FOMO Is No Excuse For Lingering

Okay, so you got into the market early this year and your account may be up as much as 32%.  Compared to the historical averages, that is beyond an exceptional year.  So, why are you lingering?  Do you really think there is more to be had?

John Authers comments, “According to the Thundering Herd, the herd is thundering back into risk-taking. And the greatest spur leading it on has little to do with politics, or the economy, or the corporate sector. Instead, it is driven by that most basic human emotion: fear of missing out.”

VIX rallied today, but did not reach breakout status at 13.95.  This uptick may be a bit of a surprise to the volatility shorts who are piling on to the trade.  Net short traders in speculative volatility futures may be adding fuel to a possible Slingshot Move that could send the VIX back to its December high.

Bloomberg comments, “Alarm bells are ringing in the U.S. equity-options market, and to Sundial Capital Research Inc. that points to one thing: a spike in volatility ahead.

Extreme readings in indicators such as the cost of S&P 500 Index hedges, short-volatility positioning and U.S. equity put-call ratios all suggest investor complacency is at exaggerated levels. The Cboe Volatility Index — or VIX — has fallen almost 40% from its October high as equities rallied to fresh peaks on a surge in optimism over a potential U.S.-China trade deal.”

 

The NYSE High-Low Index is quickly eroding from 433 net new highs (intraday) on November 4 to only 48 in the past two days.  If this is a new trend, it is not what FOMO is about.

ZeroHedge remarks, “One month after the Treasury reported that in fiscal 2019 the US budget deficit hit $984 billion, a 26% increase from a year earlier, and the largest annual deficit since 2012’s $1.1 trillion, today the US Treasury released the latest monthly deficit data which revealed that in October, the first month of Fiscal 2020, the US deficit shortfall hit $134 billion, a $34 billion, or 34%, increase to the $100 billion deficit in October 2018, bigger than the average forecast of $130 billion.

 

SPX appears to be riding above its Cycle Top and trendline support at 3082.52 for more than a week.  Investors are cheering the “breakout” but there seems to be no momentum to push it higher.

ZeroHedge observes, “In a poker game, the rake is the cut that the casino dealer takes out of every pot. It’s usually a couple of dollars per hand … barely noticeable, certainly not noticeable to a casual poker player like me.

But what if the dealer started taking 18-25% out of every pot as his rake? Would you notice then?

That’s what JP Morgan management does with its “return of shareholder capital” through stock buybacks.”

 

NDX has also been riding its Cycle Top support line at 8221.98 for more than a week.  Loss of that support may be significant as the current Master Cycle winds up in the next two weeks.  The alternate view is that this may be an early high followed by a mean-reverting decline.

ZeroHedge observes, “Looks like we can add Cisco to the list of tech companies that will be aggressively buying back its stock to deflect attention from deterioration fundamentals.

After the close, the internet giant reported Q1 revenue of $13.16 billion, up +0.7% y/y, and better than the consensus estimate of $13.09 billion, resulting in GAAP EPS of $0.68, down 12% Y/Y. As with most other tech companies (and recall that 97% of S&P companies now rely on Non-GAAP numbers to entice investors), Cisco also reported non-GAAP EPS, which predictably were far above the GAAP number, with Q1 adjusted EPS of $0.84, coming well above the $0.81 estimate, and above last year’s non-GAAP number.

How did Cisco go from $0.68 GAAP to $0.84 non-GAAP? The company was kind enough to provide a bridge that had more adjustments than even perennial non-GAAPer, IBM.”

 

The High Yield Index declined beneath mid-Cycle support/resistance at 208.70 and has challenged but not closed beneath the 50-day Moving Average at 208.12.  The High Yield Index trades more like a stock than a bond, so it may be an early indicator of trouble ahead in stocks.

Bloomberg reports, “Floodgates have opened in the corporate bond market as issuers capitalize on some of the cheapest funding costs of the year.

Credit risk premiums have been tightening as investors pour money into corporate bond funds. That’s encouraging companies to borrow, with AbbVie Inc. looking to price the year’s largest sale Tuesday, and at least 10 new deals in the junk-bond market.”

 

Treasuries rallied from a November 7 low in a corrective pattern.  The bounce should continue to overhead resistance at 130.12 and last through the weekend to early next week.

Bloomberg reports, “Investors are pulling the plug on a strategy tracking long-dated Treasuries as U.S. stocks trade near all-time highs.

The iShares 20+ Year Treasury Bond exchange-traded fund, ticker TLT, posted its worst week of outflows on record, with traders yanking more than $1.2 billion, according to data compiled by Bloomberg. The 10-year U.S. government bond yield soared in the span, approaching 2%.”

 

The Euro declined from its November 1 high to its first consolidation point.  It may test the 50-day Moving Average at 110.39 or Short-term resistance at 110.50 before resuming its decline.  The Cycles Model suggests continued weakness until mid-December.

FXEmpire comments, “The Euro initially tried to rally during the trading session on Tuesday but gave back the gains in order to show signs of weakness again. We are sitting at the 1.10 level, which of course is a large, round, psychologically significant figure, and attracts a lot of attention.

The Euro has fallen a bit during the trading session after initially trying to rally, but sits just above the 1.10 level, an area that will obviously attract a lot of attention due to the fact that it is a major round figure. Overall, it’s very likely that this market will continue to see a lot of noise, and although I think it is very negative longer-term, I would not be surprised at all to see a short-term bounce. This makes sense, because the 1.10 level will attract a lot of attention in general.”

 

EuroStoxx continue to consolidate beneath its high made on November 7.  A decline beneath the Cycle Top support at 39.47 could put Stoxx in jeopardy of a larger sell-off.  The new Master Cycle has about 3 weeks to a potential low near the Cycle Bottom.

Barrons reports, “European stock markets fell Wednesday after comments from President Donald Trump failed to calm nerves over global trade tensions.

On the heels of a 0.4% gain Tuesday, the Stoxx Europe 600 index fell 0.6% to 404.17. The German DAX dropped 0.8%, the French CAC 40 dropped 0.6% and the U.K. FTSE 100 fell 0.5%. U.S. stock futures were also lower. Investors were waiting for testimony from Federal Reserve Chairman Jerome Powell, who will appear before Congress.

Trump told the Economic Club of New York on Tuesday that a phase-one trade agreement with China was close, but that if a deal isn’t concluded, the US is “going to substantially raise the tariffs.”

 

The Yen broke above mid-Cycle resistance at 91.83, giving an aggressive buy signal.  That signal may be confirmed at the 50-day Moving Average at 92.54.  If confirmed, this may be a classic Slingshot Move that could propel the Yen to its Cup with Handle target.

(Reuters) – The U.S. dollar fell against the Japanese yen and the Swiss franc, traditional safe-haven investments, after media reports that trade talks between the U.S. and China had “hit a snag” over farm purchases.

The negotiations stalled as China expressed it did not want a deal that looked one-sided in the favor of the United States, the Wall Street Journal reported on Wednesday, citing people familiar with the matter.

Investors pulled out of riskier assets, sending the three major U.S. stock indexes lower, and pushing up safe-haven assets like the Japanese yen JPY= and Swiss franc CHF=. Both currencies were at their highest in about a week against the dollar, with the yen up 0.21% at 108.76 and the franc up 0.38% to 0.989.

 

The Nikkei Index appears to have had its Master Cycle high last Friday, leaving it vulnerable to a potential month-long decline.  This is also a potential Slingshot Move that may send the Nikkei to new lows.

 

The US Dollar appears to be wrapping up its  rally as it approaches a 60% retracement.  The Cycles Model suggests the period of strength may be over.  If so, the USD may be vulnerable to a 3-week sell-off.  Should the Broadening Wedge trendline be crossed, the Broadening Wedge target may be possible over the next two months.

FXEmpire comments, “The US dollar has seen a lot of noise when it comes to trading against the Japanese yen, testing that massive 61.8% Fibonacci retracement level. Ultimately, this is a market that should continue to cause a lot of volatility.

The US dollar has rallied towards the 61.8% Fibonacci retracement level again against the Japanese yen. At this point, the market is very likely to continue to see noise in this general vicinity, and quite frankly it’s almost impossible to imagine a scenario where we can make a move without some type of catalyst at this point. There is a massive amount of noise right around the ¥109.50 level, based upon that 61.8% Fibonacci retracement level and of course the major meltdown candle we had seen several months ago. I also believe that the resistance runs to the ¥110 level, which is an area that is a large, round, psychologically significant figure, and therefore this is going to be a major barrier to overcome.

 

Gold bounced at a probable Master Cycle low yesterday.  The Gold Model is in a binary position that could take it much higher, provided it rises substantially above the 50-day Moving Average at 1504.06.  However, failure to rise above 1500.00 puts gold in a position to decline over the next 4 weeks.

CNBC reports, “Gold gained on Wednesday as U.S. President Donald Trump’s speech on the trade ties with China diminished optimism for a deal and dented risk appetite.

Spot gold rose 0.5% to $1,463.70 per ounce. U.S. gold futures rose $9.60 to settle at $1,463.30.”

 

West Texas Crude continues its consolidation just beneath its November 7 Master Cycle high.  A breakdown beneath its 50-day Moving Average at 55.67 gives it a sell signal with an approximate three week decline ahead.

OilPrice reports, “The American Petroleum Institute (API) has estimated a crude oil inventory draw of 500,000 barrels for the week ending November 7, compared to analyst expectations of a 1.649-million-barrel build.

Last week saw a build in crude oil inventories of 4.26 million barrels, according to API data. The EIA’s estimates, however, reported a build of 7.9-million barrels for that week.

After today’s inventory move, the net draw for the year now sits at 8.76 million barrels for the 46-week reporting period so far, using API data.”

 

Crop prices continue to march higher while the Cycles Model suggests that strength may continue through the end of the week, possibly longer.

ZeroHedge reports, “We are witnessing “unprecedented” crop failures all across the United States, but the big mainstream news networks are not talking too much about this yet. 

As you will see below, local news outlets all over the nation are reporting the disasters that are taking place in their own local areas, but very few people are putting the pieces of the puzzle together on a national level.  The endless rain and horrific flooding during the early months of this year resulted in tremendous delays in getting crops planted in many areas, and now snow and bitterly cold temperatures are turning harvest season into a complete and utter nightmare all over the country.  I am going to share with you a whole bunch of examples below, but first I wanted to mention the snow and bitterly cold air that are rolling through the middle of the nation right now…”

 

The Shanghai Composite Index fell through triple support at 2961.74 on Tuesday, putting it on a sell signal.  We may anticipate the decline to last about 4 weeks, according to the Cycles Model.  There is a potential Orthodox Broadening Top formation with an initial target of 2625.00.

ZeroHedge observes, “While it will hardly come as a surprise to anyone following China’s dismal attempts at reflating the economy, which on Monday we learned translated into the lowest Aggregate Financing print since the series was established…

… reaffirming Beijing’s impotence at stimulating the all-important credit impulse which is barely above cycle lows…

… today a Beijing-based think tank has become the first Chinese economic research institute linked to the government to predict that China’s economic growth rate will slow below 6.0% next year.”

 

The Banking  Index appears to have had its Master Cycle peak on November 7.  The Cycles Model suggests a probable 4-week decline to the next Master Cycle low.  This formation is called a Slingshot Move that projects a decline at a multiple of the rally from December 26.  Could there be a 50% decline in the offing?  A sell signal awaits the decline going through Cycle Top support at 106.50.

ZeroHedge reports, “If you want to know which investment houses have been getting the infamous “repo” loans from the Federal Reserve Bank of New York in recent weeks, as GATA has wanted to know, you’ll have to wait two years, according to a letter received from the bank today in response GATA’s request for the information.

The delay, the New York Fed’s letter says, is authorized by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Bloomberg reports, “As leveraged loans continue to pile up on the books of arranging banks in the U.S. and Europe, they’re finding a novel way to ease the pain.

Arrangers of recent deals for Kantar Group Ltd and CRH Europe Distribution could have been left with costly term loans on their hands when money managers snubbed the credits for posing too many risks.

But instead of holding the unsold portions on their trading books, the arrangers recut the debt as shorter-dated, amortizing facilities — known as a term loan A. These were then booked as a long-term asset or sold to other relationship banks that have ties with the company or the private equity firm behind the buyout, according to people familiar with the matter.”

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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