Warning: Topping Markets

January 8, 2020

VIX appears to be subdued, hovering between its 50-day Moving Average at 13.18 and its 200-day Moving Average at 15.11.  It had its 8.6 month (Master Cycle) low on December 26, nearly 2 weeks ago.  On average, the Cycles may show a breakout (above the trendline) in the third week of a new Cycle.  The VIX is an excellent leading indicator of changes in trend.  A breakout from a Declining Wedge formation  suggests a complete retracement to the top of the Wedge.

(Bloomberg) The volatility buyer dubbed “50 Cent” appears to have resurfaced, buying up market hedges as calm returned in the aftermath of a flare-up in Mideast tensions.

Calls on the Cboe Volatility Index, or VIX, with a strike price of 25 that expire on Feb. 20 are the most actively traded VIX option contract as of mid-morning Wednesday, with volumes in excess of 75,000. The biggest trade — accounting for nearly all of the volume — was a purchase of 73,601 options at $0.49 apiece shortly after U.S. markets opened.


Today’s 8.6-month (Master Cycle) appears to be the sixth inversion in 9 months, a highly unusual phenomenon.  Since December 2018, the High-Low Index has seen its lows near the trendline first established in early 2018.  It currently rests near the mid-Cycle support at 82.10.  A close beneath that trendline may generate a sell signal for the NYSE.

(Bloomberg) President Donald Trump toned down rhetoric against Iran, fueling a rally in American stocks that took major benchmarks to fresh records.

The rebound from an overnight rout that topped 1.5% has some investors breathing a sigh of relief, but another cohort point to mounting signs that the comeback is a sign of complacency among bulls.

“This is a market looking through fundamental data, looking through corporate guidance and data points, looking through Fed guidance itself,” Lisa Shalett, the chief investment officer at Morgan Stanley Wealth Management, told Bloomberg Television. “It is a market that wants to go up in the short term. That is what makes it so profoundly dangerous.”


SPX made a new all-time high this afternoon after s brief sell-off in the futures market this morning.  While the SPX appears to do no wrong the current 8.6-month (inverted) Cycle appears to be ending in the next week or so.  The next projected Cycle low may be due in mid-February.

(NorthmanTrader)  Spoos 50 handles down in overnight, 12 hours later new all time highs. If you called that last night step forward and show me. Nobody of course called this. But these are our markets these days.
Now stuck in permanent technical greed the year 2020 continues on the same path as 2019 ended: Fed liquidity trumping, well, even Trump.

Markets remain risk free. Literally.

Why worry about risk? So what if we gap down one day? It’ll be green in 30 minutes. So what if we drop 50 handles in overnight? It’ll be green by open.
And that’s been the trend, every open is jammed higher no matter what:”


NDX is also in its final surge of its 8.6-month Cycle.  It is close enough to round number resistance at 9000.00 to be attracted to it as a target.  It  met its 17.2-year Cycle on December 23, so a reversal in the immediate future would meet both time and price targets.


Most technicians look at the formation in the UST as a bullish flag, suggesting that bonds may go higher in the event of an equities sell-off.  However, taken in context, the perceived “flag” occurred during one of the largest treasury purchases by the Fed in history as the repo market froze up when the UST made its first low at 128.55 on September 12.  UST has made two lower lows despite the massive liquidity injection by the Fed.  Those short-term purchases (repos) may start being unwound this week or next, leaving a large liquidity hole in the markets.

(ZeroHedgeYesterday we reported that with the Fed’s first oversubscribed term repo in three weeks…

… coupled with a surge in amount of overnight repo submission, indicated that the funding situation in the repo market had again deteriorated sharply, which was odd since we are now two weeks into the new year and further away from the time when the repo market was supposedly in distress due to the year-end funding constraints.

Indeed, something appears amiss, because as Curvature Securities’ Scott Skyrm writes in his daily Repo Market Commentary note, the total overnight and term Fed RP operations on Friday were greater than on year end! On year-end, the Fed had pumped a total of $255.95 billion into the market verses $258.9 billion on Friday.”



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