The End Of An Era?

November 18, 2019

 

Good Morning!

SPX futures are still in rally mode this morning, having risen to 3127.62.  We are in the ideal time frame for a reversal,  Friday may have been the final day of strength, so be on the alert should the SPX decline at the open, according to the Cycles Model.  The Cycle Top is at 3088.49 and the upper trendline is near 3075.00.

Addendum:  It appears that the market is tumbling…

ZeroHedge comments, “At this rate, rising by about 20 points er day, Trump will only be happy if the S&P hits 4,000 around the time of the 2020 election.

While US equity futures drifted ever higher into all time high territory, with S&P futures now above 3,120 on what many erroneously claim is trade deal optimism but in reality is the Fed and ECB’s injection of $80 billion in liquidity every month, world shares were also close to a record high on Monday, after Beijing surprised markets by trimming a key interest rate for the first time since 2015.

VIX futures are higher after a probable Master Cycle low on Friday (Day 254).  If so, the VIX may be in sync with the SPX, with the VIX in a rocket rally that may last for up to 60 days.  This is a very tightly wound index, so we may expect to see a record-setting melt-up.

Bloomberg observes, “An investor probably would’ve panicked if you told her at the start of 2019 that the trade war wouldn’t go away. Or that earnings would fall flat and that a bid to kick out the president would erupt.

Fast forward 11 months and nobody seems to care. Volatility in the equity market is flirting with a two-year low, with November rivaling the quietest months in three decades. Stocks are booming a month before Christmas, and not even next year’s presidential race is troubling investors.”

 

NDX futures are set to open down this morning.  Between the time I wrote the SPX analysis and now another news blast has pulled the rug out from under the markets.

 ZeroHedge reports, “After surging overnight, US equity futures are tumbling on reports that China is less optimistic about a deal with US as Hong Kong tensions soar.

CNBC’s Eunice Yoon tweets:

Mood in Beijing about #trade deal is pessimistic, government source tells me. #China troubled after Trump said no tariff rollback. (China thought both had agreed in principle.) Strategy now to talk but wait due to impeachment, US election. Also prioritize China economic support.”

The result is clear, stocks are tumbling…”

November 15, 2019

VIX declined to test the lower trendline of its 6-month trading channel, making a potential Master Cycle low.  The implication is that a reversal may be anticipated as early as Monday.

(ZeroHedge) For the past 5 weeks, net futures for VIX non-commercial spec positions have hit consecutive record shorts, with the latest print of -206,157 the highest on record.

So besides a reflexive trade in which record market highs prompt carry-seeking traders to short even more VIX, which in turn results in even higher highs, even more short VIX carry and even more VIX shorting, does this unprecedented shorting activity in spot VIX imply anything else, besides the risk of an unprecedented VIX short squeeze of course?

SPX In Throw-Over Mode

All the chatter of a breakout may turn to be a fake-out.  A throw-over is a final phase of a rally to pull in as many investors as possible.  The wipeout soon follows.

(Bloomberg) U.S. stocks rose for a sixth straight week as optimism that the Trump administration will clinch a partial trade deal with China diverted attention from evidence that economies are struggling at home and abroad.

The S&P 500 climbed 0.9% in the five days to close above 3,100, and the Dow Jones Industrial Average pushed past 28,000 for the first time. Six weeks of gains mark the longest rally in two years. The Cboe Volatility Index dipped below 12 and ended near the lowest since July.

NDX Throws Over Its Cycle Top

NDX spent the second week above its Cycle Top and trendline at 8226.65.  A breakdown beneath the Cycle Top could bring the demise of the uptrend.

(Investopedia) The FANG stocks, Facebook Inc. (FB), Amazon.com inc. (AMZN), Netflix Inc. (NFLX), and Google parent Alphabet Inc. (GOOGL), have led the decade-long bull market and thus receive outsized attention from investors and market watchers. However, several “old tech” stocks have outperformed the FANGs handily in 2019, per a detailed report in the Financial Times summarized below.

High Yield Bonds Lose Long-term Support

High-Yield Bonds fell beneath Long-term support at 207.91 this week.  It puts this weaker index on a sell signal.  While the trendline at 200.00 may provide a bounce, the implication is a longer-term decline may be forthcoming.  Should trendline support be lost, the next probable target may be Point 6 of the Orthodox Broadening Top.

(ETFTrends) In previous posts, I’ve discussed the risks in treasuries and corporate bonds in this current economic environment. But what is the outlook for non-investment grade, or “junk” bonds? What about the massive growth in the collateralized loan obligation (CLO) market?

Investors in this space have always emphasized higher levels of income or growth rather than capital preservation. These investments are often termed “speculative,” which would suggest buyers are cognizant of the risks of the asset class, but are they truly aware of the amount of risk in these asset classes.

Treasuries Bounce.

The 10-Year Treasury Note bounced from Monday’s Master Cycle low into a period of strength that may very soon expire.  Monday’s low was deeper than the September low, bringing a probable breakdown whose implications could last up to 6 weeks.

(MarketWatch) U.S. Treasury yields slipped on Wednesday as uncertainty on how a phase-one trade deal will shape up drove investors to take shelter in government paper.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, +0.48% slipped 3.9 basis points to 1.870%, while the 2-year note rate TMUBMUSD02Y, +1.05% was down 2.2 basis points to 1.628%. The 30-year bond yield TMUBMUSD30Y, +0.08% retreated 3.3 basis points to 2.351%.

US Dollar Bounced From Long-term Support

USD bounced from Long-term Support at 97.36, briefly challenging Intermediate-term resistance at 97.92 before closing beneath it.  This loss of strength may lead to a decline of up to 3 weeks.

(FXEmpire)  The US dollar has fallen a bit against the Japanese yen, breaking through the 200 day EMA but clearly has a significant amount of support just below as well. I think we continue the very messy trading, as markets have multiple issues to deal with at the same time.

 

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