging market currencies, the market’s fear gauge (the VIX) is trading at levels unseen since before the market correction in early February, suggesting the short-vol trade is alive and well.”
You may recall Morgan Stanley’s comments highlighted in the Weekend Report, also in Bloomberg.
TNX appears to be consolidating near the retracement high made last week. The Cycles Model suggests yields may be declining through the end of the month. The Commitment of Traders show the Commercials’ exposure to be have diminished from 699,183 long contracts to 580,450 long contracts over the past two weeks. I will be on the alert for updates in the COT.
Bloomberg reports, “Bond traders have their work cut out for them before they get to the pivotal event for U.S. financial markets this week — Wednesday’s announcement from the Federal Reserve.
The Treasury is about to pack $193 billion of debt sales into Monday and Tuesday. That potentially puts the onus on Wall Street to absorb the deluge if investors are reluctant to choke it down before the central bank’s decision. There is much at stake this week: In addition to a widely expected hike in borrowing costs, officials will also update their projected rate path for 2018 and beyond.
Last week’s emerging-markets turmoil may have made it more likely that bond dealers will be left holding the bag. The 10-year yield flirted with 3 percent at one point before spooked investors piled into the haven of U.S. government debt. It is currently yielding 2.96 percent, making for less appealing auctions at a time when Treasury is ramping up sales to plug growing budget deficits.”
USD futures appear to be consolidating inside Friday’s trading range over the weekend. The Cycles Model suggests another two weeks or so of decline ahead. The Commitment of Traders show that Commercials have increased their short positions from -8,004 to -9,392 contracts over the past two weeks. I’ll update later as the new data is input.
Bloomberg reports, “The Canadian dollar fell against all its major peers after U.S. President Donald Trump revoked his support for a joint Group-of-Seven statement and criticized his neighboring leader Justin Trudeau.
The U.S. dollar was steady as investors awaited a series of major risk events this week, including a summit between Trump and North Korean leader Kim Jong Un in Singapore on Tuesday and meetings of the world’s three-biggest central banks on following days. The Japanese yen halted a two-day winning streak.”
WTI futures have been trading near the bottom of last week’s trading range. It made a low on Tuesday that may be a candidate for the Master Cycle low, but is about two weeks early. The next two weeks are more likely to see a deeper (Master Cycle) low in WTI.
Bloomberg reports, “Oil extended declines as Russia was said to increase output before it meets with OPEC, adding to signs that a global coalition of producers is unwinding a pact to restrain supply.
Futures dropped 0.9 percent in New York after a third weekly loss. Russia, which along with Saudi Arabia is trying to garner support for lifting output limits, was said to have boosted production earlier this month to above the level envisioned by OPEC. Meanwhile, the number of rigs drilling for crude in the U.S. inched higher, signaling output may extend a record.”
June 8, 2018
NYSE Hi-Lo gives a sell signal.
The NYSE Hi-Lo Index declined at the open, offering a contingent sell signal. The contingency is that it closes beneath the mid-Cycle support/resistance at 62.67. The VIX doesn’t show an inclination to rise above its mid-cycle resistance at 14.04 yet, but the combination of both signals would be pretty compelling.
Stocks to open lower. Will RISK OFF dominate the day?
SPX futures made fresh lows, tagging the upper trendline of the Broadening Top formation this morning as RISK OFF sentiment suddenly emerged.
ZeroHedge comments, “It’s “strange” that the exact same set of concerns that we noted 24 hours ago in our Thursday morning wrap and which sent global stocks and futures higher yesterday as we described in “Stock Euphoria Prevails Despite Gathering G-7, EM Clouds; Dollar Slides“, today those same Emerging Market and G-7 (or rather G-6+1) clouds have led to a sea of red in this morning market and futures monitor.”
VIX futures have edged higher in overnight trading. There is no buy signal yet from the VIX, other than the reversal from the (delayed) Master Cycle low. Should this rally be impulsive, the next target would be a test of the 50-day Moving Average at 16.21. The Cycles Model shows strength in the VIX through the month of June.
The buy signal is at the mid-Cycle resistance at 14.02.
NDX futures are also probing new lows this morning. The lower trendline of the Ending Diagonal at 7050.00 offers the next signal to short the NDX.
ZeroHedge reports, “Remember when a few months ago Apple stock slumped amid reports of slumping iPhone 10 demand and a weak orderbook, but investors were quick to forget all about Apple’s growing troubles when Tim Cook’s record stock buyback announcement and Warren Buffet latest investment quickly sent the stock to all time highs even though the fundamentals didn’t justify it? Well, it turns out that despite the generosity of Uncle Warren who is simply chasing after the biggest stock repurchase program he could find, nothing has changed or been fixed at Apple, and this morning Apple’s German ADRs and the stocks of Apple’s European supplier tumbled after Japan’s Nikkei reported that Apple has asked its supply chain to prepare around 20% fewer components for iPhones debuting in the latter half of 2018, “taking a cautious approach toward smartphone shipments compared with last year’s orders, industry sources say.”
TNX futures are flat this morning. While yesterday’s flash crash in yields did go through the trendline and Sort-term support at 29.15, the supports still appear to exert some power over yields for the time being.
USD futures are bouncing this morning, but the trend remains down. There is room for the bounce to be sustained for another day or two, but the USD may be looking for a serious decline through the end of the month.
Ben Bernanke is at it again. ZeroHedge writes, “It looks like Ben Bernanke is a Bridgewater client.
Recall that earlier this week we reported that in the May 31 “Daily Observations” letter to select clients, authored by Bridgewater co-CIO Greg Jensen, the world’s biggest hedge had an ominous, if not dire appraisal of the current economic and financial situation facing the US, and concluded that “We Are Bearish On Almost All Financial Assets”
In summary, do we have a quiet Friday and wait for Monday to break loose, or do the markets start the excitement today?
June 7, 2018
Treasury Yields are flash-crashing…
Well, that didn’t take long. After overshooting the 61.8% retracement of Wave [a], TNX quickly reversed down…hard. The trap was laid. Now it is snapping shut.
ZeroHedge comments, “Treasury yields have been pressing higher all week on an unending wave of offers, despite an already record short speculative position.
However as 10Y Yields approached the Maginot Line of 3.00% today, the bond buying began and then accelerated and then turned into a mini-flash-crash, plunging yields 11bps…
Treasury futures also spiked at the same time on extreme volume…”
SPX also has reversed after challenging the Cycle Top and 2-year trendline. Given the circumstances, this may also be considered an aggressive sell signal. There is always the chance that the 2-year trendline may be retested, but once it declines beneath the bottom of Wave (iv) at 2740, the chances of a new high decline dramatically.
Follow the Leader…
Some time ago I mentioned that, at important turns, the NDX often takes the lead. It is doing just that today. A reversal from the Cycle Top may be considered an aggressive sell signal. The next level to consider for confirmation is a decline beneath the lower trendline of the Ending Diagonal formation at 7050.00. Aggressive sell signals may be turbulent, but rewarding in a situation such as this.
A Turn Date Arrives…
SPX futures are modestly higher as I write, but pulling back from an overnight high at 2779.75.
Today is a Primary Cycle Turn date, which is a degree higher than all other declines since the January 26 and March 13 highs. The May 3 low was a Trading Cycle low, with a decline of 4.5%. As you can see, there is strength (in a bull market) leading up to the Primary Cycle Pivots. However, that strength may turn into a panic, especially into the third week of July as the market trend turns down.
ZeroHedge reports, “European stocks and U.S. futures blasted off higher early in the session following yesterday’s euphoric, meltup close to US trading, but have since pared their gains on Thursday as the stellar rally in tech shares showed signs of easing, amid growing concerns about a potential G-7 meeting fiasco, as well as growing emerging markets clouds, where after the recent turmoil in Turkey and Argentina, all eyes are now on Brazil (and India) to see if the contagion spreads to these behemoths.”
NDX futures have already begun their reversal as the Cycle turns down. In the Mid-Week Report, the NDX edged up to the daily Cycle Top resistance at 7219.21 at the close. The overnight session show the NDX went to a high of 7234.25 before reversing back beneath the Cycle Top resistance.
VIX futures have been edging higher, but it is hard to determine whether it is above the 2-year trendline, yet. The VIX Master Cycle low (possibly yesterday) was 20 days beyond the mean, but there may have been a good reason. It appears to have waited for a Primary Cycle Pivot on the opposite side of the Equities Pivot today.
USD futures continue to sag as the overnight session produced a new low of 93.19. The Cycles Model suggests that, while we may see a small bounce or two next week, the trend is down to the end of the month.
ZeroHedge reports, “It’s getting a little tight around the neck for emerging market central bankers.
On the same day that the governor of Malaysia’s central bank quit, and just days after Urjit Patel, governor of the Reserve Bank of India, took the unprecedented step of writing an oped to the Federal Reserve, begging the US central bank to step tightening monetary conditions, and shrinking its balance sheet, thereby creating a global dollar shortage which has slammed emerging markets (and forced India into an unexpected rate hike overnight), Indonesia’s new central bank chief joined his Indian counterpart in calling on the Federal Reserve to be “more mindful” of the global repercussions of policy tightening amid the ongoing rout in emerging markets.”
TNX may be wrapping up its retracement after overshooting its 61.8% retracement level at 29.79. The Cycles Model suggests a potential two week decline that may reach the Head & Shoulders neckline at 25.40. Should this happen, that may constitute a 15% decline from this level. Remember, this is a retracement (counter-trend) move, but they can be powerful, as well. This may be certain to wipe out many weak-handed shorts in the Treasury bond market.
Bloomberg reports, “Emerging markets struggling with higher U.S. interest rates are likely to get little sympathy from the Federal Reserve.
Currencies of such nations have been hammered in a spreading selloff amid worries that their economies won’t cope with higher U.S. borrowing costs. That’s prompted central bankers in India and Indonesia to raise interest rates and urge Fed caution, while officials in Brazil are bracing for challenging times too.”
The effects of higher interest rates is being felt domestically, too. ZeroHedge reports, “In a Bloomberg column on May 4th, Jim Bianco and Ben Breitholtz of Bianco Research argued convincingly that economic surveys no longer work as a predictor of future economic activity, because surveys (the so-called soft data) suffer from a circular reference due to groupthink, herd mentality, and political preferences.”
June 6, 2018
Update on NDX
NDX made a new all-time high of 7187.80. This may count as a complete Intermediate Wave (5) in the Elliott Wave series. You may recall when I discussed the new high in mid-March and remarked that the Wave structure did not match the previous Wave structure. That is because Wave (3) had begun in February 2016 as an A-B-C zigzag of which Wave C began on June 27, 2016. Since the daily charts only go back 1 year, there was no way that I could ascertain the true pattern. As it stands, Wave (1) was approximately 952 points and 4 months long. Wave (3) was 3137 points and nearly 24 months long. Wave (5) is 1023 points and 4 months long, having achieved Wave equality with Wave (1) at 7116.00, but the need to match the duration of Wave (1) and exceed the top of Wave A drove it higher.
VIX plunges to the 11-handle.
VIX plunged to 11.63 in an extended Master Cycle low this morning as the Commitment of Traders shows the Commercials have lifted their long holdings from 28,441 contracts in May to 42,941 long contracts this week. That means the Large and Small Speculators, while rejoicing at their good fortune this morning, may be on the wrong side of this trade.
ZeroHedge observes, “With European stocks tumbling (again), Italian bond yields spiking (again), and redenomination risks surging (again), US investors have decided now is the time to dump protection to its lowest level since January…
Europe is imploding again…
And it’s Italy’s fault…
All of which means… Sell vol with both arms and legs…
Oh and ignore the fact that there’s The Fed and the North Korea Summit next week.
SPX extends, but in a limited range.
SPX futures are higher this morning as they progress toward their ultimate target at/near 2762.00. The Cycles Model has tomorrow tagged as the turn date, but we should see waning strength and possibly a turn in the indicators as early as today. The hourly Trading Bands are very tight, suggesting a reversal is coming in the SPX.
ZeroHedge reports, “Global stocks, US equity futures and Treasury yields extended gains while the dollar slumped as “risk-on” sentiment returned after the U.S. and China exchanged trade proposals meant to avoid an escalation of economic tensions, while European bonds declined and the euro strengthened following a Bloomberg report and hawkish comments from ECB speakers suggesting that the ECB’s next, June 14 meeting will be “live” to debate the end of QE.”
VIX futures have made a new low at 11.63 this morning. Today is day 278 of an extended Maser Cycle and the second time that VIX has gone beneath the 2-year trendline. Of course, the Algos have crisscrossed the 2-year trendline on the SPX multiple times already. Today is also a Pi date (314 days from the July 26 low), which punctuates the potential turn date with even more emphasis.
TNX is higher this morning, having surpassed the 50% retracement level at 29.37. This opens the possibility of a 61.8% retracement at 29.79. Today is a minor turn date for treasuries, but there are indications of growing strength in the bond complex starting next week, with yields declining.
Bloomberg comments, “The rebound in the U.S. bond market in recent weeks that pushed yields on 10-year Treasuries back below the psychologically important 3 percent level has made the bond bears very happy. Yes, the bears. Rather than capitulating, some new data suggests that the bears see the rally as an opportunity to set up new positions betting against bonds at more attractive levels.
A widely followed JPMorgan Chase & Co. survey showed that investors went from being neutral on bonds to bearish in the biggest weekly decline in sentiment since the start of October. Its so-called All Client Net Long index slid to negative 19 from 0 in the week ended June 4, as 10-year yields dropped to as low as 2.76 percent from as high as 3.13 percent on May 18. If anything, the survey underscores the multitude of headwinds facing the bond market. Signs of faster inflation have traders betting on two to three more interest-rate increases from the Federal Reserve this year, starting with one next week. On top of that, the government is poised to double bond sales this year to about $1 trillion to pay for a growing federal budget deficit.”
USD futures have resumed their decline this morning with a low of 93.53. The Cycles Model suggests there may be weakness in the USD through the month of June.
Today may be an interesting day in the markets.
June 5, 2018
Smart Money is Bailing.
VIX contracts are being by the Commercials and Dealer Intermediaries. The Commitment of Traders shows the Commercials now own 42,941 long contracts, up from 28,441 two weeks ago.
The Trading Bands are tightening in the hourly chart, our first technical indication of an impending reversal. The SPX challenged the Cycle Top resistance at 2751.81 and has since backed away. The Broadening Top formations are indicative of a highly emotional market that is quick to pick up on the latest news for its directions. It won’t take much to reverse this market. Filling the gap at 2735.00 would tell us that the decline is taking hold.
Markets are flat. Waiting for a catalyst?
SPX futures are flat. We are seeing the calm before the storm. Yesterday was a Primary Pivot which may account for the top being made. Another Primary Pivot occurs on Thursday. The second Pivot in a week may direct us to the catalyst for the decline to begin.
ZeroHedge reports, “While global markets remain largely a sea of green, ignoring the threat of a trade war between the US and the rest of the world which remains a non-event for now (for reasons discussed overnight), the move higher has been more muted overnight, and even as European and Asian stocks extended Monday’s gains and U.S. futures pointed to a higher open, some familiar risks have re-emerged.”
VIX futures are at the bottom of their range, nearly reaching the May 25 low at 12.29. Should it stay above that level, this is indicative of a Wave 2.
TNX is backing away from yesterday’s high, but remains above Short-term support at 29.09. We’ll be watching for a decline and close beneath that level to confirm the resumption of the decline.
USD appears to be on a retracement bounce before resuming its decline.
ZeroHedge comments, “One month ago, in a surprising reversal, we reported that Bridgewater was outperforming peers this year even after losing money in April, largely as a result of a a massive derisking, i.e. turning bearish. As Bloomberg further added, “the fund has also reduced its net long bets on U.S. equities to about 10 percent of assets from 120% earlier this year, and that overall, the fund is net short equities.”
And now we know why.”
June 4, 2018
What others are saying about the SPX:
Bloomberg is talking bullish, “The S&P 500 is poised to finally break out of the 45-point trading range where it’s been stuck for the past month.
Charles Hugh Smith sees a giant Bear Flag, “We all know the game is rigged, but strange things occasionally upset the “easy money bet.”
I see a 5 point reversal (Orthodox Broadening Top) coming.
Approaching “Point 5” of a 5-Point Reversal
I added a new feature so that the website may load up more quickly. I am indexing my blog according to month. Unfortunately, due to other technical issues, you may not have seen all of the Friday, June 1 blog. You may scroll down beneath today’s blog to find it. Thanks for your patience.
Last Friday I mentioned that “point 5” may go as high as the upper trendline of the Orthodox Broadening Top at 2745.00. Since then, the trendline has shifted higher. This morning’s SPX futures have gone as high as 2746.50. Whether that is the peak or not remains the question as today is an strong Pivot day in the Cycles Model.
The two-year trendline may still be an attractor.
ZeroHedge reports, “Where previously the threat of renewed trade war between the US, also known as the “+1” in this weekend’s meeting of G6+1 nations, and EU, Canada, Mexico, and of course, China, would have been sufficient to pummel futures and stocks, today stocks are approaching life with a “glass half full” approach, and global markets and US equity futures are green across the board.”
VIX futures are higher, which may be a prelude for a turn today. VIX went as high as 13.91 this morning, but did not cross the mid-Cycle resistance at 14.00 yet. That is the main indicator that we would be looking at.
TNX appears to have challenged both Short-term resistance and the minor trendline. However, it seems to have hesitated there.
The Cycles Model seems to indicate that yields may go down to retest the Head & Shoulders trendline before advancing higher. In the meantime, the Commitment of Traders shows the Commercials increasing their long positions from 630213 contracts to 699183 contracts. The commercials are rarely wrong.
In the meantime, Gartman covered his shorts…
ZeroHedge writes, “On a week that saw Italian bond yields spike by the most on record sparking one of the biggest safe-haven bids for US Treasury bonds in years, the massively one-side shipwreck of Treasury short positions became even more one-sided-er as speculators ignored the collapsing yield curve, tumbling global economic data, and rising risk, adding to their already record long-date duration shorts…
After spiking above the critical 3.00% level the previous week, to its highest level since June 2011 – spurred by what in hindsight appears to be major rate-lock buying amid huge IG issuance; 10Y Treasury yields plunged almost 40bps in 6 days as Italian risk sparked a safe-haven bid in bods – the most dramatic rally since Brexit (June 2016).”
USD futures continue to decline this morning, which is taking away some of the support for equities. See the chart below.
After completing a 5-Wave impulse in January, the SPX denominated in Euros appears to have made a double zigzag to a marginally new high, thanks to the stronger US dollar. The weaker USD this morning may reverse this trend, if not already having done so last week. It appears that a reversal pattern is in progress, so should the USD continue its decline, the SPX:XEU should also reverse course.
The turmoil in Europe may be a contributing factor in the SPX making the Broadening Top formation, due to money flows escaping the risk off situation in Europe.
WTI futures continue their decline beneath the Ending Diagonal trendline. They hit a new low of 65.28 this morning. The Cycles Model suggests a Trading Cycle (minor) low by mid-week, then a bounce to retest the trendline.
ZeroHedge reports, “For the first time since September 2017, WTI Crude has tested the 100-day moving-average and is now down over 10% from its highs 8 days ago after an OPEC committee stressed the need to ensure supplies can meet growing demand, adding to speculation the group will phase out its production cuts.
The 100DMA is holding WTI around $65.28 for now at around two-month lows as Bloomberg reports Saudi Arabia and Russia signaled plans to restore output for the first time since the end of 2016.”
June 1, 2018
TNX overshot its Short-term resistance at 29.08, but didn’t stay above it very long. It is now ready to make a hard decline to its old neckline…or below. The Cycles Model suggests up to three weeks of decline.
VIX has crossed beneath its mid-Cycle support at 14.00. It may or may not reverse before the end of day. However, a very strong (Primary) Pivot occurs over the weekend. I wouldn’t take any chances on this one…
You may wonder where the SPX got its Broadening Formation. here is one source for its whipsaw. It appears to have made its final Wave [v] of C of (5).
ZeroHedge reports, “Earlier we showed that despite some significant cross-asset volatility, not to mention substantial declines especially across emerging markets and Italian stocks and bonds, in the month of May quite a few markets and asset-classes shrugged off the EM and Italian woes, and posted modest if steady returns, including the FTSE 100 (+2.8%), Stoxx 600 (+0.2%) and, of course, the S&P 500 which rose +2.2% in the month.”
SPX appears to be lingering near its top today. It appears that it should continue its rally to 2745.00, but that is not certain. the Cycles Model suggests Monday is the next turn date, and it appears to be a strong one. This afternoon may be a good time to add to your short position if you have been stopped out.
Algos are misbehaving…
SPX went higher this morning, giving us a new formation…an Orthodox Broadening Top. SPX already has a Broadening Wedge formation, but it has been a year in developing. It may still be valid, but shorter-term chart formations may take precedence.
The Broadening Top explains why we are being whipsawed in all of our indicators as the algos attempt to sweep away the losses. This is indicative of a very confused and emotional market…and tells us that there are big players that may be caught on the wrong side.
The formation indicates that SPX may still rise to 2745.00 but a failure at this point is not uncommon. In fact, a failure to make a higher “point 5” increases the bearishness of the formation.