Saved At Support…

December 6, 2019

VIX made a new high not seen since early October, then made an 83% retracement of that rally.  It closed above short-term support at 13.45.  This allows a resumption of the rally and a potential aggressive buy signal.  The Cycles Model suggests new highs may be made by the year-end.

(ZeroHedgeWhile the VIX still has a fair ways to go before it plumbs the all-time single-digits lows that defined the spectacularly serene equity markets in 2017, FX vol is already there: the JPMorgan Global FX volatility index has dropped to 6 year low levels, and is just shy of all time lows.

Of course, most of this stability in the FX realm is due to central banks depressing cross-asset vol; yet the more vol is pushed lower, the higher it will spring back once central banks lose control; as such it is only a matter of time before buying FX vol is a winning trade.

Commenting on this record low FX vol and currency-specific volatility, BofA’s Vadim Iaralov writes that a “dozen FX vols reached new lows last week and most remain close to their all-time lows” in what he calls a “perfect storm of vol, skew and carry.”

 

SPX Saved (For Now) At The Trendline

SPX sank to Short-term support at 3072.98 and the Broadening Top trendline on Tuesday, then rallied hard back to 3150.33 around mid-day on Friday with only 4 points left to an all-time high.  The question is, “Is the cup half full or half empty?”  Monday may tell, since the Liquidity Cycle is due to end at its high this weekend.

(CNBC)  Stocks surged on Friday on the back of U.S. jobs growth that easily topped analyst expectations as Wall Street wrapped up a choppy week of trading.

The Dow Jones Industrial Average was up 337.27 points, or 1.2% at 28,015.06. Friday’s performance was the Dow’s best since Oct. 4, when it rallied 1.4%. The S&P 500 closed 0.9% higher at 3,145.91 — its biggest one-day gain since Oct. 15 — while the Nasdaq Composite jumped 1% to 8,656.53.

 

NDX Rises, Closes At A Weekly Loss

NDX found its footing above Short-term support at 8130.14 to rally back through its Cycle Top at 8300.76.  Nevertheless, it did not make a new high and closed the week for a loss, despite the rally.

(ZeroHedge) The US and China trade war continues to deepen this week with the increasing chance that a phase one trade deal has been delayed until 2020. In the meantime, we’ve been reporting on a Sino-U.S. technology war developing, something that has been heating up in recent months.

China understands the tech war with the US is about to erupt, that’s why the country has been pulling forward orders of US chips, reported Bloomberg. It’s an acknowledgment that China is preparing for the worse, and it’s likely the Trump administration could prevent Chinese companies from buying chips if the trade war deepens further.

 

High Yield Bonds Compressed In A Triangle Pattern

High Yield Bonds appear to be trapped in an ever-tightening Triangle formation that may be due for a breakout or breakdown.  A decline may take it beneath its 8.2-year trendline.

(Bloomberg) Alan Waxman was just 31 when he made partner on a Goldman Sachs team that bet the firm’s own cash for wild profits. He later co-founded TPG Sixth Street Partners and helped build it into a $33 billion force in credit markets.

Now he’s raising alarms about those same markets.

In a private conference earlier this week, Waxman, 45, warned investors there’s an epidemic of fake earnings projections that will be exposed in the next economic slump and may even exacerbate it. Too many companies are addicted to making creative accounting adjustments that bump up operating profits known as Ebitda — and investors are turning a blind eye, he said, according to a person with knowledge of his comments.

 

Have Treasuries resumed their decline?

10-year Treasury Bonds tested their Intermediate-term resistance at 130.16 on Tuesday before selling off for a weekly loss.    The Cycles Model suggests some residual strength early next week, then a probable decline through the year-end.  Treasury Bonds are on a sell signal.

(CNBCU.S. government debt prices fell on Friday after data showed U.S. jobs growth easily topped expectations.

The yield on the benchmark 10-year Treasury note, which moves inversely to price, rose about 4 basis points to 1.8363% following the jobs report. The yield on the 30-year Treasury bond was also higher at around 2.2813%.

The US Dollar Challenges Long-term Support.

The US Dollar challenged Long-term support at 97.37 before closing beneath Intermediate-term resistance at 97.98.  The dollar is on a sell signal with a potential one-month decline ahead.  A break of the trading channel trendline at 96.50 signals the beginning of a possible crash scenario.

 

The Yen Rises Above Long-term Support.

The Yen rose tis week, closing above Long-term Support at 91.84 and Short-term support/resistance at 92.00.  This action created a buy signal for the Yen that may last through mid-January.

(Bloomberg) Japan’s Prime Minister Shinzo Abe announced stimulus measures to support growth in an economy contending with an export slump, natural disasters and the fallout from a recent sales tax increase.

The total stimulus package amounts to around 26 trillion yen ($239 billion) spread over the coming years, with fiscal measures around half that figure, according to a government document released after a cabinet meeting Thursday evening. The stimulus will boost growth in the economy by about 1.4 percentage point, the document said.

The Nikkei Index Struggles Near The Top.

The Nikkei Index attempted a new high on Monday, but could not exceed the high at 26808.08 on November 26.  Since the Liquidity Cycle is global, we may see the first reaction to this weekend’s final blow-off in the Liquidity Cycle beginning on Monday.  If so, we may see the Nikkei decline in the next month.  The possible target may be the 2016 low.

(YahooFinance) Japanese shares closed higher on Friday, a day after its government approved a 26 trillion yen ($239.32 billion) stimulus package to support growth, with the focus shifting to U.S. jobs data that will be out later in the day.

The Nikkei index ended up 0.23% to 23,354.40, buoyed by gains in industrial and financial sectors. The benchmark rose 0.26% this week — its second weekly gain.

The stimulus package is expected to push up GDP by 1.4% through fiscal 2021 and comes as Japan, like other major economies, looks to revive growth through spending as central banks rapidly run out of monetary policy options.

Markets also rose ahead of data expected to show U.S. job creation accelerated last month, which would ease concern about the health of the world’s largest economy.

Gold Fails Its Test Of Short-term Resistance.

Gold challenged its Short-term resistance at 1481.37 on Wednesday before it declined, closing the week at a loss.  This action confirms the sell signal that may be in effect through mid-January.  Should it decline beneath Long-term support at 1403.79, the decline may accelerate.

(Bloomberg) Goldman Sachs Group Inc. said investors should diversify their long-term bond holdings with gold, citing “fear-driven demand” for the precious metal.

“Gold cannot fully replace government bonds in a portfolio, but the case to reallocate a portion of normal bond exposure to gold is as strong as ever,” Goldman analysts including Sabine Schels said in a note Friday. “We still see upside in gold as late cycle concerns and heightened political uncertainty will likely support investment demand” for bullion as a defensive asset.

Crude Oil Makes a Three-Month High

Most investors see crude oil prices as a product of supply and demand.  However, another view may be that crude prices are easily influenced by liquidity flows.  In this case, crude is shown with its Master Cycle peaking with the Liquidity Cycle.  If correct, it’s time to prepare for much lower prices, regardless of the news.

(OilPrice) Saudi Arabia shocked the oil market on Friday, with its energy minister Prince Abdulaziz bin Salman pledging to voluntarily cut even more oil production than its new quota, according to S&P Global Platts.

Under the existing oil production quota, Saudi Arabia had agreed to keep production under 10.311 million bpd—a cut of 322,000 bpd. But on Friday, OPEC divvied out an additional 372,000 bpd of cuts to its members, with Saudi Arabia’s new production cap coming in at 10.145 million bpd—an additional cut of 166,000 bpd.

But Saudi Arabia is planning to do more than even that—planning to keep its production at or below 9.744 million bpd. For reference, Saudi Arabia’s production for October was 9.890 million bpd, so this new voluntary pledge to cut even more than the group had asked it to is even more of a reduction.

 

Crop Prices May Be Heading Higher.

Agricultural prices rose above their respective Long-term resistance at 16.05, closing at a new 4-month high.  The Cycles Model suggests the new strength lasting through mid-December and possibly the year-end.

(CNBC) A surge in food prices could cause a massive humanitarian crisis as more than half the world’s population is vulnerable to such a risk, Nomura wrote in a recent note.

“The countries most vulnerable to a surge in food prices account for a small portion of the world economy, but make up a much larger share of the world population,” Nomura’s analysts wrote. “A sustained surge in food prices is unlikely to cause a global economic recession, but it could cause a humanitarian crisis on a global scale.”

 

The Shanghai Index Gets A Short-term Reprieve.

The Shanghai Index got a short-term reprieve rom its decline with a brief burst of strength that carried it toward Intermediate-term resistance at 2923.61. T he Cycles Model suggests that the period of strength may extend through Wednesday before resuming the decline.  If so, a possible target may be Long-term resistance at 2948.83.

(ZeroHedge)  Chinese Ministry of Commerce spokesman Gao Feng confirmed to reporters on Thursday what the Global Times had already leaked previously, namely that tariffs must be reduced by the US to reach a phase one trade deal, reported Reuters.

“The Chinese side believes that if the two sides reach a phase one deal, tariffs should be lowered accordingly,” Feng told reporters.

His comments were a reiteration of Beijing’s hard stance of tariff rollbacks in the last month or no phase one trade deal. Feng said both trade teams are in communication, but didn’t say if the trade talks were going well.

 

The Banking Index Is Riding The Liquidity Wave.

The only problem is that the Wave may be about to crash into the rocks.  The Cycles Model shows the Liquidity Surge may be ending the weekend.  If so, the top may already be in…or about to peak early this coming week.  Good luck with that!

(Bloomberg) As Deutsche Bank AG nears its end-of-year decision on bonuses, one question looms large for Chief Executive Officer Christian Sewing: How much can he afford to pay to keep top investment bankers?

Sewing may use performance-based pay to induce top rainmakers to stay as he seeks to defend businesses such as dealmaking and stock and bond issuance after big cutbacks elsewhere. But his pledge to reduce costs by $6.4 billion as part of his sweeping revamp limits how much he can shell out.

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

 

Posted in 2019, Weekend Update | Leave a comment