European Banks are stressed. Will the contagion spread?

Bank funding stress is getting contagious.  It may be time to head for the bunker as credit lines between banks are being pressured.  So far the concern is focused on Europe.  However, many of our domestic mega banks have been trading partners with European banks.  Connect the dots.

 Jeff Saut, Chief Investment Strategist at Raymond James once said, “ Liquidity is a coward; when you need her most she runs away and hides!

VIX surged past the weekly Cycle Top at 22.74, closing the week with a buy signal. The next Cycle Top may exceed the prior high in the next 1-2 weeks.

(ZeroHedge) Just two weeks ago, everything was awesome: jobs data was perfectly ‘goldilocks’, stocks surged, banks loved it, and VIX flash-crashed lower – normalizing the term structure. Today… things are very different.

The market has given up on Goldilocks.                       __________________________________________________________This may be a particularly good time to observe the markets through the eyes of a technician.

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SPX breaks the 2-year Trendline.

SPX declined through the lower Ending Diagonal trendline, stopping at Long-term support at 2583.02. While it may bounce on Monday, the Cycles Model suggests that SPX has a date with a major Cycle Bottom in the next week or two.  The broken trendline suggests that the entire two-year rally may be retraced in that time.

(CBSNews) .S. stocks tumbled their lowest levels since November amid fears of a U.S.-China trade war and concerns that higher interest rates could put the brakes on growth.

The Dow Jones Industrial Average declined 423.69 points, or 1.8 percent, to 23,533.20 on Friday. That followed a steep decline on Thursday, and pushes the Dow into correction territory, which is a decline of more than 10 percent from its 52-week high. The S&P 500 index slumped 2 percent on Friday, while the tech-heavy Nasdaq Composite index declined 2.4 percent.

NDX makes a hard reversal off the top.

The NDX sold off from its Cycle Top at 6992.08, breaking through Short-and-Mid-term support and leaving a bearish Island Reversal.  It is on a confirmed sell signal.  The 2-year Diagonal trendline is the next target.  Breaking through that, it is possible to decline to the Cycle Bottom at 3756.37 in short order.

(TheStreet)  Stocks slumped this week after Donald Trump reignited fears of a trade war by announcing tariffs on Chinese imports, and several of the top tech giants fell even more sharply.

The S&P 500, Dow Jones Industrial Average and the Nasdaq each fell around 6% this week, while Facebook Inc.  (FB – Get Report) , Apple Inc.  (AAPL – Get Report) and Alphabet Inc.  (GOOGL – Get Report) all declined even more. Facebook had a particularly rough week after news came to light that a data breach in 2014 allowed the data analytics firm Cambridge Analytica to harvest the data of as many as 50 million users.

“When the market goes down, the best-performing stocks go down more,” Wedbush analyst Michael Pachter said.

High Yield Bond Index declined through Long-term support.

The High Yield Bond Index broke through the 2-year Diagonal trendline and Long-term support at 182.66 as suggested last week. A broken Diagonal trendline infers a complete retracement to its origin. This may happen in a very short period of time.

(ZeroHedge) It’s time for JPMorgan to start worrying again that retail investors are no longer buying the f—ing dip (as it did three weeks ago).

Just one week after Bank of America was “stunned” by record inflows into equities, this week everything went in reverse, following the latest Facebook-inspired sharp drop in stocks which brought the market back to the verge of a correction. The result was a “huge” $19.9 billion equity outflowswith the $18.6 billion in ETF outflows the second highest ever according to BofA.

UST emerges above Cycle Bottom support.

The 10-year Treasury Note Index consolidated in a sideways fashion, bouncing from its Cycle Bottom support at 119.88 to test Short-term resistance at 120.54. A breakout above resistance may help the bullish case for UST.   Wednesday’s low at 119.92 may have been a Master Cycle low with a probable 2-3 weeks of rally to follow. A likely target may be the Head & Shoulders neckline near 123.00.

(RealInvestmentAdvice) In just a little more than six months, the U.S. national debt has grown by a $1 trillion dollars. Today, Congress will debate on a $1.3 trillion “Omnibus spending bill” to fund the government through the end of September of this year.

As noted by Robert Schroeder:

“Last week, the debt hit $21 trillion for the first time, rising from the $20 trillion mark it notched on Sept. 8. The debt is guaranteed to go higher, with President Donald Trump having signed a debt-limit suspension in February, allowing unlimited borrowing through March 1, 2019. Economists expect wider deficits to result from the tax cut Trump signed in December.

The Euro completes a Triangle.


The Euro appears to have completed a Triangle pattern that may allow a final probe higher.  If so, XEU may rally above 126.00 in a final probe higher.  A break of the Cycle Top at 123.77 implies the rally is underway.

(Reuters) – Euro zone leaders gave fresh impetus on Friday to reforms to make the bloc more resilient to economic crises, with renewed pledges to complete a banking union and develop a bailout fund after months of delay in the absence of a German government.

Leaders of the 19 countries sharing the single currency did not take any decisions at what the chairman of their finance ministers, Mario Centeno, called a “pit stop” summit, but promised to come up with concrete solutions by June.

“We are experiencing the most favorable situation since the introduction of the euro, which makes this a very good time to reflect strategically on our long-term ambitions,” Donald Tusk, chairman of the European Council, told a news conference.

EuroStoxx challenge the Head & Shoulders neckline.

The EuroStoxx 50 Index declined to challenge its Head & Shoulders neckline and mid-Cycle support at 3281.05.  The sell signal is confirmed at the crossing.  The Cycles Model suggests the decline may continue through the end of March.

(CNBC) European equities closed sharply lower on Friday, as heightened fears of a trade war shook global markets.

The pan-European Stoxx 600 was down 0.9 percent, as the index followed in the footsteps of loss in the U.S.

Europe’s autos led the losses, off by 1.9 percent amid escalating concerns of a tit-for-tat trade war. President Donald Trump moved towards long-promised anti-China charges on Thursday, triggering a stern response from Beijing.

The Yen breaks through the neckline.

The Yen broke through the Head & Shoulders neckline on renewed strength, giving the green light to rally above its Cycle Top resistance at 98.50.  The Cycles Model implies an inversion may be underway to a new high and confirms the Head & Shoulders formation.

(Reuters) – The threat of a trade war sent many world stock markets broadly lower in choppy trading on Friday and boosted safer assets like the yen and government bonds, a day after U.S. President Donald Trump announced tariffs on up to $60 billion of Chinese goods.

Trump signed a presidential memorandum on Thursday that could impose tariffs on up to $60 billion of imports from China, although the measures have a 30-day consultation period before they take effect.

After another bruising week, a key gauge of world equity markets was broadly headed for its first quarterly loss since early 2016 as a spike in volatility, rising inflation and the specter of a trade war spooked investors who had enjoyed a multi-year bull run.

Nikkei declines to new 2018 low.

The Nikkei broke through the two-year trendline and Long-term support to new lows not seen since early October. It is on a sell signal that may last more than a month. The potential for a decline to the Cycle Bottom is high.

(JapanTimes) Stocks nose-dived on the Tokyo Stock Exchange Friday due to intensifying concerns over a trade war between the United States and China, with the benchmark 225-issue Nikkei average finishing with a loss of nearly 1,000 points.

At the close, the Nikkei was down 974.13 points, or 4.51 percent, at 20,617.86, for its weakest finish since Oct. 3, 2017. It rose 211.02 points Thursday.

The Nikkei plunged some 1,032 points shortly before the close, as the market accelerated its downswing in the face of selling, apparently by European traders.

U.S. Dollar tests the Cycle Bottom again.

USD tested the Cycle Bottom support at 88.81 for a possible final time as today appears to be a triply indicated Trading Cycle low.  This may give the Dollar up to 2 weeks to rally toward its mid-Cycle resistance at 95.84, the Broadening Top “Point 7” target.  The crisis discussed last week may be emerging, boosting the flow back into the USD as a safe haven.

(Reuters) – Speculators’ net short dollar bets rose to the highest in more than a year in the latest week, according to calculations by Reuters and Commodity Futures Trading Commission data released on Friday.

The value of the net short dollar positions, derived from net positions of International Monetary Market speculators in the yen, euro, British pound, Swiss franc and Canadian and Australian dollars, was $21.99 billion in the week to March 20.

That compares with a net short position of $14.61 billion the previous week. To be short a currency means traders believe it will fall in value.

.Gold rallies off  Intermediate-term support.

Gold rallied from Intermediate-term support at 1315.75, hitting a high of 1350.40.  The high appears to be another Master Cycle inversion.  There may be a couple more days of strength before a reversal.  This may be the beginning of a panic Cycle in precious metals.

(Reuters) – Gold prices surged to a one-month high on Friday as the threat of a global trade war sent investors scrambling for safe assets.

U.S. President Donald Trump signed a memorandum that could impose tariffs on up to $60 billion of imports from China, prompting Beijing to urge the United States to “pull back from the brink”.

The tariffs have a 30-day consultation period, leaving room for compromise, but investors are concerned that a trade war could develop with potentially dire consequences for global growth.

Spot gold gained 1.6 percent at $1,349.56 per ounce by 1:33 p.m. ET (1733 GMT), having hit its highest since Feb. 19 at $1,350.20.

Crude breaks above the Broadening Wedge.

Crude surged higher form Intermediate-term support at 61.37 to challenge the January 26 high.  The Cycles Model suggests there may be another day or two near the peak before the reversal begins.  A break of this week’s low may propel crude beneath its Broadening Wedge formation.

(Investing) – WTI crude oil prices settled at eight-week highs as the prospect of an extension to OPEC-led production cuts into 2019 overshadowed data showing the number of U.S. oil rigs rose to a three-year year.

On the New York Mercantile Exchange crude futures for May delivery rose 2.46% to settle at $65.88 a barrel, while on London’s Intercontinental Exchange, Brent rose 2.22% to trade at $70.44 a barrel.

The number of oil rigs operating in the US rose by four to 804, the highest level since March 27, 2015, according to data from energy services firm Baker Hughes.

Shanghai Index breaks Long-term support, trendline.

The Shanghai Index broke beneath the two-year trendline and Long-term support at 3291.40 to challenge mid-Cycle support at 3144.30.  The trend appears to have changed with a potential retest the February low and possibly the Cycle Bottom at 2805.18 in the coming 1+2 weeks.

(Bloomberg)  China intervened to support its stock market on Friday, people familiar with the matter said, after fears of a trade war with the U.S. sparked the steepest intraday selloff in six weeks.

State-backed funds bought large-cap stocks including China Petroleum & Chemical Corp. and China Life Insurance Co., intensifying purchases in the afternoon, said the people, who asked not to be identified discussing private information. Both shares erased losses late in the trading session, while the large-cap CSI 300 Index pared its drop to 2.9 percent from 4.6 percent.

The Banking Index falls beneath the Diagonal trenline.

— BKX lost its perch on Short-term support at 112.59, falling beneath the Diagonal trendline.  The Cycles Model suggests that the Banking Index may have a two week decline ahead of it.  It is on a confirmed sell signal.

(WSJ)  Neel Kashkari oversaw the bailout of big banks during the financial crisis. Now, as a Federal Reserve regional bank president, he is proposing measures that could break them up.

In March 2008, he was a representative for the U.S. Treasury Department in negotiations to bring in JPMorgan Chase & Co. to take over Bear Stearns after the financial firm’s sudden collapse. Later that year, Mr. Kashkari, who was 35 years old at the time, was in charge of the $700 billion Troubled Asset Relief Program, launched during President George W. Bush’s administration to buy up distressed assets in an effort to stave off banks from further financial ruin.

“The bailouts, while the right thing to do at the time, violated a core American belief: If you take a risk, you bear the consequences,” Mr. Kashkari said in an interview last month. “A lot of political division we experience is still a byproduct of the financial crisis and the fundamental unfairness.”

(Bloomberg) Bank stocks just took a huge beating.

The KBW Bank Index plunged 8 percent this week, its worst showing since January 2016.

That’s a more than three-sigma selloff for the group, based on the weekly performance over the past five years. In other words, it’s an event that should happen less than 0.3 percent of the time under normal circumstances.

(AmericanBanker) Bank of America is offloading some margin loans after losing $292 million on soured credit to the former chairman of Steinhoff International Holdings, according to people with knowledge of the matter.

The bank has reached out to rival lenders, looking to sell some riskier margin loans it provided to wealthy clients and other investors, said the people, who asked not to be identified discussing private talks. In recent weeks, senior staff at Bank of America have been combing through the firm’s portfolio to identify debts for potential sale.

(ZeroHedge) The global funding market crisis is getting worse and its contagion is starting to show up in assets that ‘mom and pop’ care about. Bank stocks are being battered…

Following bank credit risk’s spike…

And European High Yield risk has exploded to one-year highs…

European stress is worse than US for now, as Charlie Diebel, head of rates at Aviva Investors, notes:

The longer it [LIBOR-OIS increase] goes on, the more pronounced the effects are going to be

Have a great weekend!

 Anthony M. Cherniawski                                                                                                                                              The Practical Investor, LLC                                                                                                                                  2205 Hopkins Avenue                                                                                                                                                                                  Lansing, MI 48912

Office: (517) 331-5200 

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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