Will History Repeat?

In a wide-ranging swing, VIX rallied above Intermediate-term support/resistance at 17.07 and Short-term support/resistance at 18.26 before closing beneath both levels. Re-crossing the Intermediate-term resistance confirms the VIX buy signal.

SPX repelled at the trendline.

This week SPX tested Long-term support at 2608.04 before rallying toward the 2-year trendline at 2713.74, but closing beneath it. It appears to be on a sell signal.  A break beneath Long-term support at 2608.04 confirms the new outlook.

(Reuters) – Amazon and Microsoft pushed the Nasdaq higher on Friday, but weak reports from Exxon and other energy companies capped gains on the S&P 500 and the Dow Jones Industrial index.

Amazon.com Inc surged 7.9 percent to a record high of $1,638.10 after the world’s largest online retailer more than doubled its profit and forecast strong spring results.

Microsoft Corp rose 1.5 percent after topping Wall Street forecasts for profit, while Intel gained 2.2 percent as strength in its data center business drove a profit beat.

Exxon dropped 3.5 percent after posting a lower-than-expected quarterly profit.

The results come a day after Facebook’s impressive earnings beat led a rebound in technology stocks on Thursday and helped the main indexes close above 1 percent.

NDX also retests Long-term support.

The NDX retested Long-term support for a third time before bouncing toward its 2-year trendline.  It failed to achieve the trendline and closed beneath all critical supports, putting it on a sell signal.  Declining through Long-term support at 6474.93 confirms the sell signal.

(ZeroHedge)  It was supposed to be a blockbuster day for the Nasdaq following yesterday’s blowout earnings from Amazon, and solid results from Amazon and Microsoft. The anticipation of a surge in the tech index was so great it prompted David Gartman to quickly close out his Nasdaq short and… the Nasdaq went nowhere all day!

Even Amazon’s surge, which at one point hit an all time high of $1,638, or up nearly $120, faded most of the move, and at last check was up only $50, having wiped out more than half of its record gains.

Call it deja vu all over again: the pattern that we had seen for much of earnings season was again in force, as after reporting strong outstanding results, all the tech giants had a tough time holding on to all their gains. At its high of the day, the S&P 500 Information Technology Sector was up 1 percent, but by midday it dropped into the red. It’s a pattern that’s plagued this earnings season: Even though companies are beating earnings predictions at the fastest rate ever, stocks have remained relatively flat since JPMorgan kicked off reports.

High Yield Bond Index repelled again at Intermediate-term resistance.

The High Yield Bond Index attempted to rally above its trendline, but was pushed back by Intermediate-term resistance at 191.80, closing above the trendline. The trendline may not hold.  A broken Diagonal trendline infers a complete retracement to its origin. This may happen in a very short period of time.

(Bloomberg) A huge swath of the corporate bond market is looking increasingly vulnerable.

Bonds with the lowest investment grade have been a market darling over the past decade, ballooning in size as low global interest rates drew fund managers seeking higher returns. But as borrowing costs climb to a four-year high just as investors begin to anticipate a downturn in the global economy, some analysts are starting to sound the alarm.

“We’re late in the credit cycle, and trying to figure out when everything turns,” said Erin Lyons, a senior credit strategist at New York-based research firm CreditSights Inc. “Some of these may eventually be downgraded.”

UST challenges the Cycle Bottom.

The 10-year Treasury Note Index challenged the Cycle Bottom at 119.13 before closing above it. Once through this final support, it may go into free fall. The Cycles Model suggests this may happen as early as next week.

(SouthChinaMorningPost) Nicholas Spiro says that the 3 per cent level on 10-year US Treasury bonds may have a certain psychological importance to investors, but is not out of the ordinary historically. What is out of the ordinary is global debt levels, especially as a result of Trump’s policies, and investors should prepare accordingly

Over the past several days, international investors have fixated on the 3 per cent level in the yield on 10-year US Treasury bonds, a crucial benchmark for financial markets, breached on Tuesday for the first time since early 2014.  

The Euro makes an exhaustion plunge.

The Euro made an exhaustion plunge from the Triangle formation but may have reversed on Friday.  Triangles are known to make a false breakout at the end of the formation.  It now has the capability of a parabolic rally to or above 127.00 by the end of May or early June.  Triangles are often known as signals of an impending end of a trend.

(Reuters) – The euro dropped to session lows on Thursday after ECB President Mario Draghi hailed “solid” euro zone growth but kept rates unchanged, as dollar short positions unwound on strong U.S. economic data.

The euro fell to its lowest since mid-January at $1.211 after the European Central Bank announced its decision to keep monetary policy unchanged. The single currency had initially rebounded after Draghi played down concern over recent softness in data, but fell as the market digested the news and the U.S. dollar rallied.

The euro has been weakening all week, after a bounce in U.S. Treasury yields fired up dollar-buying and encouraged some to question whether the euro’s rally since last year had run out of steam.

EuroStoxx completes the right shoulder.

The EuroStoxx 50 Index edged higher to complete the right shoulder of a Head & Shoulders formation, also making a 58.4% retracement of the decline from the October 23 high.  While the high was made on Tuesday, the rest of the week was spent in a consolidation.  A break of the Head & Shoulder neckline and mid-Cycle support at 3305.68 may create a panic decline lasting through mid-May.

(Bloomberg) — European stocks are climbing, but investors aren’t waiting for more gains.

While the Stoxx Europe 600 Index is poised to post its fifth consecutive weekly advance — the longest streak since October — investors have been yanking money out of funds that track the region’s equities. To some, this shows traders are eager to cash in on the rebound rather than bet stocks will continue to climb at a time the region is facing a slowdown in economic momentum.

“We are seeing monetary conditions that are bound to become tighter, a softening in the region’s exceptional rate of growth, a euro that could rise again after the recent weakness, and bond yields going up, so investors have more choice,” City Index market analyst Ken Odeluga said by phone from London. “There are many other opportunities out there.”

The Yen pulls back toward support.

The Yen may have ended its decline at the mid-Cycle support at 91.44. The Cycles Model suggests that a rally may develop that has the potential to reach the Cycle Top resistance at 98.60 in the next 2-3 weeks.

(NasdaqThe Japanese Yen gapping lower and depreciating at the beginning of last week gave a preview of what would be to come. By Wednesday, USD/JPY closed at its highest since early February despite some mixed performance on Wall Street throughout the week on the earnings season. A stronger US Dollar , via hawkish Fed monetary policy expectations, came at the expense of other currencies including the Yen.

This month’s Bank of Japan rate decision failed to offer a meaningful direction for the local unit. Rates and their 10-year yield target were left unchanged as expected. Interestingly, the central bank dropped their previous statement on the timing of reaching 2 percent inflation around fiscal year 2019. Their update followed the prior week’s local inflation report, where the headline CPI rate declined to +1.1% y/y from 1.5% y/y

Nikkei completes an expanded flat correction.

The Nikkei remained above its two-year trendline this week, completing a flat-topped correction of its decline. A decline beneath the trendline and Intermediate-term support at 22185.83 renews the sell signal. The potential for a decline to the Cycle Bottom is very high.

(EconomicTimes) Japanese stocks rose to near three-month highs on Friday as chip-related firms rallied after brisk earnings forecasts from Advantest and Kyocera, helping the index to post the biggest monthly gain since last October.

The Nikkei share average ended 0.7 per cent up at 22,467.87, the highest closing level since early February, on the last trading day of April. Markets will be closed on Monday in Japan for a national holiday.

U.S. Dollar emerges from a Triangle formation.

USD rallied from a Triangle formation to challenge Long-term support/resistance at 91.81.  The rally toward the Broadening Top “Point 7” target has begun.  A panic Cycle may develop in equities and bonds, boosting the flow back into the USD as a safe haven.

(SeekingAlpha) The Fed’s relentless rate hikes and accelerating QE unwind take effect.

The dollar inched up again today, one more step in a series of increases that started on April 17. It has risen 2.3% in those seven trading days, based on the WSJ Dollar Index (BUXX), which tracks the dollar against 16 other currencies, including the Mexican peso and the Chinese renminbi, and it has risen 2.4% based on the Dollar Index (DXY), which tracks the dollar against six other currencies,.

From its recent low on February 16 – the lowest point since December 25, 2014 – the dollar has now risen 3.6% and is back where it had been on January 11:

.Gold slips beneath critical support.

Gold declined beneath both Short-term and Intermediate-term support at 1331.40 to close the week on a sell signal.  The Cycles Model suggests weakness in gold through mid-May.  This may be the beginning of a panic Cycle decline in precious metals.

(CNBC) Gold and silver have been trapped in a “bear super-cycle” since peaking in 2011, and they could stay there for another five years, according to Wells Fargo Investment Institute strategist John LaForge.

LaForge is bullish on neither but says investors who want to be in the precious metals should consider silver since it has relatively more upside potential and its fundamentals look better.

“We expect another five years or so of the bear, which means capped price rallies, and lots of sideways price action. Gold’s range for the rest of the bear super-cycle we suspect will be close to $1,050 to $1,400,” he wrote. Silver’s range should be $13 to $22, he wrote in a note.

Crude prices stall at a critical level.

Crude stalled at the 50% retracement level of its decline from April 2011 to February 2016.  This may be considered a standard retracement of a long-term trend, taking 26 months.  A break beneath the Cycle Top and trendline at 65.23 may indicate a change in trend.  A further decline beneath Intermediate-term support at 63.97 confirms it.

(AllianceNews) – Crude oil futures inched lower Friday amid signs the US shale boom will continue unabated.

The number of land rigs drilling for oil in the US is 825, up five from a week ago, according to Baker Hughes.

WTI light sweet crude oil was 9 cents lower at USD68.10 a barrel.

Commodities were dented this week as the US dollar enjoyed its best week in years.

However, expectations that OPEC will extend its supply quota plan with Russia gave oil a bit of a lift.

Shanghai Index on the Lip of a Cup with Handle formation.

The Shanghai Index sits on the Lip of a bearish Cup with Handle formation.  The Lip of the formation has been tested and broken, reinforcing the sell signal.  The Cycles Model suggests a lengthy decline, perhaps until mid-June.

(ZeroHedge) China’s introduction of a “social credit score” that will help the Communist Party monitor the loyalty and ensure the obedience of the country’s 1.4 billion people has already produced horror stories like ordinary citizens with no criminal history being banned from flying because they were caught jaywalking by the country’s network of surveillance cameras.

The score, which will soon be rolled out across China after first being implemented in the cities, aggregates data from a variety of government databases and other sources that have recently been enabled to share information on citizens’ activities. The score will help the government determine which citizens will receive access to social services, and which will be turned away.

The Banking Index retests the trendline.

— BKX retested the Ending Diagonal trendline and Intermediate-term resistance at 110.68, closing beneath both.  It remains on a sell signal. Cycles Model suggests that the Banking Index may have a month-long decline ahead of it.

(SovereignMan)  Is it Friday again? Must be time for another banking scandal!

Seriously– these banking scandals are happening with such regularity and predictability it would be almost comical. . . were it not for the millions of people who have had their lives turned upside down.

The latest transgression involves, once again, our old friends at Wells Fargo.

Bear in mind that the ink isn’t even dry yet on the $1 billion check that Wells Fargo wrote last week as a penalty to settle its previous scandal, where they defrauded 570,000 clients in a car insurance scam.


(Reuters) – Emboldened by President Trump’s pledge to loosen laws introduced following the 2007-2009 global financial crisis, U.S. banks are pushing to scrap or revise more than a dozen other lesser-known rules they say are outdated, costly and hurt economic growth.

Many would have been revised a decade ago, but changes were shelved during the financial crisis and the fierce political battle over the 2010 Dodd Frank Act that imposed a new layer of restrictions.

With Congress now poised to pass the first rewrite of Dodd Frank backed by key Democrats, and as Trump-appointed regulators strike a much more industry-friendly tone, banks see the changing atmosphere as an opportunity for a sweeping overhaul.

(ArmstrongEconomics) China is on its way to reaching the title of the Financial Capital of the World post-2032. However, that is also NOT going to be accomplished all on its own. In part, this is the moving trend and the shift our computer has been forecasting also because the West is in a Sovereign Debt Crisis and by raising taxes and imposing stiff regulations to try to keep the game going, GDP in the West will decline.

Nevertheless, China has some adjustment it must go through before it reaches that goal. It will surpass the EU, but the EU is hard at work of just trying to protect the jobs of bureaucrats rather than to actually make Europe a better place to live. Right now, China’s Debt to GDP stands at 250% mainly because to stimulate their economy, they actually lent money to people. The Western government bought their own bonds back to the “indirectly stimulate” the economy which never made it to the people. This is why Europe is still in deep trouble. The US took the bad loans from the banks and stuffed them in Freddie & Fannie. The EU left the bad loans on the books of the banks because it was seen as a bailout for Southern Europe. Now we have a banking crisis in Europe that never ends.

(ZeroHedge) Having been violently whipsawed in the past 3 months by soaring market volatility, and having notched only mediocre returns in recent months, analysts had assumed that hedge funds had substantially taken down their leverage especially now that traditional, momentum-chasing strategies no longer work. It turns out that nothing could be further from the truth.

According to the latest JPM Prime Finance portfolio update, Gross Leverage for the aggregate cash and synthetic Prime Finance portfolio rose +1.34% last week (Table 1) and is now at the highest level since 2014. As further shown, only Convertible bond Arb, High Grade Fixed Income and to a small extent, Market Neutral funds showed a decline in gross leverage in the past week.

Have a great weekend!


 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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