Investors Line Up At The Punchbowl

The question is, “When does the punch run out?”

David Rosenberg, the chief economist at Gluskin Sheff + Associates Inc., said in a recent note that the writing is on the wall for the stock market rally, as the next move could be lower, reported The Globe and Mail.

Enjoy it while it lasts, but think of how artificial it all really is and how to prepare yourself,at these lofty price levels, for the reversal that is as inevitable as night following day and vice versa,” Rosenberg said.

“The stock market surely remains on wheels and is being driven by concentrated gains in certain large-cap names and a major shift in economic sentiment, with views that a ‘phase one’ trade agreement is coming our way soon,” he said. ”

 

VIX may have broken out of its consolidation today, having run up to 14.17, above the two other consolidation highs at 13.95.  This may confirm the Master Cycle low on Friday and set up the VIX for a potential 6 week rally. A potential buy signal awaits above the 50-day Moving Average at 14.63.

(Bloomberg) The rally in U.S. stocks may have waned, but equities are still near record highs amid subdued volatility. For some strategists, that may be the perfect time to seek protection.

Macro Risk Advisors suggests a trade that involves selling a put option on the Cboe Volatility Index with a strike of 12, while buying a 20 call and selling a 22 call. Derivatives strategist Maxwell Grinacoff wrote in a note Tuesday that he backtested the strategy, both unconditionally and when VIX was below 13, and found it has performed relatively well since the beginning of 2018.

 

SPX may have made its Master Cycle high on Tuesday, but has not closed beneath critical support at 3085.00-3097.42.  A closing price beneath those levels brings a neutral-to-aggressive sell condition.  A decline beneath the 50-day Moving Average at 3013.75 is a well-recognized inflection point for traders who want more confirmation that the trend may have changed.

(Bloomberg) Stocks are up in 16 of the last 20 sessions, the S&P 500 has jumped 8% in seven weeks and Peloton Interactive just closed above its IPO price. Nervous investors want to know: is this the top?

They’re worried the good times can’t last when stocks surge past all-time highs, even though history suggests there’s no particular danger in betting on fresh records.

But while equity market peaks often share similarities — high valuations, low volatility, stretched chart patterns and seemingly easy credit — no two are perfect twins. Here’s how the current cross-asset landscape compares with January and September 2018, two prior S&P 500 record levels that gave way to pain.

 

NDX also made its high on Tuesday. but closed today beneath its Ending Diagonal trendline near 8300.00 while remaining above its Cycle Top support at 8262.78.  An aggressive sell signal lurks beneath the Cycle Top while confirmation of a sell signal lies beneath the 50-day Moving Average at 7980.34.

(ProjectSyndicateOwing to a recent easing of both Sino-American tensions and monetary policies, many investors seem to be betting on another era of expansion for the global economy. But they would do well to remember that the fundamental risks to growth remain, and are actually getting worse.

NEW YORK – This past May and August, escalations in the trade and technology conflict between the United States and China rattled stock markets and pushed bond yields to historic lows. But that was then: since then, financial markets have once again become giddy. US and other equities are trending toward new highs, and there is even talk of a potential “melt-up” in equity values. The financial-market buzz has seized on the possibility of a “reflation trade,” in the hope that the recent global slowdown will be followed in 2020 by accelerating growth and firmer inflation (which helps profits and risky assets).”

After making a third lower high on November 7, High Yield Bonds succumbed by gapping beneath critical support and closing beneath the 50-day Moving Average at 206.95.  There may be a potential bounce due, but it may not take hold for very long.  It is on a sell signal

UST may have challenged the 50-day Moving Average at 129.97, but the bounce may have run its course.

(CNBCU.S. government debt prices were higher and yields lower on Wednesday amid heightened political tensions between the world’s two largest economies.

The yield on the benchmark 10-year Treasury note, which moves inversely to price, was lower at around 1.7303%, while the yield on the 30-year Treasury bond was also lower at around 2.1951%.

 

The US Dollar bounced from its low on Monday to challenge Intermediate-term resistance at 97.80.  Should it decline beneath support, it may continue its decline for another two weeks, according to the Cycles Model.

(CNBC) The dollar rose on Wednesday and trade-exposed currencies fell after the U.S. president threatened a trade war escalation and China condemned a U.S. senate measure backing pro-democracy protesters in Hong Kong.

China’s yuan slipped to a new two-week low in overnight trading after U.S. President Donald Trump threatened to raise new tariffs on Chinese imports if ongoing trade negotiations fail.

 

The Euro bounced from a Trading Cycle low on November 14.  Trading Cycles are usually weak and this may be no exception.  A decline back beneath the 50-day Moving Average may produce a month-long decline in the Euro.

(CNBC)  Signs of excessive financial risk-taking as well as slowdown in bank profitability are some of the biggest challenges in the euro area, the European Central Bank (ECB) said on Wednesday.

The euro zone has been struggling to grow in the aftermath of the sovereign debt crisis of 2011. The ECB, which oversees monetary policy across the 19-member region, has adopted several stimulus measures since then to boost the economy. In 2018, the ECB decided to scale back some of that stimulus amid improved data. However, the central bank returned to its easing stance in full force in September this year as prices and growth rates are treading water.

 

The EuroStoxx 50 ETF appears to have made its final high on Tuesday and slipped beneath its Cycle Top support at 39.66 today.  This gives European Stocks a probable aggressive sell signal with a likely confirmation beneath the 50-day Moving Average at 38.49.

(CNBC)  European markets ended lower to edge into negative territory on Tuesday afternoon, amid uncertainty and pessimism over the outcome of trade talks between the U.S. and China.

The pan-European Stoxx 600 closed 0.2% during afternoon trade, having earlier hit its highest since May 2015. Travel and leisure stocks jumped 0.6% to lead gains, as most sectors fell below the flatline.

 

The Yen has rallied out of its November 7 Master Cycle low and consolidated beneath Intermediate-term resistance at 92.15.  It appears to be ready to break out above the 50-day Moving Average at 92.38.  If so, there may be a rally  lasting into early January in the Yen.

(YahooFinance) The yen rose against the dollar on Thursday after sources close to the White House told Reuters that a U.S.-China trade deal is unlikely this year, which spurred demand for safe-haven assets.

The yuan eased toward a two-week low in offshore trade as failure to reach a deal to roll back U.S. tariffs would cause a further slowdown in China’s economy and complicate efforts to keep growth on track.

Some traders are also wary of risk after U.S. lawmakers sent two bills intended to support protesters in Hong Kong to the White House for U.S. President Donald Trump to sign or veto.

The Nikkei has come sharply off its November 8 high, but has not declined beneath its Cycle Top at 2302.05 for a sell signal.  Should it do so, there may be a 2-3 week decline to its Cycle Bottom.

The Shanghai Composite appears to have stopped its bounce toward the 50-day Moving Average at 2957.18.  If so, it may continue its decline for yet another 3 weeks.  Point 6 ay be met or exceeded in that time frame.

(ZeroHedge) We have been monitoring China closely since March 2017. We were one of the first to show that China had driven the global business cycle since 2009 and that the remarkable recovery of the world economy from the 2015 slump was mostly China’s doing.

Now that the world economy is, again, heading down, many are wondering, what will China do? The unfortunate answer is that it can most likely do very little. Her ability to stimulate the economy by increasing debt is almost completely gone. This means that the world economy is heading into a recession.

 

Gold has spent a week attempting to rally out of its Master Cycle low.  Should it not be able to break above its 50-day Moving Average at 1496.08, there may be up to 4 weeks of decline ahead.  The Cycle Bottom at 1212.63 may be a likely target.

(KitcoNewsGold prices are modestly down in early-afternoon U.S. trading Wednesday, following the U.S. data point of the week that was just released—the FOMC minutes. Gold and silver markets showed no reaction to the report. December gold futures were last down $2.80 an ounce at 1,471.60. December Comex silver prices were last down $0.023 at $17.095 an ounce.

 

West Texas Intermediate Crude bounced today from Intermediate-term support at 55.28.  Nonetheless, it made a key reversal yesterday, which should have traders on high alert.  A decline beneath that level puts crude on an immediate sell signal.

(CNBC) Oil gained more than 3% on Wednesday after data showed a smaller than expected build in U.S. inventories. The move also came as tensions in the Middle East rose, with Yemen’s Houthi rebels claimed they intercepted a Saudi warplane.

West Texas Intermediate crude futures rose to a session high of $57.37 before settling at $57.11 for a 3.4%, or $1.90, gain. Brent crude futures rose $1.56 to settle at $62.47.

 

Farm prices took a dive this week to match up with an anticipated Master Cycle low.  There may be a day or so of consolidation, but the resumption of the rally is indicated by the Cycles Model

(SuccessfulFarming)  Chicago corn and wheat futures edged lower on Wednesday and soybeans ticked up as prices consolidated near multi-week lows while traders awaited more indications on U.S.-China trade talks and crop prospects in the United States and South America. The most-active corn contract on the Chicago Board of Trade was down 0.4% at $3.68-1/2 a bushel at 1229 GMT, just above Monday’s two-month low of $3.67-1/2. CBOT wheat was down 0.4% at $5.13 a bushel, consolidating near Monday’s one-month low of $4.98-1/2. Soybeans added 0.3% to $9.13-3/4 a bushel after touching Monday’s 1-1/2 month low of $9.10 for a third session in a row. Traders were waiting for the U.S. corn and soybean harvests to be wrapped up to gain a clearer picture of yields after weather delays this year. The U.S. Department of Agriculture (USDA) on Monday said that the corn harvest was 76% complete, below an analyst consensus estimate of 77% and well below the five-year average of 92%. The agency also pegged the soybean harvest as 91% complete, matching trade expectations but below the five-year average of 95%. “The remaining fields are likely to be harvested over the next week or two. Only then will it become clear how significant the yield shortfalls have been as a result of the delayed plant development,” Commerzbank said in a note.

 

While the Banking Index made its Master Cycle high on November 7, it has been consolidating above its Cycle Top support at 107.33 since then.  However, the Cycles Model suggests the BKX may be considerably lower in the next three weeks.  In addition, the Orthodox Broadening Top suggests that Point 6 may be on the agenda.

(CNBC) Signs of excessive financial risk-taking as well as slowdown in bank profitability are some of the biggest challenges in the euro area, the European Central Bank (ECB) said on Wednesday.

The euro zone has been struggling to grow in the aftermath of the sovereign debt crisis of 2011. The ECB, which oversees monetary policy across the 19-member region, has adopted several stimulus measures since then to boost the economy. In 2018, the ECB decided to scale back some of that stimulus amid improved data. However, the central bank returned to its easing stance in full force in September this year as prices and growth rates are treading water.

(ZeroHedge) As part of today’s FOMC Minutes, the Fed also released the minutes from the October 4 ad hoc unscheduled video conference during which the FOMC agreed to unexpectedly launch POMO, reversing almost two years of QT, in order to address the crisis in the repo market by boosting the Fed’s balance sheet permanently and restoring the level of Fed reserves to their “early September level.”

What it revealed was interesting.

First, the minutes disclosed what the FOMC believes prompted the spike in repo rates in mid-September, noting that “the staff reviewed recent developments in money markets and the effect of the Desk’s continued offering of overnight and term repo operations.” Then, according to staff analysis and market commentary, it concluded that “many factors contributed to the  funding stresses that  emerged in mid-September. In particular, financial institutions’ internal risk limits and balance sheet costs may have slowed the distribution of liquidity across the system at a time when reserves had dropped sharply and Treasury issuance was elevated.”

In other words, what happened in September, when the overnight G/C repo rate exploded to 10% is that it was a little bit of everything. It also means that it was nobody’s fault because it was, by definition, everyone’s fault.

(ZeroHedge) The money-laundering scandal sweeping across the Scandinavian banking system reached another milestone on Wednesday. The Organized Crime and Corruption Reporting Project, an organization that helped break the story, has dropped another bombshell report about Sweden’s Swedbank.

The report describes how one Russian oligarch and ex-government minister managed to hide his wealth via a network of 70 shell companies situated all over the world. The companies had one thing in common: They all had accounts with Swedbank’s Estonian branch.

 

 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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