Did you know that a record number of 85-year-old Americans are still working? ZeroHedge reports, “As we saw with Friday’s jobs report, the booming US economy has continued to draw in workers from “the sidelines” – ie people who weren’t actively looking for work and were considered to be “out” of the workforce – as the participation rate has ticked higher in recent months (though it remains well below its pre-crisis levels). Still, economists have been largely unable to explain how wages have remained stagnant in a supposedly “tight” labor market. But a recent story in the Washington Post might hold a few clues…
According to Census data analyzed by WaPo, the number of Americans aged 85 and older who are still working has risen to record highs in recent years.”
VIX pulled back to its critical support at 13.31. Despite the decline, it remains on a buy signal. The Cycles Model shows probable strength for the VIX through the month of July.
(DailyReckoning) When geopolitical events create crises in the world, volatility usually follows in world markets. The results of this volatility is important to note and I will discuss this below.
In January 2018, two significant market events occurred nearly simultaneously. Major U.S. stock market indexes peaked and volatility indexes extended one of their longest streaks of low volatility in history.
Investors were happy, complacency ruled the day and all was right with the world.
Then markets were turned upside down in a matter of days. Major stock market indexes fell over 11%, a technical correction, from Feb. 2–8, 2018, just five trading days.
The CBOE Volatility Index, commonly known as the “VIX,” surged from 14.51 to 49.21 in an even shorter period from Feb. 2–6. The last time the VIX has been at those levels was late August 2015 in the aftermath of the Chinese shock devaluation of the yuan when U.S. stocks also fell 11% in two weeks.
SPX challenges the upper 7-year trendline.
SPX challenged the upper trendline of the 7-year Ending Diagonal at 2760.00. The sell signal may be in question, but a decline beneath the Weekly Short-term supprt at 2735.18 may reinstate it. Equities are entering their negative season, so care should be taken to protect what small profits there are in 2018.
(CNBC) Stocks right now are hanging by a thread, boosted by a bonanza of corporate buying unrivaled in market history and held back by a burst in investor selling that also has set a new record.
Both sides are motivated by fear, as corporations find little else to do with their $2.1 trillion in cash than buy back their own shares or make deals, while individual investors head to the sidelines amid fears that a global trade war could thwart the substantial momentum the U.S. economy has seen this year.
“Corporate cash is going to find a home, and it’s either going to be in buybacks, dividends or M&A activity. What it’s not going to be is in capex,” said Art Hogan, chief market strategist at B. Riley FBR. “Individuals are looking at the turbulence we’ve seen this year that we had not seen last year. That creates its own sort of exit sign for investors who don’t want to deal with that.”
NDX rallies above Short-term support.
After a negative two weeks, the NDX rallied above Short-term support/resistance at 7079.74 to remain on a buy signal. The Cycles Model suggests that the balance of July may bring pain to equities. The period of weak seasonality may be about to begin.
(SeekingAlpha) It is a popular canard to blame the rise in “passive” index investing for the ongoing and dramatic increase in the stock prices of the popular Facebook (FB), Apple (NASDAQ:AAPL), Amazon (AMZN), Netflix (NFLX) and Alphabet/Google (GOOG) (NASDAQ:GOOGL). But guess what, the broad market indices or index funds such as IVV or SPY or VTI do not drive those stock prices higher, the markets are still priced by active managers. Should we call it the Facebook fib?
Articles on Seeking Alpha and around the web of financial reporting continue to blame the indexers, but the markets are not priced by those who invest in passive index funds. A “passive” index fund such as iShares’ IVV will simply replicate or mimic the market. The percentage allocations to the FAANG stocks are decided by the active managers, not by the creators of index ETFs such as BlackRock or Vanguard or even Standard & Poor’s and the original index creators.
High Yield Bond Index continues its sideways consolidation.
The High Yield Bond Index has challenged Intermediate-term support at 188.55, then bounced to the top of it three-month trading range. MUT remains on a sell signal beneath the trendline. The sell signal is confirmed beneath Intermediate-term support. Sideways consolidations such as this imply a continuation of the existing trend.
UST remains above Intermediate-term resistance.
The 10-year Treasury Note Index maintained its position above Intermediate-term resistance at 119.95, putting it on a buy signal. The Cycles Model may allow an inverted Cycle over the next two weeks. If so, we may see UST rally back toward the Head & Shoulders neckline near 123.00. The Commitment of Traders shows the Commercial traders remain heavily long.
(Bloomberg) If bond traders still questioned whether Jerome Powell’s Federal Reserve would truly stay the course, no matter how choppy the waters, minutes of the central bank’s June meeting should erase all doubt.
Fed officials said they realized the Treasury yield curve was rapidly heading toward inversion, according to the Federal Open Market Committee minutes released Thursday. Many saw downside risks from emerging markets, in part because of the tightening financial conditions in the U.S. They heard intensified concerns about tariffs and other trade restrictions, with some of their contacts indicating “that plans for capital spending had been scaled back or postponed as a result.”
The Euro nearing the end of its rally.
The Euro appears to be nearing the end of its bounce from the bottom by testing Short-term resistance at 117.52. The Cycles Model suggests that the retracement may be over, or nearly so. The Cycles Model suggests a 2-3 week decline may be next.
(Bloomberg) German Chancellor Angela Merkel has proved once again she is the ultimate political survivor. As the immediate threat of a collapse of her government coalition passes, so does one source of some of downward pressure on the euro.
That pressure has been pretty substantial over the past two months, and the blowup in Italian politics in mid-April was just a part of it. The European Central Bank has been very effective in talking the euro weaker from the 1.25 peaks versus the dollar earlier this year, especially as President Mario Draghi navigated the end of QE in as dovish a fashion as possible.
Short positioning from hedge funds in euro currency futures is at the highest since the French elections in May 2017. That seems less justified today.
EuroStoxx bounces at mid-Cycle support.
The EuroStoxx 50 Index came back to mid-Cycle support at 3348.48, where it bounced again. This time the bounce went to Intermediate support at 3462.52, meeting resistance there. The Cycles Model calls for a Master Cycle low in mid-July.
(Reuters) – European shares climbed on Friday as traders said an escalating trade dispute between the United States and China – with U.S. tariffs on $34 billion in Chinese imports taking effect and China immediately retaliating – was factored in to prices.
The pan-European STOXX 600 index was up 0.2 percent at its close while Germany’s exporter-heavy DAX .GDAXI rose 0.3 percent.
While European stocks spent part of the afternoon in negative territory after the euro jumped following strong U.S. jobs data, the STOXX 600 ended the session broadly where it had begun.
“We’re in a typical ‘buy the rumour, sell the news’,” scenario, said Stephane Barbier de la Serre, strategist at Makor Capital Markets, when asked why markets were not falling given the trade dispute was moving unequivocally towards a trade war.
The Yen may be due for a bounce.
The Yen remained beneath critical support this week, still on a sell signal. The Cycles Model suggests the Yen may be due for a bounce that may last through the end of the month. A probe above Long-term resistance at 90.81 may confirm the reversal.
(Bloomberg) Global foreign-exchange reserve managers cut yen holdings by the most since 2008 in the first quarter as the incentive for holding Japan’s currency decreased.
Reserve managers trimmed yen-denominated assets by 2 trillion yen ($18 billion) to 53.2 trillion yen in the three months through March 31, based on International Monetary Fund data after taking account of foreign-exchange fluctuations. They boosted dollar holdings by $217 billion to $6.5 trillion.
Holding yen became less profitable for reserve managers due largely to a swing in dollar-yen basis. The popular trade of using basis as a way to enhance returns, highlighted by the deputy governor of Australia’s central bank last year, was impacted by changes in the U.S. tax system and higher Libor rates.
Nikkei pauses in the decline.
The Nikkei declined through both Intermediate-term and Long-term support at 22139.37, closing the week beneath them. The potential for a decline through the month of July to the Cycle Bottom at 15252.02 is very high.
(EconomicTimes) Japan’s Nikkei share average rose for the first time this week in a positive end to Friday, as investors took heart from gains in Chinese stocks and covered their short positions after early wobbles when Washington’s tariffs on Chinese imports took effect.
The Nikkei ended 1.1 per cent higher to 21,788.14, snapping a four-day losing streak. The index dropped 2.3 per cent for the week, posting third weekly declines.
The Nikkei Volatility Index dropped 12 per cent to a 1-1/2-week ..
U.S. Dollar retreats from mid-Cycle resistance.
USD retreated from mid-Cycle resistance at 95.44, closing above Short-term support at 93.44. A break of that support sets up a likely sell signal. The Cycles Model calls for a month-long decline that may challenge the Cycle Bottom at 87.98 along the way.
(Bloomberg) Trade wars are good, and easy to win — that’s a Donald Trump assertion which is giving succor to dollar bulls.
They see the greenback as a better haven than gold should the tariff tit-for-tat intensify. Four months after the U.S. president shocked equity markets with his vision of higher duties on imports to America, investors are discovering catalysts that should help the nation’s currency withstand trade turbulence better than gold.
“The dollar has become the main destination for safe-haven investors,” Ole Hansen, head of commodity strategy at Saxo Bank A/S, said by email from Copenhagen. “Geopolitical risk is on the rise, bonds and stocks have sold off and yet gold continues to drift lower.”
.Gold begins a bounce.
Gold appears to have made a Master Cycle low on July 3 at 1238.80, forming a probable neckline for a Head & Shoulders formation. The Cycles Model suggests a quick bounce to the mid-Cycle support at 1278.75 over the next 1-2 weeks before a resumption of the decline.
(TalkMarkets) Gold prices are poised to snap a three-week losing streak with the precious metal inching higher by nearly 0.2% to trade at 1255 ahead of the New York close on Friday. The reprieve from the recent selling pressure comes alongside a rebound in broader risk appetite with all three major US equity indices closing higher on the week despite ongoing concerns over the mounting trade war with China. For gold, the tariff battle represents a glimmer of hope for the bulls and the focus is on whether or not price can follow through on this week’s reversal off support.
Crude consolidates near the high.
Crude peaked on July 3 at 75.27, then eased down. The anticipated Cycle turn may have arrived. The Cycles Model now suggests a probable decline through the month of August with a 50% loss.
(Oil&GasJournal) The light, sweet crude oil contract for August delivery fell $1.20 on the New York market July 5 to settle just under $73/bbl while Brent crude oil for September delivery fell 85¢ on the London market to hold above $77/bbl.
Oil price benchmarks also fell in early July 6 trading, ending a week in which prices wavered on uncertainty about world oil supply and also the availability of spare capacity from some major producers.
Olivier Jakob, head of Petromatrix, said, “The bears are looking at the additional prompt supply, which is coming out of Saudi Arabia and you will have the bulls talking about the fact that the spare capacity is disappearing, so there are two ways to look at it.”
Shanghai Index declines with increasing volatility.
The Shanghai Index tested its Cycle Bottom at 2860.38 as suggested last week, then resumed a 5% decline before closing on the bounce. The Cycles Model suggests the probability of increased volatility in the next week. If enough strength is available there may be another bounce. But it may not last. Exhaustion of the decline may not set in until early September.
(ZeroHedge) One month ago, when looking at the surprising spike in Chinese corporate bond defaults – which yesterday added one more company to the list after Wintime Energy missed a 1.6bn yuan bond repayment in principal and interest – we asked if “it is time to start worrying about China’s debt default avalanche.”
Fast forward one month to today when Goldman’s credit analyst team headed by Kenneth Ho, said that “the past week we met with investors in Guangzhou and Shenzhen, and the tone remains very negative” for one reason: most investors suddenly feel as if they have lost the backstop of the central bank, which until recently would never allow corporate bankruptcies, and suddenly – as part of the country’s deleveraging campaign – is eager to take air out of the system, while at the same tine draining liquidity out of the system. Or, as Goldman writes, investors “would like to see policymakers provide more targeted lending to help with refinancing needs, and view that the recent liquidity injections are too broad to be able to alleviate the market concerns.”
The Banking Index retests the neckline.
— After BKX declined beneath the Head & Shoulders neckline at 106.00, it retested the neckline resistance and failed. This confirms the sell signal for BKX. The Cycles Model suggests a probable three week decline ahead.
(Barrons) The big banks kick off earnings season on Friday. Are they set to stage a comeback?
Financial stocks in the S&P 500 have slid 4.6% this year, lagging behind the broader index’s 3.2% gain and sending some options investors running for protection. Bank shares have gyrated lately as results of the Federal Reserve’s stress tests have been released, challenging Goldman Sachs Group (ticker: GS) and Morgan Stanley (MS).
Though the Fed has hiked rates two times this year, longer-term government bond yields have not risen as fast as shorter-dated debt. That could dampen bank profits, as banks make more money when they can charge more to lend than they pay out on shorter-term borrowings.
(Zacks) Despite the improvement in domestic economy, higher interest rates, tax cuts and the growing optimism regarding lesser regulations, the performance of bank stocks during the first half of 2018 has not been as impressive as expected.
Though the first-half performance of banks can be assessed only after the release of second-quarter 2018 results, several macroeconomic headwinds have been hurting the price performance of the industry.
During the first half of 2018, the KBW Nasdaq Bank Index declined nearly 2.6% and the S&P Banks Select Industry Index witnessed a marginal drop. These compare unfavorably with 1.7% growth of the S&P 500 index.
Germany’s biggest bank has lost more than 40 percent of its value this year after chalking up its third straight annual loss, replacing its chief executive and failing the first public stress test of its U.S. business. That’s pushed it down to 61st in index provider Stoxx Ltd.’s most recent leaderboard, the lowest among the current constituents, which means Deutsche Bank would be first to exit the gauge when non-members that rank among the top 40 are automatically added in a Sept. 3 review. Four non-members currently meet that criteria.
“There’s no chance that Deutsche Bank will survive the index re-balancing” in September, said Uwe Streich, an index analyst at Landesbank Baden-Wuerttemberg in Stuttgart. “Only if the shares jump dramatically, for example in a merger or takeover scenario, would the market value climb high enough to remain in the index.”
(SovereignMan) What I’m about to tell you is a true story that highlights just how pathetic the banking system has become.
A few months ago I was presented with a compelling opportunity to invest with a prominent, well-established private business based in the UK.
And, after extensive due diligence, I decided to make the investment… around $4 million.
Because this particular investment happened to be denominated in US dollars, though, the funds were routed through the United States via one of the major Wall Street banks.
Have a great weekend!
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