September 21, 2018
In reviewing the Monthly chart, I determined that there was another Wave structure that I had overlooked. It was only evident when SPX rose above 2916.50 and the DJIA made a new all-time high. This proposes a new Fibonacci relationship, as well. In a situation where Wave  is the largest, the most common Wave relationship is  = . That would take us to 3052.54. However, we have another Inverted Master Cycle this week, which calls for a steep and possibly deep decline to immediately follow. Should that happen, Wave  = .786 X Wave  @ 2941.18. Since the SPX peaked at 2940.91 today I suggest
that this may be a viable Fibonacci alternate. Everyone is calling for SPX to reach 3000.00.
The Triangle formation that ended on May 3 offers one rule and a guideline. The rule is that there is only one impulse left after the Triangle. The Guideline is that the referenced impulse may be the length of the largest dimension of the Triangle, which implies a target of 2916.40. This may be strong evidence that the rally may have run its course as of today.
What will it take to break the uptrend? From a technical level the large Ending Diagonal is broken at 2775.00. However, the 200-day Moving Average where a bottom has been found in the past is at 2750.41. The smaller Ending Diagonal implies a decline to at least the bottom of Wave  at 2594.62…or possibly to the February 6 low at 2532.64. This decline must be made in the next 4.3 days. If the uptrend is intact at the end of the month the chances of a continued rally to late October are better than average.
The “fly in the ointment” for a continued rally is the NDX. It is basically saying it is finished. If so, the SPX will follow. The VIX is also making a higher Master Cycle low today. Stay alert for a negative close today. It may be an indication of what’s to come next week.
Options Expiration may be more volatile.
SPX futures were higher earlier this morning, but have eased back to the flat line as we approach the open. Remember, Index Options expire at the open, while retail options expire at the end of the day. The EW structure is now complete, but this does not assure us that the decline must begin immediately. However, Index rebalancing today may provide an extra dose of volatility.
ZeroHedge reports, “Global equity markets rallied into the last day of the week, with euphoric sessions in Asia and Europe pushing U.S. equity futures through overnight highs and into new all time highs, amid a trader focus on today’s quadruple witching and huge S&P rebalancing.
US traders braced for a surge in volume on “quad-witching” day that will see stock index futures, stock index options, stock options, and single stock futures expire…”
NDX futures are also higher but may be easing down from the overnight peak. NDX will not be exempt from the extra volatility from the Index rebalancing.
VIX futures are higher this morning, but still beneath the 50-day Moving Average at 12.76. VIX may have had its Master Cycle low at 11.31 yesterday on day 259 of the current Master Cycle. Should the new Master Cycle be a duplicate of its counterpart, we may see a Master Cycle high on the week of October 22. Remember, the VIX already gave its buy signal. Unless the VIX declines lower than the August low the order of the day is to buy on the dip.
TNX has pulled back from yesterday’s high, but is still above the Cycle Top support at 30.73. The Master Cycle high may be in, but a clean break of support confirms it.
The Commitment of Traders shows that large speculators (trend followers) are very short the UST while the commercials are long. In addition, it shows that Leveraged funds are the most short. Is this a recipe for disaster?
USD futures are bouncing this morning.
The Cycles Model calls for a brief shoe of strength that may last over the weekend as USD retests the Head & Shoulders neckline.
I am preparing for an event tomorrow at the Breslin Center on the MSU campus. I may not be able to add commentary later this afternoon and the Weekend Update may not be sent due to scheduling conflicts.
September 20, 2018
Stocks probe higher on limited liquidity
SPX futures are making a new all-time high this morning. The immediate target may be the 2-hour Cycle Top at 292.23. With that the smaller Broadening Wedge and Head & Shoulders formations are eliminated. However, the Ending Diagonal is current with the lower trendline and Short-term support at 2892.30. Once broken, the implied target is the February low at 2532.00 which is now beneath the 200-day Moving Average at 2747.41. In other words, it implies that the uptrend may be broken.
ZeroHedge reports, “World stocks and US equity futures continued to rise on Thursday in thin trade amid relief that the latest U.S. and Chinese tariffs on were less harsh than feared despite concerns about next steps in the US-Sino trade war, helped by a dollar which slid to 3 week lows even as Treasury yields approaching their highest level this year.”
NDX futures have broken above Short-term resistance at 7514.35. The next level of resistance is 7581.30.
VIX futures made a new retracement low and Master Cycle low at 11.35 this morning. What is interesting about this is that both the start and the finish is at a Wave (2) low. VIX also now has matching Cycles with the VIX ETFs. Here were 26 market days from the bottom of Wave (2) in January to the Cycle Top on February 6.
TNX may be finishing its Master Cycle high on day 261 of its current Cycle. It may also extend another day, but not likely to go higher next week. Today may bring clarity.
USD futures are making new lows, as expected, today. The Head & Shoulders formation is giving us some direction for Wave 3. However, Wave (1) is likely to decline to the Cycle Bottom. The dollar appears to be destined to continue its decline until the election. Looks political to me.
ZeroHedge comments, “The dollar index is collapsing this morning (helped by strength in cable and the loonie) as the global bond rout continues to spread…
The Bloomberg Dollar Index has tumbled to its lowest since July 9th
As Bloomberg’s Christopher Anstey notes, even though the Chinese economy is slowing, hurt by the weakest investment growth since at least 1999, it’s clear from bond price action that policy makers aren’t prepared to endorse broad monetary stimulus.”
September 19, 2018
USD Head & Shoulders triggered. What’s next?
SPX made its final high yesterday afternoon. The top-to-top time was 12.9 days, fitting my thesis that the impulsive decline and retracement fits in Cyclical time. This morning’s futures are lower, indicating that a new impulse may be underway, although it may remain shallow for the better part of the day. There is a potential Head & Shoulders formation that, when triggered, may send the SPX beneath its smaller Broadening Wedge.
ZeroHedge reports, “Global equities rallied for a second day on Wednesday with US futures flat while European shares edged higher following a strong session in Asia as safe-havens such as US Treasurys and the Japanese yen dropped to multi-week lows as investors bet the escalating U.S.-China trade spat would inflict less damage than feared.”
NDX futures are lower this morning as well, after being repelled at Short-term resistance at 7528.19. It also has a potential Head & Shoulders formation that, when triggered, may send it beneath its own Broadening Wedge pattern.
CNBC reports, “China could target U.S. tech stocks as part of the ongoing trade war, according to the top equity strategist at Goldman Sachs.
Peter Oppenheimer told CNBC’s “Street Signs” on Tuesday that China may impose tariffs on industry components that could have an effect on supply chains.
U.S.Technology firms could be first in the firing line, Goldman’s chief global equity strategist added.
“The target may be technology companies that have been the main driver of the equity bull market that we have seen in the U.S. and beyond,” Oppenheimer said.”
VIX futures are nominally down this morning, after closing beneath the 50-day Moving Average at 12.81. The breakout above the 50-day Moving Average creates the buy signal, while the pullback affords a better entry for those wishing to go long the VIX.
VIX ETFs are making a new Master Cycle low. They are in a window where a further low may be made, but should be complete by the end of the week, if not sooner.
TNX appears to be probing the Cycle Top at 30.63, but hasn’t quite reached it yet. The futures show TNX at .20 higher than the cash index, but that is due to a time premium on the new expiration date, which is December 21. As you can see, SPX, NDX and TNX all have Head & Shoulders formations that haven’t been triggered yet.
USD has triggered its own Head & Shoulders formation which suggests that the others are not far behind. It appears that the USD futures have already tested the underside of the neckline and may be resuming the decline. The Cycles Model suggests a strong decline may ensue over the next week. I have mentioned several times that the USD is the controlling asset. Where it goes, the stocks and treasury yields will follow.
September 18, 2018
Everything is in place for a Panic Decline.
SPX futures bounced to challenge Short-term support/resistance at 2892.56 this morning. Should the bounce be complete, lower supports may be challenged. This week being OpEx week, there is every reason for the market to go higher or at least remain constant. However, there are also many opportunities for an accident to happen to destroy the equilibrium of the market.
ZeroHedge reports, “After initially sliding sharply lower following the Trump admin’s announcement of a 10% tariff on another $200BN in China imports starting Sept. 24 (and rising to 25% on Jan.1), S&P futures, Chinese and emerging markets, as well as global currencies staged a strong rebound after what the market deemed to be a measured response by Beijing. Furthermore, the tariff “wasn’t the worst scenario” that some had expected, and since China’s response was “within expectations” according to SBI Securities’ Tsutomu Soma, the latest trade war round has proven to actually be positive for risk, as shown below.”
NDX has completed another impulsive decline and is due for a small bounce. It is currently challenging mid-term resistance at 7471.13. The 50% retracement is near 7505.00. The prior retracement was 61.8%, so we may expect a smaller retracement as the decline progresses.
ZeroHedge writes, “One of the most perverse consequences of the central banks “saving the world” (i.e. saving banks and the super-wealthy) is the destruction of low-risk investments: we’re all speculators now, whether we know it or acknowledge it.
The problem is very few of us have the expertise and experience to be successful speculators, i.e. successfully manage treacherously high-risk markets. Here’s the choice facing money managers of pension funds and individuals alike: either invest in a safe low-risk asset such as Treasury bonds and lose money every year, as the yield doesn’t even match inflation, or accept the extraordinarily high risks of boom-bust bubble assets such as junk bonds, stocks, real estate, etc.”
VIX futures pulled back to the 50-day Moving Average at 12.85 this morning after giving a buy (SPX sell) signal at yesterday ‘s close. The Cycles Model shows strength in the VIX through the end of the week. Tomorrow is the expiration day for VIX Index futures and options.
Bloomberg reports, “With the VIX on track to post its biggest weekly decline since April, owning volatility probably doesn’t look like a very smart bet.
A strategy that appears to be emerging in the options market says otherwise. It differs materially from the one used by the trader dubbed “50 Cent,” who became known in 2017 for paying about 50 cents for call options on the Cboe Volatility Index regardless of the strike price.”
It’s too early to tell whether TNX will make another new high or not today. Thus far it hasn’t. Yesterday was the median date (258 days) for a Master Cycle high. The next item that appears on the agenda may be a break of the Head & Shoulders neckline leading to a panic decline as short covering rules the market.
The Commitment of Traders shows that, while the Commercials remained steadfastly long, the Large Speculators (hedge funds) have increased their short positions. The Speculators tend to be trend followers, but have no idea where the trend may end, so they usually end up having to cover as the market goes against them.
USD futures may have broken through a Head & Shoulders neckline this morning, giving it the opportunity to make a solid decline in the next week or so. This has all the potential of being a panic decline that may take stocks with it.
You may be looking at one of the reasons for a potential panic decline in stocks. As the USD declines, it makes the SPX less valuable in other currencies. It appears that European investors have had a field day investing in the SPX while their market has declined. Should both the SPX and USD decline in tandem, the result may be very large withdrawals from overseas investors and large gaps down at the open as their markets open before ours. It may be a self-reinforcing spiral leading to a possible waterfall decline.
September 17, 2018
Will stocks make another probe higher?
SPX extended even higher on Friday. The weekend SPX futures purport to be lower, but in fact are moe likely to be flat due to options expiration this week. The Wave structure allows a possible surge to a new all-time high, but the chances are better than even that the rally may stall short of the prior high. A very confusing pattern.
ZeroHedge reports, “Summary:
- President Trump is set to go ahead with USD 200bln in new Chinese import tariffs, the WSJ reported; China will retaliate instantly
- Asian equities traded negative and European started off poorly but rebounded; FX markets stable with the dollar dropping and EMs underperforming
European stock markets followed Asia – where Japan was closed for holiday – lower to start the week, as investors pulled back after weekend news Trump was set to announce a new round of $200BN in tariffs on Chinese goods as soon as today.”
NDX futures appear to be down more substantially, but the change in expiration dates muddy the waters. It also may allow yet another probe higher. The open may tell.
ZeroHedge comments, “While it might not quite have the headline grabbing events of the past week, but there’s still some interesting events for markets to be aware of next week. The flash September PMIs in Europe and the US highlight the economic data, while there’s a number of potentially interesting meetings scheduled including a North and South Korea summit, an informal EU summit where Brexit will be a focus, US and Japan trade talks, and the UN General Assembly. There’s also a BoJ meeting where the status quo is expected to continue.”
VIX futures are higher, but not yet above the 50-day Moving Average at 12.90. The Cycles Model suggests possible strength going into VIX options and futures expiration on Wednesday, then again on Friday when VIX ETF options expire. Right now everything appears to be calm…maybe too calm.
TNX may have made a new Master Cycle high at 30.22 this morning on Cycle day 258. You may recall last week that this was coming and that we should be alert to the high extending. At the moment I am suspicious that, having gone this far, the rally may extend to the Cycle Top at 30.57. We won’t know until the reversal is made. Meanwhile, the Commitment of Traders report shows that bond shorts appear to be maintaining their long positions while the small Speculators are piling on the short end.
USD futures are making new lows at 94.07 and potentially lower. This indicator is telling us, “Watch out!” More on this later.
September 13, 2018
On the Cusp…
SPX futures are higher this morning, possibly extending the retracement to round number resistance at 2900.00. The length of time to the bottom of Wave [i] was 34.4 hours. Possibly the bounce out of the low will take 30.1 hours (4.3 days) to end after 10:00 am. The correction is very irregular, making it hard to identify its parts.
The 78.6% retracement level is at 2906.00.
ZeroHedge reports, “Global trade was front and center again, after the Trump administration proposed another round of trade talks with Beijing before slapping China with $200BN in tariffs in the absence of key concessions from Beijing, while traders were on edge ahead of a slew of central bank announcements and critical CPI data in the US.
One day after Apple’s latest iPhone unveiling disappointed shareholders who sold AAPL stock and pressured tech stocks, world markets calmed and MSCI’s All World index was set for a fourth straight day of gains with S&P futures slightly higher after Asian shares jumped ending a 10 day losing streak, the longest in 16 years, on renewed hopes of fresh trade negotiations between the US and China.”
NDX futures appear to be making up for yesterday’s poor performance. It has made a high of 7517.25 thus far and may surge to Short-term resistance at 7542.73 before all is done. In addition, it will have completed a 60.1 hour Cycle (8.6 days) near 11:00 am. Should that be the case, both SPX and NDX may decline in tandem in a Wave [iii] over the next week or so.
RedHerring reports, “Yesterday Apple unveiled its latest iPhone models, the XS and XS Max, at the company’s headquarters in Cupertino, California. The new versions offer 5.8 inch and 6.5 inch screens, with A12 bionic chips and a “breakthrough” dual camera system.
Both include the world’s first seven-nanometer chips inside smartphones, which will allow the new iPhones to outperform their X forebear in photo and video capability. The XS and XS Max will be available to pre-order online this Friday (Sept 14), and in Apple Stores worldwide on September 21.
Around the same time, US tech stocks took a tumble, dragging down markets with them. The NASDAQ and S&P both fell for the third straight day, prompting CNBC‘s Mike Santoli to coin the drop a “gut check for technology”, and symptomatic of a “pretty overheated section of the market.”
VIX futures are down, with a new retracement low at 12.62. It may be worth noting that it is only an hour away from a 4.3 day decline from its high after an 11-day rally.
TNX made a new Master Cycle high on day 254 of the Cycle and 43 days from its prior Master Cycle high. While the ramp could extend to Monday, the Elliott Wave structure now appears complete. Virtually 92% of all Master Cycles occur within the 254-262 day range.
IBD reports, “Investors are piling into a fund focused on long-duration Treasury bonds amid bets that interest rates on short-term U.S. debt will stay low.
The iShares 20+ Year Treasury Bond ETF (TLT), took in $1.6 billion last week, the most since September 2017. The fund also posted five straight days of inflows, the longest streak in almost a year.
TLT is popular with institutional investors looking for short-term bets, making it more of a trading vehicle than an investment vehicle, according to Mark Hackett, chief of investment research at Nationwide Funds Group.”
USD futures are heading lower with a morning low of 94.55 thus far. The next 1-2 weeks may offer a panic decline in the USD, especially approaching OpEx and beyond (Sept. 21).
TheNational comments, “ The US dollar – to which Arabian Gulf currencies including the UAE dirham are pegged – will remain the dominant global reserve currency for the foreseeable future due to the size and strength of the US economy, a Moody’s report said.
“The transparency of the US financial markets as well as the stability and predictability of US monetary policy reinforce the safe-haven legacy that the US dollar holds,” said Colin Ellis, chief credit officer, EMEA, at the rating agency, and co-author of the report.”
Gold futures are rising to challenge the 50-day Moving Average this morning. After a pullback we may see a minimal bounce to 1245.00, but the strength indicated by the Cycles Model over the next two weeks suggests gold may go as high as the mid-cycle resistance at 1290.01. Looks like a Panic Cycle coming next week.
I am leaving later today to attend an extended family gathering out of state. I may not be able to offer further daily comments today or tomorrow and do not plan on writing a Weekend Update.
September 12, 2018
TNX may have peaked yesterday, after all, on day 252 of the Master Cycle. Today’s Treasury Auction hardly budged the arrow.
ZeroHedge reports, “Talk about a tight range: the August 10Y auction priced at 2.960%. Fast forward one month when moments ago the US Treasury sold $23 billion as part of this week’s bond sale deluge (there will be a combined $73BN of 3-, 10- and 30-year Treasury securities to be sold this week, the 2nd largest amount across said tenors in one week since 2010) at a rate of… 2.957%, effectively no change in the yield since August 8. Today’s 9 year 11 month reopening stopped through the When Issued by 0.5bps, the biggest stop through delta sine January 2018.
Compared to August, the internals were slightly better, with the Bid to Cover rising from 2.55 to 2.58, and above the 6 auction average of 2.54. The Indirect takedown also improved, rising from 61.3% to 64.0%, notably above the recent average of 60.8%, while Dealers took down 22.6%, a drop from 27.5% last month, and below the 29% 6 auction average. This left 13.4% for Directs, the highest since June, and above the recent average of 10.2.”
SPX appears to have had its peak shortly after 11:30 am. The decline was so shallow that everyone still claims the market is in rally mode. This may cause a lot of consternation as liquidity appears to have simply gone away…
ZeroHedge comments, “The US stock market just keeps crushing historical records: longest bull market ever, S&P rising above 2,900, two trillion-dollar stocks, an unprecedented divergence between US stock and the rest of the world, and now – the strongest ever rally during a Fed tightening period.
According to an analysis by Crescat Capital’s Tavi Costa, since the first rate hike by the Fed in December 2015, some 34 months ago, the S&P has risen by 41%: that puts this post-hike rally in the top spot of all previous market advances in a time when the Fed has been tightening financial conditions.”
The NYSE Hi-Lo remains beneath its 50-day Moving Average at 43.58 despite a near-61.8% retracement in the SPX. There just seems to be no participation left to propel the SPX higher.
NDX may have failed early..
NDX did not even make a new high today. There still may be a probe higher, as the pattern appears incomplete. However, the negatives appear to overwhelm any recovery.
ZeroHedge reports, “While the Dow is hanging by a thread to unchanged, the formerly untouchable Nasdaq is getting hammered again…
… with the FANG block down on the day, but the biggest victims are chip stocks, which are getting crushed after a pair of downgrades by both Goldman and Stifel, which threw in the towel on a variety of names both large and small in the computer memory space, traditionally an advance proxy for the state of the Chinese economy which as we discussed over the weekend is set for a lot of pain as a result of the collapsing credit impulse. Telecom stocks were also among Wednesday’s worst performers.”
The NDX Hi-Lo Index went negative this morning and appears that it may remain there. This particular Master Cycle in the Hi-Lo Index may not bottom until late October. In the meantime, there appears to be a panic Cycle brewing over the next week.
A final probe higher…then the panic.
SPX closed above Short-term support at 2887.58, but SPX futures are challenging it this morning. Despite the cross-currents, there is room for yet another probe higher that may last until early afternoon (near 1:00 pm). That will be the 60th hour and 8.6 days from the top.
Looking at today’s economic calendar, the most intriguing item at 1:00 pm is the 10-Year T-Note Auction.
ZeroHedge reports, “Summary:
- Asian stocks slumped for the 10th consecutive day, the longest losing streak since 2002.
- European and US stocks reversed Asian losses, trading modestly in the green
- Oil extended previous sessions gains post API’s as Hurricane Florence approaches the Carolinas
- CAD extends overnight gains NAFTA nears a perfect storm on dairy access
- Dark clouds clearing for UK PM May as ERG downplays overthrow but presents an alternate Brexit deal
- Looking ahead, highlights include, DoEs, Fed’s Brainard & Bullard and supply from the US
The “alligator jaws” chart presented by Jeff Gundlach during his Double Line conference call on Tuesday, which showed the unprecedented divergence between the US stocks and the rest of the world…”
NDX futures have challenged Short-term resistance at 7536.01 this morning. NDX may reach its peak sooner than SPX, so keep an eye on it as the day progresses. It appears that NDX may do a 50% retracement near 7546.00 this morning.
CNN reports, “The great bull run for the FAANG stocks and the rest of the tech sector is showing signs that it might be coming to an end.
Shares of Facebook (FB) are also down about 3% in the past week, following COO Sheryl Sandberg’s testimony in front of the Senate about Russia’s use of social media to try and interfere with the 2016 presidential election.
(Twitter (TWTR) CEO Jack Dorsey also went to Washington — and Twitter shares have since plunged 10%.)
But the other FAANG stocks have taken their lumps lately, too. Netflix (NFLX), Apple (AAPL) and Google (GOOGL) owner Alphabet — which didn’t send a high ranking official to last week’s Capitol Hill hearings — are all down about 3% to 5% in the past week.”
VIX futures are flat after testing the 12-handle and 67% retracement this morning. I wouldn’t be surprised to see the VIX and equities rising simultaneously as an indication of turmoil at the trading desks. The Cycles Model suggests a doubly indicated period of strength over the next week. This may be a warning of a panic Cycle about to begin.
TNX has pulled back from yesterday’s high. However, the anticipated impulse higher isn’t yet complete. This afternoon’s Treasury auction may do the job of jolting the markets out of their stupor. The Cycles Model suggests that the current strength may end tomorrow, so this could be a rather short probe higher followed by a reversal tomorrow.
The Commitment of Traders shows that Large Commercial traders are long the 10-year Note by 738,907 contracts while the large and small speculators have the opposite position.
USD futures are flat this morning, but anticipate a period of strength through the weekend. There is the possibility that the retracement may hit the 61.8% value at 95.90 during that period. The threat of a higher USD may set the world markets on another decline that may compound the already huge losses overseas.
September 11, 2018
China extends its bear market.
Starting off with the Shanghai Index, which probed beneath the August low this morning. This confirms that Wave (3) may not be complete. Three other indicators of that analysis are, First, Head & Shoulders, when the neckline rests at the bottom of a Wave (1), indicate the minimum target for Wave (3). Next, the Cycles Model does not indicate a Master Cycle low until late October. Finally, a Wave (3) should terminate well beneath the daily Cycle Bottom. There’s still work to do!
Bloomberg reports, “China’s sinking stocks are on the verge of an unwelcome milestone.
The Shanghai Composite Index closed 0.2 percent lower on Tuesday to within 10 points of where it bottomed out in 2016, having briefly breached that level in the afternoon before paring the decline. If the measure drops further, it’ll be trading at the lowest since November 2014, before the nation’s stock boom and subsequent $5 trillion bust.
SPX futures have declined beneath the mid-Cycle support at 2873.75 this morning, making a low thus far at 2870.00.
ZeroHedge reports, “Just when it seemed that the tenuous trade ceasefire between the US and China could result in more stable market sentiment, European stocks dropped -0.5% to session lows led by mining and autos, with S&P futures sliding as volume surged, joining Asia in the red after Reuters reported that China would ask the World Trade Organization for permission to impose trade sanctions on the U.S. rekindling fears over trade relations among the world’s two biggest economies.”
VIX futures are higher this morning. They are still beneath mid-Cycle resistance, but may stage a breakout as early as today. The reason is a very strong surge is anticipated in the cycles Model with an inverted Master Cycle high due next week.
TNX may be challenging its 30.16 high as Wave [c] becomes more complete. Today is day 252 in the current Master Cycle which leaves another week to complete it. The probability is that it may end up testing the prior high at 30.16, at a minimum. Should it break out, there will be mass “piling on” among the traders who are still building up their short UST positions. The aftermath of Wave C may be devastating.
Should the Master Cycle peak come early, the bounce may fade before challenging the August 1 high.
USD futures appear to be consolidating beneath yesterday’s high. The immediate direction is not certain yet, as the Cycles Model shows strength over the next week. It may be that the upper Diagonal trendline at 96.00 may be tested in that time. However, should USD lose its support, the decline may be a two week-long panic.
September 10, 2018
Stocks Bounce, but may not last.
SPX appears to have competed a 13-wave decline to Friday morning and may finish off its bounce in the first hour of the day. The reasons for this observation are; (1) The Cycles Model called for strength ending on Sunday, so it follows that this morning’s surge may be just the remnant. (2) Every turn in the decline has been on an hourly pivot. The decline will have completed 43 hours at 10:00 am. (3) the bounce in the futures met Short-term resistance at 2885.96 this morning and has paused.
ZeroHedge reports, “It has been a session of two halves in which Emerging markets, Asian stocks and Chinese indexes all slumped in early trading followed by a rebound in European shares led by Italian markets over optimism about Rome’s budget process while US equity futures erased most of Friday’s losses as trade concerns appeared to fade after Trump failed to enact the anticipated $200BN in new Chinese import tariffs.”
NDX futures met resistance beneath the mid-Cycle line at 7485.73. There may be a final probe higher in the first hour, but the indications are for a resumption of the decline yet today.
ZeroHedge observes, “The week’s calendar is packed full of notable events for markets. The highlight according to DB’s Craig Nicol is “Super Thursday” where we’ve got the ECB, BoE and CBT policy meetings to look forward to, as well as another monthly US CPI report. A steady stream of Fedspeak and the potential for more trade headlines concerning possible tariffs by the US on $200bn of Chinese imports, should make for plenty of food for thought for markets. On top of that, there’s also monetary policy meetings in Argentina and Russia and a meeting between the Presidents of Russia and China to watch for.”
VIX futures pulled back to 14.45, remaining on the buy signal.
SeeItMarket observes, “The chart and data that follow highlight non-commercial commodity futures trading positions as of September 4, 2018. This data was released with the September 7, 2018 COT Report (Commitment of Traders).
Note that this chart also appeared on my blog.
The chart below looks at non-commercial futures trading positions for VIX Volatility Index futures. For the week, the VIX Volatility Index (INDEXCBOE:VIX) finished up +15.7%.”
TNX pulled away from Friday’s high, leaving what appears to be a completed corrective bounce. It’s period of Cyclical strength also ended over the weekend and it is now due for a Master Cycle low early in Options Expiration week. If the neckline is crossed, indications are that a panic decline may ensue to the Head & Shoulders target. The media are all pointing in the wrong direction, so investors are on their own to figure out what happened next.
The yield on the benchmark 10-year Treasury note was a touch higher at around 2.944 percent at 5:35 a.m. ET, while the yield on the 30-year Treasury bond was relatively flat at 3.103 percent. Bond yields move inversely to prices.”
USD futures have already touched the 94.00-handle this morning as the decline resumes. It may be considered on an aggressive sell signal beneath Intermediate-term support at 95.13. The signal is confirmed beneath the 50-day Moving Average at 94.90.
CNBC observes, “The dollar struggled to build on its gains from last week on Monday while investors piled into riskier assets led by Scandinavian currencies, encouraged by a drop in bond yields in peripheral countries in Europe such as Italy.
Perceived safe-haven currencies in Europe such as the Swiss franc tumbled half a percent against the dollar and the euro as Italian bond yields dropped on hopes the new government would be prudent with its fiscal policies.
The Italy/Germany 10-year bond yield spread shrank to 234 basis points on Monday, its tightest level in six weeks, and 55 bps below last week’s widest levels.”
September 7, 2018
USD futures surged today, but remained beneath the retracement high at 95.68. This may have the dollar bulls all lathered up, since it popped back up above the 50-day Moving Average at 94.87. But the correction appears to be over and we may see another two weeks of decline into a sharp Wave C that may minimally breach mid-Cycle support at 92.29. Should the Wave 3 decline match the Wave 3 rally, we may see USD plummet to 90.00 or lower.
TNX has made a 68% retracement of its most recent decline. The Cycles Model suggests the period of strength may be over today. There appears to be a two week window for the next Master Cycle low. The chances of its being a high are slim, so this may end up being a mini-panic Cycle going into the MC low.
ZeroHedge observes, “Wage inflation is back with a bang, and so is speculation that the Fed will be forced to hike far longer than the market expects, which of course means much more pain for emerging markets.
Because just as EM currencies breathed a sigh of relief that the dollar may have finally peaked after 4 weeks of declines, the greenback surged following today’s average hourly earnings number, which as a reminder, was the strongest in 9 years.”
The NYSE Hi-Lo Index fell into negative territory and confirmed the sell signal. The mid-Cycle support/resistance is at 31.31 and the 50-day Moving Average is at 42.99. Yesterday it closed at 146.00 due to the failed short squeeze. I question that number, since the prior week saw closings at or beneath the 50-day. The new low today is a welcome relief, since it re-established the downturn.
European financials are taking it on the chin this morning with another major investor dropping Deutsche Bank from its portfolio. The minimum Wave (5) decline would likely be to 17.75 (Where Wave (5) equals Wave (1). However, there are at least two more weeks left in the European Stock Cycle and possibly two months to go in the liquidity Cycle. In ther words, Wave (5) may expand, doing much more damage than anticipated.
Bloomberg whistles past the graveyard with this opinion piece, “Another day, another negative headline about Deutsche Bank AG. First came Tuesday’s warning that the battered German lender is being evicted from the index of the top 50 stocks in the euro zone. Then came Friday’s news that China’s HNA Group Co., one of the bank’s top shareholders, is selling its entire stake.
The shares fell as much as 2.2 percent on Friday. But don’t be surprised if this initial gasp of worry turns to a sigh of relief. HNA, which has an 8 percent voting stake, isn’t a typical investor. If it does indeed exit Deutsche’s register – as reports from the Wall Street Journal and Bloomberg News suggest – it wouldn’t be such a bad thing.”
BKX is challenging Short-term support at 110.08 this morning in a bout of weakness. That weakness may lead to a new Master Cycle low in about two weeks. We may have a viable target should BKX decline beneath the neckline in the next few market days.
SPX is on a bounce after gapping down to a new low this morning. It appears that the opening plunge was a Wave b of (ii), while the snap back is a Wave c. It may terminate at Short-term resistance at 2885.49. The Cycles Model suggests Wave c may not exceed Wave a (no new highs indicated at this time).
Meanwhile good news is bad news, as wage growth exceeds expectations. ZeroHedge comments, “While many were expecting a potential downside surprise due to the ‘residual seasonality’ of August payrolls (discussed previously), moments ago the BLS reported that after a weaker than expected July (which was revised lower from 170K to 153K), August payrolls came in strong than expected at 201K, above the 191K consensus estimate.”
VIX made a marginal new high on Wave b but pulled back. It hasn’t strayed far from mid-Cycle support/resistance at 15.02.
September 6, 2018
The NDX decline may not be over yet, although oversold. It appears that there is room for another probe to the 50-day Moving Average at 7357.89 before a bounce may occur.
ZeroHedge reports, “Contagion continues…
The tech stock rout, which accelerated during yesterday’s Congressional hearing on social network bias, accelerated on Thursday, this time led by a selloff in chipmakers dragging the Nasdaq Composite to a two-week low.”
VIX has now exceeded its mid-cycle resistance at 15.02, confirming the VIX buy signal. The next target should be that of the Broadening wedge. The Broadening Wedge and Head & Shoulders formations are quite similar in performance. Both offer targets for Wave (3). It now appears that Wave (3) may be minimally 2.5X the size of Wave (1).
SPX has begun the next leg down, which minimally should reach the 50-day Moving Average. If we are truly in a Cycle Wave c then we may see an even deeper decline. My best is that Wave [iii] may exceed the Cycle Bottom.
10:00 am I am sorry…I was called away to an emergency situation early this morning. I am writing directly on the Blog today to save time.
SPX is struggling to go higher this morning, but has not yet exceeded yesterday’s high at 2892.62. My analysis that Wave (c) 0f [ii] was complete yesterday afternoon at 1:30 appears to be holding, but just barely.
ZeroHedge reports, “US equity futures rose slightly as European shares rebounded after Asian equity markets opened on Thursday in a sea of red as investors expressed growing concern over the deepening emerging market sell-off, before recovering slightly later in the morning even as Trump was preparing to launch a new trade war with China, announcing another $200BN in Chinese tariffs. ”
NDX is heading lower this morning. The VXN (NDX VIX) is on a buy signal (NDX sell) above its 50-day Moving Average at 17.48 and confirmed above the mid-Cycle resistance at 18.70 as well. The NDX Hi-Lo is still marginal, above its 50-day Moving Average at 46.40.
VIX is on a buy signal (SPX sell) and heading higher. Traders’ expectation of risk over the next 30 days id rising, but not yet at panic levels. A breakout above the August high at 16.86 would be the first indication of concern by traders. Above 20 may induce a panic situation.
European stocks have tested the Cycle Bottom but not broken through, yet. The Cycles Model suggests another 2 weeks of decline, so the breakdown appears inevitable.
Emerging Markets information is delayed until the end of day, but you can see the trend looks awful. It appears to be already in a bear market and the Cycles Model suggests another month of decline may still be ahead.
September 5, 2018
An Irregular correction may be complete.
This morning I suggested we may have a 50% retracement near 2900.00 and it may be complete near 1:00 pm. Well, we got a 38.2% correction at 2892.62 at 1:30 pm and it appears complete. These are sometimes called “running corrections” as the pullback doesn’t break a down-trend line. We will have confirmation of that once SPX declines beneath Short-term support at 2882.93. Time to go short.
ZeroHedge reports, “One year ago, we reported that in its attempt to calculate the likelihood, and timing, of the next bear market, Goldman Sachs created a proprietary “Bear Market Risk Indicator” which at the time had shot up to 67% – a level last seen just before the 2000 and 2007 crashes – prompting Goldman to ask, rhetorically, “should we be worried now?”
It appears that the 50-day Moving Average is holding at 13.27 on the VIX. Again, we may see a breakout above yesterday’s high at 14.35 once the SPX declines beneath support. VIX is on a buy (SPX sell) signal.
The NYSE Hi-Lo Index is on a sell signal as well, beneath its 50-day Moving Average at 40.84. It appears to be time to be all-in on the short side.
My apologies for the late email this morning. The email server was down until 10:50 and I could do nothing with it. Fortunately it is up and we shouldn’t have any more problems with it. I am also recovering from minor surgery and am still debating whether I have the energy to do a Mid-Week Report after the close.
SPX futures are down, but may be poised for a short squeeze
SPX futures were down to 2885.00 this morning. The best Elliott Wave count is that this is a Wave b with Wave c of [ii] ramping back to the 50% retracement at 2900.00. The decline may go a bit lower to test Short-term support at 2879.78 before a short-squeeze ramp back to the level just mentioned. The Cycles Model suggests a possible turn (from a high) near 1:00 pm today, as this is triply indicated as a turn date. If SPX reaches its target, that may be a possibility. Otherwise the turn may be delayed until tomorrow. Should Short-term support be broken, the probability of a ramp to 2900.00 this morning is much reduced and the turn may have already been made.
ZeroHedge reports, “Global stocks tumbled on Wednesday, as a drop in European markets followed a broad sell-off across Asia, as rising pressure on emerging markets intensified concerns of contagion and spillover into developed markets, leading to a sea of red in world stocks.
A day after emerging market currencies tumbled, it was the stock market’s turn in the hot seat, with shares sliding from Japan to Australia, and were crushed in Indonesia, where the nation’s benchmark lost almost 4%. Meanwhile, with no let-up in trade tensions near and new $200bn in US tariffs against China likely to be slapped as soon as tomorrow, the dollar strengthened for a fifth session and commodities slipped, led by oil, while the 10-year Treasury yield eased back to 2.89%.”
NDX futures have made a morning low of 7595.50, not breaking either of yesterday’s lows. This also leaves open the option of a short-squeeze ramp as high as 7675.00. Again, a deeper low after the open may put a different outlook on the NDX.
ZeroHedge observes, “Small businesses which blossomed on Facebook are now fleeing in droves, after the social media giant implemented a major change to the platform’s news feed to offer content from “friends and family,” while hiding “videos and other posts from publishers or businesses,” reports NBC News.
While the goal was to make Facebook “more social,” publishers ranging from big businesses to cottage-industry blogs have been forced to generate more original content, as opposed to sharing products or affiliate links which are now being suppressed by the Menlo Park, CA company.
Some small publishers have seen their income slashed over 50%. “
VIX futures made an overnight high of 13.94, making it an “inside” trading night. It closed beneath its 50-day Moving Average at 13.27, leaving it in a neutral position for the time being. There is Short-term support near 12.60 in the hourly chart and the 61.8% retracement is at 12.68.
Bloomberg observes, “Strategists are predicting a pickup in volatility after an usually quiet August, seeing choppy waters ahead for traders who took a summer break.
U.S. stock price swings were so muted last month that by some measures it was the calmest August since 1967. The Cboe Volatility Index, also known as the VIX or Wall Street’s fear gauge, averaged 13.6, lower than the five-year average of 14.6. Blame seasonality or traders who took a summer break, but strategists say don’t get too comfortable.”
TNX pulled back to challenge the 50-day Moving Average at 28.87 this morning. This constitutes an aggressive sell signal with confirmation at the Head & Shoulders neckline at 28.22.
The yield on the benchmark 10-year Treasury note was lower at around 2.887 percent at 5:55 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.
Coming up Wednesday, mortgage applications are due at 7 a.m. ET, followed by international trade figures by 8:30 a.m. ET, and the Quarterly Financial Report, due out at 10 a.m. ET.
A number of U.S. Federal Reserve officials are due to speak at respective events. In New York, St. Louis Fed President James Bullard will be at the Euromoney conferences’ Real Return XII event, while Atlanta Fed President Raphael Bostic is set to participate in a fireside chat at the Chicago Council on Global Affairs in Chicago.”
USD futures also appears to have had an “inside morning” with a high of 95.62, retesting the trendline. This gives us a 4.3 day rally after an 8.6 day decline.
You may wish to read the FinancialTimes article for a comprehensive view on the USD so far.
Gold futures are nominally higher this morning. The most important thing is that it closed and remains above the Cycle Bottom at 1196.66, completing a Wave B. Wave C has a minimum reach of 1248.00, but may go considerably higher. The top possibility is the 61.8% retracement at 1291.54. That may depend on how deep the USD, TNX and SPX all decline in the next three weeks. The COT shows traders are now neutral in gold futures.
I am recovering at home from my surgery and will be available to comment later today.
September 4, 2018
The NYSE Hi-Lo Index has declined beneath its 50-day Moving Average at 37.82, placing it on a conditional sell signal. Confirmation of this signal is made at the close. However, both SPX and NDX are beneath critical supports mentioned earlier today. I will be out for a minor surgery later today. Good luck and good trading!
Stocks are testing critical supports this morning.
SPX futures have fallen after testing the Diagonal trendline over the holiday weekend. Currently they are testing Friday’s low at 2891.73. This would be considered an aggressive sell signal since, while declining beneath the 2-hour Cycle Top, it has not yet breached the daily Cycle Top at 2889.30.
ZeroHedge reports, “With the US returning from holiday, US equity futures have sunk to session lows, while stocks in Europe slumped, reversing an early gain as Italian and Spanish bank shares faded and the major London, Frankfurt and Paris bourses faltered; this followed a mirror image in Asian price action, where stocks reversed earlier losses helped by a 1.3% late surge from Shanghai.”
NDX futures appear to have not broken through the Diagonal trendline at 7633.20 this morning. Doing so may give an aggressive NDX sell signal.
Bloomberg reports, “Things are fairly quiet to start the post-Labor Day session, with the e-minis trading slightly lower (and off their highs by ~14 handles) and European stocks trending lower throughout the session. The focus remains on China tariff implementation and the new Nafta pact, though no major developments occurred on either front over the holiday weekend aside from some posturing on social media.
Tech will be an area to watch today as Amazon edges closer to the $1 trillion market-cap mark (closed at almost $982 billion on Friday and currently up another 0.6% in early trading) while several sell-siders are out bullish on the semiconductors space (see below for more on the chip stocks and AMD). We’ll also be paying attention to the offshore drillers after the $2.7 billion Ocean Rig/Transocean deal and ad firms like Omnicom and Interpublic Group potentially getting bogged down by WPP’s soft margin outlook (WPP fell more than 6% in London).”
VIX futures are higher this morning, but still beneath Friday’s high at 14.03. However, it is above the 50-day Moving Average at 13.27, giving us a buy signal. We await the open to observe the NYSE Hi-Lo Index which has not given a sell signal, yet.
MarketWatch observes, “The S&P 500 and the Cboe volatility index — the so-called fear index — tend to trend in opposite directions since investors have less to worry about when the stock market rallies, and vice versa.
However, in recent days, this well-choreographed relationship has been thrown off balance, with the VIX hovering significantly above its 52-week lows even as the large-cap index continues to carve out new records.
The VIX is a measure of the market’s expectation for volatility over the next 30 days and is calculated from the implied volatilities of S&P 500 index options. A low reading indicates a calm market while a higher number suggests elevated uncertainty.”
TNX is higher this morning, possibly rising to challenge mid-Cycle resistance at 28.98. It’s weekend high was 28.86, testing the 50-day Moving Average at 28.87, before easing back.
The yield on the benchmark 10-year Treasury note was higher at around 2.873 percent at 5:40 a.m. ET, while the yield on the 30-year Treasury bond was in the black at 3.039 percent. Bond yields move inversely to prices.
Reopening after the Labor Day holiday, U.S. markets are largely attuned to developments surrounding trade friction.
Last week, the U.S. and Canada failed to secure an agreement to replace the current NAFTA pact by the Friday deadline. While a deal has been arranged with Mexico, President Donald Trump tweeted over the weekend that there was “no political necessity to keep Canada in the new NAFTA deal.”
Trump added that Congress shouldn’t intervene in the talks, and claimed that if it did, he would “simply terminate NAFTA entirely.” Trade talks with Canada are however expected to reignite this week.”
USD futures completed its retracement back to the lower Diagonal trendline at 95.56 over the weekend.
Nasdaq reports, “The latest CoT report released on Friday didn’t show any overwhelming one-week shifts, with the largest group of speculators adding some USD bullish exposure in some contracts and making small reductions in others. The streak continues in the US Dollar Index (DXY), where large specs added to their net-long for a 19 th consecutive week. Gold traders covered a few contracts, but remain short for the first time since 2002.”