The Banking Index on a Sell Signal. Weekend Update March 24, 2017

VIX broke out above its Long-term resistance at 13.48, as VIX closed up more than 10% for the first time since last October. A buy signal has been made above its Intermediate-term resistance at 11.76. Each additional breakout above subsequent resistance areas further confirms the signal. An actual change in long-term trend may occur above the top trendline of the 15-month long Ending Diagonal formation at 19.00.

(ZeroHedge) With tail risk hedges (SKEW) at record highs, and normal risk hedges (VIX) beginning to rise, it appears anxiety over Trump-Trades is growing.

We would expect SKEW to drop and VIX to rise as traders shift from expensive tail hedges to cheap ‘normal’ hedges – which will weigh on stocks overall.

SPX closes beneath the trendline.

SPXSPX closed beneath the upper trendline of the Orthodox Broadening top, although still a few points above Short-term support at 2337.60. The SPX is on an aggressive sell signal. A break of Intermediate-term support at 2302.34 may send the SPX to its cycle Bottom at 1884.56, or possibly lower.

(CNNMoney) Doubts about the future of President Trump’s agenda have put Wall Street on the defensive.

Investors have yanked $8.9 billion from U.S. stock funds during the week that ended March 22, according to research firm EPFR Global. That’s the biggest retreat since last June.

Some of the hardest-hit stocks were the ones that soared after the election. Investors pulled money from banks, manufacturers and small-cap stocks, which have the most exposure to the fluctuations of the American economy.

NDX bounces off its trendline.

NDXNDX declined, but bounced off the upper trendline of a smaller Orthodox Broadening Top at 5325.00. Short-term support is just beneath it at 5306.28. A loss of that support may create a sell signal in the NDX with a subsequent decline testing lower supports. A decline beneath mid-Cycle support at 4593.69 may bring a potential change of trend with it.

(Bloomberg) Silicon Valley technology executives tend to be control freaks. Snapchat’s founders made sure they didn’t have to listen to stockholders when deciding how to run the company. When Marissa Mayer was a senior Google executive, she instructed her staff to test 41 shades of blue to find just the right color for a website toolbar. Jack Dorsey made sure Twitter headquarters were stocked with coffee from his favorite Bay Area spot.

And yet too many young companies are ignoring a step that could ensure they stay in control of their destinies. They could turn a profit.

 High Yield Bond Index closes at Short-term support.

MUTThe High Yield Bond Index declined, closing at Short-term support at 166.47. A break beneath the Diagonal trendline and Intermediate-term support at 165.31 implies a complete retracement of the rally may occur. The Cycles Model suggests weakness ahead, especially so when the trendline is broken..

(NASDAQ) US junk-bond spreads have gapped out to their widest levels of the year, as investors take billions of dollars out of high-yield funds amid fresh concern about the risky asset class.     The average junk-bond spread was 416bp over similarly dated Treasuries on Wednesday, 3bp wider than at the start of the year, according to Bank of America Merrill Lynch data.     The troubled retail sector has accounted for much of the weakening, the data show, with retailer spreads out 108bp so far this year of the year to T+661bp.
USB rises above critical supports.

USBThe Long Bond rose above Intermediate-term support at 150.02. The Cycles Model now suggests that a period of strength may develop for the next week. The mid-Cycle resistance at 158.45 still appears to be the target. Is this a case of “buy the rumor, sell the news?”

(ZeroHedge) The Long Bond has erased all its losses for March as 30Y yields drop back below 3.00% for the first time since Feb 28th.

So much for the rate-hike…

Given the massively over-extended length of shorts, there seems plenty of room for yields to fall further…

The Euro rally may be over.

XEUThe Euro may have finished a flat correction as its period of strength appears to have run out at an inverted Trading Cycle pivot day this week. The Cycles Model suggests a possible panic decline over the next two weeks.

(Independent) The chief economist of the European Central Bank has warned Italy and France that their economic problems would not be solved by breaking up the single currency.

The Opinionway poll also showed Le Pen, who has pledged to take France out of the euro, narrowing Macron’s lead in the second round run-off.

In an interview with Italy’s Il Sole 24 Ore newspaper, Peter Praet, an executive board member of the ECB, said the idea that the euro was the root cause of high unemployment and low growth in certain European countries was a populist “deception”.

“What I do worry about is the populist narrative that things were better before the euro,” he said.

EuroStoxx peaked on Tuesday.

STOXX50The EuroStoxx 50 Index rallied to a Tuesday high at 3471.50 and has made a potential daily reversal. The period of strength may have come to a hard stop. A break of short-term support at 3347.18 may offer a sell signal which may be confirmed beneath Intermediate-term support at 3303.16.

(Bloomberg) European stocks fell for the fourth time in five days, widening a weekly decline and moving further away from a 15-month high they reached just a week ago.

The Stoxx Europe 600 Index lost 0.2 percent the close. Twelve out of 19 industry groups declined, with energy shares falling the most. The regional benchmark slipped 0.5 percent this week as investors questioned the extent to which U.S. President Donald Trump can deliver on growth policies that have been priced in since his election.

The Yen is in the longest winning streak since 2011.

XJYThe Yen rallied above its prior highs as it thrust toward its Cup with handle target. This action confirms the buy signal in the Yen. The Cycles Model suggests the period of strength may run out by the end of next week, but the correction that follows may be short.

(InvestmentWeekThe yen is set to record its longest winning streak since February 2011 as investors flock to safe haven assets amid concerns markets are heading for a correction.

The rally seen in equity markets appeared to have started to wane earlier this week as promises made by US President Donald Trump regarding fiscal policy, tax cuts and deregulation look less likely to be implemented, according to the Financial Times.

This has caused the US dollar to fall while safe haven currencies have picked up pace.

The Nikkei challenges Intermediate-term suport.

NikkeiThe Nikkei challenged Intermediate-term support at 19257.98 but managed to close just above it. A loss of that supports suggests a potential decline to the Cycle Bottom at 15177.03 or lower. The Master Cycle suggests a possible low late next week, but a more significant low in late April.

(DailyMail) Japan’s Nikkei share average gained on Friday as the yen took a breather from its recent strength, but the Nikkei still logged a weekly loss.

The Nikkei ended up 0.9 percent at 19,262.53, shrugging off early weakness and moving decisively away from the previous session’s 1-1/2-month lows. It still shed 1.3 percent for the week.

Will the U.S. Dollar break critical support?

US DollarUSD continued its decline while maintaining its sell signal. The Cycles Model suggests a significant low is now due. However, there is no bottom in sight, yet. The question is, will it break key support at 99.19 before it makes a low? Many speculators don’t think so.

(Reuters) Speculators increased bullish bets on the U.S. dollar for the third straight week, pushing net longs to their highest since Jan. 31, data from the Commodity Futures

Trading Commission released on Friday and calculations by Reuters showed.

The value of the dollar’s net long position totaled $18.44 billion in the week ended March 21, up from $17.59 billion the previous week.

The value of the dollar has decreased since Tuesday, the last day the CFTC collected data, as concerns about how quickly the administration of U.S. President Donald Trump would be able to implement pro-growth policies kindled safe-haven demand for currencies like the Japanese yen and Swiss franc.

Gold may retest Long-term resistance.

GoldGold continued its rally toward Long-term resistance at 1260.90. While the retracement may go a bit further, both the Cycles Model and Orthodox Broadening Top pattern anticipate the decline tp resume with only short-term bounces until it reaches its target illustrated on the chart. It has been two weeks since Gold’s last Master Cycle low. It may be due for a turn next week.

(Bloomberg) Gold has staged an impressive rebound since the Federal Reserve raised interest rates last week and reiterated that the pace of increases will accelerate. But is a rally logical?

Some would argue that higher rates portend faster inflation and that gold is a good hedge against inflation, thus validating a long gold position. On the flip side, post-rate hike rallies in gold can be seen as counter-intuitive for two reasons, the first being that the precious metal doesn’t generate a yield. Warren Buffett once said during one of his Berkshire Hathaway annual meetings that if you owned all gold in the world, “you could climb on top of it, fondle it, and declare yourself king, but you couldn’t earn anything on it.”

Crude’s Head & Shoulders suggests more decline.

WTICCrude has retested its support, revealing a potential Head & Shoulders formation that suggests the decline may continue. It further lends credence to the Orthodox Broadening Top formation which indicates the Cycle Bottom as its target.  The Cycles Model suggests the decline may resume for another three weeks

(Benzinga) On Friday, President Donald Trump signed a permit to allow the construction of the controversial Keystone XL pipeline. Fuel price-tracker GasBuddy has been tracking the Keystone controversy for the last several years.

“While the impact on gasoline prices may not be immediately known or felt, the pipeline will allow more U.S. refiners to process Canadian crude oil and reduce reliance on foreign supply, while helping Canadians secure their energy future,” GasBuddy analyst Patrick DeHaan wrote Friday.

Shanghai Index still under control.

Shanghai IndexThe Shanghai Index appears to have made a minor retracement high two weeks from its last Master Cycle low. The inability to make new highs at this critical juncture suggests an increasing probability of trend failure. Critical support lies at Intermediate-term support 3181.95which, when broken, may lead to a sell-off. The fractal Model suggests the Shanghai is due for another 1,000 point drop.

(ZeroHedge) In China’s latest effort to control capital flight, authorities have banned Chinese citizens from buying property in Hong Kong using their credit cardsThe use of Chinese credit cards to pay for a portion of property transactions is widespread in Hong Kong.

Willy Liu, chief executive of local real estate agent Ricacorp, said 15-20 per cent of new property buyers were mainland Chinese. The majority use UnionPay cards to pay for 5 per cent of the home price as a mortgage deposit in Hong Kong. Most of those transactions are worth at least HK$500,000 ($64,371), Mr Liu said, surpassing the $50,000 annual limit for personal foreign exchange imposed by China’s regulators.

The Banking Index on a sell signal.

BKX— BKX declined beneath weekly Short-term support at 94.24 on Monday, putting it on a sell signal. The daily chart shows an Ending Diagonal being violated, suggesting a complete retracement of the rally since last January.  Serious investors may be well served to sell any rally rather than buy the dip.

(ZeroHedge) During the so-called Chinese Banking Liquidity Crisis of 2013, the relative cost of funds for non-bank institutions spiked to 100bps. So, the fact that the ‘shadow banking’ liquidity premium has exploded to almost 250 points – by far a record – in the last few days should indicate just how stressed Chinese money markets are.

While interbank borrowing rates have climbed across the board, the surge has been unusually steep for non-bank institutions, including securities companies and investment firms. They’re now paying what amounts to a record premium for short-term funds relative to large Chinese banksaccording to data compiled by Bloomberg.

(ZeroHedge) Back in the summer of 2015, Deutsche Bank mistakenly paid $6 billion to a hedge fund client by mistake in a “fat finger” trade on its foreign exchange desk. The embarrassed bank recovered the money from the US hedge fund the next day, and quickly accused junior member of the bank’s forex sales team of being responsible for the transfer in June while his boss was on holiday. AS the FT then reported, instead of processing a net value, the person processed a gross figure. That meant the trade had “too many zeroes”, said one of the people.

Fast forward two years later when the German banks have done it again.

As Bloomberg reports, state-owned KfW, which gained notoriety for erroneously transferring hundreds of millions of euros to Lehman Brothers on the day the U.S. firm filed for bankruptcy, appears to have done it again when in February it mistakenly transferred more than 5 billion euros ($5.4 billion) to four banks “because of a technical glitch that repeated single payments multiple times.”

(Reuters) One afternoon in mid-January, Prime Minister Theresa May walked into a meeting room in the Swiss resort of Davos to face Wall Street’s most powerful bankers.

May had delivered her vision two days earlier for pulling Britain out of the European Union’s single market. Now the Wall Street banks, fearing Britain was headed for trouble, wanted to hear more about her strategy.

At stake was London’s future as a global financial centre. Among those present were Lloyd Blankfein, chief executive of Goldman Sachs, Jamie Dimon, chief executive of JPMorgan Chase, and James Gorman, chief executive of Morgan Stanley. Blankfein, a former gold trader raised in the Bronx who worked his way up to lead one of the world’s most powerful investment banks, was the most direct during the talks, according to two bankers and a government official with knowledge of the meeting.

(ZeroHedge) First Deutsche Bank, now Credit Suisse: according to Bloomberg, the second largest Swiss bank, is also preparing to take advantage of euphoric markets and is considering selling stock valued at more than 3 billion Swiss francs ($3 billion) as it seeks to boost capital levels. The news sent the stock sliding.

(ZeroHedge) As previewed last night ahead of today’s fourth and final ECB TLTRO-II operation which took place earlier this morning, a big take up was expected with market consensus expecting €115bn, and some forecasts as high as €300BN. The final number came almost in the middle, with the ECB reporting it had allotted €233.5 billion among 474 bidders, more than double the amount expected.

Following the news, European stocks climbed, led by mining and bank shares, as lenders borrowed more than double what was forecast under the European Central Bank’s TLTRO program.

Have a great weekend!

Anthony M. Cherniawski

The Practical Investor, LLC

P.O. Box 129, Holt, MI 48842

Office: (517) 699.1554

Fax: (517) 699.1558

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. 

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