Lance Roberts of RealInvestmentAdvice writes, “Yesterday, the President stated:
“If I ever got impeached, I think the market would crash. I think everybody would be very poor. Because without this thinking, you would see, you would see numbers that you wouldn’t believe in reverse.”
It is an interesting statement because there has been little to seemingly deter the bullish momentum of the market. Trade wars, tariffs, geopolitical stresses, a stronger dollar, and tighter monetary policy have all been quickly dismissed in exchange for hopes that corporate earnings and profitability will continue to accelerate into the future.
Even as I write this note this morning, the market is opening higher in the attempt to push the S&P 500 to “all-time” highs despite the fact the recent rally over the past week was attributed to “trade resolutions” with China which completely fell apart overnight.”
Can it happen?
You be the judge.
VIX completed a 78.6% retracement from its August 15 high, a normal retracement for the VIX. The probe above critical support at 13.10 triggered a probable buy signal in the VIX. The Cycles Model shows a likely surge strength for the VIX through late August and mid-October.
(Bloomberg) Financial markets are god-like in their ability to shrug in the face of extreme policy shifts. The conflagrations of Donald Trump’s election and the U.K. Brexit vote were quickly smothered by faith in “synchronized” economic growth, low inflation and central bankers’ willingness to keep interest rates low.
February’s spike in market volatility seemed finally to prove the complacent hordes wrong, only for it to nosedive once more — just as populism kept spreading.
SPX makes a new all-time high.
SPX made a new all-time high on Friday, beating out the January 26 high by 3.3 points, earning the title of the longest bull run in US stock market history. This begs the question, what will the markets do for an encore? The last time the SPX made this high, it had a 10-day sell-off. Food for thought.
(Reuters) – The benchmark S&P 500 stock index clinched its longest bull-market run on Friday, closing above its previous January high, as Federal Reserve Chairman Jerome Powell affirmed the U.S. central bank’s current pace of rate hikes.
The S&P had last reached a new closing high on Jan. 26, then retreated more than 10 percent, a correction that lasted until Feb. 8. Friday’s new closing high confirmed that the index’s bull run remained intact.
Speaking at a research symposium in Jackson Hole, Wyoming, Powell said the Fed’s gradual interest rate hikes were the best way to protect the economic recovery, maintain strong job growth and keep inflation under control. His comments did little to change market expectations of a rate hike in September and perhaps again in December.
NDX makes a lower high.
NDX continues to drift just beneath the July 25 high at 7511.39. This may be inferred as a non-confirmation to the new highs in the blue chips. The Cycles Model suggests that the next several months may bring pain to equities. The period of weak seasonality may be about to begin.
(Bloomberg) U.S. stocks are vaulting back to all-time highs. But the smart money isn’t celebrating.
Instead, they’re nursing pain. Hedge funds have seen returns dwindling even as the S&P 500 Index marches forward in what has become, by some measures, the longest bull market ever. An index tracking the performance of funds focusing on equities has fallen in five of the past six weeks, wiping out gains for the year, according to Hedge Fund Research data compiled by Bloomberg.
How is that even possible? Blame it on a defensive stance and bad-luck bets. Net leverage, a measure of risk appetite among hedge funds, has fallen to the lowest level this year. While the posture would have curbed losses during a market selloff, right now it’s prevented managers from reaping bigger gains.
High Yield Bond Index up against trendline resistance.
The High Yield Bond Index continues to rally beneath the trendline to a marginal new 72.6% retracement of the February decline. A sell signal is confirmed beneath Intermediate-term support at 192.46. “Flag” consolidations such as this imply a continuation of the previous trend.
UST resumes its rally.
The 10-year Treasury Note Index edged higher this week. UST is on a confirmed buy signal. Should it remain above critical support at 120.04, we may see UST rally back toward the Head & Shoulders neckline near 123.00. This rally may be painful for the speculative short sellers in treasuries.
(ZeroHedge) The US Treasury curve has (infuriatingly for policymakers) refused to reflect any growth hype narrative at all, with the spread between 2Y and 10Y maturities back in the teens – for the first time since 2007.
However, in what Deutsche Bank calls a “landmark moment” the US yield curve has tumbled back below the Japanese yield curve for the first time since Nov 2007…
We are sure the ‘smartest men (and women) in the room’ in Jackson Hole will be doing their best to shrug off this yield curve collapse as ‘different this time’, but we suspect deep down they all realize that one more hike priced into the short-end and the curve is inverted.
The Euro confirms/continues the bounce.
The Euro confirmed the bounce by launching itself above mid-Cycle support/resistance at 114.38. An inversion appears in which the Euro may aim for Long-term resistance at 119.66 as its target.
(ZeroHedge) One week ago, Goldman published a report in which it warned that the Italian bond market faces a “huge structural shift” unless a “marginal buyer” of last resort emerges to replace the ECB as the backstop of Italian government bonds.
Well, overnight one did emerge: a very unexpected and, as it turns out, “comical” one..
According to a report in Italy’s Corriere della Sera, President Trump told Italian Prime Minister Giuseppe Conte that the U.S. is willing to help the country by buying government bonds next year as Italy seeks to refinance its debt. Conte then told Italian officials about the offer after returning from his meeting with Trump at the White House three weeks-ago, Bloomberg reported.
EuroStoxx bounces at mid-Cycle support.
The EuroStoxx bounced at mid-Cycle support at 3381.49 as it seeks to retrace its decline. Weekly Short-term resistance at 3444.02 may be the retracement target as the decline resumes next week. There is a high probability that it may take EuroStoxx to the Head & Shoulders target.
(Bloomberg) European markets’ summer of discontent may be a taste of what’s to come.
It’s not that the fundamentals for the region’s equities are bad: economic data are finally perking up and earnings growth is steady. The issues clouding the outlook are political, ranging from the new populist government in Italy to the U.S.’s unpredictable trade policy. There are also risks brewing in emerging markets that are starting to haunt European markets
Since June ended, European shares have weathered Turkey’s turmoil and trade jitters to climb 1 percent and strategists are still projecting further gains in the second half of the year. But multiples have shrunk precipitously this year, cyclicals are at the lowest versus defensives in more than a year, and the streak of fund outflows from the region has reached its 24th week, according to Bank of America Merrill Lynch — all signs of feeble sentiment.
The Yen retests Long-term support.
The Yen challenged Long-term support again this week as it consolidates for its next move. Although there appears to be stiff overhead resistance, XJY appears capable of reaching its potential target at 92.50. The pullback mentioned last week appears to be over, or nearly so.
(Bloomberg) The Bank of Japan’s words are diverging further from its actions and the erosion of its credibility could end up hurting the central bank, according to Kunio Okina, a former BOJ official.
Okina says he was among BOJ watchers who weren’t convinced by the central bank’s claim last month that the introduction of forward guidance strengthened its commitment to its stimulus program, as it took small steps toward normalizing policy.
“The direction is toward stealth tapering,” Okina, now a visiting professor at Hosei University, said in an interview. “But simply saying that won’t let the policy pass, so they’ve put it in the gift wrap of ‘strengthened easing’ and pushed it out into the world.”
A loss of credibility could make it more difficult for the BOJ to bring about the desired results from its monetary policy, including by inviting misinterpretation by investors.
Nikkei extends its consolidation.
Nikkei extended its consolidation above Long-term support/resistance at 22414.45. However, the period of strength may be over or nearly so. Violating that support confirms a new sell signal. The Cycles Model calls for a new Master Cycle low in mid-September.
(JapanTimes) Stocks rang up solid gains Friday as investors took heart chiefly from the yen’s drop against the dollar.
The 225-issue Nikkei average rose 190.95 points, or 0.85 percent, to end at 22,601.77 on the Tokyo Stock Exchange, extending its winning streak to a fourth session. On Thursday, the key market gauge advanced 48.27 points.
The Topix index of all first-section issues added 10.98 points, or 0.65 percent, to end at 1,709.20 after edging down 0.15 point the previous day.
Buying outpaced selling from the outset on the back of the dollar’s rise above ¥111, brokers said.
U.S. Dollar tests Short-term support.
USD tested Short-term support at 94.84, closing above it for the week. The Cycles Model calls for a Trading Cycle low next week, so we may see a further decline to Intermediate-term support at 94.20. USD is on a sell signal where investors may wish to sell on the bounces.
“I think there’s a very high probability that we’re in the end game of dollar strength against most currencies,” Bob Parker, investment committee member at Quilvest Wealth Management told CNBC’s “Squawk Box Europe” on Friday.
Parker, speaking ahead of a speech by Federal Reserve Chair Jerome Powell, added that markets will be looking forward to what the Fed does next year.
“Are they going to do three next year? I think that one thing that is inconsistent is the Fed giving guidance for three rate hikes next year and forecasting growth next year in America of 2.4 percent. Something’s not right there.”
.Gold may retest the neckline.
Gold rallied higher, suggesting that the anticipated Master Cycle low came early at the Cycle Bottom. The decline appears to be complete, suggesting a probable continued rally towards the mid-Cycle resistance at 1274.99.
(Kitco) A rise in activity in gold options amid geopolitical tensions and a record-long bull market for U.S. equities suggests that investors are betting gold prices have found a floor, traders said.
Open interest in Comex gold call options giving the holder a right to buy the metal at $1,200 per ounce in December 2018, surged this week to a record 1,136 contracts, from 79 contracts on July 31, the largest in at least two years. September call options at the same price also hit a record for open interest volume this week. Open interest is the number of open contracts.
“The high level of open interest in options is a reflection of anxiety about geopolitics and equities being overbought that’s starting to creep into the gold market,” George Gero, managing director of RBC Wealth Management, said this week.
Crude tests Long-term support.
Crude bounced off Long-term support/resistance at 64.61, closing beneath Intermediate-term resistance and the Diagonal trendline at 68.87. The bounce may not fade until mid-week as strength may persist until then.
(S&PGlobal) Crude oil futures moved higher in late morning New York trade as record US refining demand shows no sign abating and amid a backdrop of geopolitical tensions.
At 1545 GMT, ICE October Brent crude futures were up $1.48/b from Thursday’s settle to $76.21/b, while the NYMEX October light sweet crude contract had gained $1.30 to $69.13/b.
“With oil strikes and US refining demand nearing record, oil is breaking out. With the US maintenance season [ahead], strong signs of [crude demand] not slowing down, it is clear that the normal drop in crude demand might not be as large as in years past,” said Price Group analyst Phil Flynn in a morning research note.
“While oil products are seeing a counter seasonal increase, it is clear by the crack spreads that the market is signaling that demand for oil products will continue to be strong,” he added.
Shanghai Index bounces from a new low.
The Shanghai Index made a new low but did not exceed its 2016 lows in a probable early Master Cycle low. There is likely to be a retest of the low in the next week or two. The reasons are that while it made the minimum pattern, the bounce was early and the Head & Shoulders target hasn’t yet been reached.
(SouthChinaMorningPost) If lowered price earnings of mainland Chinese stocks are not appealing enough for investors, a reading of the yield on Shanghai’s benchmark index could change that.
With the earnings yield on the Shanghai Composite Index’s rising 7.8 per cent this month, buying stocks would potentially generate the most decent returns since December 2014, according to Bloomberg data.
A decline of as much as 18 per cent since the start of the year has steadily pushed up the benchmark’s earnings yield, the reciprocal of the price-to-earnings ratio. The higher the earnings yield, the more undervalued stocks are, which means probable generous returns in the future.
The Banking Index makes a new retracement high.
— BKX made a new retracement high on Tuesday before pulling back, maintaining a gain for the week. The strength we observed is waning, but a sell signal is not given until BKX declines through critical support at 107.57. The Cycles Model calls for a decline through mid-Cycle support at 95.35 to set the pace.
(ZeroHedge) Delinquencies soar past Financial-Crisis peak at the ca. 5,000 smaller US banks, and these are the Good Times. What’s going on?
The delinquency rate on credit-card loan balances at commercial banks other than the largest 100 – so at the nearly 5,000 smaller banks in the US – rose to 6.2% in the second quarter. This exceeds the peak during the Financial Crisis by a full percentage point and was up from 4.0% a year ago.
But for the largest 100 banks – which carry the majority of the credit-card loan balances – the delinquency rate was 2.4% (seasonally adjusted), the Federal Reserve Board of Governors reported Tuesday afternoon. So what is going on here?
According to the latest Transunion Industry Report, in the second quarter of 2018, credit-card issuers slashed the average credit line availability to subprime borrowers by 10% from a year earlier. That contributed to a 3% decrease in the average borrowing cap on new credit-card accounts, to $5,649, the first drop in at least three years. However, even as they trimmed total credit availability, banks tried to make up for declining balances with more clients and subprime originations rose 4% Y/Y.
As Bloomberg notes, the pullback is a reversal after years of banks easing their underwriting standards as part of push to grab market share in credit cards, and paradoxically comes at a time when senior loan officers told the Fed that loan standers had loosened in recent weeks. Meanwhile, investors are growing skittish over the potential for defaults to rise, and their worries increased last year when the amount of outstanding card loans passed a record set just before the global financial system almost collapsed in 2008.
The fourth-largest U.S. bank has given 60 days notice to 638 mortgage employees across the country, Wells Fargo spokesman Tom Goyda said in an emailed statement, with cuts concentrated in Orlando, Florida; Ranch Cordova, California; Colorado Springs, Colorado, and Charlotte, North Carolina.
Have a great weekend!
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