May 1, 2020
The VIX challenges Cycle Top Resistance.
The VIX made its Master Cycle low on April 28 and has reversed course. It challenged the Cycle Top resistance at 38.77, closing beneath it. A rally above that level produces a buy signal for the VIX.
(ETFTrends) Equity markets have had a wild ride in 2020, with stocks climbing to all-time highs across the board, only to plummet below 2018 lows with roughly a month, and then rally back to October 2019 highs within nearly another month.
All of this back and forth has many investors frustrated or elated, while volatility has gone from tepid, to boiling, and now reached a calm that seems ready to boil over at any minute.
Stocks finished the month well off the highs made Wednesday, as stocks reached some technical levels, and joblessness continued to surge. But one thing that has not been discussed as much lately, is how the CBOE Volatility Index or VIX, often referred to as the pain index, had done anything but induce pain lately, possibly suggesting that that may be about to change.
SPX Has Declined Beneath The Mid-Cycle Support.
SPX probed above mid-Cycle support/resistance and the old Head & Shoulders neckline at 2861.93. While the loss for the week was not great, the positioning for the SPX indicates a probable sell signal. That may be confirmed with a decline beneath Short-term support at 2705.58.
(MarketWatch) Will the U.S. stock market retest bear-market lows put in on March 23?
That is perhaps the most prevalent question on Wall Street. And while there’s no way of knowing the answer for sure, if history is any guide, when the stock-market slips into a bear market, typically defined by a decline of at least 20% from a recent peak, it tends to return to return to that low more often than not, according to data from Bespoke Investment Group.
So far, the Dow Jones Industrial AverageDJIA, -2.55%,the S&P 500SPX, -2.80% and the Nasdaq CompositeCOMP, -3.20% indexes werestruggling to start off trade in May, afteran uptrend in April that produced the best monthly gains in years.
NDX Reverses At The Cycle Top.
NDX reversed at its weekly Cycle Top at 9048.45. It closed beneath it Christmas 2018 trendline but above its Intermediate-term support at 8612.86. A decline beneath that level confirms a sell signal.
(ZeroHedge) Today in “buying the dip” news…
Scores of retail investors took their first shot at the stock market this past March, while equities fell more than 30% as a result of the coronavirus shockwave that hit the country. And it’s retail that has helped act as a “formidable force” to put a bid under stocks for the last month, according to Bloomberg.
In fact, E*Trade, Ameritrade and Schwab all saw record signups in the three months ending in March as a result of retail investors wanting their first taste of the market.
Schwab opened a record 609,000 new accounts with almost half of them coming in March alone. It also saw 27 of its 30 most active trading days ever, including every session in March. Ameritrade saw net new assets of $45 billion – of which, about 60% of which came from retail clients.
High-Yield Bonds Rejected at Intermediate-term Resistance.
High Yield Bond Index probed toward Intermediate-term resistance at 181.86, but was rejected. It closed beneath the weekly Cycle Bottom at 171.16 and is on a sell signal. It has already met all its short-term downside targets, but other long-term targets still remain. Among them is the 2009 low at 39.96.
(ZeroHedge) Yesterday, when discussing the Fed’s latest $6.66 trillion balance sheet, we said that more than one month after the Fed announced its backstop for investment grade bonds and ETFs (followed shortly after by an expansion into fallen angel junk bonds), “what is most interesting is that so far the Fed has not yet purchased a single corporate bond, whether investment grade of fallen angel junk. In other words, without lifting a finger, the Fed’s “whatever it takes” jawboning managed to inject trillions “in value” in countless debt and credit products.”
Today, none other than the bond king Jeff Gundlach made this discovery, tweeting that “the Fed has not actually bought any Corporate Bonds via the shell company set up to circumvent the restrictions of the Federal Reserve Act of 1913. Must be the most effective jawboning success in Fed history if that is true.”
Treasury Notes Pull Back From The High.
Treasuries pulled back from their April 21 high this week. The high may be in, but the reversal has not been confirmed yet. An aggressive sell signal may be made with a decline beneath Short-term support at 138.12. However, confirmation comes beneath the Cycle Top support at 137.03.
(ZeroHedge) From an initial $75 billion per day when the Fed announced the launch of Unlimited QE in March, the US central bank first reduced its daily buying to $60 billion per day, then four weeks ago announced another ‘taper’ in its bond-buying program to $50 billion per day, which was followed by a reduction to 30 billion per day, which was then again cut in half to $15 billion per day. Then, last week the Fed again slashed its daily POMO by another 33%, to $10BN per day, and now in its latest schedule, the Fed unveiled that in the coming week it would purchase “only” $8BN per day.
The Nikkei Reverses, But Remains Positive.
The Nikkei reversed near the 50% retracement level and closed above near-term support. The technical remain positive for now. However, a decline beneath the Cycle Bottom support at 19100.12 may cause a sell signal to be given.
(CityIndex) The Nikkei Index opened lower and fell around 2% on Friday, following the drop of the U.S. market last night.
On the economic, Japan’s industrial production fell 3.7% on month in March (-5.0% estimated), and retail sales declined 4.5% (as expected), according to the government. Housing starts dropped 7.6% on year in March (-15.9% expected) and construction orders declined 14.3% (+0.7% in February). Meanwhile, Consumer Confidence Index slid to 21.6 in April (27.6 expected) from 30.9 in March. From those economic data, we could see that Japan’s economy is suffering from the effect of COVID-19.
On a daily chart, the Nikkei index retreated from 20350 and filled the gap created on April 30 after touching the 50% retracement between January top and March low.
The Yen Consolidates Above Critical Support.
The Japanese Yen consolidated somewhat higher, but made no great advance. However, it appears that the entire month of May shows strength in the Cycles Model.
(DailyFX) JAPANESE YEN MAY RISE ON CREDIT DOWNGRADES RISKS
The Japanese Yen may extend its gains versus its peers if stress in the market for collateralized loan obligations (CLOs) is amplified in the current environment. The almost $700 billion market is the biggest part of the broader $1.2 trillion market for so-called ‘leveraged loans’. These are debt obligations typically belonging to borrowers on the lower end of credit ratings but whose higher level of risk offers comparatively more generous returns.
European Stocks Reverse On Wednesday.
The EuroStoxx 50 SPDR appears to have completed a 45% retracement of its March decline on Wednesday, making a Master Cycle inversion high. From there it declined to close beneath Cycle Bottom support at 38.58. The Cycles Model suggests a 2-month decline may ensue. Downside targets may become clearer as FEZ tests the March low.
(CNBC) European markets closed lower Thursday but still enjoyed their strongest monthly gains in almost five years.
The pan-European Stoxx 600 closed down by over 2% provisionally with all sectors and most major bourses in the red. Still, the index experienced its biggest increase in the month of April since October 2015.
The Euro Rallies To Long-term Resistance.
The Euro rallied to Long-term resistance at 110.40 this week. IT has made an extended Master Cycle high which suggests a reversal may ensue next week. The Cycles Model suggests a decline through mid-June may follow.
(Bloomberg) Traders rushed to buy euros in a bid to rebalance their portfolios on the last day of the month, prompting a sudden spike in the currency.
The euro jumped to a two-week high of $1.0972 versus the dollar around the time of the 4 p.m. London fix on Thursday as demand surged. Nearly $3.7 billion worth of euro futures contracts traded in the half hour preceding the fix, the highest for any comparable period since March 6.
The Shanghai Index Ends April On A Period Of Strength.
The Shanghai Index period of strength may have expired on Friday after a wobbly April performance. The index could not regain its February perch above 3000.00. A Master Cycle inverted high may have also been put in, suggesting a reversal next week. A decline beneath Short-term support at 2834.16 may put the Shanghai Index on a sell signal.
(MotleyFool) Chinese stocks have proved mostly resistant to the chaos in U.S. markets around the coronavirus pandemic as China’s economy is largely returning to normal following an earlier outbreak of the virus. But today, Chinese stocks were rattled by a broader earnings-driven sell-off in the U.S., and as President Trump renewed his trade war with China, calling for tariffs in retaliation for the virus.
News reports revealed that the Trump administration is considering multiple tactics to punish China for being the origin of the virus and to use the country as a scapegoat in his reelection campaign. Among the tools the administration is considering are sanctions, cancellation of debt, and a new round of tariffs. Trump aides are also seeking to prove against evidence that the virus originated in a lab in Wuhan.
Gold Consolidates Under The Trendline.
Gold consolidated beneath the trendline near 1750.00. While finding support at the Cycle Top at 1655.81 it continues to make lower highs. While analysts continue to be bullish, the low liquidity environment and Cycles Model suggests lower levels.
(KitcoNews) Gold has managed to pull itself back up above the $1,700 an ounce level on Friday afternoon as U.S. President Donald Trump turned up the geopolitical pressure by threatening new tariffs against China over the coronavirus crisis.
However, for the week, though, gold is down more than 1.5%. Still, analysts are confident that the precious metal will make up the lost ground on increased geopolitical tensions and more bad economic data next week. At the time of writing, June Comex gold futures were trading at $1,706.80, up 0.74% on the day after tumbling below $1,700 an ounce earlier in the session.
Crude Rises Toward Wave Equality.
Crude oil continues its rally towards Wave equality at 21.76. However, it must overcome a short-term resistance at 20.50 to complete tis run higher. Should it break out, crude may rally for up to 2 weeks, according to the Cycles Model.
(OilPrice) U.S. shale oil producers have so far held up admirably, hanging on for dear life amidst the biggest oil demand collapse in history. American producers continued to pump at record highs in March, even after dozens of drillers laid out blueprints to limit production.
But with U.S. storage about to hit tank tops in a matter of weeks and the world deep in the throes of the biggest pandemic in modern history, the inevitable has begun to unfold: The arduous and costly process of well shut-ins.
Oil production in the country tumbled sharply to 12.2 million bpd in the third week of April, a good 900,000 bpd less than the record peak of 13.1 million bpd recorded just a month prior. That’s a 7% production cut in the space of only a few weeks and the lowest level since July.
A lot more could be on the way.
Food Prices Make A Major Reversal
After 4 years of decline, food prices appear to be making a major reversal. The DB Agricultural Fund mad its Master Cycle low on Monday and has reversed higher. Confirmation of the reversal comes after DBA breaks above its Cycle Bottom line at 14.03. The next Cycle pivot occurs in 3-4 weeks. A rally to the Wave  high may be in the making.
(FarmBureau) Just as the first case of COVID-19 was confirmed in Wuhan, China, on or around Jan. 14, the United States and China signed a long-awaited Phase 1 trade deal (China: What Does it Mean Now?). China’s all-encompassing response to the outbreak, including self-distancing and stay-at-home protocols, raised concerns about their ability to meet their commitment to purchase more than $40 billion in U.S. agricultural products across 2020 and 2021. The possibility of tapping into the agreement’s “act of God” clause (Article 7.6) also emerged. The clause allows for Phase 1 commitments to be altered if an unforeseeable event outside the control of each party delayed implementation or the timing of purchases, e.g., COVID-19.
For the better half of two months commodity prices were mostly flat to lower as U.S. commodities markets waited for evidence that the Chinese would live up to their Phase 1 commitment. Then, in early March, people in the U.S. began testing positive for COVID-19. To facilitate self-distancing guidelines recommended by the CDC, by March 16 all but essential services in the U.S. economy were shut down.
Commodity futures markets were roiled by the near zeroing out of demand that came with school, restaurant and bar closures, reduced demand for gasoline and ethanol, and projections for negative economic growth across the entire U.S. economy.
Bank Index Rejected At The Cycle Bottom Resistance.
The Bank Index rallied to challenge its Cycle Bottom resistance at 77.42 on Wednesday before reversing back down beneath the Orthodox Broadening Top trendline at 73.85. While the original formation target has been met, a decline beneath the March low suggests that the largest banks may be nationalized, as the new target appears to be negative.
(TheHill) Earlier this month, the United States’ largest banks reported unprecedented growth that could spell trouble for the future of the financial system.
Collectively, the ten largest U.S. banks expanded by more than $1.2 trillion in the first quarter of 2020. JPMorgan alone grew by nearly 20 percent, becoming the United States’ first bank with $3 trillion in assets. The bank took in $273 billion in new deposits in just three months. That’s equivalent to JPMorgan acquiring PNC Bank — the country’s seventh largest depository institution.
This dramatic growth stems from two dynamics related to the coronavirus pandemic. First, as companies have drawn on their preexisting lines of credit and the Federal Reserve has flooded the markets with waves of liquidity, firms and investors have deposited massive sums of cash in their bank accounts. This influx of funds has been referred to as a “reverse run on the banks.”
(WJLA) Congress intended the stimulus checks to be a lifeline. $290 billion dollars to help out-of-work Americans pay for necessities. Instead, it’s turned into bait for debt collectors.
It’s estimated that as many as one in three Americans may be waiting for a stimulus check that never arrives.
It’s really distressing. Congress did this extraordinary bill to give people money because they need it for food. The money needs to feed people, not debt collectors, said Lauren Saunders.
(TheMotleyFool) The European Central Bank (ECB) will now essentially pay banks to lend out money by offering them financing at a negative interest rate.
The ECB announced Thursday it was creating a new targeted lending facility that will provide approximately 3 trillion euros ($3.3 trillion) in liquidity to banks at rates as low as negative 1%, so long as the money they borrow gets passed on via loans to businesses and consumers.
The decision came after the ECB ran scenarios and projections that showed that GDP in the Eurozone could shrink by as much as 12% in 2020.
Ed. The European Velocity of Money is below 1.00, necessitating the use of negative interest rates to stimulate the economy.
The US Velocity of Money is still positive, but declining.