The Yen Makes a New High. Weekend Update January 20, 2017

VIX challenged its weekly Short-term resistance at 12.30, staying above the Master cycle low of December 21, although marginally beneath resistance. The successful retest of the December low is an indication of a probable change in trend. A buy signal may be forthcoming should the VIX rally above its Long-term resistance at 14.11. The breakout above the resistance zone implies higher targets to come. The abrupt turn made in August 2015 may be repeated here.

(ZeroHedgeThere’s a big disconnect for traders. Everyone keeps telling Bloomberg’s Richard Breslow that there’s so much uncertainty out there that it’s too dangerous to trade. They also assume every time we get yet another flailing gyration in a given day’s price action that someone knows something — and it’s big.

The truth is, no one knows anything at the moment. There are enormous uncertainties on every continent and where the ball stops bouncing is anybody’s guess. And your guess is as good as the next guy’s.

SPX closes between the Broadening Top and Cycle Top.

SPXSPX made a weaker retest of the upper trendline of its Orthodox Broadening Top, but could not breach its weekly Cycle Top support at 2254.56. A decline beneath the Cycle Top support gives the SPX a sell signal. The smaller Broadening Top formation suggests a decline to 2000.00 or possibly lower may occur.

(ZeroHedge) When looking at the latest weekly fund flows, it is clear that the Trump trade is over if only for the time being. As BofA reports, citing EPFR data, the last week saw the largest precious metal inflows in 5 months ($1.3bn), the 4th consecutive week of bond inflows ($4.5bn), and a week of modest $1.7bn equity inflows, however US stocks saw $2.5 billion in outflows, representing the 4th weekly outflow in the past 5 weeks.

The NDX challenges the upper trendline of the Orthodox Broadening Top.

NDXNDX challenged the upper trendline of its Orthodox Broadening Top for another week, making a marginal new high Friday morning. It must cross beneath its Cycle Top support at 4972.94 to give it a possible sell signal. A further break of the weekly Short-term support at 4928.18 confirms a sell signal.

(Reuters) U.S. stocks were up but off their best levels of the session on Friday afternoon as Donald Trump’s inaugural speech as U.S. President reinforced worries for some investors about future trade policies.

In his speech, Trump said U.S. policy will be to buy American and hire American.

Stocks cut gains during the speech, and some strategists said the comments fueled investor concerns about potential protectionist trade policies under Trump, while others said the move in stocks was part of a trend to “buy the election and sell the inauguration.”

High Yield Bond Index challenges Short-term support and trendline.

MUTThe High Yield Bond Index bounced off its Intermediate-term support at 161.18 and the Ending Diagonal trendline just above it. High Yield Bonds are on a sell signal. The Cycles model suggests a probable 2 week decline ahead. A broken Diagonal trendline near 161.50 implies a complete retracement of the rally may occur. Is this the canary in the coalmine?

(InternationalAdvisor) As inflation is rising and interest rates seem to have bottomed, investors are reducing the duration of their bond portfolios. But is duration risk really a factor in all fixed income asset classes?

JP Morgan AM announced yesterday it is launching a European high yield short duration strategy “for investors who wish to maintain their holdings in fixed income whilst limiting exposure to rising rates and still achieving a reasonable level of income in the current low interest rate environment”, said its head of European distribution Massimo Greco. Historically, however, high-yield bonds correlate much more strongly with equities than with interest rates. Moreover, US high-yield bonds tend to historically correlate negatively with treasuries.

USB finds support. Going higher?

USBThe Long Bond challenged weekly Short-term support at 150.14, but may be capable of a sharp rally from that support. The Cycles Model allows another attempt at mid-Cycle resistance at 158.72 over the next week. The larger pattern may not be finished, allowing it to resume shortly with a target near the 35-year trendline at 137.90 by mid-February.

(ZeroHedge74-year-old bond guru Lacy Hunt is among a rare breed in finance today: people who actually traded during a period when bonds continuously lost value. As a young bond manager coming of age during the Great Inflation and Richard Nixon’s wage and price controls, Bloomberg reports that Hunt saw the bear market in bonds coming in the late 1970s, and made a fortune for his clients. Today, as hints of inflation start to bubble and calling the next bear market becomes the industry’s favorite pastime, Hunt says no, “I’m still long bonds, especially the long-end.”

Hoisington Investment Management’s Hunt shrugs it off and says “it’s just more of the same.”

The Euro strength may be waning.

XEUThe Euro made a nominal new retracement high on Tuesday at 107.18 above the Lip of its inverted Cup with Handle formation and appears to have consolidated in that range. It now faces a possible 3-week decline as it ventures toward parity or below.

(ZeroHedge) Just as we warned was likely, Mario Draghi first remarks were dovish, highlighting the potential downside risks in the EU economy and suggest that inflation trends were not convincing…. in other words, the un-taper is on the cards. And  EURUSD reacted instantly…

  • *DRAGHI SEES NO CONVINCING UPWARD TREND IN UNDERLYING INFLATION
  • *DRAGHI SAYS UNDERLYING INFLATION PRESSURES REMAIN SUBDUED
  • *DRAGHI SAYS INFLATION PICKED UP DUE TO ENERGY
  • *DRAGHI SAYS RISKS TO ECONOMIC OUTLOOK REMAIN ON DOWNSIDE
  • *DRAGHI SAYS ECB HASN’T DISCUSSED REDUCING STIMULUS

EuroStoxx begins its descent.

STOXX50The EuroStoxx 50 Index tentatively began its descent, leaving the January 3 high intact. It is now due for a decline that may last up to 2 weeks. A decline beneath this week’s low at 3266.10 may provide a sell signal.

(Bloomberg) European stocks closed little changed as investors turned their focus to the inauguration of Donald Trump as U.S. president, and whether he can continue to fuel investor expectations of stronger economic growth boosted by more deficit spending and tax cuts.

The Stoxx Europe 600 Index fell less than 0.1 percent at the close. The index has lost momentum since its outperformance of the S&P 500 Index in December. Banks in Europe advanced for a second day, while construction companies led gains. The FTSE 100 Index posted its first weekly drop in seven, down 1.9 percent.

The Yen makes a new high.

XJYThe Yen made a new high above the weekly mid-Cycle resistance at 87.26 before closing above it. The next week appears to be a continuation of strength for the Yen. It may target Intermediate-term resistance at 90.79 before a consolidation.

(Reuters) Further sharp falls in the yen would be a concern for the Japanese government, William H. Saito, an advisor to the Japan government, said.

The BOJ has several tools to counter further falls in the currency, Saito told the Reuters Global Markets Forum on the sidelines of the annual World Economic Forum in Davos. He didn’t elaborate.

The Nikkei plunges.

NikkeiThe Nikkei plunged Tuesday and Wednesday beneath Short-term support at 19069.60 before regaining that support at the close of the week. This move confirms a sell signal beneath 19069.60..

(JapanTimes) Stocks advanced moderately Friday in thin trading ahead of the closely watched inauguration of Donald Trump as U.S. president later.

The 225-issue Nikkei average rose 65.66 points, or 0.34 percent, to close at 19,137.91. On Thursday, the key market gauge gained 177.88 points.

The Topix index of all first-section issues was up 5.31 points, or 0.35 percent, at 1,533.46, after climbing 14.29 points the previous day.

Both indexes finished higher for the third straight day.

U.S. Dollar challenges Intermediate-term support.

US DollarUSD challenged Intermediate-term support at 100.00 before retesting the trendline and Cycle Top resistance at 101.90, leaving it on a sell signal. However, there may be a short period of strength that may allow another retest of the Cycle Top. The alternate to a consolidation is a possible decline to the next support level at 97.25.

(ZeroHedge) In Steven Mnuchin’s nearly 6 hour confirmation hearing on Thursday, there was just one critical exchange lasting all of 90 or so seconds. It was Mnuchin’s response to a question from Senator Pat Toomey how he feels about a strong dollar. The question was predicated by Trump’s recent interview with the WSJ in which he voiced concern about the dollar’s recent appreciation, saying the currency was “too strong.”

Mnuchin’s response: the dollar is “very, very strong”, and “what you see is people from all over the world wanting to invest in the U.S. currency;” However, he hedged saying that while a strong dollar is great in long term, “it was meant to be that perhaps in the short term, the strength in the currency as a result of free markets and people wanting to invest here, may have had negative impacts on — on our ability in trade.

Gold is repelled at Intermediate-term resistance.

GoldThe Gold rally was repelled by weekly Intermediate-term resistance at 1213.05, closing beneath mid-cycle support/resistance at 1205.00. It may now be time to exercise caution, since gold has completed its minimum retracement and the Cyclical period of strength may have passed. The Cycles Model may emulate the Broadening Top pattern which calls for a resumption of the decline after a retracement of one-third to one-half of the decline from the top. Gold retraced 37.4%.

(MarketWatch) Uncertainty in the markets set in on Friday as Donald Trump became the 45th President of the United States and that’s likely to benefit prices for gold this year.

“The first 100 days will be important, as we will see how Trump has prioritized the changes he has promised,” Chris Gaffney, president of World Markets at EverBank, told MarketWatch.

Indeed, uncertainty runs high, particularly in inauguration years.

Crude bounces off Short-term support.

WTICCrude challenged Short-term support at 52.06 before making a brief retracement. A decline beneath that level produces a sell signal for crude.  The Cycles Model suggests a potential low in the next week or so.  The Cycles are compressed here, making sudden moves highly probable.

(Reuters) Oil prices rose more than 2 percent on Friday on expectations that this weekend’s meeting of the world’s top oil producers would demonstrate compliance to a global output cut deal, but rising U.S. drilling activity limited gains.

Members of the Organization of the Petroleum Exporting Countries and some other producing countries including Russia will meet in Vienna this weekend to establish a mechanism to verify compliance with a deal to cut 1.8 million barrels per day (bpd) of output, OPEC’s secretary general told Reuters.

Saudi Arabia’s energy minister said 1.5 million bpd had already been taken out of the market.

Shanghai Index breaks the Pennant trendline.

Shanghai IndexThe Shanghai Index broke through its year-long Bearish Pennant formation at 3125.00, closing beneath it. The fractal Model suggests the Shanghai is due for another 1,000 point drop, possibly starting next week. The index is now on a sell signal.

(ZeroHedge) Amid constant liquidity additions, record credit support, a devaluing currency, and admission that the last three years of macro data was fabricatedChina ended 2016 with the worst economic growth since 1990…

China’s macro data avalanche was a mixed bag. The headline GDP grew more than expected (+6.8% YoY) but Industrial Production disappointed and while retail sales rose more than expected, fixed asset investment growth missed.

If debt is growth then China’s transmission mechanism is officially FUBAR as Q4 saw the largest surge in aggregate financing ever…

 The Banking Index breaks Short-term support.

BKX— BKX declined, breaking Short-term support at 90.68. The result is a sell signal and probable decline to the mid-Cycle support at 72.87 under normal circumstances, but the ultimate target may be the “point 6” target near 54.00. Once broken, we may expect this three-year Broadening Top pattern to unwind very quickly.

(ZeroHedge) Overnight the PBOC injected another CNY95 billion into its banking system bringing the total weekly injection to a record CNY1.13 trillion.

However, it was not enough and overnight China allowed its five biggest banks to cut their reserve requirement ratio by 1% taking it down to 16% thus temporarily lowering the amount of money that they must hold as reserves to relieve pressure in its financial system as demand for cash surges ahead of the Lunar New Year holiday, Reuters reported. The banks affected by the move include ICBC, CCB, Bank of China, Bocom, and Agricultural Bank of China. The last time the central bank cut RRR was Feb. 29, 2016. The move is expected to release approximately 630 billion yuan in liquidity.

The dramatic moves come in a bid to avert a cash crunch heading into the country’s biggest holiday of the year.

(ZeroHedge) Moments ago JPM released an 8-K which revealed Jamie Dimon’s total compensation for the year. The answer: $28 million, up from the $27 million he was paid in 2015. Which, since Jamie Dimon is already a billionaire, will hardly make an impact on his bottom line.

(And again) With all eyes focused on Washington, on a Friday evening, Morgan Stanley just revealed that 58-year-old Morgan Stanley CEO James “don’t call me Jim” Gorman was paid $22.5 million. Despite a notable drop in earnings from expectations and a focus on cost-cutting, Gorman got a 7.1% pay rise (almost double that of Jamie Dimon).

Analysts expected Morgan Stanley to earn $3.155 in 2016. By the end of 2016 the firm realized just $2.756… but thanks to Trump’s election victory, the stock soared…

(ZeroHedge) Just when it seemed that no more lawsuits are possible for Germany’s largest lender, which over the past two years has settled or otherwise paid billions to set aside a barrage of allegations of wrongdoing leading to the bank’s suspension of bonuses for most senior bankers, today we learn that Deutsche Bank was sued by a Jewish charitable trust in Florida, alleging that the bank wrongly withheld as much as $3 billion from the heirs to a wealthy German family.

According to Bloomberg, the lawsuit claims the bank refuses to return the funds initially deposited by the Wertheim family in accounts opened at what is now Credit Suisse Group AG before the rise of the Nazis in Germany. Those accounts were later transferred to Deutsche Bank, according to the complaint filed Wednesday in federal court by Wertheim Jewish Education Trust LLC.

(TheAtlantic) Despite anticipation that the so-called Trump rally in the markets would continue through the close of 2016, most analysts were waiting for January’s bank-earnings reports before declaring the “Trump bump” official. Now those reports are in, and it’s clear: Several major banks are enjoying large upticks in earnings in the wake of the election—at least for now.

On Wednesday, Goldman Sachs reported $7.1 billion in earnings for 2016 while Citigroup reported earnings of $14.9 billion—each due in part to a double-digit increase in trading revenue and with particularly strong fourth-quarter results. Earlier in the month, Bank of America reported that its fourth-quarter profit climbed 48 percent from the previous year, and JP Morgan reported record earnings of $24.7 billion for 2016. Even Wells Fargo, with its massive fake-account scandal and missed earnings expectations, enjoyed some gains from the post-election rally. These earnings bumps are partly because of the frenzy of trading that followed the election.

Have a great weekend!

Anthony M. Cherniawski

The Practical Investor, LLC

P.O. Box 129, Holt, MI 48842

www.thepracticalinvestor.com

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