April 2020

May 31, 2018

On Tuesday it was Italy.  Today it’s Spain…no, wait…it’s Deutsche Bank!

SPX futures are running flat this morning.  One may infer that it has completed an extended/irregular correction.  Coupled with today being a turn date, the possibility arises that the decline may resume.

ZeroHedge reports, “A good summary of overnight events comes from UBS’ chief economist Paul Donovan who writes:

We are not back to normal, but markets have reacquainted themselves with what normal might look like. Italian bond yields fell and the euro recovered yesterday. A consensus is forming that there will not be elections in Italy until September at the earliest. Italian President Mattarella is waiting to see if the two anti-parties can in fact form a coalition.

Meanwhile, with European and Asian stocks all higher – if only for the duration of the Italian waiting game – helped by the jump in Italian bonds and plunging yields, all eyes more to Spain, with the Socialists getting close to lining up the support they need to oust Prime Minister Mariano Rajoy in a no-confidence vote.”

 

NDX futures probed up to 7003.25 in the overnight session, but no new high.

ZeroHedge comments along similar lines to my comments in the cover letter for the Mid-Week Report, “The bear market is showing signs of waking up and, for one, it means the days of setting up your trading desk to short volatility and then going to play golf are over. That was the topic of a new report released by Bloomberg this morning, who made note of a couple of signs that indicate that the bull market’s best days could be behind it. It also noted that this year, the average down day for the market has been 24 percent bigger than the average green day, the biggest delta since 1948.”

VIX futures are down, but remain above the mid-Cycle support at 13.98.

Bloomberg comments, “The Italian political imbroglio was a boon for haven assets like U.S. Treasuries on Tuesday. But it didn’t spur a feeding frenzy in the instruments equity investors use to protect against stock swings.

The dearth of demand bodes ill for exchange operator Cboe Global Markets Inc., whose proprietary products include options and futures on the oft-vexed VIX index. The so-called “fear gauge” that tracks the 30-day implied volatility on the S&P 500 Index jumped 3.8 points on Tuesday, its fifth-largest jump of 2018. Yet volume in options linked to the VIX were meager.”

TNX is muted this morning as it works on its retracement path.  It is still likely to rise to the trendline and Short-term resistance at 29.07 before declining to the neckline near 25.00.

BKX is being threatened this morning by a rare censure by the Federal Reserve.  Last night I mentioned that weakness may prevail for the banking Index for another week.  Now we know why this is.

ZeroHedge reports, “It was already a terrible week for Germany’s largest bank, when the Italian turmoil sent its stock price below €10 for the first time since the bank’s existential crisis in the fall of 2016, and it just got worse this morning, following reports that the Federal Reserve has designated Deutsche Bank U.S. operations to be “troubled condition” which the WSJ said was a rare censure for a major financial institution and is being reflected in its price this morning, which is now down over 5%, at €9.35, and rapidly approaching the all time low of €8.834 hit in September 2016 when speculation was rife that Germany would bail out Europe’s largest lender.

As the WSJ reports, the Fed’s downgrade took place “secretly” about a year ago, and hasn’t been previously made public until today.

The “troubled condition” status—one of the lowest designations employed by the Fed—has influenced moves by the bank to reduce risk-taking in areas like trading and lending to customers.”

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May 30, 2018

11:30 am

The Russell 2000 is also making a new high, giving clarity to the Wave structure, as well.  The Chart is modified to show the Master Cycle low on May 1, day 253 of the Master Cycle.  The rally appears complete or nearly so) as an Ending Diagonal Wave C.

ZeroHedge reports, “The Russell 2000 just surged out of the gate to a new record intra day high…

Yeah, yeah we know the ‘narrative’ – Small caps are more domestically-focused and so are ‘immune’ to the Italian crisis, thus a safe-haven.

 

11:15 am

SPX has violated the overlap rule, opening the way for a new high.  Wave [v] may be expected to reach the trendline and Cycle Top at 2755.09.

The NYSE Hi-Lo Index has violated mid-Cycle resistance at 63.58, nullifying its week-long sell signal.  The rally may not last past this week, as the Cycles Model approaches a turn as early as tomorrow.

9:15 am

SPX buoyed by strong USD, weak Euro.  It may not last.

SPX futures are higher this morning, testing Short-term resistance at 2707.80.  That should be the limit of the retest.  A rise above 2709.54 creates overlap of what may be considered Wave (i) and suggests another retest of the 2-year trendline and Cycle Top currently at 2754.46.  On the other hand, a resumption of the decline would become more bearish at the break of the 50-day Moving Average.

ZeroHedge reports, “One day after an unprecedented, record crash in Italian 2Y bonds and a rout across the entire bond curve as well as Italian stocks, which proceeded to spill out and impact other European banks and “contage” the Euro amid a growing political crisis in Rome, Italian bonds rebounded in early European trading as the panic liquidation was put on hold for now, sending 2Y Italian yields as low as 1.925% after hitting a 5 year high of 2.84% on Tuesday.

The 10Y yield also faded as buyers emerged for the benchmark Italian BTP, which was last trading just above 3.00%.

SPX denominated in Euros have made a new all-time high.  This may be the cause of the overnight rally in the SPX, as European investors are escaping the trap of the failing Euro and the European banking crisis.  This situation may end quickly as we are anticipating a reversal (higher) in the Euro and (lower) in the USD.  But in may bring money flow back into the SPX for a while as investors are trying to escape a bad situation in Europe.

As you can see, the SPX:XEU has already breached the Cycle Top.  It may go into “overthrow” which may have a potential target of 24.15.

XEU futures are bouncing this morning, after having spent a long 286 days in the last Master Cycle.  In this case, time took second place to target (the Cycle Bottom).  The bounce in the Euro may take the shine off the SPX for the time being.    We should see the Euro rising through the end of June.

NDX futures jumped as high as 6977.50 this morning,  staying in the “chop zone” for now.  A break of the Short-term support at 6891.94 would turn NDX bearish.

VIX futures dropped to 15.63 this morning, but have recovered, somewhat.  SPX futures have eased back from their highs, so we may see VIX open with a smaller deficit.

TNX appears to have bounced from its impulsive low, creating a reversal pattern.  It may rise to Short-term resistance at 29.07.  The Cycles Model suggests another week of strength, so there may be time to place your short positions for the next move down.

USD futures made an overnight high at 94.93, short of yesterday” potential Master Cycle high at 94.97.  Since then it has pulled back, suggesting a reversal may be in play.

Since the USD and Euro are both set up for a reversal, I don’t expect the rally in SPX to last long.

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May 29, 2018

1:00 pm

Crude oil futures have declined to a low at 65.94, well beneath the trendline near 67.00.  There may still be a bounce, but may be limited to the 50-day Moving Average at 67.49.  Trading commodities is always aggressive, but this may be a good short entry.

ZeroHedge notes, “WTI Crude futures are down almost 10% from their highs last week (near $73), testing back to a $65 handle, breaking below critical support levels and testing the major uptrendline…

As Saudi Arabia and Russia signal they will restore some of the production they’ve curbed to drain a global glut, Bloomberg notes that the market awaits a meeting of OPEC and its partners in Vienna late June as extreme positioning starts to get unwound…”

1220 pm

VIX has crossed its 50-day Moving Average, thereby confirming the buy signal.  There is a possibility of a retest and that VIX may close beneath it, but the damage is done.  This is a move that cannot be ignored by the pros.

12:00

Are we setting up for a bounce at the 50-day?

SPX may be setting up for a bounce at the 50-day Moving Average at 2674.34.  While the decline may not be complete, we normally expect to see some support at that level.  Traders often anticipate a bounce at that level, so we wait to see what happens.  A breakthrough would be a major feat and suggest that the decline has legs.  Remember, retail investors still are bullish.

Lance Roberts, of RealInvestmentAdvice has this to say, With the markets closed for Memorial Day yesterday, our analysis remains. In case you missed it, we updated our potential pathways following last week’s stagnation as follows:

“As shown by the reddish triangle, the ongoing consolidation process continues. Eventually, this will end with either a bullish or bearish conclusion. There is no ‘middle ground’ to be had here.

  • Pathway #1 – a breakout to the upside on heavy volume that pushes the market through resistance at 2780 and back to old highs. (Probability 20%)
  • Pathway #2a and #2b – a breakout to the upside which fails resistance at 2780. The market then either a) retests the 100-dma and then is able to push to old highs, or, b) fails at 2780 a second time and continues the consolidation process through the summer. (Probability 50%)
  • Pathway #3 – the market breaks down next week on continued geopolitical worries, economic data or some unexpected catalyst and retests the 200-dma. (Probability 30%)

10:30 am

Today we are revisiting the distribution pattern shown last week.  Volume is still weak, suggesting most retail investors are sitting on their hands.  However, the Commitment of Traders shows the Commercials have added to their SPX e-Mini shorts, from -511373 contracts last week to -531418 contract this week, a growth of 3.9% in their short position.

It should be no surprise that the Commercials have been adding to their VIX positions in the past week, especially since VIX made a Master Cycle low on Friday.  The Commitment of Traders report shows the VIX long positions for Commercials has exploded from 8,514 long contracts a week ago to 28,441 long contracts as of May 28, a 234% increase.   I will expand this report later today.

9:00 am

Equities gap down as European Markets go chaotic.

SPX futures have declined as far as 2690.25 this morning, but have bounced to retest the Intermediate-term support/resistance line at 2703.89.  The retest may fail, giving probable permission for a further decline.

ZeroHedge reports, “Commenting on today’s sheer market chaos as the US and UK return from holiday, Bloomberg writes that “fixed-income markets have descended into panic amid mounting concern over the risk of Italy leaving the euro or leading to its break-up” and while Italy is suffering the biggest losses in peripheral debt, core bonds and Treasuries are spiking higher.”

Last Wednesday I reported that the European Financials were about to plunge beneath the Head & Shoulders neckline.   As of Friday they indeed closed beneath the neckline, triggering a further decline toward its target.

ZeroHedge comments, “Commenting on today’s sheer market chaos as the US and UK return from holiday, Bloomberg writes that “fixed-income markets have descended into panic amid mounting concern over the risk of Italy leaving the euro or leading to its break-up” and while Italy is suffering the biggest losses in peripheral debt, core bonds and Treasuries are spiking higher.

For those who stayed away from market news over the holiday weekend, this is what happened and why we are here today: Italy PM-designate Conte gave up on efforts of forming a government after Italian President Mattarella rejected Eurosceptic Paolo Savona for the Economy Minister position because the appointment would have “alarmed markets and investors, Italians and foreigners” (yes, very ironic in retrospect, although just as we predicted would happen)Mattarella then summoned former-IMF senior director Cottarelli to meet in a move viewed by some as laying the groundwork for a technocratic government. Forza Italia said they would not support this government, and 5SM and League set their sights on the now highly likely new elections (touted from September 9th). Both 5SM and League saying they will evaluate their coalition in these new elections. “

VIX futures have hit an overnight high of 15.98.

This puts the VIX on a buy signal and suggests the VIX ma go considerably higher.  Remember, the VIX made another Master Cycle low on Friday at 12.29 and now appears to be on a 4-5 week period of strength.

The NYSE Hi-Lo Index closed on a sell signal last Wednesday and remained on that signal through the close on Friday, confirming my earlier comments about an aggressive sell signal becoming available last week.

NDX futures may have tested the Intermediate-term support at 6874.50 this morning.  A decline beneath this level may put the NDX on a sell signal.  The decline in NDX is not as severe as that in the SPX or DJIA due to the higher concentration of financials in the blue chips.  However, the correlations between markets is very strong, so we may see the NDX do some catching up as the days progress.

TNX plunged through its trendline, confirming a sell signal for Yields, and a buy signal for UST.

ZeroHedge comments, “Despite the 10-year yield’s reluctance to hold above 3%, bond bears have been reluctant to throw in the towel completely, with Bill Gross recently changing his view to allow for a “hibernating” bear market in 2018 (he expects the 10-year with fluctuate between 2.80% and 3.25% for the remainder of the year). DoubleLine’s Jeffrey Gundlach has also backed away from his bearish outlook, recently declaring that the 10-year will remain “contained” if 3.22% isn’t broken by the 30-year.”

USD futures edged higher this morning as they rallied to a new high at 94.98.  Today is day 262 of the current Master Cycle.  At this rate, we may see the Cycle Top at 95.35 possibly being challenged.  However, once accomplished, he turn may be quick and severe.

WTIC futures appear to have challenged the trendline at 67.00 over the weekend.  A close beneath the trendline confirms the sell signal made last Friday.  However, a bounce may be in order, first.

ZeroHedge comments, “The last four days have seen WTI Crude prices plunge almost 10% from their cycle peak near $73 to a $65 handle overnight.

This is the longest run of losses in almost four months as Saudi Arabia and Russia said they are discussing raising output to ease consumer anxiety after prices jumped to levels last seen in 2014.

Saudi Arabia and Russia signaled they’ll restore some of the output they cut as part of a deal between OPEC and its allies that took effect in January last year. Potential opposition from several producers could complicate the group’s effort to reach a consensus when it meets next month in Vienna.”

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May 25, 2018

12:00

VIX made a new Master Cycle low eight days beyond the mean date.  There may be some effort to keep equities as positive as possible going into the holiday weekend and the VIX is cheap way to do it.  Normally Memorial Day weekend is the last seasonally positive weekend before summer begins.  It remains above the two-year trendline…

9:00 am.

A distribution Pattern revealed…

SPX futures were positive overnight until 6:45 am, when the Commercials weighed in.  I am illustrating a probable way the Commercials went from -132,091 short contracts on January 22 to -511,373 short contracts last Monday.  It has been happening gradually over the past two months since the markets have been thin and getting thinner at each rally.

You may be wondering how over $8 billion went into the stock market last week, yet the entire week was a loss.  It appears to be happening again this week.  The reason is that, while the market isn’t performing as it had, there is still a fear of missing out (FOMO) of the next rally.  Wall Street and the media are still sending out glowing reports about the next rally.

The Commercials are capitalizing on this by selling short in the first two hours of the day to retail investors.  You can see the action, like clockwork, where the market is sold until 11:00 am every day.  The Commercial activity is usually the first and last hours of the day.  On May 22, the selling occurred at both intervals.

Today we may see a sharp decline (Wave [b]) until 11:00 am., then a rally (Wave [c]) into the close due to the Memorial Day weekend.  It appears that next Tuesday the decline starts in earnest.

NDX futures are flat this morning, compared to SPX.  The action in the NDX isn’t as regular, since it appears that the FAANGs are not being bought as vigorously since the earnings announcements.

ZeroHedge comments, “For much of the overnight session, the market’s attention was focused on North Korea’s amicable reaction to Trump’s cancellation of the June 12 summit, an indication that yesterday’s selloff may have been overdone as Trump’s gambit was merely a negotiating ploy, and a successful one at that.”


Europe is where the action appears to be, although the equities markets there appear to be rallying.  Yesterday the STOXX completed an impulsive decline.  Today it appears to be in need of a Wave 2 retracement.  This can be a bit discombobulating, since the market appears to be rallying on bad news.  However, seem my comments on the SPX.  The same pattern applies.

ZeroHedge observes, “When it comes to the latest rout in Italian bonds, which has continued this morning sending the 10Y BTP yield beyond 2.40%, a level above which Morgan Stanley had predicted fresh BTP selling would emerge as a break would leave many bondholders, including domestic lenders with non-carry-adjusted losses…

… there has been just one question: when does the Italian turmoil spread to the rest of Europe?”

 

VIX futures are green this morning, although they were red just a couple of hours ago.

WTI futures are being slammed this morning.  As discussed, the Master Cycle in WTIC came a week later than the Model indicated.  It appears to have been worth the wait.  While crude oil did not “limit down” as lumber has, it appears to have started its decline with a bang.

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May 24, 2018

1:30 pm

Lumber hit its Master Cycle top on May 18.  Since then it has had 3 limit down days in a row.  The maximum daily limit for a price decline in lumber had just been changed from $10.00 to $15.00, just in time for the breakdown.  It appears that there are a lot of traders trapped, since trading has been halted today…again.  This is what is known as a commodities trap.  These markets are thin to begin with and as  more traders pile on, there is no liquidity to let them out.  The Commitment of Traders tells us that the Commercial Traders are -2,665 contracts short.  Speculators are all long.

The reason I bring this up is because liquidity is becoming very thin in the equities market, as well.  There just isn’t enough to let everyone out at the top.  The algos pretend to provide liquidity, but only when the market goes up.  When Commercial traders are going short, they are providing liquidity for the Speculators to buy long.  But its a one-way street with a cliff at the end…

Commercial Traders in the SPX E-Mini contract are -511,373 contracts short.  Buy the dippers are likely buying from the Commercial Traders, who are happy to sell…

11:30 am.

Deutsche Bank poised to decline to single digits…

Deutsche Bank has already declined beyond the point of no return…Now it is fighting for its life.  The question is, what will be the knock-on effects, win or lose?

ZeroHedge reports, “Having collapsed this morning following a profit warning (and mass layoffs) this morning, we suspect the following chart will start to send Deutsche Bank counterparties scrambling for protection…

With a market cap of just over $21 billion now, Deutsche Bank  the once most systemically-dangerous bank in the world, and German darling – is now smaller than… $25 billion Twitter.

The last time Deutsche Bank was heading towards the same market cap as Twitter, Germany was contemplating a bailout and counterparty risks soared

And hedge fund clients fled.

9:00 am.

Stocks are weakening…

SPX appears to have rallied yesterday to its 1-month trendline, where it stopped at the close.  The morning SPX futures are easing away from the trendline, but there seems to be not definite reversal, yet.

ZeroHedge observes, “US equity futures are flat, following a drop in Asian shares and modest rise in European equities as markets digested the late Wednesday news that Trump’s administration started a Section 232 trade probe that may lead to new U.S. tariffs of as much as 25% on new imported vehicles, restarting global trade wars and weighing on Japanese and European automakers.

Trump’s push for tariffs drew pointed responses from Japan and South Korea and ended the temporary calm that came less than a week ago when the U.S. and China declared a truce in their trade dispute. S&P futures were unchanged while the tech sector rallied as Nasdaq futures break through yesterday’s session highs.”

NDX futures went moderately higher in the overnight session, but seems to have given up the gains as the morning progresses.  Note that the NDX peak from May 14 is still intact.  It appears that the market is prolonging the roll-over process.

VIX futures are rising off the bottom as the Master Cycle low appears to have been complete with the testing of the 2-year trendline yesterday.  This may be the final “kiss of death” as the SPX, NDX, DJIA and VIX all begin to move away from their respective trendlines.

TNX slipped below 3.00 this morning, but hasn’t cleared up whether it has actually reversed or not.  The window is closing on an extended high, but is still vulnerable to a market shock that could drive rates to a new high.  The correlations between stocks and bonds is not precise, and while the peak in bonds (May 17) front-ran the peak in SPX (May 22), there seems to be little relationship between the movements in the two indices thus far.

The Cycles Model calls for a Master Cycle Peak in the dollar today, but the USD futures appear to be backing away from yesterday’s high, which achieved the 38.2% retracement level.  Early on, I assigned a 50% retracement target to the USD, since past experiences have all been at that level.  The rules for an Orthodox Broadening Top are not that precise for “Point 7” however.  They call for a minimum 30% -up-to- 50% retrace with no reference to Fibonacci.  The convincing argument was the inverted Master Cycle that is now peaking and an impulsive Wave (C) is complete.

European Financials close at the Head & Shoulders neckline yesterday.  Today it appears that the neckline may have been violated.  This Head & Shoulders pattern is as good as it gets.  The target for this pattern would be the bottom of Wave 3.

ZeroHedge reports, “One day after the WSJ reported that the biggest German bank is set to “decimate” its workforce, firing 10,000 workers or one in ten, this morning Deutsche Bank confirmed plans to cut thousands of jobs as part of new CEO Christian Sewing’s restructuring and cost-cutting effort. The German bank said its headcount would fall “well below” 90,000, from just over 97,000. But the biggest gut punch to employee morale is that the bank would reduce headcount in its equities sales and trading business by about 25%.”

 

BKX did not have a very good day with the FOMC announcement.  The combination of troubles with Deutsche Banks and loans to emerging markets may be taking its toll.  In addition, it had completed its inverted Master Cycle on Tuesday, leaving a potential 2-month decline ahead of it.

The Head & Shoulders formation virtually assures the completion of the Broadening Wedge, as well.  This leaves the potential for both targets to be met in this decline.

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May 23,2018

10:30 am

Good Morning!

While we may have questioned the sell signal at yesterday’s close, this morning’s signal leaves no doubt.  SPX has mad an impulsive decline and pullback (i)-(ii).   Confirmation lies beneath the 50-day Moving Average at 2676.94.

ZeroHedge reports, “It is a “risk off” sea of red in global markets this morning, with US equity futures tumbling (Dow -191, ES -18) following European and Asian market sharply lower, as a quartet of growing risks spooks traders, among them i) the ongoing Turkish lira meltdown, ii) unexpectedly weak European PMIs which missed across the board, iii) the ongoing Italian political quagmire where president Matarella is stalling the formation of a new government, and iv) the return of geopol/trade war fears rose after Trump cast doubts over the North Korean summit and expressed dissatisfaction regarding trade talks with China.”

VIX is also on a buy signal, having crossed above the mid-Cycle support/resistance at 13.87.  A close above that level confirms the signal.

TNX declined again this morning, but hasn’t yet made a reversal pattern.  Today is day 256 in the current Master Cycle, so we may either have seen the top last Thursday and look for a completed reversal pattern, or a possible higher top later this week.

USD futures made a new high at 94.04 this morning, very near the 38.2% retracement at 94.17.  Today is day 257, which is also extremely close for an inverted Master Cycle high.  As mentioned earlier, I expect to see this resolved by the weekend.

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May 22, 2018

2:30 pm

Reversal in progress?

SPX peaked within the first quartet hour after the open.  It has been holding steady since then.  A decline beneath 2730.00 is likely to break the trendline, giving us a probable aggressive short signal.  NDX did not make a new high, as suggested this morning.  A decline beneath 6850.00 gives us a probable aggressive short entry.  VIX remains at the flatline.  A rise above 13.89 gives us a probable long entry.  The reason I put this out is that we may see selling in the final hour of the day.  If not, then overnight action may put us over the edge.  Thought you’d like to know…

9:00 am

SPX futures are higher, but beneath the 2-year trendline.

I have put the latest Commitment of Traders information in the daily blog last night.  It would be good to review the results.  Also, see below the COT for the VIX.

SPX futures are higher this morning, but appear to be governed by the 2-year trendline and the 2-hour Cycle Top resistance at 2744.22.  I mentioned yesterday that the longer it takes to resolve the correction the more opportunity it has to go higher, based on the rising Cycle Top and 2-year trendline.  You can see that overhead resistance is now higher than the previous high at 2742.10, which allows a potential Wave [v] of C to develop.  Today is day 267 of the existing Master Cycle, or potentially 8.6 days from the mean at 258 days.

ZeroHedge reports, “With much of Europe coming back from Whit Monday holiday, the much more liquid market focused on the latest news in the easing US-China trade war and this morning’s announcement by Beijing to cut import duties on autos to 15%, with the resulting risk-on mood sending U.S. equity futures back to yesterday’s session highs, while Asian and European stocks were mixed.”

NDX futures are higher, but still beneath yesterday’s high at 6948.27.  Wave C appears complete in the NDX, so I am not expecting a new high here.  In fact, should the NDX roll over early in the day , it may also prevent the SPX from making a new high, as well.

ZeroHedge observes, “It has been an odd time in capital markets: on one hand rising rates, a surging dollar, and a 4 year highs in oil have wreaked havoc on Emerging Markets, and may soon spill over to developed markets although so far US stocks have been resilient, if failing to break out of the recent range despite the small-cap Russell 2000 hitting new all time high. At the same time, a financial publication used several hundred words  to not so simply say that there was $8.8bn in equity inflows into US stocks even as the S&P had its biggest weekly drop in over a month; meanwhile the VIX has been grinding lower despite Italian populist forces forming a government in Europe’s 3rd largest economy, with VIX net specs turning negative for the first time since the February VIXplosion as vol selling is all the rage again.”

VIX futures have declined to the 12-handle, but not to a new low.  The Commitment of Traders for the VIX was not yet released last night.  This morning’s numbers are revealing.  The Commercials have now gone long the VIX at 8,514 contracts (they went from a short to a long position during OpEx, as I had speculated), while the Large Speculators have gone short the VIX with -3,732,000 contracts and the Small Speculators are even more short at -4,782,000 contracts.  It is again stylish among retail investors to short the VIX until it blows up again.

Bloomberg reports, “With tariff tensions between the U.S. and China on hold, tech investors have stopped holding their breath.

Rapprochement between the world’s two biggest economies, little follow-through on regulation that might threaten tech firms’ business models, and another blockbuster earnings season have allayed fears about the near-term outlook for the Nasdaq 100 Index.

The spread between the Cboe Volatility Index — a gauge of the implied volatility of the S&P 500 Index over the next month — and the equivalent measure for its tech-heavy counterpart has shrunk to below 4 points, in-line with its one-year average.”

TNX is on the rise again, although not yet threatening the high or the Cycle Top at 31.79.  Today is day 256 in the Cycles Model, which leaves the turn window open for the rest of the week.  I would not be surprised to see a challenge of the Cycle Top before TNX turns back down.

YahooFinance reports, “U.S. government bonds are paying more than debt from other developed countries for the first time in almost two decades, a new sign of investors’ struggle to reconcile expectations for faster U.S. growth with concerns about the impact of deficits and inflation.

The yield on the benchmark 10-year Treasury note, a key barometer for borrowing costs for consumers and companies, last week topped 3.1%, its highest close in almost seven years. It’s a climb that’s rippling through markets, buffeting stocks and helping fuel a surprise rally in the dollar as higher rates attract yield-seeking investors to the currency.

Today is also day 256 in the USD Master Cycle, an exact replica of TNX Cycle.  This morning’s USD futures have remained steady, leaving yesterday’s high intact.  I would still give USD until the end of the week to register a potential new high or wait for a reversal pattern to develop.  As mentioned in the COT report, the 38.2% retracement is at 94.14. It won’t take much to get there.

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May 21, 2018

Commitment of Traders  Report:

The new Commitment of Traders Report is released today.  Here are some observations.

The positions for the 10-year Treasury Note  has changed only to a slight degree.  The Commercials are long 616,938,000 contracts, a bit of a reduction from last week’s 639,852,000 long contracts.  Last Thursday may have been the Master Cycle low.  However, today is day 256 of the Master Cycle, so there is room for yet another minor probe lower over the next few days.

The Commercials have added to their short positions in the SPX E-Mini contracts this week at -511,373,000 contracts from -465,004,000 in the E-Mini contract last week.  The largest long position is held by Small Speculators with 312,568 contracts, followed by Large Speculators with 198,805,000 contracts.  Asset Managers (mutual funds) have the largest long position with 500,958,000 contracts.  You can see that retail investors have the largest long positions.

The NASDAQ E-Mini has the Commercial Speculators still long, with 11,954,000 contracts, while Small Speculators are short -11,916,000 contracts.  The Commercial long positions are about a half of what they were a month ago (22,161,000 contracts).  This may have been a hard position to leave, due to the weighting of the FAANG stocks.

The commitment of Traders on the Russell 2000 E-Mini shows the Commercials short by -58,858,000 contracts in the Russell E-Mini.  The Large Speculators show the largest long position with 51,587,000 contracts.

The Commitment of traders in Crude Oil shows the Commercials heavily net short -674,375,000 contracts, while the Large Speculators have the lion’s share of the longs at 644,444,000 contracts.  Today showed a new high in WTI, but this is the 263rd day of the Cycle.  It is getting long in the tooth, since 92% of all Cycles turn within +/- 5 days of the mean (258 days).  We should be looking for a turn here.

The Commercials are starting to build their short position in the USD futures.  They are now net short -4,685,000 contracts up from -3,985,000 contracts a week ago.  What is interesting is that the USD is in the window for a Master Cycle (inverted) high this week.  Day 258 is on Thursday, but the turn may be at any time.    The rule of thumb is that “point 7” is between 30% and 50% of the decline from “Point 5” to “Point 6.”  The rally retraced 37% of the decline so far.  The 38.2% retracement is at 94.52, so it appears that may be the new “point 7.”

9:00 am.

The Markets Bounce

SPX futures are higher this morning as Treasury Secretary Steven Mnuchin announces, “We are putting the trade war on hold.”  The market action begs the questions whether Wave C is complete or not.  If not, we may see another week of strength in the SPX.  While the Cycles Model does not indicate a new high at this time, a prolonged period of strength may change the outlook.  The first resistance is at 2731.96, which is Thursday’s high and a 75% retracement of the decline from 2742.10.  Stronger resistance is at the 2-year trendline (again) and the 2-hour Cycle Top at 2739.28.

ZeroHedge reports, “All it took was 8 simple words, with little factual backing and no way of enforcement, to send global markets and US equity futures soaring overnight: “We are putting the trade war on hold,” Treasury Secretary Steven Mnuchin said Sunday, refuting Trump’s prior skepticism, in which the president said the doubts China trade talks will be successful, and sending risk assets across the globe (even as most of Europe was closed due to Whit Monday) higher.”

NDX futures are also higher, making a potential 65% retracement.  We may see a completion of a Wave (c) retracement up to Thursday’s high at 6952.98.  From this we may infer short-term strength.

Bill Blain suggests, “The fact US Treasury Secretary Steve Mnuchin said “we’re putting the trade war on hold” will be perceived as a positive – but the devil will be in the details. The real issues to solve are IP and services. Meanwhile, Mnuchin’s name is now high on the Trump deadpool list as White House staffers brief against him.”

 

VIX futures have pulled back this morning, giving credence to the market move for now.  Keep in mind that VIX tested the 2-year trendline at 12.65 last Thursday.  The mid-Cycle resistance is now at 13.88, which give us our buy signal.

TNX is trending higher this morning, but no new highs yet.  There is room for another spike higher to the vicinity of the Cycle Top at 31.74.  That may complete Wave 5 of (5) of [1].  I have temporarily eliminated the chart patterns that indicate  the TNX going higher.  They are Wave more likely to be Wave [3] patterns.  I will go back and evaluate after we see a pullback in TNX.

USD futures made a high early this morning at 93.97 and has pulled back since then.  This may be the end of the period of strength that I had mentioned ending this weekend.  The Cycles Model suggests weakness may prevail over the next week before regaining its strength while going into June.

Gold futures continue their decline, with a new low this morning at 1281.20.    The Cycles Model suggests deeper low later in the week and possibly through the end of the month.

European financials are under pressure today as things fall apart over the Italian political situation.

ZeroHedge remarks, “It would appear that investors in Italian assets have “more to fear that fear itself” as the mention of ‘mini-BoTs’ – and the implicit parallel currency nature of these short-dated IOUs – has spooked Italian banks, Italian bonds, and Italian credit risk dramatically…

“The market will remain on somewhat of a knife edge as regards the intended plans and as the coalition government itself evolves,” Rabobank International strategists led by Richard McGuire wrote in a note.

“The fiscal credibility of the plan is far from guaranteed.”

 ———————————————————————————

May 18, 2018

2:00 pm

Crude Oil appears to have made its Master Cycle high yesterday at 72.30.  Crude futures slipped to 71.00. before making a small recovery today.  This may be the first sign of a reversal.

ZeroHedge has this observation, “For the first time since September, the front-month Brent futures curve has flipped into contango suggesting notable physical supply being added (driving the front-month below the curve) – a sure sign of an oversupplied market.

Despite oil’s surge to near $80 a barrel, some corners of the market that reflect the trading of actual barrels are weakening fast.

1:45 pm

The Russell 2000 has made its target of 1630.00 as mentioned earlier this week.  Initial target is near 1200.00.  A sell signal may be generated once it declines back into the Diamond formation.

Equities futures are losing ground on OpEx day.

SPX futures are having a hard time staying positive  after completing a retracement beneath 2731.96.  A secondary consideration may be that SPX rises to the two-year trendline and the Cycle Top at 2738.61.  We will know the outcome later in the day.  Today is OpEx day with index options expiring at the open.

The Commitment of Traders shows the Commercials with a huge short position at -465004 contracts as lf Monday, only outclassed by their long position in the 10-year Treasury Notes.

ZeroHedge reports, “In a surprising twist to end the week, global markets are in the green and US equity futures are near session highs despite two negative overnight developments: China denying it had agreed to cut the US trade deficit by $200BN, and the official formation of a populist, budget-busting Italian government. There were also some disappointing earnings overnight (Applied Materials, Deere, Nordstrom), which followed drops in marquee names Walmart and Cisco after their results failed to impress the market.”

VIX futures are higher this morning, and may overcome the mid-Cycle resistance at 13.87.  VIX options and futures expired on Wednesday with Tuesday’s low at 12.50 telling us where the commercial traders had their money, although the Commitment of Traders shows their short positions are greatly reduced from -72659 on April 16 to -13488 last Monday.  We may expect increasing Volatility today.

CNBC observes, “Don’t call it a comeback.

The Cboe Volatility Index, considered Wall Street’s “fear gauge” as a measure of swings expected in the market, has roared back this year after many months of muted moves. The index, commonly referred to as the VIX, surged as high as 50 earlier this year before trading generally between the 15 and 25 levels.

While that range is just about in line with the index’s long-term average, it’s a stunning departure from recent years. According to a CNBC analysis, the VIX’s average level this year is 17.11; that’s higher than the average for all of 2015 (16.68), 2016 (15.84) and 2017 (11.10).

The VIX’s average since 1995 is 21, said Dennis Davitt, portfolio manager and partner at Harvest Volatility Management.”

As mentioned earlier this week, the RUT had a potential target of 1630.00.  Yesterday it made a high of 1627.32.  Probabilities are high that the RUT may top out today for OpEx, if not already.  The Commitment of Traders show the Commercials becoming more short over the past month, so I don’t expect the RUT to linger near the top.

USD futures are climbing again, with a morning high of 93.61, and rising.  The Cycles Model suggests strength in the dollar may ease over the weekend and show a small pullback through next week.  However, dollar strength may return to dominate the Cycle through at least mid-June.

The Commitment of Traders shows the Commercials beginning to add short positions (-3985).  Their positioning is quite small, so it may not be relevant, yet.

TNX is fast approaching its Cycle Top at 31.68 and Master Cycle high, due as early as today.  Depending on multiple variables, the high may extend into next week, so we await for the probable test of the Cycle Top resistance or a clear reversal.    Today is day 252 of the Master Cycle, which is about a week early.  However, today is a potential Pi Date reversal in UST, which has complete a 5-Wave decline.

The Commitment of Traders tells us that Commercial Traders are massively long the 10-year Treasury Note with 639852 long contracts.  Pity both the large and small speculators who have the other side of the trade.

—————————————————————————-

May 17, 2018

Future sag on rising rates.

SPX futures are edging downward as the 10-year yield hits an overnight high of 31.22.  This is pressuring equities, but we don’t see a full-fledged reversal, yet.  Monday was a triply indicated high for SPX.  As mentioned yesterday, the Russell 2000 is lagging behind, but has now met its target.

ZeroHedge remarks, “With Walmart unofficially set to close Q1 earnings season, which despite being the strongest in 7 years failed to boost the S&P500, all attention will remain glued on the interplay of the rates-dollar-oil trio, and judging by the somber overnight market action, traders are not too excited with the ongoing meltup in all three.

U.S. stock index-futures inched lower driven by contracts on the Nasdaq 100 as Cisco’s forecasts fell short of Wall Street’s most optimistic projections. European stocks are mixed although concerns about Italy’s new government are rising again, while Asia was modestly in the red.”

NDX futures are down, hitting an am low of 6898.25.  As you can see, yesterday’s gap down has not been filled and it appears that there may be another gap down this morning.  How many do we need to convince traders to get out of Dodge?  Despite the weakness right off the top, traders may not consider changing position until the 50-day Moving Average is challenged.

ZeroHedge reports, “Forget MAGA, it’s a MANA market in 2018…

Since the start of the year NYSE’s FANG+ Index has massively outperformed the broad market…

With Information Technology accounting for 97% of the S&P 500’s total return performance YTD…

However, as S&P Dow Jones Indices’ Howard Silverblatt tweeted today, it gets even more concentrated, forget FAANG+, FANG, it’s MANA that matters as just four stocks – Microsoft, Apple, Amazon, and Netflix – were responsible for over 68% of the S&P 500’s total return through Monday.”

VIX futures are rising, but not above the mid-Cycle resistance at 13.86.  A breakout above that level is critical.

Dana Lyons observes, “The VIX may struggle to move much lower than current levels – and may signal limitations to further stock market gains.

Some folks argue that technical analysis cannot be applied — and therefore should not be attempted — on volatility markets. We actually used to be in that camp but, given the evidence we’ve observed over time, we have changed our tune. We think support and resistance levels, particularly via trendlines, have been readily identifiable on many occasion. And one pretty significant signal in that regard may be in the works at the moment.

TNX is decidedly higher, hitting an early morning high of 31.22.  The target for this rally is a moving one.  The Cycle Top resistance is now at 31.60.  The magic number that will entice fund managers to move from equities to treasuries is reportedly moving higher.  However, the first big player that starts to move may cause an avalanche.

ZeroHedge observes, “In its latest Fund Manager Survey, Bank of America asked what may be the most important questions for investors today: “What level of US 10y Treasury yields would cause you to rotate from equities into bonds?

That level, which Bank of America’s Michael Hartnett has repeatedly dubbed the “magic number“, rose from 3.5% last month to 3.6% in the May survey, and represents that weighted mid-point of the responses by the 223 survey participants, who manage a total of $643BN .”

USD futures are higher, but still within yesterday’s range.  The Cycles Model suggests that strength in the USD may last through the weekend.

Crude oil futures have made a new overnight high at 72.30, just shy of the Cycle Top resistance at 72.34.  I may have reported that crude made a Master Cycle high on Tuesday.  The fact is, the entire week is an open window for a high in oil.  Today is day 259 in the current Master Cycle.  I usually look for highs or lows in the Master Cycle in a period plus or minus 4.3 days of day 258, where 92% of the Cycles make their turn.  Today may be such a day.  Calling the exact top in such a market is difficult, but we live with those variances.

A quick observation…it is rare to see the USD and commodities rising simultaneously.  Usually it may be a sign of a coming change of trend.

 

 

May 16, 2018

3:15 pm

The cash market for TNX closed at yesterday’s high.  However, the futures have gone as high as 30.98…

That, in turn, stopped the SPX in its tracks.  As mentioned earlier, this may be the catalyst for the decline in equities to begin.

2:30 pm

The Russell 2000 made a new all-time high today.  It took me a while to puzzle this morass.  This is not a Triangle in the technical sense of the term.  The two X-Waves appear impulsive, which doesn’t happen in a Triangle.  The target of a Triangle is a minimum of the widest dimension of the Triangle, which would give it a target of 1706.80.  Instead, it appears that the final 5-wave surge may end near 1630.00.  My conclusion is that it had to wait for the final Inverted Master Cycle high, which may have already passed in the SPX and NDX but happens on a 2-day delay in the RUT.

ZeroHedge reports, “It’s been a roller-coaster week for US Small Caps.  After tumbling off opening highs on Monday they are roaring back to new record highs today…just as US economic data are the weakest and most disappointing in 7 months…So what happens next?”

I think we all know…

9:15 am

Stock Futures are down again.

SPX futures have been trading in a narrow band in the overnight session.  The question is, “Quo vadis?”  Where are you going?  Monday was a triple pivot day , with an inverted Master Cycle and two inverted Trading Cycles.  Thus far there is no reason to believe that something else is going on.

When I originally drew the Diamond trendlines, it appears that I set the upper trendline too high.  I have adjusted it, showing the false breakout on declining volume.  The corrected trendline appears to be located at or near 2700.00.  Yesterday’s action appears to be impulsive, suggesting there is more decline to come.

ZeroHedge reports, “Following yesterday’s rate spike-driven market rout, S&P futures have steadied alongside European stocks as global markets stabilized thanks to an easing in the bond selloff, leading to speculation that the worst may be over.

US equity futures were all roughly unchanged on Wednesday morning as Europe’s Stoxx 600 Index drifted, pressured by the latest political chaos out of Italy, while Asian stocks dipped slightly, with Japan’s Nikkei and Hong Kong’s Hang Seng declining while Australia’s AX rose 0.2% and Korean stocks were little changed, despite North Korea’s unexpected threat to scuttle the peace process.”

NDX futures are running flat this morning as well.  Note that they also closed above the 2-year trendline and must decline beneath 6870.00 to lose that support.

Amazon and Starbucks are starting to feel the squeeze of new taxes as Seattle passes a controversial “homeless tax.”

ZeroHedge reports, “While Q1 saw hedge funds generally attracted to “growthy” tech names again (as shown yesterday with Druckenmiller and Tepper), one name stood out: Apple, which hedge funds dumped in droves.

According to Bloomberg calculations, in Q1 investors slashed their AAPL holdings by about 153 million shares: the biggest decrease since at least the first quarter of 2008. It’s also the most among any S&P 500 stock in the first quarter. Some, like Appaloosa and Glenview exited their entire positions in Apple altogether.

VIX futures are trading near the top of it overnight range.  There is no rally above yesterday’s high, although it remains above the mid-Cycle support at 13.86.

TNX appears to be backing away from yesterday’s new high.  However, to complete its Wave structure,  it appears to be in need of one surge higher with the Cycle Top resistance at 31.53 as a potential target.  Wave (5) is already 3.5 times the length of Wave (1).  In addition, the Cycles Model calls for an inverted Master Cycle top by this weekend.

Perhaps this may be the catalyst for the decline in equities.  ZeroHedge comments, “Having thrown in the towel on his bond bear market call two weeks ago, Janus Henderson’s billionaire bond investor Bill Gross now believes that the most recent bearish bond price (rise in yields) will stop here as the economy cannot support higher yields.

As Gross said two weeks ago, yields won’t see a substantial move from here.

“Supply from the Treasury is a factor in addition to what the Fed might do in terms of a mild, bearish tone for U.S. Treasury bonds,” Gross told Bloomberg TV.

“I would expect the 10-year to basically meander around 2.80 to perhaps 3.10 or 3.15 for the balance of the year. It’s a hibernating bear market, which means the bear is awake but not really growling.”

USD futures are rising again as it continues its course to “point 7.”  In this case, the rising dollar may help the cause of (oversold) treasuries more than equities.

——————————————————————————-

May 15, 2018

Sell Signals.

10:15 am

NDX is now on an aggressive sell signal.  It is doubtful that it can recover that huge gap down.  In fact, it is starting to act like a Wave (3) has begun!

ZeroHedge comments, “In the biggest quarterly shocker out of the Harvard Endowment, which one year ago surprised Wall Street when it revealed that its biggest investment was junk bonds, yesterday we showed that the investing fund representing the world’s most prestigious university had concluded there was no better investment than FAANG stocks, or specifically Apple, Microsoft and Google, as just these three stocks represented 72% of Harvard’s long equity portfolio.”

10:00 am

The NYSE Hi-Lo Index went from a buy to a sell this morning, cratering into the negatives, but not yet crossing the 50-day Moving Average at -15.50.  We’ll monitor these signals as the day progresses.

VIX is now on an aggressive buy signal (SPX sell) after rising above the mid-Cycle resistance at 13.86.

 

The Diamond Formation may still be active after a false breakout.  This morning’s gap down reappeared back inside the Diamond.  What clued me to this possibility is that the breakout was not on rising volume, as would be expected in a Triangle formation.  SPX is now on an aggressive sell signal.

9:30 am

Beware the double zigzag!

Well, that was quick!  TNX broke out to the upside, but the formation is suspect.  The rally appears to be a double zigzag, which may be an extended Wave [b] instead of a continuation of Wave 5.

ZeroHedge comments, “As retail sales data printed, 10Y treasury yields spiked to their highest since 2014 (3.0465%) which seemed to spark a notable drop in US equity futures ahead of the open…

10Y Yield is within a fraction of a tick of the 1/2/14 high yield of 3.0516%…”

Stock Futures are on a sell signal

9:15 am

SPX futures are sliding as low as 2720.50 this morning, potentially breaking beneath the rally trendline at 2725.00.  This gives the SPX an aggressive sell signal that will await confirmation from the VIX and NYSE Hi-Lo Index.  Aggressive signals are subject to drawdowns, so take due care with any new positions.

ZeroHedge reports, “The pain trade has returned with a bang this morning as both 10Y Treasury yields and the dollar are grinding higher, the former back above 3.00%…

… the latter at the highest level since last Wednesday as oil continued to advance and soak up liquidity…

… in the process slamming near record Treasury and USD shorts – hence “pain trade” – while leaving a risk-off flavor to markets on Tuesday, with European stocks struggling for traction following declines across Asia, which saw a disappointing set of data out of China overnight , while US futures were roughly 0.2% lower around 7am ET.

NDX futures are down and appear to have broken the rally trendline as well.  The break of a rally trendline may be considered an aggressive sell signal with confirmation at the 50-day Moving Average at 6745.35.

The equities Cycles Model suggests that, once the decline begins, we may see a two-month decline that may wipe out 50-60% of the equity values.  In other words, Wave (3) may take that long before it is finished.

VIX futures are higher, but must cross the mid-cycle resistance at 13.86 for a buy signal.  With a futures high of 13.26 as I write, VIX has a way to go yet for a signal.  Be on the alert, however.   Things  may change quickly.

The Shanghai Index touched its 50-day Moving Average yesterday and appears prepared to begin its decline.  We’ll be watching for a cross of Intermediate-term support at 3139.98 , then the Head and Shoulders neckline at 3080.00-3090.00. for confirmation of the next leg down.

ZeroHedge comments, “China’s economic momentum appeared to slow from March’s data as while Industrial Production handsomely beat expectations, Retail Sales were below the lowest estimate and Fixed Asset Investment was the weakest since Dec 1999

  • Industrial output rose 7.0 percent in April from a year earlier, versus a projected 6.4 percent in a Bloomberg survey and 6 percent in March – highest since June 2017
  • Retail sales expanded 9.4 percent from a year earlier, versus a forecast 10 percent – equal lowest since Feb 06
  • Fixed-asset investment rose 7.0 percent year-on-year in the first four months, compared with an estimated 7.4 percent – lowest since Dec 1999.

  

TNX is testing its prior high at 30.35, but hasn’t yet reached it.  Remember, it can go up to 30.35, but not beyond, to remain in the current Wave structure.

The Commitment of Traders shows that on May 14, the Commercial Traders are 639852 contracts long, while the Large Specs (-408629) and Small Specs (-231222) have the opposite wager.  This is a very lopsided trade, which suggests that yields may go down hard, should the markets break.  The tension is palpable.

USD futures are charging higher after the USD probed toward, but did not make, the mid-Cycle support at 91.72.  The Cycles Model suggests that strength may return to the USD for the next week.  It this possibly a Wave 3?  The next target appears to be the Cycle Top at 95.28.  Point 7 may be higher than that, but we will have to evaluate as the rally progresses.

Gold futures have taken a big hit this morning, having declined beneath its previous low.  Futures were as low as 1296.20, crossing a potential Head & Shoulders neckline at 1300.00.  The Cycles Model suggests a week-long decline that may make the Head & Shoulders target.

—————————————————————————–

May 14,2018

2:30 pm

SPX has declined beneath the 2-year trendline, but not the short-term trendline under this rally.  It appears that it may do so beneath 2725.00, where aggressive short positions may be taken.

ZeroHedge comments, “The Dollar is rallying as stocks give up their overnight gains following remarks from Commerce Secretary Wilbur Ross that seemed to pour cold water on Trump’s overnight tweet on ZTE and hopes that a trade war with China was easing…

U.S. Commerce Secretary Wilbur Ross speaking Monday at National Press Club in Washington (via Bloomberg)

Ross says China has not beenplaying fair on trade and the U.S. will impose EU steel tariffs if deal not reached by June 1.

Ross says that the dollar does factor into trade balances, the gap remains wide between China and U.S. on trade, and he hopes relationship between President Trump and President Xi can facilitate an agreement.”

9:15 am

SPX Futures are higher, but so is the VIX

SPX futures are marginally higher.  It’s hard to say whether the trendline gives way or not this morning.

ZeroHedge reports, “S&P futures are higher, maintaining overnight gains  as most Asian markets advance with the MSCI Asia Pacific index 0.5% higher, as sentiment was boosted by President Trump unexpected reversal on China telecom giant ZTE over the weekend when in a Sunday morning tweet, Trump vowed to get the Chinese telco back to business in a surprising policy U-turn after the company announced a halt to major operating activities following a US 7-year supply ban order.

Europe was broadly, if modestly, in the red as a result of the EUR rising to session highs just shy of 1.20, the highest in over a week, after the ECB’s Villeroy said the first rate hike could come quarters, not years after the end of asset purchases, while political strains in Italy outweighed optimism over waning global trade tensions. Thanks to the weaker dollar, emerging-market stocks built on their first weekly advance in four weeks.”

VIX futures are higher, but not above the mid-Cycle resistance at 13.87.  Above that level may be considered an aggressive buy signal.

TNX is elevated, but no breakout here.  A collapse in yields is likely….

ZeroHedge observed, “A roller-coaster week for rates and the dollar did not stop large speculators adding to their already record-high short positions across the entire term structure.

USD Shorts have started to cover aggressively…

Driven mostly by additions to EUR shorts…

BUT, record bond shorts keep getting record-er…

From the shortest-end (ED futures) to the belly (5Y at record shorts…)…

And the longest-duration ‘ultras’ also at record shorts…

Interestingly, as the Treasury curve has collapsed, it is clear from the chart below that large speculators are betting on curve steepening (reducing their shorts in 2Y TSY and adding to shorts in 10Y TSY) – so far it is failing miserably as the curve crashes to new cycle lows…

Putting this all together, large speculators have never been more short across the entire interest-rate curve – over $4 trillion notional bets in Eurodollars (short-term rates going higher) and around $117 billion notional equivalent short across the Treasury futures curve…

USD futures have made a new low this morning at 92.14 with a probable target near the mid-Cycle support at 91.72.

—————————————————————————-

May 11, 2018

11:20 am

The Diamond Formation

Lance Roberts calls it the “Coiled Spring” market.  Others refer to it as a Triangle formation.  I’ll throw in my two cents and call it a bearish Diamond Formation.  I have waited this long to illustrate my view because I wanted the Cycles Model to give me a clear path as to what happens next.  In other words, we may see a reversal out of Wave (2) and into Wave (3) in the next couple of hours.

11:00 am

Is VIX too Low?

If it weren’t for the VIX plunge at the open on OpEx last Friday, today would count as the Master Cycle low in VIX.  However, it would be nearly a month behind schedule.   As we near the turn, we have to ask why it has gone so low and so long?

ZeroHedge gives some insight, “One of the catalysts cited for the recent breakout in the S&P was the corresponding breakdown in the VIX, which as we noted on Wednesday breached the triangle formation in which it had been trapped since February, sliding to the downside and erasing the elevated levels seen in the post Feb 5 panic.

However, while the VIX has tumbled, the realized vol in the market continues to be surprisingly high. That’s the take of Goldman’s derivatives strategist Rocky Fishman, who writes today that “the VIX closed yesterday at its lowest level since January”, a level which as he shows in the chart below, is “too low given how much the SPX is moving.

9:15 am

Futures are quiet this morning.

SPX futures are pressing against the 27-month trendline again this morning.  By 2:00 pm today the SPX will have spent exactly 43 days from the March 13 high and 17.2 days from the April 18 high.  As you may recall, I had spent the past month or so anticipating a Master Cycle low this week.  Instead there is an inversion.  A average retracement usually lasts about 3-4 weeks.  This one has lasted 6 weeks.  Just to put this in perspective, however, the ensuing decline may last as long as 12 weeks with a potential of 4 of those weeks being panic weeks.

ZeroHedge reports, “Following several days of torrid newsflow, which markets digested without a glitch and continued their recent grind higher, the overnight session has been relatively quiet, and while trading was subdued post the European open, a burst of buying was observed in generally illiquid conditions as US traders walked in, sending S&P futures sharply to session highs as volatility continues to dip with the VIX now erasing its elevated level seen in 1Q.”


NDX futures are also higher, although pulling back from an overnight high at 6979.25.  A glance to the left side of the chart will reveal what is being attempted.  The gap at the Island Reversal may get filled at 7010.01.  Then again, should it not be filled, the open gap remains as a bearish reminder and a hallmark of a Super Cycle Wave (c) decline.

VIX futures tagged a low of 12.77 this morning before moving higher.   It will need to rise above the mid-Cycle resistance at 13.87 just to be aggressively positive.

Positions in the VIX futures are changing in the Commitment of Traders however, with the Commercials net short by -17279 contracts and the Large Speculators long by 20962 contracts as of Monday.  I expect to see this number reversed in the next week or so as the large Specs get beaten out of their positions.

TNX is easing back down, but hasn’t declined beneath the trendline at 29.20.  10-year yields are anticipated to see a Master Cycle low in the next 2-3 weeks.

ZeroHedge comments, “What a difference a month makes.

Exactly one month ago, when the Treasury reported its latest monthly budget deficit, we noted that Federal spending surged in March, rising 7% from $392.8BN from a year prior to $420BN, the second highest monthly government outlay on record, and with tax receipts disappointing, it meant that the March budget deficit of $208.7 billion was 18% higher than $176.2BN deficit recorded last March, and was the biggest March budget deficit in US history.

Fast forward to today when anyone who took this one month and extrapolated it as an indication of US economic health got the shock of a lifetime, when the US posted its largest monthly budget surplus on record in April, and the highest Federal Government Receipts ever – at just over half a trillion dollars – which the Congressional Budget Office said reflected stronger economic activity over the past year.”

USD futures have declined to 92.25 this morning with the probability of challenging mid-Cycle support at 91.73.

BusinessTimes reports, “THE dollar’s rally paused on Thursday as Treasury yields dipped and traders looked to US consumer price data later in the day that could show an acceleration in inflation.

Ten-year Treasury yields, which have been pushing the greenback higher, slid back below the psychologically important 3 per cent level to stop the dollar in its tracks after a three-week long rally.

The dollar index fell 0.2 per cent against a basket of six major currencies at 92.88 after hitting a 41/2-month high of 93.42 on Wednesday

—————————————————————————-

May 10, 2018

2:00 pm

What to expect from here.

SPX has clearly made a third Master Cycle high (inversion).  This is a clear signal that things are about to dramatically change.  All I can relate to you is my past experiences.  The last one that is similar to this is the 2008 pattern.  Wave [A] made a low on March 17, 2008.  From there the SPX went up for over two months, until May 19, 2008.  I believe that today is the corresponding high to that one.

From that  and the Cycles Model, we can ascertain that the next Master Cycle low (Wave (3) of [3]) may not occur until late July, approximately 86 days.   The next Master Cycle low appears to be due in late August (Wave (5) of [3]), while the final Master Cycle low for the year (Wave [5] of I) may occur near October 10.

1:30 pm

SPX appears to have slightly overshot where Wave [v] is equal to 1.62 times Wave [i] at 2725.18.  It also apparently touched the two-year trendline near 2726.00.  In all likelihood, this is where the panic Cycle begins.

1:15 pm

VIX has been pushed under the 200-day Moving Average at 13.67.  It may tag the declining trendline again near 12.50.  However, today it already had 4.3 market days transpire from its low last Friday.

ZeroHedge comments, “Despite the world’s elites decrying President Trump’s decision to withdraw from the Iran nuclear deal – fearful of the kind of Middle East instability already witnessed last night between Israel and Iran (and Syria) – it appears investors don’t have a care in the world.

For the first time since mid-January, VIX is back below its 200-day moving-average, trading with a 13 handle…”

8:00 am

Futures are flat.  A turn is imminent.

SPX futures are flat after reaching their proscribed target of 2700.00 yesterday.  SPX is in a turn zone this morning and we await the CPI report due at 8:30 am.  I will be on the road to an appointment, so will be unavailable for comment until later this morning.

ZeroHedge reports, “US futures are flat, and European stocks are little changed after their longest winning streak since mid-March following a barrage of overnight news, including a dramatic escalation in fighting between Israel and Syria/Iran, a shocking election victory in Malaysia where opposition leader Mahathir Mohamad ended the six-decade rule of Najib Razak’s party sending more shock waves among emerging markets, and the blessing by Bersluconi of a new, anti-establishment, populist government in Italy.”

VIX futures declined modestly overnight, but is now positive.  It appears that the hedgers are quietly buying VIX futures and SPX options this morning.

TNX is backing away from yesterday’s high.  The trendline isn’t broken yet, so that is what we are watching for.

USD futures appear to be consolidating in place this morning.  There are no clear subdivisions yet, so we let the rally unfold.  It should be a 5-wave affair.

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May 9, 2018

Cycle Inversion Day.

11:30 am

NDX may run up to its Wave A high at 6856.96 to make a flat correction.

11:00 am

SPX appears to be completing the final push on a Wave C of (2).  It doesn’t appear that it will make 2700.00.  Today is day 57 from the March 13 high an inverted Trading and Master Cycle and a Pi date (314 days from the June 30, 2017 low.

GlobalMacroMonitor writes, “The S&P500 could not hold the 50-day moving average today, setting, yet again, a nice bull trap to hang out the MoMo crowd.  Seeing a lot more traps, both bull and bear,  these days.  It is the result of the increasing dominance of machine trading.   They are above our human emotions.  Smug, don’t you think?”

9:00 am

SPX futures were as high as 2684.50, possibly completing Wave [v] of C of (2).  Wave [v] is equal to Wave [i] at 2700.00.  Wave C may go as high as 2717.00 in a flat Wave (2).

You can see that I have penciled in the upper trendline of a Triangle formation.  However, Triangles are corrective affairs and neither Wave [1] nor (1) are corrective.  This is setting up to be a bull trap of major proportions.

The clincher is the third potential inverted Master Cycle.  Each inversion had a strong decline following it.  This should be no different.

ZeroHedge Reports, “For those curious what the fallout from the US withdrawal from the Iranian nuclear deal looks like in the capital markets, the answer is as follows: higher US stock futures, a stronger dollar (at least initially, the greenback has since turned slightly negative) ahead of a $25BN 10Y auction (which may carry the first 3.00% cash coupon in almost 7 years), and perhaps critically, a 10Y Treasury yield rising back above 3.00% again.

But the most closely watched response was how oil would react, and sure enough the bulls have enjoyed the upper hand for now with WTI reversing Tuesday’s “fake CNN news” inspired slump to briefly surpass $71 per barrel, a new 4 year high, while Brent nudged $77 as the market came to terms with a U.S. message that buyers of Iranian crude have six months to curb their purchases.”

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May 8, 2018

9:30 am

Emerging Markets appear to be leading the charge to the downside.

ZeroHedge writes, “The recent collapse of the Argentine Peso and other emerging currencies is more than a warning sign.

It could be the arrival of a “sudden stop”. As I explain in Escape from the Central Bank Trap (BEP, 2017), a sudden stop happens when the extraordinary and excessive flow of cheap US dollars into emerging markets suddenly reverses and funds return to the U.S. looking for safer assets. The central bank “carry trade” of low interest rates and abundant liquidity was used to buy “growth” and “inflation-linked” assets in emerging markets. As the evidence of a global slowdown adds to the rising rates in the U.S. and the Fed’s QT (quantitative tightening), emerging markets lose the tsunami of inflows and face massive outflows, because the bubble period was not used to strengthen those countries’ economies, but to perpetuate their imbalances.”

ZeroHedge observes, “Over the weekend, when commenting on the ongoing rout in emerging markets, Bloomberg published an article titled “Rattled Emerging Markets Say: It’s Over to You, Central Bankers.” Well, overnight the most important central banker of all, Fed Chair Jay Powell responded to these pleas to “do something”, and it wasn’t what EMs – or those used to being bailed out by the Fed – wanted to hear.

As Powell explained, speaking at a conference sponsored by the IMF and Swiss National Bank in Zurich, the Fed’s gradual push towards higher interest rates shouldn’t be blamed for any roiling of emerging market economies – which are well placed to navigate the tightening of U.S. monetary policy. In other words, with the Fed’s monetary policy painfully transparent, Powell’s message to EM’s was simple: “you’re on your own.

SPX is easing away from the 50-day Moving Average.

9:15 am

SPX futures have ventured down beneath Short-term support/resistance at 2665.47.  If it opens beneath it, we may see the mid-Cycle support at 2651.38 being challenged.

ZeroHedge reports, “U.S. futures and European stocks are modestly lower, following a mostly green Asian session, amid growing jitters over today’s 2pm announcement by President Trump in which he will unveil the fate of the Iran nuclear deal.

Ahead of Trump’s much anticipated announcement this afternoon, it has been a case of sell the rumor and the news (for reasons Barclays explained overnight), with oil prices retreating from three-and-a-half year highs as investors weighed competing views on whether the U.S. will reimpose sanctions on OPEC producer Iran and the potential consequences of such a decision: as Bloomberg recaps, while foreign officials and analysts say Trump is likely to remove the U.S. from the pact, the president may also surprise allies by agreeing to stay in the accord a while longer as American and European diplomats forge side deals aimed at addressing his concerns.”

Crude oil futures  declined beneath 70.00 this morning as a potential beginning of a reversal from a Master Cycle high.

The retracement high in crude oil appears to be lining up with the Wave 2 high in stocks.

VIX futures are higher, but no breakout in sight, yet.

TNX is lingering above the trendline as it consolidates.  Care must be exercised, since a sideways consolidation may ease an overbought condition and allow the rally to resume.  This is a very tricky position, as there are only 3 waves from the low (a)-(b)-(c) for the time being.  Should TNX break higher, we may see it develop into Waves (iv) and (v) of an impulse, suggesting Wave 5 may be underway.

Kevin Muir at TheMacroTourist points out, “One of the greatest traders of all time, yet probably one of the least well known, once said, “win or lose, everybody gets what they want out of the market.” Easy for Ed Seykota to say as he sits on his deck overlooking Lake Tahoe sipping a nice California cab. Yet as I struggle to make sense of this great game we all love to play, I wonder if maybe Ed is correct. I know his comment might seem a little preachy, but the older I get, the more I realize that a trader’s biggest obstacles lie in the dark recesses of their thoughts, not in the day-to-day zigs and zags of the markets.

So I wonder. Not only do we all get what we want, but do we only see what we want to see?”

USD hit 93.00 in overnight trading.  You can see that it is pretty much a straight up affair.  I am tempted to label Wave D as a 1, but I need to see the subdivisions in (C) before making that change.

===============================================

May 7, 2018

3:00 pm

Addendum:  SPX did rise above its 50-day Moving Average momentarily.  The corrected level for the 50-day is 2679.48 on the daily chart.

I had expected to see a turn at 10:20 (90.3 hours or 12.9 days) but we got the turn at 94.6 hours instead.  As you can see, SPX challenged the 50-day Moving Average at 2681.99.  The high did manage to meet the April 30 high at 2682.92, going a mere .43 points higher.  This Wave 2 qualifies as an expanded flat (top).

ZeroHedge observes, “The Dollar is practically unchanged (amid some volatility) and Treasury yields are officially unchanged across the entire curve… but that doesn’t stop the short-squeeze continuing to lift Nasdaq stocks 1% higher and the S&P back to its 50DMA

The Dow is up 190 points, and the entire yield curve is unchanged…”

10:30 am

For the past couple of weeks I have been warning of a critical retracement level for WTIC at 70.52.  Today the WTI futures hit 70.75 and appears to be pulling away from that high.  This peak also puts crude oil at a probable Master Cycle high today.

ZeroHedge comments, “With the Iran Deal looking increasingly fragile, front-month WTI futures have just traded above $70 for the first time since Nov 2014.

$70 just happens to be the 50% retracement from the Aug 2013 highs to the Feb 2016 lows…

10:15 am

SPX needed that extra push to resistance to complete a 68%  retracement of its decline from the 2717.49 high.  In the meantime, it has also completed an exact 12.9 day Cycle from the 2801.90 high to today’s high and a 56 day Cycle from the March 13 high (Trading Cycle).  So it appears that SPX may have made a Master Cycle high today.  We should see the turn in the next hour or so.

9:00 am

Stocks are giving mixed signals…

SPX futures reached a higher elevation than the Friday cash market, but has eased back down.  The Cycles Model suggests that the period of strength may have dissipated over the weekend, but we should be aware that there may be some carryover into this morning.

Today is day 259 of the current Master Cycle, which puts us on alert for a turn.  Thursday’s low (day 255) may have been the Master Cycle low, but NDX does not agree.  That leaves two possibilities.  The first is that we may see a Master Cycle high today.  Should the period of strength carry over into today, we may see the SPX challenge the 50-day Moving Average at 2681.06 for a probable Master Cycle high (three in a row!).

The second possibility is a very deep low in the next week or so that would qualify for a Master Cycle low.

ZeroHedge reports, “Global stocks and US equity futures are in the green, despite the dollar rebounding to session highs overnight, putting already nervous emerging markets on edge, while oil rising to a 3 year high above $70 is set to pressure corporate margins even more.

In the otherwise quiet overnight session which saw yet another disappointing European datapoint as German industrial orders dropped -0.9% from 0.3%, and below the expected 0.5%, all eyes remained on the dollar which once again defied bears, and reversed an early drop rising sharply to session highs following the Tokyo fix, even though volumes remained low with London closed for a U.K. bank holiday.”

NDX futures are higher this morning, but apparently being resisted by the two-year trendline near 6800.00.  This illustrates the potential for a Master Cycle high for both the SPX and NDX.

VIX futures are higher, lending credence to the notion that today’s high may be the turn down into Wave (3) in stocks.  Friday’s brief 10-handle appears to be on record as a very late Master Cycle low.  It matches up as a Wave (5) of and Ending Diagonal Wave [C].

TNX appears to be hovering above its trendline.

A break of the trendline signals the potential gush of liquidity coming from stocks. At the reversal.  So far it only appears to be a trickle.

USD futures are going higher.  The flow into USD has been pretty regular since it started on April 17.  The Cycles Model suggest strength may remain in the USD for the next two weeks.

ZeroHedge reports, “The Dollar Index has erased all of 2018’s losses and is now green from the 12/29/17 close…

Helped by Euro weakness, driven by soft economic data, especially the reading for Sentix investor confidence…

This dollar strength is happening as the massive dollar short position begins to unwind…

And lagged liquidity stress could mean there is a lot more to come…

Regards,

Tony

Anthony M. Cherniawski

The Practical Investor, LLC

2205 Hopkins Avenue

Lansing, MI 48912

www.mrpracticalinvestor.com

Office: (517) 331-5200

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. 

———————————————————————————-

May 4, 2018

6:oo pm

Well, SPX did go higher.  Upon closer analysis, today we saw the top of an Irregular Wave 2 of (3).  The decline is speeding up as it is subdividing..  From the 2801.90 peak, it took 51.6 hours, or 12 – 4.3 Cycles.  From that high to today’s high took 34.4 hours or 8 – 4.3 Cycles.  I expect the next Cycle to take only 30.1 hours (or possibly less).  This would put the next low at the close on Thursday, 1 day after a completed Pi Cycle (314 days). It may not be the actual low for this series.   This decline may extend as far as early Thursday morning, May 17.  The reason I say that is the action in the VIX this morning tells me that the Commercials have run off the speculators who are long with stops.  That is why I don’t favor them in an algo-infested market.  This would have been an ideal opportunity for the Commercials to load up on VIX from the weaker hands. Wednesday the 16th is when VIX Index futures and options expire.

10:10 am

SPX may go higher.

Today is market day 13.  12.9 days will have elapsed from the April 18 high between 1:00 and 2:00 today.  I wrote my welcome piece this morning without doing the more granular calculations.  This is a minor Primary Cycle turn that may accelerate the decline.  However, we must allow the fullness of time to play out.  A likely resistance is the mid-Cycle resistance at 2653.34, which is also near the 50% retracement level.  A final resistance is the 61.8% Fib level at 2660.88.

9:50 am

VIX crashes on a sweep of the stops.

It appears that some pretty big players/investors know what is about to happen, so they do a wide-ranging squeeze to stop out the longs.  In the process they may have bought those positions for themselves, since the VIX went right back where it started.  This doesn’t appear to be an attempt to manipulate the market.  It appears to be a greedy grab picking the pockets of weak hands.

ZeroHedge got all excited about this and wrote, “Following this morning’s disappointing payrolls data – if you ignore the ridiculous 3.9% unemployment rate that The Fed focuses on – the dollar index is spiking back above pre-FOMC levels.

However, it is the massive VIX flash-crash to a 10 handle is the most notable…

Stocks are sinking post-payrolls…

Not a fat finger!  (Ha,Ha…ed.)

Welcome to 4 degrees of 3’s

I’ll lead off with the Emerging Markets Index for two reasons.  First is that we have been reading about Emerging Markets weakness, but with nothing to judge by.  The Chart shows the reversal on January 26 (leading the US markets by ½ day.  Second, ZeroHedge mentions them in its opening paragraph.

“While US equities surged on Thursday, reversing a nearly 400 point drop in Dow Jones after several reports predicted that today’s US-China trade talks were going well would have a successful conclusion, hours ago the Mnuchin-led delegation departed Beijing having accomplished nothing. So far, however, this has had no impact on US equity futures (it has hit the Chinese Yuan however), which are hugging the flatline, while Asian stocks dropped and Europe edged higher ahead of the April payroll report due shortly (full preview here).”

SPX futures are weak before the Payrolls.  Until now (8:00 am) they have been trading in a narrow range between 2623.00 and 2633.00.  However, there is no doubt that the 200-day Moving Average at 2615.04 has been challenged.  That leave it vulnerable to a much deeper decline.

The BLS has released its preliminary April Employment Situation Summary, “Total nonfarm payroll employment increased by 164,000 in April, and the unemployment rate edged down to 3.9 percent, the U.S. Bureau of Labor Statistics reported today.

Job gains occurred in professional and business services, manufacturing, health care, and mining.”

I want to formally welcome you to Wave [iii] of 3 of (3) of [3].  The Cycles Model calls for a probable panic decline through Monday and possibly a series of panic down days through next Friday.  The media are completely unaware of the impending decline.

Bloomberg calls this a “bear trap,” suggesting a limited downside, with higher prices to come, “It’s one of the bigger head-scratchers in markets. Companies are posting their biggest earnings gains in years and yet equities can’t muster any upward momentum. That was evident on Thursday, with the S&P 500 Index falling for the third time this week, bringing its losses to 2.91 percent from last month’s high.

Stocks will eventually break out of their funk, as the fundamentals always win out in the long run. But in the meantime, trading patterns rule, and on that basis it’s become evident that stocks are stuck in a trap —  a bear trap, to be more precise. According to the equity strategists at Bloomberg Intelligence, a lack of buying power has left the S&P 500 stuck in an “ominous descending triangle formation” below its 50-day moving average but above its 200-day one. This means, in the short term, since the S&P 500 broke below its late-April low of about 2,634, then it’s likely to continue falling at an accelerating pace, perhaps to below 2,600. A break beneath that would reignite downside risk, with the next key support level near 2,500, which was last seen in September.”

NDX futures are also down while waiting for the April Payrolls report.  In has a similar Wave structure as the SPX.

To dramatize this point, ZeroHedge remarks, “Two months ago, when we last looked at the 50 most popular long hedge fund positions as compiled by Goldman Sachs, which the bank calls its Hedge Fund VIP list, and which we have frequently dubbed the “Hedge fund Hotel California” for various obvious reasons, we offered the following observations:

What is notable about this basket, is that it tends to outperform the S&P in most periods, and did so by 170 bp YTD (3.5% vs. 1.9%) and in 64% of quarters since 2001. But this outperformance comes at a cost: if and when the selling begins, as it did in the spring of 2016 when Valeant imploded and blew up the “pharma trade”…”

 

VIX futures are higher as I write, but it may take the Payrolls report to flip it above the 50-day Moving Average.

Bloomberg reports, “The world got a stomach-churning lesson in the risks of trading volatility after the VIX swung wildly in February.

Now, traders are experiencing another gut check as market regulators look into allegations that the index is being rigged.

News broke Thursday that the U.S. Securities and Exchange Commission and Commodity Futures Trading Commission opened probes into the VIX, one of Wall Street’s most widely used benchmarks. One area of investigation is the monthly auction that determines the price of futures contracts tied to the VIX, people familiar with the matter said.”

TNX is challenging its support line at 29.30 this morning.  The futures have a morning low of 29.29, while the cash market hasn’t registered it yet.

The GlobalMacroMonitor has a good fundamental analysis of the Treasury market.  It states:

“There has been a huge drain of liquidity from the U.S. Treasury market over the past few years, and may signal a structural change to how the United States finances budget deficits.

The government will always find a way to fund itself and will siphon and drain liquidity, and buying power from other asset markets.  During the past 20 years, the Treasury market has been dominated by foreign and official l sector buyers   That is changing and may explain why the stock market is trading so poorly even with, what appears, to be stellar earnings.”

However, fundamentals aren’t what drives prices, as we well know.  They agree that Capital Flows are what drives the market, but, stick to fundamentals and seem to ignore sentiment.

USD futures just got jarred by the BLS report.  However, the morning low was a minimal 92.19.  I may be changing the Wave structure to allow the rally to 92.67 as a Wave 3, which nullifies the triangle  formation.  A shallow consolidation above the mid-Cycle support at 91.75 would bolster that view.

Regards,

Tony

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May 3, 2018

Crude Oil at a peak?

9:30 am

Lance Roberts’ article (see below at TNX) prompted me to inspect the Commitment of Traders report on crude.  We find the same concept applies here.  Large Specs are long 712423 contracts, Small Specs are long 25290 contracts, but the Commercials are short -73833 contracts.  The Commercials ultimately win.

9:00 am

Too Many Investors on the Same Side of the Boat

SPX futures are down and appear to have declined beneath the May 1 low.  The Dow is the first major Index to break its 200-day Moving Average on no news.

ZeroHedge observes, “Dow futures suddenly dropped at around 0745ET – led by a drop in the dollar and Treasury yields – breaking below its 200-day moving average…

There was no clear catalyst though some suggested an ‘old news’ headline that hit Bloomberg at 0740ET – GIULIANI SAYS COHEN `DEFINITELY’ WAS REIMBURSED – may not have helped. But as Dow futures broke the 200DMA, gold jumped…”

NDX futures are lower this morning, as well.

ZeroHedge observes, “It has been a confusing 24 hours, with US futures slumping after yesterday’s unexpectedly hawkish-yet-dovish FOMC, which first slammed the dollar, then sent the USD surging, and sparking an equity selloff even as rates remained relatively unchanged. Today’s this confusion spilled over into international markets, with both Asian and European shares retreating, as traders are on edge ahead of the US-China trade talks taking place today and tomorrow.

The weakness continued this morning, when another disappointing euro-zone core CPI number (1.1%, Exp. 1.2%, last 1.3%) led to sharp rally across EGBs, dragging Treasurys higher in response, and bull-flattening the curve as 10Y yields slumped.”

VIX futures are higher, but have not exceeded the May 1 high, much less the Wave 1 high at 19.84.  To many, VIX appears to be “normal.”  However, note the rising bottoms, suggesting a growing upside momentum.  The breakout ma  be spectacular.

TNX is “hugging” the trendline at 29.30, but hasn’t yet broken down.  Please read my Mid-Week Report on UST.  The Commercials are hugely net long UST while both large and small Speculators are hugely net short.  A breakdown appears to be about to happen.

Lance Roberts observes, “In early 2018, I penned a post which illustrated the legendary Bob Farrell’s 10-investment rules. Bob, one of the great investors of our time, had a very pragmatic approach to managing money. Investing rules, and a subsequent discipline, should be a staple for any investor who has put their hard earned “savings” at risk in the market. Unfortunately, far too many invest without either which leads to less than desirable outcomes.

As of late, there has been a lot of excitement over two areas of the market in particular: interest rates and oil prices. In fact, at this moment the speculation in these two areas is at record levels.”

USD futures are taking a bit of a reprieve this morning.  There is nothing in the Cycles Model to suggest a reversal here, but we may expect to see a pullback to mid-Cycle support at 91.75.  Those still short the USD may have a chance to get off the boat.

———————————————————————————-

 

May 2, 2018

3:00

The Fed Speaks…

ZeroHedge reports, “With little expectation for a rate-hike today (66% chance of no change), market participants are scouring every word and nuance for signals that The Fed is more (or less) worried about inflation (PCE hit 2% on Monday) and may hike faster (or slower); and whether recent economic weakness is merely “transitory” or reflexively driven by The Fed’s tightening actually impacting financial conditions.

The key highlights:

  • RATES UNCHANGED, DECISION UNANIMOUS
  • INFLATION HAS “MOVED CLOSE TO 2%” TARGET
  • FED SEES INFLATION RUNNING NEAR ‘SYMMETRIC’ GOAL MEDIUM TERM
  • ECONOMIC OUTLOOK MODESTLY DOWNGRADED

The SPX reaction to the FOMC “guidance” was a brief blip higher to 2660.87, then a quick reversal.  This is where the decline begins to accelerate.  The Cycles Model projects about 4 days of decline…(maybe more, but I’ll leave that to another analysis).

TheMacroTourist has an interesting insight that you may wish to read.  I think what they’re saying is that Powell will be slow to react, creating more damage than anyone anticipates.

12:45

AAPL is coming off “point 5” of a Broadening Wedge formation.  “Point 6” is the Broadening Wedge average target.  You can see that the algos are making the latest news a “good thing.”  In fact, It’s not.

 

ZeroHedge remarks, “Last week, we showed what may soon be perceived as the most dramatic consequence of the Trump tax reform on the bond (and stock) market: corporate bond issuance for cash-rich companies, those that until recently held hundreds of billions in cash in offshore accounts, had frozen with not a single bond issued so far in 2018.

The reason was simple: whereas previously cash-rich companies which held most of their “cash and marketable securities” offshore (technically this definition was meaningless, as said securities were mostly in the form of bonds), and inaccessible due to the high repatriation tax, they were forced to issue domestic bonds to fund buybacks, dividends SG&A and/or domestic capex, following passage of Trump tax reform, they would be allowed to repatriate this offshore cash domestically (paying a modest one-time charge), and no longer be reliant on the bond market.

In other words, these cash-rich companies would finally start spending their “cash” (mostly on buybacks, less on CapEx) which really wasn’t “cash” at all, but cash equivalents such as Treasurys, corporate bonds and in some cases equities: effectively launching a form of Quantitative Tightening.”

9:00 am

FOMC day

SPX futures are trading in a narrow range around yesterday’s closing value.  The FOMC concludes its meeting today and only leaves a policy statement for its trouble. It is possible that the policy statement may be used to shape expectations about the course of future rate hikes.

Be prepared for more upside as the Cycles Model suggests a “bump” higher before turning down.  Short-term resistance at 2664.73 may be the target for today’s action, but a run at the 50-day Moving Average at 2688.85 isn’t out of the question.

The simple 200-day Moving Average at 2573.77 is key in maintaining the long-term trend.  Mike Shedlock’s article on TheMaven gives us some insight into the dynamics of this observation.

ZeroHedge observes, “As Asian and European traders return from holiday, sentiment is generally risk on, with Asia mixed and European markets and US equity futures in the green, rallying from the open as the DAX outperforms, the mining sector is well supported thanks to a metals rally in Asia while tech stocks rise following Apple’s earnings last night.”

NDX futures are a bit more positive than SPX.  It appears more likely that the NDX may challenge its 50-day Moving Average at 6749.44.

ZeroHedge reports, “Critics of President Trump’s tax reform plan said corporations would just use the massive piles of cash repatriated under the new tax law to buy back more stock. And, as it turns out, Apple has proven them right.  

During the first quarter, the iPhone maker bought back $23.5 billion of its shares, a record amount for any US company. And, the reason why the stock is higher this morning, is that the company isn’t nowhere close to being finished, as in its quarterly report Apple announced that it would earmark $100 billion for a new share-repurchase program.”

VIX futures held near the flat line this morning.  Considering the FOMC meeting today and its consequent statement, it would not be out of the ordinary to see VIX revisit its April 17 low.

Bloomberg opines, “Last week, the Chicago Board Options Exchange (CBOE) responded to a research report into manipulation of  the monthly settlement of the VIX, sometimes referred to as the stock market’s fear index, and attempted to assure participants that the process was not rigged. “The academic paper’s analysis and conclusions are based upon a fundamental misunderstanding about how VIX derivatives are traded and settled,” the CBOE wrote. I was an author of the research paper. The CBOE’s most recent response has left my “fundamental misunderstanding” still very much unresolved.”

TNX is also flat-lined this morning.

Bloomberg reports, “The U.S. Treasury Department will boost the amount of long-term debt it sells to $73 billion this quarter as President Donald Trump’s administration seeks to finance budget deficits set to widen further because of tax cuts and higher spending.

In its quarterly refunding announcement on Wednesday, the department again lifted the auction sizes of coupon-bearing and floating-rate debt after doing so last quarter for the first time since 2009. It again left inflation-linked security sizes unchanged. Treasury also announced plans to issue a new two-month bill later in 2018.”

The NYSE Hi-Lo Index closed beneath its 50-day Moving Average at -24.37 yesterday.  This tells us that there is an erosion in the participation in the rallies, despite the afternoon save in the SPX yesterday.  It is possible that a good share of yesterday’s rally may have been from a judicious buyback from Apple.

——————————————————————————-

 

May 1, 2018

12:00

Will USD have a “Summer of Love?”

See the chart below.  While it appears that USD is getting a lot of attention, it may not be long-lasting.  The Cycles Model suggests strength through OpEx on May 18.  After that is not so clear.

I thought it worth putting out what others are saying about the rise of the USD.  ZeroHedge comments, “Bloomberg’s macro strategist Mark Cudmore believes the stars are aligning for the Dollar’s ‘summer of love’.

The Dollar just broke above its 200DMA.

Whether the dollar ultimately goes on to test the 2017 highs may be a completely different issue, but the stars are aligned for recent dollar appreciation to sustain for a few months. Here are 10 reasons why the dollar will strengthen this summer…”

USD is Rising.

USD futures have crossed above the mid-Cycle resistance at 91.76 this morning.  The mid-Cycle is not the 200-day Moving Average, but is close enough to act as a proxy.  It appears that the USD rally may last through OpEx on May 18.

ZeroHedge reports, “With most of the world’s markets closed, celebrating Labor Day in France, Italy, Spain, Germany, Switzerland, Norway, Sweden, South Korea, China and Hong Kong, overnight markets have been especially thin, with virtually no newsflow, even as the dollar surge continues keeping a lid on S&P futures.

The highlight of the overnight session was again the dollar, as the DXY index notched its ninth gain in 11 days, and broke above its 200-DMA for first time since May 2017, leading to a USD-driven move across G-10 and EMFX markets, while weighing on most commodities and US futures.

The Bloomberg Dollar Spot Index (BBDX) extended its advance Tuesday to the highest level since January as Treasuries halted three days of gains ahead of the Federal Reserve’s policy meeting.”

SPX futures are flat-to-lower this morning.  As mentioned, there is no newsflow to excite the traders, at least not yet.  The Cycles Model implies that we should see the decline gain momentum over the next week.  This should break the sideways consolidation that we have seen over the last month.  Both the Broadening Wedge and 200-day Moving Average are at 2672.33.  This is what must be broken to put the SPX into a panic phase of the decline.

Bloomberg reports, “With the calendar’s turn from April to May, the U.S. economic expansion has become the nation’s second-longest on record.

That milestone was reached as the Federal Reserve prepared to begin a two-day meeting in Washington on Tuesday. After a slow-but-steady slog over the past eight years and 10 months, most parts of the economy still look resilient.

The central bank has kept borrowing costs historically low since the U.S. crawled out of a recession in mid-2009. It’s expected to leave interest rates on hold this week and plans to raise them only gradually. Meanwhile, President Donald Trump is betting on juicing growth through $1.5 trillion in tax cuts and fresh government spending.”

NDX futures are also flat this morning.  No news to report, but an interesting observation follows.

ZeroHedge observes, “One of the vexing problems that has emerged this earnings season is why, despite blockbuster earnings, do most stocks fail to rise, or in many cases sink promptly after reporting stellar numbers.

According to Morgan Stanley’s Chris Metli, executive director in the bank’s Institutional Equity Division, the answer is as follows: on one hand, the the dollar has begun to move higher alongside yields which suggests rates are getting to a point where they could limit further upside, and stocks didn’t rally much on good earnings suggesting expectations are already high.

But while that reason explains the prevailing grind in the market, and the recent lack of momentum and direction, the real reason for the lack of rallies on strong earnings is that “hedge funds remain very crowded in the same positions (i.e. Tech) and there are fewer marginal buyers left.”

VIX futures are keeping a low profile.  Aside from the fact that many of the large cap stocks are crowded trades there also seems to be an effort to “protect” them by suppressing volatility.  The Cycles Model suggests a rise in volatility through mid-May.

TNX rose off its support line this morning and may show strength through the rest of the week.  If it can break out, especially above its Cycle Top resistance at 30.95 it may proceed to its Cup with Handle objective later this month.

ZeroHedge reports, “For months, analysts have been warning that the US is set to borrow an unprecedented – for a non-recessionary period – amount of money…

… and on Monday afternoon this was confirmed, when the US Treasury announced that in the quarter ended March 31 (the fiscal year’s second), the US borrowed $47BN more than its had anticipated three months ago, or $488BN to be precise.

This was the single biggest quarterly amount of debt sold by the US Treasury since the record $569BN in debt borrowed in Q4 2008 when the financial system nearly collapsed, and Treasury had no choice but to raise a gargantuan amount of money during the biggest financial crisis in modern US history.”

Gold futures are now challenging the mid-Cycle support at 1308.00.  Gold made a low of 1307.40 this morning and may continue its course through mid-May.  The next supports are the Cycle Bottom and Broadening Wedge trendline at 1250.36.  Gold appears to be in te same conundrum as stocks.  One it breaks out of its sideways consolidation it can make strong headway to the downside.

I am upright today, but still feeling pretty rocky.  I will be visiting the blog with any new developments.

Tony

Anthony M. Cherniawski

The Practical Investor, LLC

2205 Hopkins Avenue

Lansing, MI 48912

www.mrpracticalinvestor.com

Office: (517) 331-5200

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. 

===============================================

April 27, 2018

Exhaustion Gap in NDX?

3:30 pm

Facebook (FB) has made an exhaustion gap up in spectacular fashion.  What may be even more spectacular may be the oncoming decline.  We’ve been following the Orthodox Broadening Top in the US Dollar.  The Facebook formation is more compact and bearish.  There are a number of reasons for this.  The first is the failed “point 5” which normally would have reached the Cycle Top at 190.78.  The second is a failed “point 6” which normally would have bounced at the Cycle Bottom at 160.00.  Instead, it made a much deeper low which was followed by a very impressive rally to “point 7” in a huge exhaustion gap.  Chances are very good that Monday will find this stock with an equally huge gap down, leaving a bearish Island Reversal.

10:00 am

FDN is the proxy ETF for the FAANG stocks.  Every one of the stocks has a Broadening formation, suggesting a sudden drop to the Broadening Formation target in the next two to three weeks.  The Cycles Model agrees, since the Cycle Bottom is at 93.02.

9:00 am

SPX futures are bouncing along just under yesterday’s closing price.  The structure of the decline (circled) is fractally similar to the initial decline from the 2801.90 peak.  Wave [a] of 1 of (3) is approximately double the size of Wave [a] of 1 of (1).  Should it maintain a similar dimension, Wave [c] should break the lower trendline of the Broadening Wedge.  Remember, fractals are self-similar and repetitive.  The Elliott rule of alternation offers enough variation within each structure to appear different from the last.

Wolf Richter writes, “That would be a first, but it might be happening. Everything in slow motion, even market declines?   

There is nothing like a good shot of leverage to fire up the stock market. How much leverage is out there is actually a mystery, given that there are various forms of stock-market leverage that are not tracked, including leverage at the institutional level and “securities backed loans” offered by brokers to their clients (here’s an example of how these SBLs can blow up).

But one type of stock-market leverage is measured: “margin debt” – the amount individual and institutional investors borrow from their brokers against their portfolios. Margin debt had surged by $22.9 billion in January to a new record of $665.7 billion, the last gasp of the phenomenal Trump rally that ended January 26. But in February, as the sell-off was rattling some nerves, margin debt dropped by $20.7 billion to $645.1 billion.”

NDX futures soared 87 points right after the close yesterday on Amazon earnings and appear to be maintaining its elevation above the 50-day Moving Average at 6752.04 and near its prior high at 6856.96.  That level happens to be a precise 61.8% Fib retracement of its decline from 7186.09.  This may result in a probable flat Wave (2) should the rally stop at or near 6856.96.

ZeroHedge notes, “In the aftermath of blockbuster earnings from Amazon, which is set to open at an all time high as it breathes down Apple’s neck for the title of first $1 trillion market cap company, and Intel, it is hardly a surprise that Nasdaq futures are pointing sharply higher (especially with Gartman shorting the Nasdaq yesterday).

What is more surprising is the broader weakness elsewhere, with Dow futures down 90 points and even the S&P in the red, as Asian shares rose and European equities were little changed. Traders are cautious ahead of today’s Q1 GDP print, which is expected to slide from 2.9% to 2.0%, especially in the aftermath of the terrible UK GDP print earlier, which sent cable, gilt yields and May rate hike odds tumbling.”

VIX futures are flat this morning with a positive tilt.  Not much to say until the market sorts out the earnings cross-currents.

TNX appears to be consolidating after a pullback from its high.  The Cycles Model suggests a probable further pullback into mid-week before resuming its rally.

ZeroHedge opines, “Flattening U.S. Yield Curve Story Ain’t Over Yet: Macro View

The rise of U.S. 10-yields above 3% may be the talk of the town this week, but that doesn’t mean yield-curve flattening is finished. U.S. economic data due Friday may bring it right back to center-stage.

Surging commodity prices helped drive the 10-year rate’s ascent, but there are also other supports for higher yields.

The U.S. deficit is forecast to balloon to $1 trillion by 2020, two years earlier than previously forecast, says the Congressional Budget Office. The prices paid component of the Institute of Supply Management advanced in March to its highest level since April 2011, wages are steadily rising, and let’s not forget U.S. inflation reached 2.4% in March, its strongest level in a year.”

USD futures appear to be challenging the mid-Cycle resistance at 91.78 this morning.  We may see a brief pullback to the trendline here prior to resuming its rally.  The Cycles Model shows renewed strength through mid-May after the consolidation.

Regards,

Tony

Anthony M. Cherniawski

The Practical Investor, LLC

2205 Hopkins Avenue

Lansing, MI 48912

www.mrpracticalinvestor.com

Office: (517) 331-5200

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. 

———————————————————————————


 

April 26, 2018

SPX/NDX bouncing off the 200-day Moving Average

SPX futures are higher this morning.  The correction off yesterday’s low at 2612.67 appears to be incomplete.  That suggests either the 50% retracement at 2648.15 or the 61.8% retracement at 2656.53 may be the target.  Short-term resistance at 2656.38 closely agrees with the 61.8 Fib.

While the decline from 2717.49 appears impulsive, the pattern either isn’t complete or may continue as a Leading Diagonal, at least in Wave 1 of (3). Today may see a shift or acceleration in the pattern, once the 200-day support level at 2608.99 has been taken out.

ZeroHedge reports, “Markets have slowed down modestly ahead of today’s key event, the ECB’s monetary policy decision and Draghi press conference, which will likely feature repeated versions of the same question: how worried is the ECB president? From sagging business confidence to falling industrial output, the region seems to be losing economic momentum after the best performance in a decade last year. We did a full ECB preview overnight; the summary scenario analysis of what to expect is shown below:”


VIX futures are down this morning after challenging the 52-day Moving Average at 19.29.  As noted last night, there is a huge inflow into VIX ETFs, not seen since the 2013 taper tantrum.

TNX appears to have made a short-term reversal as it consolidates at its highest level since January 2014.  Traders are breathing a sigh of relief, hoping that the rise in yields is over.  It is not.  There is usually a consolidation after a breakout to relieve the overbought condition before the next surge.

Bloomberg reports, “Federal Reserve policy makers seem to be working at cross purposes.

In laying out plans to ease some constraints imposed on banks after the financial crisis, the Fed is moving to free up tens of billions of dollars for financial institutions to lend to promote faster economic growth.

At the same time it is reducing its balance sheet and gradually raising interest rates to restrain credit creation and keep the economy in check.

“The timing is not the most opportune” for relaxing the banking rules, said Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania.”

The NYSE Hi-Lo Index has been on a sell signal this past week.  While the Hi-Lo numbers at the end of the day may not be accurate, they still reflect the general tone of the market.  The fly in the ointment is that ETFs have to be rebalanced in the final half hour of trading which doesn’t give the final new highs/new lows until after the market is closed.

USD futures went higher in the overnight session, but have since eased back a bit.  By crossing above the upper trendline of the Declining Broadening Wedge, the USD has activated a short-term bullish reversal pattern.  This is consistent with the Orthodox Broadening Top formation (shown in the weekly charts).  While ultimately the Dollar bears may be correct, the Cycles Model calls for a rally through mid-May to “point 7” before shifting back into a decline to 70.00 (point 8) in Wave [3].

Anthony M. Cherniawski

The Practical Investor, LLC

2205 Hopkins Avenue

Lansing, MI 48912

www.mrpracticalinvestor.com

Office: (517) 331-5200

 

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. 

———————————————————————————

April 25, 2018

1:00 pm

Crisis Averted… For Now.

AMZN dipped as low as 1415.02 before bouncing back this morning.  Now there is a new development pre-announcement…

ZeroHedge relays this info, “Reuters reports that The New York Stock Exchange says trading suspended in Amazon (AMZN), Booking Holdings (BKNG), Alphabet (GOOGL) and Zion Oil & Gas (ZNWAA) for the rest of the trading day due to a “price scale code issue.”

TNX is rising; stocks are struggling

9:00am

TNX is in the news again this morning as it challenges yesterday’s high.  The Cycles Model suggests strength in TNX through the weekend, at least, and possibly much more.  That leads me to conclude that TNX may be aiming for the Cycle Top resistance, currently at 30.64.

ZeroHedge reports, “After closing Tuesday just a fraction away from 3.00% (2.9995% to be precise), the drama over the 10Y yield continued overnight, with a block seller appearing in early trading, pushing the yield as high as 3.03%. Then gamma hedgers emerged around 119-00 in 10Y TSY futures according to Bloomberg, due to large put open interest at that strike, pinning the yield around 3.01% for now.”

SPX futures are down this morning, attributed to the rise in TNX.  Today is day 43 from the March 13 high.  Usually it marks the end of a period of strength, as I had mentioned on Monday.  However, it may also be an “acceleration day” where the trend in motion gathers strength.  This suggests that Wave (3) may be strengthening through the week of May 7, where a cluster of pivots lie.

Note the Broadening Wedge trendline at 2560.00.  Crossing that trendline activates the “trigger” for the Broadening Wedge, reinforcing the observations above.

ZeroHedge reports, “Yesterday morning, the Dow jumped after Caterpiller reported blowout results. Little did the market know that just a few hours later, CAT would unleash the biggest earnings call fiasco in recent history, sending the Dow plunging as much as 600 points.”

NDX futures are also down this morning, although above the overnight low of 6475.50.

ZeroHedge reports, “Twitter stock soared as much as 13% this morning after the company reported earnings which – as has been the case this earnings season – blew out expectations, even if the gain is rapidly being faded, just like most other massive beats observed in recent weeks.

A quick look at TWTR’s reported Q1 numbers, reveals GAAP Net Income of $61MM, only the company’s second quarter of positive net income, and a mirror image of the $62MM lost in Q1 2017. This translated to EPS of $0.16, handily beating consensus exp of $0.12.”

VIX futures are higher, although they haven’t broken above yesterday’s high.  A further decline in SPX may push the VIX above the 50-day Moving Average at 19.59.

The next resistance is the Cycle Top at 23.84 and the Head & Shoulders neckline at 25.75.

Bloomberg reports, “Cboe Global Markets Inc. said it is looking at ways to improve the settlement process for its Cboe Volatility Index, whose swings before expiration have been looked upon with suspicion in the market.

Allegations of manipulation are “without merit,” the Chicago-based exchange operator said in a letter to customers and traders that was included in a filing Monday. “If our regulatory efforts were to uncover any manipulation, it would be rooted out, swiftly and decisively.”

USD futures hit a new 2018 high at 91 this morning, handily rising above the Declining Wedge trendline.  This may trigger an acceleration of the rally into the week of May 14.  Dollar bears are still adamant that the USD will fail.  The Orthodox Broadening Top agrees, but only after the bears are severely shaken out.

Bloomberg reports, “The dollar’s climb to a three-month high on the back of advancing Treasury yields is failing to shake some strategists’ conviction that the U.S. currency is bound to head lower.

While the Bloomberg Dollar Index has gained about 2 percent in the past week, Nomura Holdings Inc. expects the upswing to be short-lived, according to a note from strategist Bilal Hafeez.”

Gold futures made a new low this morning after yesterday’s bounce was arrested at the 50-day Moving Average at 1333.13.   Gold bugs are drawn to a possible neckline of an inverted Head & Shoulders formation across the two recent highs.  Unfortunately, they were at the Cycle Top, which rules out the probability of an inverted Head & Shoulders formation, as attractive as it appears.

ZeroHedge observes, “Picking up where DoubleLine CEO Jeff Gundlach left off yesterday with his Ira Sohn recommendation, which as a reminder was to short Facebook on concerns of regulatory crackdown and go long commodities ahead of a late-cycle inflationary boom, on Tuesday Gundlach spoke at an event for DoubleLine clients and reiterated his late-cycle skepticism, warning that treasuries are still “not attractive” even though the benchmark 10Y yield briefly crossed the key 3% threshold earlier in the day.”

———————————————————————————-

April 24, 2018

Bounce Day

12:20

 

SPX has now crossed its Short-term support at 3655.33.  The next level of support t appears to be either the Cycle Bottom at  2569.80 or the Broadening Wedge trendline at 2555.00.  A break of the trendline triggers the Broadening Wedge.

Today should have been a big day for Caterpillar.  Instead, the market rewarded its blow-out numbers with a $15.00 slide in price after the forward guidance suggested that this was the high water mark for CAT.

12:15

NDX is making new lows.  What’s amazing about this is the flood of liquidity coming from USD/JPY is being sold.  The chance of a higher retracement is fading fast as NDX hits the skids.

10:00

We should not be surprised to see TNX breach 3.00% this morning.  This has put a scare into the Equities market, but may not have stopped their retracement.  TNX still needs to pull back before moving higher.

ZeroHedge reports, “Despite near-record speculative positioning short Treasuries across the curve…

Yields are rising, and rising fast with 10Y breaking  the 3.00% Maginot Line for the first time since January 2014…

After not quite getting there yesterday, today’s selling finally pushed the 10Y over the level…

Meanwhile, 2Y Yields topped 2.5% – the highest since Sept 2008

9:00 am

TNX futures dominate the trading landscape as its rally stops short of 3.00%.  As is typical in breakouts, they often happen on overbought/oversold conditions and pull back before continuing the (up)trend.  This is especially true of an Ending Diagonal formation in which Wave [b] may descend as far as the start of Wave [a].This will serve to cull out the weak hands that are short treasuries.

ZeroHedge reports, “If the big story yesterday was the surge in 10Y TSY yields to just shy of 3.00% (2.996% to be precise), then it is only reasonable that the failure of the 10Y yield to rise above 3.00% overnight is today’s “big story”, and indeed as shown in the chart below, US benchmark treasuries edged higher, leading most European government bonds, as traders hit pause on the rates selloff amid extremely oversold conditions.”

SPX futures have ramped up in overnight trading to approach the 50-day Moving Average at 2690.18.  The decline from 2717.49 was impulsive, so this is simply a retracement of the decline.  The alternate target for this retracement may be the 61.8% Fibonacci level at 2694.75.   The Cycles Model infers that the SPX may linger at or near the highs at least for the better part of the day.  In other words, we may see selling begin later in the afternoon.

There appears to be a concerted effort to slow down, if not stop, the decline.  However, the Cycles and Wave structure both agree that the there is considerably more to the downside.

NDX futures are also higher this morning, after completing a clear 5-Wave decline.  Mid-Cycle resistance at 6738.67 may be the target for a Wave [ii] retracement.  It is just above the 50% retracement level at 6735.28.  The retracement may not last more than a day as bad news accumulates for the FAANGS.

ZeroHedge observes, “Another day, another flashing red warning that sales of the iPhone X are far worse than Tim Cook had ever expected; this time courtesy of Austrian chipmaker AMS AG – which makes the optical sensors that control brightness and color  – which just days after a similar warning from semiconductor giant Taiwan Semi, became the latest Apple-supplier to cast doubt over the iPhone’s chilled reception.”

USD/JPY is higher this morning, as it ramps toward “point 7” of its Orthodox Broadening Top formation.  Note that USD/JPY acts as a proxy for liquidity in the markets.  The point is, SPX gained nothing yesterday as the currency pair did a mighty ramp.  In fact, SPX has been declining for a week while USD/JPY was rising.  In other words, the relationship between the currency pair and the markets appears to be falling apart.  What this tells me is that there is a shift in sentiment that appears to be overpowering and maybe even taking advantage of the liquidity injections to sell equities.

The liquidity injections also explain why we haven’t yet seen the true nature of this bear market.

VIX futures appear to be making a very deep correction with a morning low of 15.37.  The Cycles Model suggests that the correction may be over quickly as VIX gathers strength into a probable mid-May high.

USD futures continue to rise, hitting 90.85 in the overnight session.  The upper trendline of the Descending Broadening Wedge appears to be broken.  Today is likely to give us a pullback to the upper Triangle trendline.  TNX and the USD appear to be strongly correlated.  If so, they will both emerge in another 2-3 days trading considerably higher.  Dollar bears should use this pullback as their final exit as the USD may rally to the Cycle Top at 95.44 or the Orthodox Broadening Top target of 96.00.

———————————————————————————

April 23, 2018

Are stocks waiting for Google and Facebook earnings on Wednesday?

9:00 am

SPX futures are still trading positively after losing most of the gains of an overnight ramp.  It appears more likely than not that there may be a possible ramp at the open to 2680.00 before resuming the decline.  The alternate view is the SPX may decline to Short-term support at 2649.87 prior to a bounce.  The Cycles Model shows mixed signals through Wednesday.

ZeroHedge reports, “Global stocks stumbled on Monday ahead of an avalanche of earnings in this season’s busiest reporting week but the big story overnight was the spike in 10Y Yield which climbed as high as 2.9957%, the highest level since January 2014, and nearing the psychological 3% level which has triggered market spasms and more than one tantrum in the past. The move was catalyzed by Treasury Secretary Steven Mnuchin saying over the weekend that he is planning a trip to China, an indication the US is considering a truce in its trade war with China.”

NDX futures are currently positive after a seesaw session overnight.  NDX also has a potential bounce point at 6600.29, its Short-term support.  The FAANG stocks are being touted as the possible saviors of the market, as indicated below.

In mid-article Bloomberg comments, “Could FAANGs Break Down Like the Semis?

We started last week with a Netflix blowout followed by a massive breakdown in the semis, and now its the rest of the FAANGs’ turn to dictate whether tech as a whole goes higher or lower from here: GOOGL reports after the bell followed by FB on Wednesday and AMZN on Thursday (also MSFT, TWTR and BIDU report this week).

But the fact that traders are looking for excuses to sell the winners of the bull market (tech and financials), like the pounding that the semis took and the recent profit-taking in the banks, continues to linger. So it’ll be interesting to see how the market reacts to any whisper misses or negative color from any of the names mentioned above, especially given swirling concerns over rising costs, ad spend growth, usage declines, regulation, you name it.”

VIX futures broke above Friday’s high at 17.50 this morning.  While it has come down from its new high since then, this tells us that the VIX still has a way to go on the upside.

TNX futures rose to 29.98 this morning as it has clearly broken above prior highs in futures.  However, the cash market (just opened) doesn’t yet show it.  There is resistance at 30.00 on the weekly chart that suggests TNX may linger under that level momentarily.  The Cycles Model suggests that along with overhead resistance at 30.00, a period of strength may have passed over the weekend.

The Wave structure is an Ending Diagonal, so we may have seen the completion of Wave [a] of 5 with a possible pullback to Short-term support at 28.49 before moving higher.

Bloomberg reports, “The global bond market’s primary benchmark, the 10-year U.S. Treasury yield, is knocking on the door of 3 percent, a level it hasn’t topped in more than four years. That’s more than just a nice round number. Higher yields make the burden of everything from mortgages to student loans and car payments even heavier. Some market gurus see it as a turning point with effects that could be felt for years — and not just in bonds. With the Federal Reserve signaling interest rates are going up even more, investors in riskier assets like stocks and high-yield debt are left to wonder if this is how their post-recession party ends.”

USD futures climbed to the downtrend line at 90.50 this morning.  Whether the trendline proves to be stiff resistance is to be determined.  The Cycles Model suggests that the initial strength from the low may have worked off, leaving the probability of a consolidation  before further heights are achieved.

Bloomberg reports, “Dollar bulls suddenly are breathing more easily, finding succor in benchmark Treasury yields that brushed 3 percent for the first time in four years.

While the psychologically important level has stoked speculation about which markets may be disrupted in the fallout, the U.S. currency looks to be one of the biggest winners. The Bloomberg Dollar Spot Index is headed toward its best three-day advance since 2016, after languishing at multi-year lows. Treasury spreads are widening over their European and Japanese counterparts, renewing traders’ focus on currency pairs.”

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April 20, 2018

1:15 pm

SPX has made another impulse down.  I am hesitant to call it a 1-2, [i]-[ii] decline yet, but that is the most likely scenario.  That suggests Wave (3) may have multiple subdivisions.  Currently it may bounce to the trendline at 2684.50 before resuming its decline.

The NYSE Hi-Lo Index closed at -18.00 yesterday, beneath its mid-Cycle support/resistance at 64.06.  Todays activity remains on the sell signal.  Apparently the Hi-Lo must be recalculated after the close due to all the ETFs.  Today’s closing balance may be considerably lower than indicated during market hours.

10:00 am

NDX just broke through its supports, putting it on a sell signal.

9:00am

SPX futures slid down to the daytime low of 2682.75 in late night trading, then ramped up to trendline resistance at 2698.25 before coming back to the flat line as I write.  It appears to be range-bound for the moment, until Index Options (institutional-style) expire at 9:20-9:30 am.  Retail options expire at the end of the day.

SPX had Waves 1 and 2 yesterday.  Wave 3 may be significantly larger than the 35.59 point decline we saw yesterday.  There is a good probability that the retail options investors may be “thrown under the bus.”

ZeroHedge remarks, “World stocks, as tracked by the MSCI All-Country Index, struggled on Friday, dipping in early trading but were set for a second week of gains after a solid start to the the global Q1 earnings season, even as a rally in commodity prices fizzled pressured by the recent dollar spike.

U.S. equity index futures are modestly in the red, alongside Asian markets, where technology shares came under pressure after yesterday’s unexpected Taiwan Semi warning, which saw the world’s biggest semiconductor foundry cut its revenue target to the low end of forecasts and blamed softer demand for smartphones.”

NDX futures have that sinking feeling, having broken the mid-Cycle support at 6751.91, but rising back above it.    It appears that an attempt to hold the line until OpEx may be in order, but supports are due to be take out after the open.

Bill Blain writes, “Back on planet Rest of the World, a very real issue is tech stocks. Their market caps are enormous. 7/10 of the largest companies on the planet fall into the bracket. They dominate global indices, and account for much of ebb and flow of market value activity.

The raises some very big issues, not the least of which is valuations – where me-too investors and investment tourists have piled in. Do the current prices make sense? The conventional wisdom/excuse is you can’t value disruption/paradigm shifts from a conventional perspective. It requires an acknowledgement that extraordinary breakthroughs need to analysed and priced differently. They glitter, they shine, they sound good… so folk buy em – none of which are valid investment reasons!”

VIX futures appear to be suppressed, at least until after the open.  Meanwhile the Large Speculators have been accumulating long positions in the futures market while commercial speculators are net short (as of Monday).  Of course, VIX plummeted into OpEx on Wednesday morning, favoring the Commercials.  We may see the ratio reverse by next week.

James Rickards writes, “Liquidity is the ultimate paradox in finance.

It’s always there when you don’t need it and never there when you need it most. The reason is crowd behavior, or what mathematicians call hypersynchronicity (a fancy word for everyone doing the same thing at the same time).

When markets are calm, no one wants liquidity because investors are happy to hold stocks, bonds, currencies, commodities and other assets in their portfolios. As a result, there’s plenty of liquidity on offer from bank lenders and very few takers.”

TNX is hovering just beneath the trendline at 29.34 this morning.  A breakout gives TNX a buy signal.  This is what may trigger the sell-off in stocks this morning.

Bloomberg observes, “Rising inflation expectations in the world’s biggest economy pushed up U.S. benchmark yields this week, putting pressure on rates to climb around the world and causing more than a few heads to swivel.

Even as Federal Reserve officials tamped down concern of a price surge in America, yields ticked higher from Tokyo to Frankfurt and New York. The yield of a $51 trillion Bloomberg Barclays index of global sovereigns and corporate debt is approaching a four-year high of 1.949 percent.”

USD futures are surging higher as it emerges from the Triangle formation into the next leg of its Orthodox Broadening Top pattern.  As bond yields go higher, money flees from both stocks and bonds to the only choice left…cash.

The Cycles Model indicates the probability that the USD may continue to rise through mid-May.

Today may be an eventful one.

Tony

Anthony M. Cherniawski

The Practical Investor, LLC

2205 Hopkins Avenue

Lansing, MI 48912

www.mrpracticalinvestor.com

Office: (517) 331-5200

 

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. 

————————————————————————————————-

 

A Reversal in the making…

April 19, 2018

2:pm

SPX declined impulsively through all supports except the mid-Cycle support at 2684.38.  It is now retracing that decline and should rise to 2695.00 to 2700.00.  At that point it may be ready for a deeper plunge.  SPX is on a chart sell signal along with the NYSE Hi-Lo Index, which is also on a sell.

 

 

10:45 am

VIX has flattened out this morning after yesterday’s surprise reversal.  It hit an opening high at 16.38, but has since calmed a bit.  Is VIX being suppressed?  The answer is unclear, but there are some who pine for the “good old days.”  It is possible that a breakdown beneath the 50-day Moving average in the SPX may cause the VIX to spike to or above its 50-day Moving Average.

The NYSE Hi-Lo has crossed back beneath its mid-Cycle support/resistance line at 66.42 and the trendline at 70.00.  It is on a sell signal and awaits the VIX for confirmation.

10:30 am

SPX has declined to the trendline and 50-day Moving Average at 2687.00 to 2690.00 this morning.  There may be an attempt to hold it at those supports.  A breakthrough will create a confirmed sell signal.

What has caused the stir in the markets is that TNX went above its “line in the sand” at 29.00.  This is not a breakout yet, but appears to be threatening to do so.

ZeroHedge observes, “In recent weeks, Treasury yields have been tumbling, the yield curve has been collapsing, and Breakevens sliding.

And just like that, it was gone…”

April 18, 2018

3:30 pm

SPX may have completed its Cycle.

SPX spent exactly 181 market hours (25.8 days) from its 2801.90 top to this morning’s high.  It has exceeded its 52-day Moving Average at 2696.12 and mid-Cycle support at 2684.46.  Investors with cash may wish to take an aggressive short position that is confirmed at either of these support levels with the 2-year trendline at the lower one.  The next decline should be a multiple of the last…

3:20 pm

VIX spiked from  yesterday’s low at 14.57 to 16.90 near the open this morning, a 15% reversal off the low.  Since then it has made a 61.8% retracement and may be ready to accept aggressive long positions.

ZeroHedge remarks, “Just two months ago, regulators finally opened a probe into what a whistleblower called “rampant manipulation of VIX.” This morning’s manic VIX auction has once again sparked chatter of just how ‘gamed’ the vol markets still are

With stocks quietly drifting sideways ahead of the US cash open this morning, VIX suddenly spiked reprising a pattern of jerky moves on days when futures on the gauge are settled in monthly auctions…”

9:30 am

Commitment of Traders Reports are Informative.

SPX futures are easing away from a new overnight high.  The Cycles Model indicates that the Liquidity Cycle peaked last Friday.  CNNMoney confirms this, as yesterday’s volume was 1.1 Billion shares, compared to the 3-month average of 2.26 Billion daily volume.

The April 16 Commitment of Traders report shows Large Commercials ramping to -440,274 contracts in the E-Mini while Large Speculators are long 230,658 contracts and the Small Speculators are long 209,616 contracts.  You can see that this is a zero-sum game and low volume is making it difficult to sell for the longs.

ZeroHedge reports, “While the general risk-on sentiment across global markets persisted for a third day amid sliding volatility, the rally appears to have lost some steam with Dow futures lagging after last night’s disappointing IBM revenues, which in turn may have capped the S&P ramp that started on Monday.”

NDX futures are also higher but backing away from the overnight high.    It appears that at least the futures may have achieved a 61.8% Fibonacci retracement.

The Commitment of Traders fort April 16 in the NQ is decidedly different from the SPX.  Small Speculators are net short by -6,664 contracts while the Commercials and Non-Commercials are still net long.  This may spell disaster in the NQ as huge volumes will need to be traded to get on the right side of the market in a decline.  There are likely to be air pockets in trading should a panic decline ensue.

VIX collapsed to a 14-handle yesterday, but this morning’s VIX futures appear more buoyant.  Yesterday appears to have been the anticipated Master Cycle low.  The timing is interesting, since today is the maturity date for futures and options in the VIX.

The commitment of Traders shows the Large Speculators having the largest positions with 92.9 Million contracts.  Large Commercials (Pension funds?) are net short at -91.563 Million Contracts.  Today’s futures and options maturity may give the Commercials a chance to reduce their short exposure.

If not, a rally in the VIX may be a bloodbath for the Commercials.

TNX is higher this morning.  It has re-crossed the 52-day Moving Average at 28.41.  The question is, will there be an extension of the Master Cycle low and a new low for Wave 4, or will yields power higher?  Time for an extension may run for another week or more.

The Commitment of Traders show Large Speculators with net short T-bond positions at -24820 contracts , while Small Speculators with the largest net short positions at -56798 contracts.  Large Commercials are long 81618 contracts.

The Cycles Model suggests a probable rally in UST (decline in TNX) over the next week or possibly longer.

USD futures are flat, giving no directionality.  However, the Cycles Model offers that there is still room to decline through the weekend.

The Commitment of Traders show the largest net short positions are with Leveraged funds at -6315 contracts and Large Speculators at -1805 contracts.

ZeroHedge remarks, “Yesterday, we presented the opinion of former Lehman trader and current macro commentator, Mark Cudmore, who explained why in his view, Trump was on track to “win the currency devaluation game“, something he hinted with his unprecedented tweets slamming Russia and China for currency manipulation.

24 hours later, another FX and macro analyst, Bloomberg’s Vassilis Karamanlis, says “not so fast”, and warns dollar bears that Trump tweets “may not be enough”, noting that as a result of Trump’s constant frustration of dollar longs, “be it with verbal intervention toward a weaker currency, personnel changes or trade protectionism” any rebounds in the U.S. currency this year have been short-lived, leading to “a massive build in short-dollar positions. Hedge funds and other large speculators haven’t been more bearish on the greenback in more than five years.”

————————————————————————————————

April 17, 2018

11:30 am

SPX slightly exceeded its 61.8% retracement level at 2707.00.  The top-to-top elapsed time was 172 hours to complete this Cycle.   We may see a stall or consolidation at this level, since it has exceeded the 52-day Moving Average.  An actual reversal may occur at any time, but more likely in the overnight hours.

NDX gapped higher, exceeding the Fibonacci 50% retracement level at this time.  This completes the choppy Diagonal Wave [c].

ZeroHedge observes, “Nasdaq is roaring higher today on the heels of ponziflix netflix results and the rest of the excited US equity markets are following.”

VIX overshot its target of 15.95 (Where Wave C equals Wave A).  However, there is no doubt that a Master Cycle low is being put in.  It retraced 83.6% of Wave (1).  Wave (3) is likely to be a multiple of Wave (1).  It appears the VIX has made a well-proportioned right shoulder.

ZeroHedge reports, “When it comes to the market’s February freakout, when the Feb 5 volatility explosion resulted in a brief correction for the S&P, we now know that it could not have come at a better time (or faster) for US banks – not only the money centers, but pure-play trading desks like Goldman benefited from a substantial burst in equity-trading revenue. As Goldman explained this morning, this was due to “higher results in both derivatives and cash products” as well as higher “commissions and fees reflecting higher market volumes, and net revenues in securities services were higher, reflecting higher average customer balances.”

In short, the sellside – which mostly made its money on commissions and a surge in volume instead of directional trades – loved the February volocaust.”

9:30 am

Will the Markets Pivot Today?

SPX futures are not only up against trendline resistance, but also the 52-day Moving Average at 2692.28 and possibly the 61.8% Fibonacci retracement level at 2707.25.  Trading volume (1.874 Billion shares) is at its lowest since the week after Christmas, when daily volume hit a low of 1.095 Billion on December 26.  Today or tomorrow may be a pivot day for stocks.

All seems very quiet, except for the algos.  Remember, the daily routine for the commercial traders and central banks is to run up the algos in the first hour, then see whether there is more short covering that may be triggered.  Remember, the algos have no skin in the game.  They go flat at the end of the day, only to do their masters’ bidding the next morning.  The real money is traded at the end of the day, which explains the final hour sell-off.

ZeroHedge reports, “US equity futures continued their Monday ramp, rising 0.5% alongside advancing stocks in Europe after investor focus shifted to earnings and the economic outlook, and away from fading geopolitical and trade war risks. The result is another sea of green in our futures screen this morning.”

NDX futures appear to be venturing above the trendline this morning with the 52-day Moving Average at 6733.50 being challenged.  The 50% Fibonacci retracement level is 6754.35, which hasn’t been achieved, yet.  Again, volume is very low, only lower during the week after Christmas, when December 28 volume was 2.9 Billion shares traded.

The media is always trying to explain the latest development, but sometimes the story line falls flat.  Bloomberg reports, “U.S. equity futures advanced alongside stocks in Europe as investors switched their focus to earnings season following the market turmoil of recent weeks. The euro and pound both reversed gains on soft economic data.”

BKX appears to be in need of yet another jolt higher to complete its retracement.  Thus far is has nearly achieved the 50% retracement at 109.61.  It may get that final boost this morning.  A psoobile target may be the 52-day Moving Average at 110.62.

ZeroHedge observes, “If there is anything the recent reports from money center banks showed, it was the February volatility surge was a gift to bank equity trading desks, which is why Wall Street was eagerly anticipating this morning’s Goldman Sachs results to see how much the “cleanest” trading desk on Wall Street would benefit from the turmoil in Q1.

It was not disappointed, because moments ago Lloyd Blankfein, in one of his last quarters as Goldman CEO, reported results that blew expectations out of the water.”

TNX appears to be straddling the Intermediate-term support/resistance line at 28.40.  There appear to be some cross-currents in the Cycles Model, but the preponderance of evidence shows a probable Trading (or a delayed Master) Cycle low being put in next week.

USD futures made a low of 88.95 this morning and appear to have bounced from the lower Triangle trendline.  This may be the pivot for the Master Cycle low that we have been anticipating, right on day 258.  If so, USD may go as high as 96.00 to achieve “point 7” of its three-year-long Orthodox Broadening Top, evident on the weekly charts.

Regards,

Tony

Anthony M. Cherniawski

The Practical Investor, LLC

2205 Hopkins Avenue

Lansing, MI 48912

www.mrpracticalinvestor.com

Office: (517) 331-5200

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. 

————————————————————————————————

April 16, 2018

2:30 pm

VIX is still putting in its Master Cycle low with a 76% retracement thus far.  VOL is about to come roaring back, contrary to Bloomberg’s opinion, “Hold the financial fireworks: this earnings season is poised to restore tranquility to an equity market that’s been anything but.

The Cboe Volatility Index — a gauge of the S&P 500 Index’s implied volatility over the next month derived from options prices — has been running below the 10-day realized volatility of the benchmark for nearly three weeks. One upshot: the earnings season that’s just getting underway is expected to serve as a salve for jittery markets.”

 SPX appears to be forming another double zigzag correction.  I had labeled the correction ending at 2801.90 as double zigzag, as well.  Double zigzags are often used to buy time more than elevation.  SPX was only able to “purchase” another 14 points over an 8-day period of time, as the March 13 high was only 12-13 points higher than the February 27 high.

1:15 pm

The Dow Jones Industrials ate testing their 52-day Moving Average at 24682.28.  The shape of the retest appears to be a Rising Wedge.  These formations are bearish and may break suddenly.

ZeroHedge observes, “Following headlines warning of a malicious Russian cyber attack and Minneapolis Fed’s Neel Kashkari warning that we have “forgotten the lessons of 2008,” US equities are legging higher once again…

As S&P inches into positive territory year-to-date…

And The Dow tests its 50-day moving-average.

12:00

VIX went lower this morning as it puts in a new Master Cycle low over the next few days.  The “official” day is recorded as a reversal is made out of the low, which may not have happened yet.  However, it is in the later stage of the normal window of time for a low.

ZeroHedge observes, “Shortly after the collapse of the ‘short-vol’ trade in February, VIX speculators were ripped into an unprecedented long position (i.e. betting on higher vol) and while VIX has fallen from its peak chaos levels, speculators have added to their ‘rising risk’ bets.

It appears ‘Buy the dip’ has reached the volatility markets…”

 

Futures bounce, but stop at the2-year trendline.

8:30 am

SPX futures bounced back but appear to be stopped at the 2-year trendline at 2675..00-2680.00 without making a new high.  The Cycles Model suggests there may be some residual strength throughout the week  during which options expiration may take precedence.  OpEx has the ability to increase turmoil in the markets.  As a result, this period may be protected by the powers that be.

Once Wave (3) begins, it should be unstoppable.  However, there may be an effort to delay its onset.

ZeroHedge reports, “Global markets breathed a sigh of relief on Monday after this weekend’s Syrian airstrikes, with bond yields rising, the dollar lower, Asian and European stocks mixed, and US futures spiking, as investors assessed the prospect of escalating geopolitical tensions after a U.S.-led airstrike on Syria hit only 3 targets – instead of the rumored 8 – and with Russia failing to respond, fears of an imminent military conflict have been sharply ratcheted down, resulting in a generally bullish market reaction.”

VIX futures hit a new retracement low over the weekend.  The Master Cycle low is now two weeks overdue which makes it likely tha the low is imminent if not having occurred over the weekend.   It is rare to see a Master Cycle low come due more than 17 days beyond the mean period of 258 days.

TNX futures are higher this morning.  The threat of higher rates may be the downfall of the equities.

ZeroHedge comments, “Is the global economic recovery over?

That is the question investors are grappling with just as Q1 earnings season – the best since 2011 with its 18% Y/Y expected EPS growth – enters its busiest week yet. Meanwhile, as discussed here extensively in recent weeks, over the past two  months economic data from around the globe, but especially Europe and the US, has come in unexpectedly soft resulting in the first negative print in Citi’s Global Eco Surprise Index, and now the most negative since early 2016…

… and, more notably, an inversion in the forward OIS curve – the first in 13 years – which as JPMorgan noted was the clearest confirmation that the US economy is very “late cycle”, and that a conventional yield curve inversion (2s10s), a harbinger of recession, is not far behind.”

USD futures are declining.  The Master Cycle low is due over the next few days.  Its potential target may be as low as the Cycle Bottom at 88.33.  From there we may see a rally to the Cycle Top resistance at 95.57.

More commentary later.  I have and appointment…

Tony

Anthony M. Cherniawski

The Practical Investor, LLC

2205 Hopkins Avenue

Lansing, MI 48912

www.mrpracticalinvestor.com

Office: (517) 331-5200

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. 

 

 

April 13, 2018

12:00

Banks Battered, Stocks Slide.

Great expectations for bank earnings took a hit this morning.  Cramer’s prediction was a bust.  ZeroHedge reports, “It all looked so rosy before the open. Banks were up, Boeing was up, The Dow was up… but then humans read the real details under the bank earnings, finally read about Russian sanctions, and saw headlines suggesting China did not fold on Trade Wars…

Banks have all turned red…

After a brief throw-over, SPX reversed course.  The 50-day Moving Average did not come into play…

9:00 am

Stocks may go higher, the 50-day MA may prove to be resistance.

SPX has been correctively chopping higher on declining volume the past four days.  It has bumped against the 2-year trendline five times in the past three days without a breakout.   It hasn’t broken above the 50% Fib retracement at 2677.85.  Could there be a breakout this morning?  The EW Wave structure does allow a boost to just under 2700.00 with the current view.  The 50-day Moving Average is at 2698.64.

ZeroHedge reports, “As DB’s Jim Reid says this morning, “Welcome to Friday 13th. As everything is so calm and stable in the world at the moment what could possibly go wrong today?” As of this moment, not much judging by the solid bid in overnight markets.

Are stocks getting trade and/or “hot” war burnout on this ominous day in the calendar? Judging by the relatively lethargic overnight volumes, this may be the case. And with volumes low, it means the levitation algos have been activated, pushing both US stock futures…”

On Wednesday Jim Cramer opined that the bulls may be looking for some relief from bank earnings, which start being announced today.  He commented, “On Friday, earnings season will kick off in earnest with reports from four big banks — CitigroupJ.P. MorganWells Fargo and PNC Financial— and CNBC’s Jim Cramer thinks it’ll be just what this market needs.

“This is the most important earnings season for the big banks in years,” the “Mad Money” host said on Wednesday. “Some good performance by the financials [is] one of the few things that could get us back on track.”

ZeroHedge reports, “Unofficially launching the Q1 earnings season (technically PNC was first), moments ago JPMorgan reported Q1 earnings which beat on both the top and bottom line, with revenue of $28.5BN above the $27.68BN consensus est (and above the highest sellside estimate of $28.23BN), generating EPS of $2.37, also beating expectations of a $2.28 print.”

However, there is a fly in the ointment.  ZeroHedge points out that, “While JPM was quick to highlight all the favorable data in its oddly shrinking earnings presentation supplement,  one thing that continued to be conspicuously missing was the bank’s slide on “Mortgage Banking And Card Services” which year after year, quarter after quarter was traditionally part of the bank’s earnings presentation – it was certainly featured prominently one year ago… 

So, yes, there is a probable boost in the market from bank earnings, but it may be short lived.  Chapter 11 bankruptcies are up 63% from a year ago.  Another cloud on the horizon is that S&P has put Deutsche Bank on Credit Watch yesterday.

VIX came down further this morning, hitting a low of 17.72.  That brings the retracement percentage to 65%, which is not excessive for the VIX.

TNX appears to be riding higher on Intermediate-term support at 28.36.  Should it remain above support, it may continue its upward path through the second week of May.  The upward thrust in treasury yields may be the undoing of the stock market, as well as bonds.

While 30-year Treasuries sold at the lowest yield since January, while the US Government is starting to admit it has a spending problem.

USD futures are steady this morning while we await a breakout in either direction.  The Cycles Model suggests a decline through next week.  A shallow decline suggests a Triangle formation is developing followed by the Dollar on a rebound.  A deeper decline may not be recoverable.

————————————————————————————————-

April 12, 2018

12:45 pm

Is China selling US Treasuries?

TNX has crossed the 52-day Moving Average at 28.33 and is now on an aggressive buy signal.  ZeroHedge notes, “Treasury yields are spiking notably today with 30Y back above 3.00% and 10Y yields at 2.83% are near 3-week highs and along with the dismal indirect bids in the latest 3Y and 10Y auctions (i.e. foreigners not buying), some are suggesting today’s move could be the start of China’s move to unwind its Treasury holdings.

10Y yields up around 5bps…

11:00 am

Cycles may be making a bearish shift.

SPX is up against the 2-year Ending Diagonal trendline again.  This time it may hold.  Note that it is still beneath the 50% Fib Retracement level of 2676.28.  The dimensions of the Cycles are changing.  Until January the Cycles would average 35 market days up and 7 down.  Starting in January we had 10 market days down and 24 up.  From the 2801.90 high we have had 14 market days down and only 7 up.  Quite a change from just 3 months ago.  So, despite the angst that the choppiness generates, there is a definite shift in Cyclical structure.  The next decline appears to be another 14 market days down.

9:30 am

Stocks are still in the chop zone.

SPX futures appear to be completing a small correction above Short-term resistance at 2649.76.  Whether it develops into something more is to be seen.

ZeroHedge observes, “It was a relatively subdued trading session, with markets treading water amid modest volumes awaiting news of action in Syria, until just after 6am ET when as we reported previously, Trump reversed on his Wednesday morning tweet, and in his latest tweetstorm, said that he “Never said when an attack on Syria would take place. Could be very soon or not so soon at all!”

Well, that certainly is one way to try and regain the “element of surprise”, even if it makes the whole fiasco even worse.”

NDX futures are challenging Short-term resistance at 6622.81 this morning.  They are still beneath the38.2% retracement level at 6662.46.  The action is corrective, leaving a probability of taking the correction modestly higher.

(Bloomberg)  Even as BlackRock Inc.’s growth appears unstoppable, there are signs the firm isn’t invincible.

The world’s largest money manager saw net flows for its global iShares exchange-traded funds decline 46 percent in the first quarter to $34.6 billion from a year earlier. Even with the fall in flows, BlackRock beat quarterly earnings estimates and saw total assets under management rise to $6.3 trillion.

Choppy markets spurred traders to devote less cash to ETFs. And with good reason given that the S&P 500 index ended the quarter down 0.76 percent. ETFs charging 0.2 percent or less have accounted for 82 percent of the industry’s net flows this year, up from 77 percent in the fourth quarter, according to research from Bloomberg Intelligence.”

VIX futures are back beneath the 50-day Moving Average at 20.14.  The critical level is the April 6 low at 18.57.

TNX futures are modestly higher this morning.  A breakout above Intermediate-term resistance tells us that TNX is going much higher.  However, the action is corrective in both directions, so we must be on the alert for a breakdown beneath 27.17 as well.  This alternate view allows for TNX to decline to the Head & Shoulders neckline before the final push upward.

USD futures back-tested the 50-day Moving Average at 89.59 this morning, but the short-term trend is down.  The tight consolidation thus far appears to be a Triangle which would allow a larger Wave (C) to go higher, but should it break beneath the Triangle low at 88.15, the formation may be nullified.  A break out of this choppy zone would be a bit of a relief.

Gold is continuing the reversal started yesterday with a loss of another 13 points this morning.  The Cycles Model suggests Gold may decline down over the next four weeks, so while there isn’t a sell signal yet, be prepared for a cross beneath the 50-day Moving Average for a sell signal.

————————————————————————————————-

April 11, 2018

1:30 pm

SPX closed the gap left at the open but did not make a new high.  It may have been a nod to the NDX which needed to complete its rally.

Nicholas Colas has a few thoughts for the day.  “Just over 2 weeks ago, there was a serious fire in the apartment building where I live. It destroyed a quarter of one floor and lasted just over an hour. Thankfully no one was injured, either among the residents or the firefighters who put out the blaze.

Regular readers know we at DataTrek are students of human nature, particularly in moments of high stress. With the benefit of a little time, I have assembled some lessons from this event. Hopefully you will find them instructive in two ways: planning for unforeseen situations, and understanding how to mitigate the effects of emotions on more prosaic endeavors like investing.

NDX had just one probe higher to make this morning, but still hadn’t achieved a 38.2% retracement!  It is currently testing its diagonal trendline and may break it near 6600.00.  No one seems to be concerned.

ZeroHedge exclaims, “Bombs, Schmombs!!

After falling over 1.2% overnight after dramatic escalations in Syria, the US cash market open has prompted yet another panic-buying spree in stocks…

Nasdaq is now green on the day along with Small Caps…

9:00 am

Good Morning!

SPX futures have been down as far as 2626.00 this morning, breaking the Wave [ii] of C low.  This suggests the Wave (3) decline has begun.  SPX has been on a confirmed sell signal since the peak on March 13.  Our patience through the sideways movement over the past two weeks may start to pay off today.

ZeroHedge reports, “The daily see-saw pattern in capital markets continues, and after yesterday’s euphoric sprint higher on what the market misinterpreted as “conciliatory” remarks by China’s president Xi, this morning global stocks and US equity futures are sharply lower on fears of imminent military action in Syria.

Europe’s Stoxx 600 fell as much as 0.5%, trimming recent sharp gains, following a statement by the Russian ambassador to Lebanon that any US missiles – and the sources that fired them – will be shot down by Russia, while US futures took a sharp leg lower just after 6am ET.”

NDX futures are down substantially, as well, having reached a low of 6551.00 earlier this morning.  The normal retracement for Wave 2 is the top of Wave [iv] at 6793.50 which is above the 50% retracement level at 6754.35.  Wave (v) of [c] barely made a new high by about 5 points. As large as the rallies have appeared, they could not complete a 38.2% retracement at 6654.35.  Short sellers that took the sell signal given on March 16 should have roughly a 5.5% profit even after the bounce back.  We remain patiently short, but with the reward now increasing again.

At 7:25 am ZeroHedge observed, “30Y treasury yields have tumbled back below 3.00% and US equity futures are down over 1% in the pre-market as overnight warnings of airstrikes have escalated into full-blown threats from President TrumpThe Ruble is now down over 11% in the last 3 days…

US equity futures are dumping…”

VIX futures are higher, but haven’t broken out of yesterday’s range yet, with a morning high of 21.66.  We need to see a break above the Wave (1) high at 26.01 to confirm the uptrend.  Again, the retracement was approximately 58.6% and the VIX has regained its 50-day Moving Average support at 19.97.  It is on a buy signal.

Dana Lyons comments, “   Despite extreme daily volatility, the stock market has been mired in a historically tight range.

If it seems as though the stock market has been crazy volatile lately without really going anywhere, you’re not imagining things. Over the 2 weeks (i.e., 10 days) through last Friday (4/6), the S&P 500 (SPX) averaged a daily trading range of 2.3%. That’s in the 94th percentile for volatility since the inception of the SPX in 1950. The more remarkable thing, though, is the fact that the total range in the SPX over those 2 weeks is just 4.6%. Since 1950, there have been just 13 other times (or 0.07% of all days) that saw as much daily volatility confined in such a relatively tight 2-week range.”

TNX is declining again.  It has already made an impulsive decline to The Lip of the Cup with Handle formation.  However, Cups with Handle are somewhat thin-lipped, so that decline may only be a Wave (i) of [c].  In other words, should it break beneath 27.17, we may see a further decline to the Head & Shoulders neckline which provides a more durable support.  That will be the level to watch over the next few days.

 

April 10, 2018

The Markets are in a precarious spot…

4:00 pm

Today’s action has prompted me to re-evaluate the Wave structure to accommodate the immense amount of correctiveness going on over the past three weeks.  The decline from 2801.90 to 2553.80 took exactly 14 market days, while the rally to today’s high took precisely 6 market days.  That kind of precision means that Cyclicality is at work, especially after the January 26 to February 9 decline took 10 market days.

I have been compelled to restructure the decline to take the form of a Leading Diagonal in which all five waves are corrective in form, but impulsive in nature.  For example, Wave [v] of C is the smallest wave, not allowing it to rise to the 2-year trendline at 2675.00.

How do we know that we are in a Super Cycle Wave (c)?  One of the guidelines of being in a larger degree Wave C is that the Wave (2) correction may not exceed the top of Wave 4 of (1).  The top of Wave 4 of (1) is 2674.78.  For the past 2 weeks I have mentioned that the top of Wave (2) may go to 2675.00.  That is the “natural” resistance.  However, Wave A of (2) only went to 2672.08.  Wave C only went to 2665.45.  Since there are five completed Waves in C, the odds are high that this is a “truncated” Wave (2) and not a flat, where it may have ended closer to 2675.00.  It also means that the panic decline starts here.

ZeroHedge observes, ““What we’ve got here is a failure to communicate,” appears to be the message from the markets as they trade sideways, with wide-ranges rapidly reverting day after day, unable to decide whether trade-wars will happen, if dips are to be bought, if vol is to be sold, if Trump will be impeached, or if the globally synchronized recovery is gaining strength or flailing.”

All of the Analogs to crashes in 1929, 1987, 2000 and 2008 have failed.  The 1990 Nikkei crash analog is stretched to the limit.  This has caused a lot of bearish analysts to capitulate.  Please remember that Waves and Cycles are fractals.  Fractals are self-similar and repetitive, but each repetition is different.  So you may see similarities to other panics and crashes, but this Panic Cycle is unique unto itself.

8:00 am

SPX futures soared overnight, presumably at Xi’s conciliatory tone in his speech last night. However, the jolt in the SPX stopped at 2658.00, just beneath the descending trendline and Short-term resistance at 2660.30.  A careful observer would see that the futures were already up 16 points before the speech was broadcast. It appears that the speech may have been used as a cover for another dead cat bounce to facilitate the exit of some large commercial accounts.

ZeroHedge comments, “In what has become a daily see-saw pattern in global capital markets where the only variable is whether trade war sentiment du jour is better or worse, US futures have soared along with European and Asian shares after overnight China’s President Xi Jinping struck a “conciliatory tone” on trade during a major address, refusing to retaliate to Trump recent trade war escalation.”

The rally in NDX futures was stronger, but stopped at 6624.75, short of the previous high. This extreme kind of volatility is wrecking the markets, as we see in Galloping Gertie.

ZeroHedge remarks, “It seems the machines never sleep.

Before China’s Xi had even uttered a word – in war or peace – Nasdaq futures were ramping up 1% from the cash close and the S&P and Dow following… And once it was clear that Xi was not going to drop another trade war tape bomb, futures extended gains to the highs of the day session.”

Bill Blain comments, “Escalation or Poker? Frayed markets and the RICH Index. What does Deutsche’s exit pursued by bear actually mean?

“The strongest of all these warriors are these two – Time and Patience.”

Delusional Escalation or a well played poker hand? I guess we won’t know till someone blinks on the Trade Game with China. Or, how will Putin respond to Trump’s bellicosity on Syria after the coiffured one simultaneously trashed the Russian Stock market? Imagine what the papers would be saying if Russia economic action caused a 10% nosedive on the FTSE. Overused phrase of the day is “Return to the Cold War”.

 

VIX futures are lower this morning, but still above the 50-day Moving Average. The uptrend remains intact above that level.

TNX is higher this morning, but hasn’t yet crossed the Short-term resistance at 28.24. Should that happen, we may see TNX rising through mid-May.

ZeroHedge reports, “On Friday, we reported that among the five “nuclear” options available to Beijing to retaliate against Trump’s latest $100BN in proposed import tariffs, was the choice whether to sell US Treasuries. But what if Beijing did not want to unleash a full-blown market nuke, and instead was hoping for a targeted, EMP hit?

Then it would simply stop buying US paper, instead of dumping it outright; in the process it wouldn’t hurt the US too much – avoiding a furious tit-for-tat response – but would still send a clear signal to the White House, whose fiscal spending plan will more than double net Treasury issuance this year from under $500BN to over $1 trillion, and which needs every possible marginal buyer of US paper, both domestic and foreign.

Which is precisely what a new report by SGH Macro Advisors claims.”

USD futures have fallen beneath both Intermediate-term support at 89.74 and the 52-day Moving Average at 89.59 in the last 24 hours. The Cycles Model is anticipating a Master Cycle low in the next week. Should USD stay near the Cycle Bottom at 88.43 in that period, then we may be seeing an extension of Wave (B). However, Wave (C) appears complete, which indicates a flat correction may have been completed and a possible waterfall decline over that period. The USD appears to be in a precarious spot.

Anthony M. Cherniawski

The Practical Investor, LLC

2205 Hopkins Avenue

Lansing, MI 48912

www.mrpracticalinvestor.com

Office: (517) 331-5200

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. 

————————————————————————————————-

April 9, 2018

Galloping Gertie…

3:00 pm

VIX is having an “inside day.”  This shows indecision in the markets.

Bloomberg reports, “The forward curve of a closely watched proxy for the Federal Reserve’s policy rate has slightly inverted, signaling investors are either pricing in a mistake from central bankers or end-of-cycle dynamics, according to JPMorgan Chase & Co.

The inversion of the one-month U.S. overnight indexed swap rate implies some expectation of a lower Fed policy rate after the first quarter of 2020, the bank’s strategists including Nikolaos Panigirtzoglou, wrote in a note Friday.

“An inversion at the front end of the U.S. curve is a significant market development, not least because it occurs rather rarely,” they said. “It is also generally perceived as a bad omen for risky markets.”

2:45

SPX is being rejected at Short-term resistance at each bounce.  That is our “line in the sand.”  At 2:45 pm the volume was 1.1 B shares as compared to 2.178 B shares sold last Friday, which happened to be the lowest volume of the year.  Avg. Daily volume is 2.288B shares.  Today may not reach 2B shares.  That shows a lack of conviction in the market, despite the huge swings.  Most liquidity appears to be from “stop hunts” where algos take out stops on short positions, forcing investors to buy back the shorted shares and recycle the same liquidity repeatedly rather than adding new liquidity.  These “stop hunts” are increasing the daily amplitude of the market movements, causing abnormal stress on the market (e.g. Galloping Gertie).  The question is, how long will investors stand for it?

The above comment is especially true in the NDX.  ZeroHedge writes, “While the broad US equity market is rallying today – spiking in panic at the US cash market open – Nasdaq is the standout with Nasdaq 100 futures soaring enough to erase all Friday’s fears.

So the question is – why? Aside from the standard ‘high beta’ chatter? Trade war tensions easing is the narrative of the day – though what signs of that seems to be the fact that the to and fro of tariffs has not escalated today… yet.

So what else is there?

Simple – big speculators have piled in on the short-side of the technology trade, sending net speculative futures positions to their biggest short since June 2011…

 Having been exposed on Friday, today’s open was the perfect opportunity therefore for the machines to run stops andspark a major short-squeeze.So, don’t read too much into this ramp as being fundamentally value-driven, or a sign of easing tensions.

SSDD!

9:15 am

SPX futures are up this morning, but only to the 38.2% retracement level so far. It appears to have bounced off the 2-hour Cycle Bottom support on Friday, but remains above the 200-day Moving Average at 2593.70.  Futures are fading, so the bounce may not last.

The Movement in the SPX is reminiscent of the swaying of the famous Tacoma Narrows Bridge on November 7, 1940, known to some as “Galloping Gertie.”.

ZeroHedge observes, “It’s another “glass is half full” moment for global markets as Asian and European markets as well as S&P futures, are heading into the new week well in the green, at least for now, on renewed hopes a deal can be reached between the U.S. and China to avoid a full-blown trade war, following Trump statements over the weekend which have been described as conciliatory, although that may change quickly.

As a result, the Euro Stoxx 600 is up 0.6%, tracking a rise of 0.7% on S&P 500 futures, which is now back above the 200DMA and also the secondary support level of 2610…”

The VIX continues to consolidate above its 50-day Moving Average with no significant activity in the morning futures.

TNX slipped beneath its 50-day Moving Average on Friday and remains there this morning.  The Cycles Model now implies that TNX may continue to rise through early May.

USD is challenging its 50-day Moving Average at 89.72 this morning.  It is due for a Master Cycle low next week.  Should it remain beneath the 50-day, we may see a significant decline during that interval.

Anthony M. Cherniawski

The Practical Investor, LLC

2205 Hopkins Avenue

Lansing, MI 48912

www.mrpracticalinvestor.com

Office: (517) 331-5200

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.

—————————————————————————————–

April 6, 2018

9:00 am

A Cycle inversion…

SPX rallied toward the Short-term resistance at 2676.80 yesterday, completing its Cycle interval at a high instead of at a low.  This morning we see the SPX futures in decline in the premarket, already down nearly 1% as I write.

ZeroHedge writes, “When summarizing yesterday’s market action, which saw the market surge for the third consecutive day and culminated with Europe’s best day since June 2016, we said that it all boiled down to one question: “Trade war or no trade war?”
Until 6pm, the answer was the latter, however with one announcement Trump flipped everything on its head, and just as the president called for an additional $100 billion in Chinese tariffs, futures tumbled, with Dow futs plunging over 400 points as escalating trade war with China was back front and center.”

NDX appears to have completed an expanded flat correction.  As much as the NDX rallied yesterday, it could not break the downtrend.

ZeroHedge observes,” Sorry, jobs data. Your market-moving powers are being usurped this month. It’s actually Jay Powell’s speech Friday that investors should watch most keenly.
Since taking over as Fed Chair, Powell has only spoken publicly on the economy a few times. Given recent turmoil, investors will be all ears. Equities and bonds will probably react shortly afterwards.

The payrolls data is unlikely to supply investors with much new information. A solid 185,000 new jobs are forecast, with hourly earnings expected to enjoy the slightest of accelerations. That should just confirm the present inflation trend, while a disappointing outcome may be viewed as a temporary blip until it’s confirmed with other data.”

In addition, payroll data disappointed.  As observed by ZH,  “Going into today’s payroll number, the whisper number was for a substantial miss because as Deutsche Bank noted this morning,” consensus estimate has overestimated the initial March nonfarm payrolls print in four of the last five years by an average of 62k.” Well, that almost exactly how much the consensus estimate of 185K was missed by, because in March, the BLS reported that only 103K jobs were added, a 3 sigma miss to consensus, and roughly 66% drop from February’s upward revised 320K.”

VIX futures are higher this morning.  They have yet to break above the prior high at 26.01 which may confirm the next leg up.

TNX slipped beneath its Intermediate-term support/resistance line this morning.  A decline here may mean the continuation of Wave [c] of 4 to a lower  level.  The Cycles Model is a bit ambiguous as far as direction, so we will await further developments.

wave

USD may have completed Wave (C).  If so, there may be a substantial reversal in the next day or so.  We will monitor the developments.

ZeroHedge comments, “The last time offshore yuan was this strong relative to the US Dollar, China devalued its currency, sending a ripple of broken carry-trades through the financial markets and raising volatility everywhere.

In the 12 hours or so since President Trump announced plans for $100 billion in additional tariffs on China, offshore yuan has tumbled 300 pips…

Is this the start of a stealthy devaluation? Remember, China is hitting its limit in tit-for-tat trade responses.”

———————————————————————————–

April 5

9:00 am

Good Morning!

The Internet service at the Monastery is slow, so I cannot link the futures sites.  SPX may rise to 2675.00 to complete a Wave [c] of 2.  Today is a pivot day.  This implies a reversal may take place later today.

ZeroHedge reports, ” Stocks across the globe rose in a continuation of yesterday’s euphoric rally that sent the Dow Jones nearly 1000 points higher from its session lows, as the moderation of trade war rhetoric – despite the tit-for-tat tariff announcements by China and the US – lifted risk sentiment across the board. As a result, whereas yesterday’s market snapshot was a sea of red, this morning it’s green as far as the eye can see.”

VIX appears to continue its consolidation above the 50-day Moving Average.  It may challenge the 50-day, but hopefully close above it today.

What may not be taken into account is that TNX is rising and challenging the 50-day Moving Average at 28.18.  A move above that level will be noticed and bring back fears of rising rates.

USD is above the 50-day Moving Average at 89.60 but is due for a reversal today.

———————————————————————————-

April 4

The Panic Cycle begins…

…with a panic rally.  Rather than let the SPX slip beneath its critical level, another zigzag retracement was made.  You may wish to read Charlie McElligot’s article in ZeroHedge .

You may wish to know what the central banks are buying to keep the markets from imploding.

Please refresh your screen on occasion, as I will be adding commentary to the blog.  Unfortunately, I will be on the road most of the day today.  My destination is Our Lady of Guadalupe Shrine, Lacrosse, Wisconsin, where I will be giving seminars on the Shroud of Turin through Sunday.

8:15 am

SPX futures have been testing the Monday low in the overnight session.  The low is not yet broken, but an important level for the Risk Parity crowd appears to be breached.

ZeroHedge reports, “So much for yesterday’s Amazon bounce.

Just before 4AM EDT, a Bloomberg headline hit which has not only unleashed a furious global selling wave, sending the S&P lower by nearly 2% and the Dow 600 lower, but may have changed the course of history: that’s when China announced it was striking back  in the ever faster and more furious trade war between the US and China:”

VIX futures are higher, but haven’t yet broken through the previous high at 26.22.   While the VIX is on a buy signal, a breakout is a final confirmation of the continued uptrend.

————————————————————————————————

April 3, 2018

I will be on a conference at Lacrosse, WI through the weekend.  This has been planned for a long time before the market started its decline.  I will make every attempt to keep in contact through the Blog, but my time will be limited.  Please be patient as I continue to monitor events as they happen and give commentary whenever possible.

6:00 pm

Wrap-up:  Today the SPX crossed and re-crossed the 200-day Moving Average 7 times before ending near the 61.8% Fibonacci retracement at 2618.86.  The market was beckoning to all the buy-the-dippers to dive in.  Nevermind that the SPX closed 6.7% down from its most recent high and at a loss year-to-date.  This was an “inside day” which informs us that the (d0wn) trend may continue.  The Cycles Model suggests an interim low either at the close on Thursday or the first hour on Friday.  The target for the Broadening Wedge formation appears to be the Brexit low of June 2016 which may be reached by then.

However, there may be yet another week of decline after that low.  This decline has the potential to turn into a mini-panic that may go to the February 2016 low by next week.

3:15 pm

…just when you think the markets are “giving it up,” a stop-hunt rally begins.  These are done by algos that are specifically looking for short positons with stops on them.  That is why one attempts to go short as early in the decline as possible and don’t lose your positions with stop-losses.  The Cycles Model will tell us when to exit.  Again, the algos ramped the SPX up to the 61.8% retracement at 2618.86.

t:45

SPX has been hovering around the 200-day Moving Average most of the day.  Its peak was at the Fibonacci 50% retracement level at 2506.44.  We should see acceleration into the close.  The Commitment of Traders shows some interesting facts.  The Small Traders are at their highest net long positions in the E-Mini (226,803) since August 2015.  The Large Speculators (hedge funds) were at their highest net long positions since August 2015 in January, but have staged a comeback to a very large net long positon in the E-Mini (226,803 contracts).  However, the Large Commercials are net short by 383,343 E-Mini contracts.

The Commitment of Traders for the NDQ is flat at this time.  However, the retracement was a weak 46% of yesterday’s decline.  Hedge funds must be licking their wounds after a 318 point drop in the NDX.

ZeroHedge comments, “In the latest indication of just how influential a handful of megacap tech stocks have become, Bloomberg pointed out Tuesday that an index of the most actively traded US stocks (a group that of course includes many of the FANG + Applestocks that are beloved by both hedge funds and retail investors) has recently endured its worst run of losses in more than a year.”

9:30 am

SPX Opens Above the 200-day Moving Average

SPX futures had been trading under the 200-day Moving Average at 2589.75 overnight until 8:00 am, when it crossed above it.  The next retracement resistance is the 38.2% Fib level at 2594.01, which it appears to be challenging currently.  The 50% Fib level is at 2606.44, near The Cycle Bottom resistance at 2605.76.

ZeroHedge reports, “Global trade concerns and the “tech wreck” remained the focus as European markets reopen from Easter break, however the selling turmoil that sent the Dow tumbling as much as 700 points on Monday has eased off with S&P futures set for a gentle rebound, if still below the 200DMA of 2,590…

… as Asian benchmarks pared much of their decline, and European stocks well off session lows. And while global markets which were closed on Monday are generally catching up to yesterday’s liquidation in the US amid a sea of red…

… the Nasdaq 100, S&P 500 and Dow were all poised to open in the green following Monday’s selloff, while Treasuries fell (and yields rose) alongside the dollar.”

NDX futures bounced near the close off the daily mid-Cycle support at 6316.78 and spent the night beneath the 2-hour Cycle Bottom resistance at 6470.38.

Bloomberg reports, “The technology-led tumult that sent U.S. stocks into a tailspin showed signs of easing on Tuesday, with futures contracts for the main American gauges rising after Asia’s benchmark pared most of its decline. European shares fell, but losses were relatively contained.”

VIX futures are back down beneath the Cycle Top support at 22.77.  The uptrend may suffer should the VIX decline beneath the 52-day Moving Average at 18.92.  On the other hand, it is in serious need of a breakout above 26.22.

Investors are being urged to buy the dip, even though the Dow and SPX both closed beneath their respective 200-day Moving Averages.

Bloomberg comments, “S&P 500 futures are seeing a slight bounce after a brutal selloff while the VIX remains elevated at ~23. We clawed back late in yesterday’s session to end a shade above the February closing low of 2,581 — this may be the new support to watch after we closed below the 200-day moving average for the first time in almost two years.”

What’s not being taken into account is the rise in TNX off a Master Cycle low.  TNX may now be ready for a rally that may last through early May.

USD is trading above the 50-day Moving Average at 89.62.  Today appears to be the last day of strength in the Cycles Model.  Should that be so, the USD may then resume its decline for another two weeks.  We will need to monitor its status over the next few days.

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April 2, 2018Subscribe Here

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The Dow takes out the February low…

3:00 pm

The DJIA has now declined beneath its February low.  ZeroHedge comments, “The Dow Jones Industrials is now down over 3300 points from its highs, and has broken below February’s spike-crash lows to the lowest since Nov 20th..”

2:30 pm

The Hi-Lo Index is just getting started…

The NYSE Hi-Lo Index made an attempt at crossing above the 50-day Moving Average at -29.46 again this morning.  This is due to a rotation from weaker to stronger stocks.  However, even the stronger stocks are being battered.  It has a long way to go before hitting its target.

The 200-day Moving Average is breached…

The SPX 200-day Moving Average at 2589.70 is now breached.  There is currently a bounce to retest the resistance of the 200-day.  Once done, it may resume its decline.  A failure to regain the 200-day Moving Average is often referred to as the “kiss of death.”  The reason is that this is the final frontier until the Cycle Bottom is reached.

ZeroHedge comments, “Well that re-escalated quickly.

Moments ago, a 65,000 sell order in the E-Mini, equivalent to a notional of roughly $8 billion, sent the S&P 500 tumbling, and breached the 200-day moving average…

… and sent the Dow Jones plunging by over 500 points.

Markets are lower.  Will margin calls be next?

12:00

SPX is now beneath last week’s low and headed for the Head & Shoulders neckline near 2525.00.  Thus far the markets are orderly.  However, margin calls may be the next item of the day as the markets drift lower.

9:30 am

SPX futures are lower this morning.

It has been a week since the 2-year trendline was broken.  SPX has consolidated between the 200-day Moving Average at 2589.13 and the trendline.  Beneath the 200-day Moving Average is the lower trendline of the Broadening Wedge, giving the potential target for the SPX.

From the last peak at 2801.90 to the proposed low may take 17.2 days.  The Cycles Model suggests that Thursday’s close may usher in the low.  A more precise measure implies the low may occur near 10:00 am on Friday.  If the markets are still open at the close on Thursday, I suggest taking profits then.  We’ll use Friday morning as our backup time if markets are closed.

ZeroHedge reports, “Global markets started the new week and quarter with very muted trading in Asia as most key markets including Australia, New Zealand , Hong Kong, Canada, UK and most parts of Europe remain closed for Easter holidays. US stock futures are lower…

…and equities in Asia have given up the gains seen early in the session amid fears of escalating trade wars, while European markets remain offline.”

NDX has also come back to test the trendline after breaking it a week ago Friday.  It is down more substantially than the SPX, but hasn’t broken the mid-Cycle support at 6312.50.

Dmitri Speck writes in Investing.com, “In an article published in these pages in early March, I have discussed the similarities between the current chart pattern in the S&P 500 Index compared to the patterns that formed ahead of the crashes of 1929 and 1987, as well as the crash-like plunge in the Nikkei 225 Index in 1990. The following five similarities were decisive features of these crash patterns:

– a rally along a clearly discernible trendline on a linear chart

– an accelerated move toward a peak at the end of the advance

– an initial decline testing the trendline

– a counter-trend rebound

– a break of the trendline

After the trendline was broken, waterfall declines began in the three antecedents of 1929, 1987 and the Nikkei in 1990. In early March, I pointed out that the decisive development was the break of the trendline on the second test. What has happened since then?”

VIX futures are higher, but haven’t broken above the previous highs.  Not only should we expect the VIX to break out, but to exceed the February high.  The VIX is ready to explode higher as the 200-day Moving Average on the SPX is challenged and broken.

Bloomberg comments, “Are we having fun yet?

For two years traders bemoaned the tranquility in global equity markets. That era just ended in a fit of turbulence, as stocks plunged into the first correction since early 2016 and volatility almost doubled from historically low levels over the past three months. Dip buying no longer worked, and holding tight on the S&P 500 Index delivered the first quarterly loss in 2 1/2 years.

With the White House spoiling to reorder the global trade hierarchy and the Federal Reserve raising interest rates, the word on Wall Street is: get used to the swings.”

TNX has reversed from its Friday low and is climbing higher.  A move above Intermediate-term resistance at 28.08 confirms the rally to the Cup with Handle target.  Unfortunately, investors view treasuries as a refuge from the declining stock market.

Bloomberg reports, “The U.S. jobs report was already playing second fiddle to inflation data in the minds of bond traders. But after last week’s turbulence in technology stocks, it almost feels like an afterthought.

Benchmark 10-year Treasuries are coming off their biggest rally of 2018, with yields at seven-week lows. This time, it wasn’t geopolitical risk fueling the gains, or even weak inflation figures (the Federal Reserve’s preferred gauge, in fact, beat analysts’ estimates). Rather, it was investors seeking refuge from the volatility in equity-market darlings such as Amazon.com Inc., Facebook Inc. and Tesla Inc.”

USD futures are down beneath the 50-day Moving Average at 89.63 this morning after struggling to gain elevation last week.  Point 7 of the Broadening Top formation may not be achieved.  Once the USD declines beneath the Cycle Bottom, it may   go into crash mode through mid-April.

This, in turn, may bring the SPX into another Wave (3) decline through April 20-23, according to the Cycles Model.

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March 29, 2018

How will the last day of the month/quarter end?

4:00 pm  Here is the answer…

3:55

NDX has a more bearish profile than SPX.  This retracement was 60% of its decline.  The next NDX target may be the November 3 2016 low at 4647.59.

3:40

It appears that the SPX has completed 5 Waves in an Ending Diagonal Wave [c] correction.  Wave [c] is the shortest Wave of the correction which is unusual.  This is called an “irregular correction.”  The volumes are terrible and Wave [c] appears to be truncated, which is bearish.

Be prepared for Wave 3 of (1) of [C] of I  to follow.  Wave 1 is 214 points.  Wave 3 may be 3 to 4.5 times the size of Wave 1.  That may put the SPX back to the Brexit low at 1993.00, at a minimum.

11:15 am

SPX nearly completed a 61.8% retracement at 2643.46.  Why a 61.8% retracement?  One valid reason is that traders are slow to put on short positions and try to “protect” them with stops.  In this computerized age, there is no protection from the algos that hunt down the stops, since that forces the investor to buy back the short and puts liquidity back into the market.  When the algos run out of shorts stops to take out, they resume the decline.  This may be the beginning of Wave [iii] of 3 of (C), considered to be the most powerful and destructive part of the decline.

9:30 am

SPX futures are higher, but remain beneath the Cycle Bottom resistance at 2616.91.  It remains to be seen whether they will break out of that resistance or “give it up” to continue the decline.

ZeroHedge comments, “After three days of violent moves and sharp intraday reversals, in a week that feels far longer than just 4 days in, even equities appear exhausted today, and have entered the slow drift into the Easter break with volatility and volume far more subdued than earlier in the week courtesy of a slowdown in the newsflow, and as a result risk is once again bid, as it has been in the early part of most days this week… the question is will we get another late-day selloff.

Commenting on the recent risk moves, Deutsche Bank notes that markets seem to have spent the last 24 hours packing their bags and jetting off for the long weekend after an eventful last few weeks.

Aside from digesting a few more tech related stories, the lack of any material newsflow – the first time we can say that in a while – certainly seems to have helped. Indeed, by the end of trading last night the S&P 500 and Dow closed -0.29% and -0.04% respectively. The lack of any real direction throughout the session is best summed up by the fact that the S&P 500 passed between gains and losses by 37 times.”

 

NDX futures managed to rise above its Cycle Bottom at 6482.28, but still treads “inside” its trading range between 6410.04 and 6550.00.

Trump launched another tirade against Amazon yesterday which is likely to put further pressure on the FANGs.

ZeroHedge observes, “The main driver behind yesterday’s FANG plunge, was a report in Axios, according to which it was not Facebook that Trump wants to go after, but rather Amazon:

“He’s obsessed with Amazon,” a source told Axios. “Obsessed”, and added that Trump has allegedly talked about changing Amazon’s tax treatment because he’s worried about mom-and-pop retailers being put out of business. Another Axios source said that POTUS has “wondered aloud if there may be any way to go after Amazon with antitrust or competition law.”

VIX futures are taking a beating this morning, but still inside yesterday’s range of 21.71 to 24.94.  This may be a last ditch attempt to keep the decline under control until the quarter end.

Bloomberg reports, “The prime suspects in last month’s global rout may be at it again.

Inverse exchange-traded funds — which use leverage to bet against stocks and volatility indexes — have seen trading activity skyrocket to ominous levels as markets have whipsawed in the past few days. In fact, turnover has only been higher two other times since the financial crisis: in 2016 during a correction and in February when a surging Cboe Volatility Index forced short funds to unwind.

The difference this time is that inverse leveraged technology ETFs are at the center of the action, rather than volatility products.”

TNX appears to be easing down again in what appears to be a fifth wave.  It may be that Wave [c] could be completed today at the Lip of the Cup with Handle formation.  If  correct, TNX may be winding up for a surge to the target for the Cup with Handle formation in the next week!

The Master Cycle is due to be complete on Thursday, April 5.  The combination of factors lead me to infer that the Master Cycle may be inverted.  Should this take place, it may put tremendous downside pressure on stocks.

The fact is, the Fed will not back away from increasing interest rates, since this is the last straw holding pensions together.  Rising rates may postpone in inevitable collapse of the {defined benefit) pension system.

USD futures appears to be consolidating around  the 52-day Moving Average at 89.65.  The Cycles Model suggests there may only be a few days left in this retracement before the USD “loses it.”   This suggests a possible top of the retracement nearer to the trendline at 91.00 than the Cycle Top at 96.08.

————————————————————————

March 28, 2018

The pros are getting nervous…

3:00 pm

SPX has been gyrating near the Cycle Bottom support at 2617.22 after making a 50% retracement of yesterday’s decline.  It is important that it has slipped beneath the Cycle Bottom toward the end of the day since the large institutional investors usually put their toe into the market in the first hour of the day, then sit back and watch the market’s reaction.  Since the rally failed, we may see the large investors begin to unload.  In addition, mutual funds usually settle their buys and sells in the last half hour of the day.  We may see a bloodbath going into the close if they are as nervous as I’m told.

ZeroHedge reports, “Professional money managers were leery about buying stocks during the recent rebound, judging from Bloomberg’s Smart Money Flow Index, which tracks Dow Jones Industrial Average moves in the first and final 30 minutes of trading.”

While VIX hasn’t broken out above its prior highs, it has been trading all day near the top of its daily range.  We may see the breakout in the final hour.

9:00 am

Overnight Support holds…for now.

SPX closed above Cycle Bottom support at 2610.98, which allowed the SPX futures to bounce in a 24-point range along that support in the overnight session.  It appears that all the bounces were sold, except the last.  It is difficult to determine whether SPX makes another attempt for the mid-Cycle/trendline resistance at 2700.00-2710.93 or not.  Considering that a holiday weekend is coming up, I suspect another rally attempt may be made.  A decline beneath yesterday’s low suggests that the decline may continue…

…the Broadening Wedge trendline (daily chart) and 200-day Moving Average lie near 2575.00.

ZeroHedge reports, “Following yesterday’s violent and unexpected equity selloff, driven by a so-called “tech wreck” as the FANG+ index dropped by 5.7%, the most on record, and stood on the edge of a key support line precipice…

… this morning, global stocks are predictably lower across the globe, as the tech sector fallout spreads across Asia and Europe…

… although S&P futures are off session lows, with 2,600 providing a support level for the time being, and should that fail, all eyes will be on the 200-DMA, some 15 points lower.

NDX futures also bounced in a 100-point range between 6485.00 and 6582.00, above Cycle Bottom support at 6449.61.  Again, a rally back to the 50-day Moving Average at 6824.22 may be warranted.  However, a decline beneath yesterday’s low may postpone and/or minimize another retracement.

Bloomberg reports, “U.S. stock futures turned positive and European shares pared a slide as markets began to steady after another bout of tech-induced drama. Government bonds trimmed gains, though there was enough caution remaining to keep Treasury yields well below 2.8 percent.

Even contracts for the Nasdaq 100 pointed to a higher open, as traders sought to put Tuesday’s selloff of major tech names behind them. Gains for defensive sectors such as utilities and healthcare companies helped the Stoxx Europe 600 Index claw back some ground, though technology companies and miners pulled it lower. Earlier in Asia there were broad declines.”

VIX futures traded in a range from 21.96 to 23.35.  After 6:00 am it traded at or beneath yesterday’s closing price.  The current pattern does allow a decline to retest the 50-day Moving Average before moving higher.

TNX futures declined beneath Intermediate-term support at 28.00 yesterday with the overnight session still lower.  This shows heavy flows into treasuries and may be an indication of weakening stock flows.  The target for this decline may be the neckline of the Head & Shoulders formation near 25.00.

ZeroHedge comments, “One day after he correctly warned that equities have not yet bottomed – just hours before the Dow Jones tumbled from up over 200 to down over 400 points at one point as the tech sector imploded – this morning former Lehman trader and current Bloomberg macro commentator Mark Cudmore issues another warning, this time about Treasuries, which he thinks may be poised for a sharp spike higher as yields tumble. He explains why in his latest Macro View column below:

Treasuries Jump May Be the Start of Something Bigger: Macro View

The probability of Treasury 10-year yields collapsing is much higher than most investors seem to realize. The readjustment in pricing may be just getting started.

It’s not going to take too much for serious discussion to begin over the possibility the Fed’s hiking cycle may be at an end, or near an end, already.”

 Regards,

Tony

————————————————————————

March 27, 2018

3:00

NDX leads the Way…

NDX leads the decline as indicated this morning.  Specifically the FAANG stocks lead the way.  Facebook is down 3.84%.  Apple is down 1.42%.  Amazon is down 2.15%.  Netflix is down 4.66% and Google is down 3.00%.

1:00 pm

After the 10:30 commentary SPX declined to a low of 2652.57.  From there it rallied 22.21 points to fulfil its Wave (v) requirement.  While there is some risk of a final probe higher, the retracement appears complete and ready to decline.  For new viewers, all longs should be sold.  This is your last chance.  Short positions should be added at this time.  No stops!  If an algo sees your stop, it most certainly will take it out.

10:30 am

SPX has made the 38.2% Fibonacci retracement at 2668.41.  The question is, will it go higher?  If this is an a-b-c formation, Wave [c] appears to be incomplete.  It may develop into an impulse by adding another minimum 18 points to its structure (2686.00 to 2694.00).  However, a decline beneath 2625.59 indicates that the decline is underway.

9:15 am

Are Stocks Ready for a Profound Failure?

SPX futures made an overnight high of 2679.75 before pulling back. The 38.2% Fib retracement level is 2702.27, which it has not achieved.  As the formation stands right now, it would make an a-b-c zigzag.  However, a further pullback may lead to yet another push to the trendline and 38.2% retracement.  A failure to retrace that level would be profound.

The story line for this rally is Trump’s “Happy Tweet.”  ZeroHedge comments, “Just as Trump sent stocks into a tailspin last week with his bellicose trade overtures against China, so the near record (point) rebound in the Dow on Monday is being attributed to a much more diplomatic tone out of the Trump administration, when first Mnuchin, then Peter Navarro played down the threat of a trade war and instead said that the administration is “actively” involved in talks with China to resolve the recent trade tensions between the two nations. Various unconfirmed media reports then also suggested that trade war with China may never materialize (of course, as Mark Cudmore explained this morning, it very well still may). It culminated with a “happy” tweet from Trump himself on Monday night, in which the stock-picking president, hours after confirming his delight with the spike in the market, tweeted “trade talks going on with numerous countries that, for many years, have not treated the United States fairly. In the end, all will be happy!

NDX futures overshot the double resistance levels at the mid-Cycle (6819.30) and the 50-day at 6826.78.  However, it has pulled back beneath the 50-day at this juncture.  It bears watching, since it may lead the SPX in a reversal.

ZeroHedge mentions, “Mint – Blain’s Morning Porridge – 27th March 2018

“You don’t need a weather man to know which way the wind blows…”

The headlines are all about yesterday’s “extraordinary” bear-rally in stocks – upside buoyed by expectations the US/China trade discussions will de-escalate trade war tensions. I’m unconvinced by the narrative: the volume was tiny and a look at the charts suggests global stocks have still got problems ahead.”

Whiole stocks were going higher yesterday, the NYSE Hi-Lo stalled at the 50-day Moving Average and has receded the rest of the day.  This action does not bode well for the strength of the equities market.  It rmains solidly on a sell signal.

VIX futures are on the decline this morning, but within the parameters of a retracement.  The 50-day Moving Average at 18.01 plays an important role of keeping the VIX on a buy signal.

ZeroHedge observes, “From former Lehman trader and macro commentator Mark Cudmore, who unlike the algos that have jumped from one extreme of the ship to the other, refuses to accept that yesterday’s market surge is indicative of a change in market direction and/or sentiment, or as he writes in his latest Macro Wrap…

One Strong Bounce Does Not a Bull Market Make

Equities haven’t bottomed just yet.

Some commentators have been swift to say Monday’s U.S. stock bounce shows the bull market is firmly back on track. But, as Aristotle once observed, “one swallow does not a summer make, nor one fine day.”

U.S. equity futures haven’t even regained last Thursday’s opening price. The tenuously optimistic spin conveys a sense of desperation from equity longs. Volatility is now much higher than two months ago. This means larger price moves. In both directions.”

  

TNX may be ready to descend beneath the Intermediate-term support at 27.90 as the decline may be ready to ‘lock in.”  As if the last commitment of traders report, the speculators are still heavily short the 10-year.  Last week’s low at 27.99 did not break down beneath the prior low at 27.95.  When the breakdown occurs, there will be a rush to cover their shorts.

USD futures are bouncing after testing Cycle Bottom support at 88.57.  USD shorts will also have to cover as the dollar vaults toward Point 7 at 96.00.  The Cycles Model suggests the rally may last about a week, but it will appear to be vicious for the shorts.

Regards,

Tony

Anthony M. Cherniawski

The Practical Investor, LLC

2205 Hopkins Avenue

Lansing, MI 48912

www.mrpracticalinvestor.com

Office: (517) 331-5200

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. 

———————————————————————————

March 26, 2018

10:00 am

SPX may have completed an irregular correction at the hourly Cycle Bottom at 2639.62.  This is the first time I’ve seen a 25% Fibonacci correction since 2008.  Nobody is ready for this, if correct.

The NYSE Hi-Lo Index rose to challenge the 52-day Moving Average at .92.  However, it did not last, suggesting this rally is being used to lighten up long positions.

9:30 am

A Dead Cat Bounce…

SPX futures rallied over the weekend to challenge the 2-hour Cycle Bottom at 2618.52.  The chances are good that this is a Wave [c] of 2, which means the rally may be near completion.

ZeroHedge comments, “It seems that “Black Monday” has been averted, with global risk sentiment making a full reversal to start the week, and the precipitous selloff from Thursday and (Black) Friday turning into a furious rally on Monday, starting in Asian markets and proceeding to Europe and US stock futures, which are up 1.4%, and back over the key 2,610 support level.

VIX futures challenged the Cycle Top support, but has risen back above it.  At this stage the VIX may have completed its retracement and could move higher.

TNX may have completed Wave (i) of [c] on Friday.  A quick scan shows a zigzag has been made, suggesting a minor retracement has been made.

USD futures made a low of 88.76, testing the Cycle Bottom support at 88.62.  This may be the end of Wave C and the beginning of Wave (C).

ZeroHedge observes, “The late-day 300-plus-point plunge in The Dow (and the rest of the market) has been slowly but surely erased overnight as the machines gently run stops ahead of the open.

Interestingly, stocks stalled after President Trump tweeted about how strong the economy is…

Bond yields are following stocks higher but the dollar is plunging…

To fresh 6-week lows

Tony

Anthony M. Cherniawski

The Practical Investor, LLC

2205 Hopkins Avenue

Lansing, MI 48912

www.mrpracticalinvestor.com

Office: (517) 331-5200

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. 

March 23, 2018

The crash phase begins…

2:30 pm

Contrary to my earlier observations, VIX has stayed above the Cycle Top support at 21.96.  It appears that VIX is having a “running” Wave (2).  If so, Wave 3 may surpass the 50.30 top of Wave I.

ZeroHedge writes, “Just two weeks ago, everything was awesome: jobs data was perfectly ‘goldilocks’, stocks surged, banks loved it, and VIX flash-crashed lower – normalizing the term structure. Today… things are very different.

The market has given up on Goldilocks…

Well, There goes Wave (2)…

It appears that SPX is having a running correction, as well.  That mean equites may already be in a crash Cycle.  …And the contagion is spreading.

ZeroHedge observes,  “The global funding market crisis is getting worse and its contagion is starting to show up in assets that ‘mom and pop’ care about. Bank stocks are being battered…”

11:15 am

Gold futures made a high of 1350.40 this morning.  That appears to complete the retracement rally.  This, in fact, may be a second inverted Master Cycle as the bulls are now fully on the wagon.  Time for the wheels to fall off.

ZeroHedge observes, “Yesterday’s dead-cat-bounce in the dollar – post-trade-war – is over as the dollar index tumbles to fresh lows…

Sparking a bid in precious metals with gold above $1350 at 6-week highs…

10:45 am

SPX loses ignition.

The anticipated rally did not materialize.  In fact, SPX finished yet another small declining impulse.  To complete the decline pattern it may add yet another impulse lower.  The obvious target appears to be the Cycle Bottom at 2621.03, which may be reached this afternoon.  That may complete 8.6 days of decline from the 2801.90 top.  There may be an attempted rally in the late afternoon today to try to ameliorate a second negative week.  That action may set up the market for a crash next week.

The NYSE Hi-Lo Index continues its decline from the 52-day Moving Average as well.  This maintains the sell signal for the SPX.  The outflows from ETFs tell it all.

ZeroHedge reports, “It’s time for JPMorgan to start worrying again that retail investors are no longer buying the fucking dip (as it did three weeks ago).

Just one week after Bank of America was “stunned” by record inflows into equities, this week everything went in reverse, following the latest Facebook-inspired sharp drop in stocks which brought the market back to the verge of a correction. The result was a “huge” $19.9 billion equity outflows, with the $18.6 billion in ETF outflows the second highest ever according to BofA.”

9:15 am

SPX futures appear to be gapping down beneath the trendline at 2700.00.  This may be yet another big down day.

ZeroHedge reports, “Yesterday, we showed that according to Wall Street, the biggest tail risk facing investors right now is a “trade war”…

… and that should trade tensions escalate, lower stock prices would be the immediate result (and that managers would sell stocks in advance).

Well so far this morning, they are being proven right (or simply selling), because a jittery overnight session for stock futures which saw the S&P close at session lows after yesterday’s Fed rate hike (due to the “snowstorm” according to a dead serious Marko Kolanovic), turned increasingly volatile just before dawn in New York, as investors prepared for today’s China trade war announcement from President Trump that could levy tariffs on more than 100 types of Chinese goods, and is due just after noon ET.”


NDX futures have crossed the Rubicon as the morning session has collapsed 100 points.

ZeroHedge reports, “Facebook advertisers have threatened to abandon the platform in the wake of a massive data harvesting scandal which began after it was revealed that an app created by two psychologists – one of whom Facebook employs – gathered data on over 50 million Americans and then sold it to political data firm Cambridge Analytics and several others, who used it without consent.

Mark Zuckerberg, co-founder and CEO of the social media giant gave several interviews Wednesday after spending three days in hiding, ostensibly with a crisis management team which advised him not give wholly unsatisfactory answers to one of the largest data breaches in history.“

VIX futures are pressing the 20 handle as awareness of “all is not well” emerges.  We may see the Cycle Top surpassed in this session.

TNX appears to have reversed from its high this morning, as indicated yesterday.  The Cycles Model suggests about two weeks of decline that may go as far as the Head & Shoulders neckline.

Bloomberg observes, “Several developments last week indicated that the recent panic in the market for U.S. Treasury bonds was a false alarm. The increase in average hourly earnings has slowed appreciably, reducing the risk of aggressive monetary tightening by the Federal Reserve. Inflation moderated from levels recorded at the beginning of the year. Retail sales dropped for a third month, belying expectations of an increase. Finally, data released March 16 showed that February housing starts fell more than expected, providing another indication of slower economic growth.”

USD futures fell to 89.00 in the overnight session, then have recovered since then.  This may also be the reversal that I have anticipated over the past two weeks.  Should stocks go down in a panic, the USD may have no trouble at all rising to the Cycle Top resistnce at 96.30.

Regards,

Tony

Anthony M. Cherniawski

The Practical Investor, LLC

2205 Hopkins Avenue

Lansing, MI 48912

www.mrpracticalinvestor.com

Office: (517) 331-5200

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. 

 

 

March 22, 2018

2:00 pm

We may expect the retracement to go between 2695.00 and 2705.00 in this stretch.  However, if this is a valid trendline cross, it should not close above the trendline.  A possible stretch to the mid-Cycle resistance at 2714.80 may be the outer limit, but still closing beneath the trendline.

This bounce may only be a Wave [a] of 2 which suggests a pullback and another attempt at the trendline in the next 24 hours.

European financials have been very weak since the February decline.  EUFN has now broken its February low.  This appears to be the source of contagion for now.

ZeroHedge reports, “Yesterday we exposed the globally contagious spread of funding market distress into the credit risk of major US banks,and today it has accelerated, spreading to Europe’s banks as their stocks crashed to the lowest in 11 months

Deutsche Bank is leading European banking’s collapse…”

BKX has crossed the upper trendline of the Broadening Wedge.  As reported earlier, there are several large US banks with funding issues. BKX may catch up with its European counterparts.

9:15am

SPX futures appear to be gapping down beneath the trendline at 2700.00.  This may be yet another big down day.

ZeroHedge reports, “Yesterday, we showed that according to Wall Street, the biggest tail risk facing investors right now is a “trade war”…

… and that should trade tensions escalate, lower stock prices would be the immediate result (and that managers would sell stocks in advance).

Well so far this morning, they are being proven right (or simply selling), because a jittery overnight session for stock futures which saw the S&P close at session lows after yesterday’s Fed rate hike (due to the “snowstorm” according to a dead serious Marko Kolanovic), turned increasingly volatile just before dawn in New York, as investors prepared for today’s China trade war announcement from President Trump that could levy tariffs on more than 100 types of Chinese goods, and is due just after noon ET.”

NDX futures have crossed the Rubicon as the morning session has collapsed 100 points.

ZeroHedge reports, “Facebook advertisers have threatened to abandon the platform in the wake of a massive data harvesting scandal which began after it was revealed that an app created by two psychologists – one of whom Facebook employs – gathered data on over 50 million Americans and then sold it to political data firm Cambridge Analytics and several others, who used it without consent.

Mark Zuckerberg, co-founder and CEO of the social media giant gave several interviews Wednesday after spending three days in hiding, ostensibly with a crisis management team which advised him not give wholly unsatisfactory answers to one of the largest data breaches in history.“

VIX futures are pressing the 20 handle as awareness of “all is not well” emerges.  We may see the Cycle Top surpassed in this session.

TNX appears to have reversed from its high this morning, as indicated yesterday.  The Cycles Model suggests about two weeks of decline that may go as far as the Head & Shoulders neckline.

Bloomberg observes, “Several developments last week indicated that the recent panic in the market for U.S. Treasury bonds was a false alarm. The increase in average hourly earnings has slowed appreciably, reducing the risk of aggressive monetary tightening by the Federal Reserve. Inflation moderated from levels recorded at the beginning of the year. Retail sales dropped for a third month, belying expectations of an increase. Finally, data released March 16 showed that February housing starts fell more than expected, providing another indication of slower economic growth.”

USD futures fell to 89.00 in the overnight session, then have recovered since then.  This may also be the reversal that I have anticipated over the past two weeks.  Should stocks go down in a panic, the USD may have no trouble at all rising to the Cycle Top resistnce at 96.30.

Regards,

Tony

Anthony M. Cherniawski

The Practical Investor, LLC

2205 Hopkins Avenue

Lansing, MI 48912

www.mrpracticalinvestor.com

Office: (517) 331-5200

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. 

————————————————————————————————–

March 21, 2018

4:00pm

Rising LIBOR rates may be the key to a weakening market that is heavily margined.  This has caused BofA to reduce and sell some of its margin lines, according to Bloomberg.   This may be putting a strain on liquidity that has a direct effect on the equities market.

3:45pm

SPX appears to be held above mid-Cycle support at 2716.57.  However, that may bring false comfort, since the rally was already rejected at Short-term resistance at 2736.17.  The overnight markets may be the deciding factor on the resumption of the decline.

3:30pm

The USD futures fell to 89.27 with the FOMC announcement.  As bad as that may look, we may have a similar situation in the US Dollar.  We should see USD decline beneath the prior low at 89.14 to complete Wave C of (B)  This may be an irregular correction that sets up a reversal to “point 7.”

3:15pm

TNX may be giving traders a false move to entrap them in their widely-held short positions in the 10-year Treasury note.  From a Cycles perspective, today may be a Master Cycle low in UST!  That suggests a reversal in TNX may be imminent.  A 25 BP raise in rates with 2 more to come in 2018 isn’t enough to set off the TNX into a higher trajectory yet.  Failure to make a new high may result in a reversal in the overnight markets.

8:30 am

SPX has bounced off the 2-year trendline (not shown) yesterday.  Overnight futures have only made a half-hearted rally, so we may see SPX remain under the mid-Cycle resistance at 2722.23.  The 38.2% retracement level is at 2720.30.  Should that be the case, the decline may resume after a brief probe to that level.

ZeroHedge reports, “After yesterday’s violent selloff which was sparked by a series of negative tech stories including Facebook’s escalating data scandal and a fatal accident involving an Uber self-driving car, Tuesday trading has so far been relatively calm and muted with Europe bourses paring early gains and Asian stocks trading slightly lower…

while S&P futures were hugging the unchanged line as Nasdaq futures pointed to more tech declines.”

NDX bounced from the combined 50-day and mid-Cycle support at 6817.60.  NDX futures are flat this morning.

ZeroHedge observes, “Former Lehman trader and current Bloomberg commentator Mark Cudmore can take a bow: just hours after his latest Macro View forecast predicted more turbulence  for stocks and “another swoon”, the S&P tumbled to just about 2,700 yesterday.

So after that quick elevator ride down, is it time to take the escalator back up? Not just yet.

In fact, in his latest macro view released overnight, Cudmore remains decidedly bearish, and notes that after yesterday “triple-whammy” of blows to the tech sector – Uber, FaceBook and crypto regulations – “those diverse stories will all converge to a similar, very negative outcome for the tech space: tighter regulation and oversight, plus an increase in compliance and legal costs and a significant blow to sentiment.”

VIX futures are lower this morning.  It’s odd that VIX appears to be suppressed without driving the price of stocks higher.

Bloomberg reports, “The burgeoning bludgeoning of large-cap U.S. technology stocks Monday — largely driven by the Facebook data-misuse controversy — has traders acutely anxious about the near-term outlook for the S&P 500 Index.

The VIX futures curve, whose contracts track the implied volatility of the benchmark U.S. stock index over time, is in backwardation. That is, March’s contract is more expensive than the second-month contract, and so on out to September.”

TNX is moving higher, but hasn’t broken out above prior highs.  All of the moves since February appear to be corrective so it is difficult to ascertain the true direction from the patterns alone.  The Cycles Model suggests a decline may start that would last through early April that is likely to complete Wave 4.

Regards,

Tony

Anthony M. Cherniawski

The Practical Investor, LLC

2205 Hopkins Avenue

Lansing, MI 48912

www.mrpracticalinvestor.com

Office: (517) 331-5200

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. 

 

March 20, 2018

3:25 pm

As indicated earlier, SPX has been contained by the mid-Cycle resistance for the duration of the day.  We may see an end-of-day sell-off, as more investors are selling the rally.  They may not wait for the Fed announcement, since a rate hike is already “baked in.”

3:15 pm

The 3-month LIBOR rate has climbed for its 30th consecutive day to 2.25%, adding more stress to the financial markets.   ZeroHedge reports, “When it comes to ongoing blow out in the Libor-OIS spread, which this morning jumped to another 9 year wide, rising to 54.6bps or the most since May 2009 after 3M USD Libor rose for the 30th consecutive day from 2.2225% to 2.2481%…”

While LIBOR can go higher for mundane reasons,  Citi’s Matt King echoes our repeated warnings, and writes that “the dramatic rise in $ LIBOR-OIS spread is contributing to a general increase in nervousness around risk assets”, a process he thinks “has further to go.”

 

11:45 am:  SPX challenged the mid-Cycle resistance as mentioned this morning, but has consolidated beneath it in a complex correction.  At some point today it may lose whatever strength it has and resume its decline as the oversold condition may have been been alleviated.  Crossing the trendline infers a potential decline to the source of the trendline, which is the 1810.10 low.

NDX is weaker than the SPX and appears to be about to lose whatever gains it had this morning.  A decline beneath the 50-day and mid-Cycle support leaves the NDX without support until the Cycle Bottom at 6424.83, or possibly its prior low at 6164.43.

The NYSE Hi-Lo Index is not only beneath its 50-day Moving Average at 17.74, but treading in negative territory.  The real-time feed does not seem to give accurate readings, since it shows yesterday’s close at -111.00, which just showed on the chart after the open this morning.  That is troublesome, but still adequate enough for our signals thus far.

 

__________________________________________________________

March 19, 2018

5:30 pm:  The reason for the bounce.

SPX bounced at its 2-year trendline near 2700.00.  For the moment we may assume that the retracement may not be over and we may see a further probe to Short-term support at 2724.35 or possibly the 50% retracement at 2728.24.  But nothing can be taken for granted.  Hopefully you are all short as of the Thursday/Friday sell signals.  We may not see that price level again.

For the NDX, it was the combined Intermediate-term and 50-day Moving Average that provide the “floor” for the bounce.  Resistance for the bounce is at the 50% retracement value at 6943.00.  Maximum resistance is at today’s high of 6949.02.  I don’t expect to see the gaps filled.

10:00 am: SPX, NDX leave bearish Island Reversals

SPX left a bearish Island Reversal at the open this morning by gapping beneath Short-term support at 2737.49.  This action shows that bids are drying up.

NDX also gapped down beneath its Short-term support at 6958.95.  This is a sizeable gap that investors should take note of.

The NYSE Hi-Lo Index is on a confirmed sell signal.

A Gap Down may open the way for further declines in Equities.

Good Morning!

SPX futures declined to challenge the Diagonal trendline and Short-term support at 2737.49.  It may open with a gap down.  Should it open beneath Short-term support, the way is clear for a decisive down day.  Otherwise there may be more choppiness until support is broken.

ZeroHedge reports, “Global stocks and S&P futures point to a lower open on Monday and as Mark Cudmore noted earlier this morning, there are plenty of potential catalysts: sudden concerns about global growth rolling over, the slide in Apple suppliers which hit Asian stocks following a report that Apple is developing its own microLED screen, Trump’s trade war, this weekend’s McCabe firing, the ongoing personnel turnover in the White House,  Abe’s record low popularity amid Japan’s land scandal, lack of Brexit clarity, Italy’s struggle to form a government, Facebook sliding on data breach concerns, Russia’s spat with the U.K., upcoming concerns about this Wednesday’s Fed meeting, ongoing Brexit talks and today’s G-20 gathering, and so on. In fact, the proper question is why the market didn’t notice any or all of these rising concerns before.

Well, they did notice this morning, and world stocks are a sea of red this morning, stuck on their worst run since November on Monday, as caution gripped traders in a week in which the Federal Reserve is likely to raise U.S. interest rates and perhaps signal as many as three more hikes lie in store this year…”

NDX futures are also threatening a gap down.  Short-term support at 6958.95 is being challenged.  Should it open beneath it, a further decline to the 50-day Moving Average at 6820.19 may ensue.

Bloomberg reports, “A steady weakening in U.S. equity futures snowballed into one of the biggest drops in a month for Nasdaq 100 contracts, as pre-market trading revealed losses of around 1.5 percent in Apple Inc., Facebook Inc., Alphabet and Amazon.com.”

However, retail investors are “The Marginal Buyers Of Equities Again” as Institutions resume liquidation.

VIX futures are higher, challenging the 50-day Moving Average at 17.00.  Gapping open above it will give the VIX wings to fly higher.

ZeroHedge brings us Mark Cudmore’s comments, “Macro View: Equity Markets Are Likely to Have Another Swoon

Almost all the most important inputs point to lower prices for global equities before the bulls can regain control.

Volatility across assets remains elevated. Importantly, the VIX can’t fall back below the crucial 15 level. Feb. 2 saw the fear gauge close above that mark for the first time in more than five months; it’s has managed to close below only once since. Long-term moving averages of swings continue to rise and that constricts risk-taking limits at financial institutions and erodes investor conviction.”

TNX is higher this morning as fears of a Fed rate hike get stronger.  This month-long sideways consolidation is soon to be resolved.  Sideways consolidations often lead to a resumption of the prior trend.  Should that be the case we may see yields continue higher through the first week of April.

USD futures are weakening this morning without having broken through the 50-day Moving Average that is suppressing it.

Bloomberg reports, “The U.S. Treasury has been stealthily weakening the dollar. It isn’t clear if it is doing so consciously, but since a weaker dollar suits Treasury leadership, there probably isn’t too much concern. The key is that the Treasury is flooding the market with short-term debt that neither domestic nor foreign investors are very interested in buying. The Federal Reserve is capping the yield on the debt with its promises to raise rates gradually and to keep rates below long-term levels for some time. Taken together, we have a surge of short-term issuance at very negative real rates.”

Regards,

Tony

Anthony M. Cherniawski

The Practical Investor, LLC

2205 Hopkins Avenue

Lansing, MI 48912

www.mrpracticalinvestor.com

Office: (517) 331-5200

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. 

—————————————————————————————————-

March 16, 2018

NDX is now beneath the Diagonal trendline.


NDX has slipped beneath the Diagonal trendline in a sideways consolidation.  Sideways consolidations are considered to be continuation signals for the existing trend.  In this case, bearish (a sell signal once it breaks down).  Further confirmation may come at the breakdown beneath 7010.00.

LIBOR Spread Blows Out.

LIBOR is trending higher and doesn’t appear to be stopping anytime soon.

ZeroHedge reports, “Until two days ago, the critical level for both the Libor-OIS and FRA-OIS spread was the “psychological level” of 50bps. This, however, was breached on Wednesday when as we reported Libor pushed significantly higher without a matching move in swaps. And yet, despite the sharp push wider, both spreads remained below the peak levels observed during the European sovereign debt crisis of 2011/2012, with some speculating that open central bank swap lines at OIS+50bps would limit the move wider.

That changed this morning when the day’s 3M USD Libor fixing jumped higher for the 27th consecutive session, rising to 2.2018% from 2.1775%, and the highest since December 2008. And, as has been the case for the past two months, the move was again not matched by OIS, resulting in the Libor-OIS spread jumping to 51.4bp, surpassing the 2011/2012 highs and the widest level since May 2009.”



With lousy internals, can SPX hold up during Quad Witching?

Good Morning!

SPX futures declined beneath the 50-day Moving Average about 2:00 pm yesterday and closed there after attempting to re-emerge above it.  SPX futures attempted again in the overnight but is now flat, at best.  It is difficult to determine whether SPX will continue to hold up for the final day of options expiration.  There is usually a volatility spike at the open of options expiration day that may unsettle traders.  A decline beneath Short-term support at 2738.13 and the nearby Diagonal trendline may set off a cascade of selling to the bottom of the chart.  We now have a confirmed sell signal from the NYSE Hi-Lo Index, as mentioned in the blog.

ZeroHedge remarks, “After four consecutive days of failed upside breakouts in the S&P, some have noticed a change in sentiment, and as Georg Schuh, CIO of Deutsche Asset Mgmt told Bloomberg, “we have moved our view on stocks from ‘buy the dips’ to ‘sell the rebounds’.” adding that “I’m not ruling out one final peak in stocks, but we’re getting late in the cycle and we’re starting to see anecdotal evidence that points toward the end of the rally.

NDX was also defended near 7000 for the past 2 days. The NDX futures appear to continue in a 31-point range just above that level.  That support appears to have been generated at the peak of Waves 2 and W, as well as the Diagonal trendline.  A break of that support may send NDX to the Cycle Bottom at 6427.11, as it did in February.

Bloomberg reports, “Equity bulls frustrated with this year’s longest stretch of declines can blame it on a regular market event happening today.

That’s when the quarterly expiration of futures and options on indexes and individual stocks, known as “quadruple witching,” takes place. Typically it coincides with the rebalancing of the S&P 500 Index, spurring volatility and active trading.”

VIX futures are being hammered back beneath the 50-day Moving Average, but not to new lows.  There still seems to be attempts to control the SPX through the VIX.

Well, investor ire over the VIX blowup is coming to light.  Bloomberg reports, “Credit Suisse Group AG was sued by an investor who got burned last month betting against stock-market turmoil, as more people seek to recoup steep losses on VIX exchange-traded products.

Rajan Chahal filed the lawsuit Wednesday in federal court in New York against the bank, Chief Executive Officer Tidjane Thiam and David Mathers, finance chief, alleging they failed to disclose the company was manipulating its VelocityShares Daily Inverse VIX Short-Term exchange-traded notes, known by the trading symbol XIV. Chahal’s complaint seeks class-action status on behalf of other buyers.”

In contrast with the SPX and NDX, MUT never reached the 50-day Moving Average in its retracement.  Instead, it tangled with the declining mid-Cycle resistance and lost the battle.  A decline beneath Short-term support at 188.78 and the nearby Diagonal trendline may leave MUT without any support for a long way down.  Since high yield financing is the way that many companies buy back their shares, a decline beneath support may put a stop to new buybacks and cause some distress as older, lower rate notes mature and have to be rolled over.

Bill Blain comments, “Sloppy Markets, but a new investment thesis: buy Macron’s Europe?

“Roll up that map, it will not be wanted these 50 years.…”

Its been a “sloppy” week in markets. Although the US stock market looks cosmetically strong, it’s largely on the back of Tech and Fangs – its not broadly spread. European markets are still languishing. Credit markets don’t feel they are going anywhere – it feels like they are already closed for the Easter Break. New deals have been underperforming, there’s a distinct sogginess in HY and Financials particularly.”

TNX remains in no man’s land, refusing to break down or break out.  The Cycles Model suggests today may be the last day of strength before a serious decline may start.  A potential Master Cycle low appears to be due in early April.

ZeroHedge observes, “For a while there it looked like the blow-off top of this expansion was somewhere in the future. Now it’s starting to look like 2017 was as good as it’s going to get – with serious implications for stocks, bonds and real estate.

At least that’s what interest rates now seem to imply. From today’s Wall Street Journal:

Yield Curve Once Again Sends Dour Signal on Economy

A bond market barometer that briefly suggested growth was perking up has reversed course.

The so-called yield curve, typically calculated by measuring the differential between short- and long-term Treasury yields, has been flattening in the last few weeks. Long-term yields have fallen in response to tempered expectations for growth and inflation, even as short-term rates extend their months-long rise.”

USD probed lower yesterday and continued to linger near the low overnight.  However, the Cycles Model suggest that the dollar may rally through the end of the month.

USD/JPY, on the other hand, has declined back below major support near 106.00.  It has a downside target near 103.00.

Regards,

Tony

Anthony M. Cherniawski

The Practical Investor, LLC

2205 Hopkins Avenue

Lansing, MI 48912

www.mrpracticalinvestor.com

Office: (517) 331-5200

 

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. 

 

 

March 15, 2018

The NYSE Hi-Lo Index issues a sell signal.

LIBOR spikes into the critical zone.

The London Interbank Offered Rate (LIBOR) has been steadily climbing to the point of potential crisis.

Bloomberg observes, “For traders focused on the short end of the U.S. rates market, next week’s Federal Reserve policy meeting is turning into a sideshow amid a relentless march higher in the London interbank offered rate and other money-market benchmarks.

With a quarter-point Fed hike largely priced in by the overnight index swaps market, all eyes are now on the surging dollar Libor rate and its spread over the OIS rate. A spread known as FRA/OIS, which measures market expectations for the Libor/OIS gap, this week breached 50 basis points for the first time since January 2012 and extended through 52 basis points Thursday.

Martin Armstrong writes, “Extremely reliable sources from Behind the Curtain in Europe are becoming deeply concerned that Draghi at the ECB has created a monumental economic disaster he is just praying to holding off until he leaves next year. Interest rates are already starting to rise significantly in several important money and interbank markets. Both banks and debtors are facing a rapid rise in interest expenditures that will shock the world. This is going to blow-out budgets around the globe and both private and public debtors face higher costs of funds.”

So, despite the SPX holding at the 50-day Moving Average, the impulse behind the liquidity needed to propel stocks higher is fading.

 

SPX trades narrowly above the 50-day Moving Average.

Good Morning!

SPX futures danced in a narrow range between 2745.00 and 2762.25 in overnight trading.  The 50-day Moving Average eased down a bit to 2746.39 by the close, so a break is still in question.  SPX is on a sell signal beneath the 50-day.

The choice of Larry Kudlow as the White house economic advisor is curious, especially on the 10th anniversary of the demise of Bear Stearns where he was the chief economist at the time…

ZeroHedge reports, “It is the fourth consecutive day in which global stocks have rebounded from overnight lows, seemingly ignoring growing trade tensions and breathing a sigh of relief amid a break in the recent global trade war newsflow, which  helped lift European stocks and cooled demand for safety plays.

It is also the fourth consecutive day in which S&P futures have rebounded from overnight lows, and while off session highs, remain in positive territory.”

NDX futures also traded in a narrow range between 7027.50 and 7077.00 in the overnight session.  The daily Cycle Top resistance is at 7046.00, suggesting an aggressive sell signal may be in play here.

Bill Blain of Mint Partners writes, “The Ides of March, 10-yrs after Bear Stearns can it happen again? Doh!

The World is a curiously circular place. 10-years ago the collapse of Bear Stearns and its subsequent rescue by JP Morgan ushered in the panic stage of the Global Financial Crisis. The cataclysm came 6 months later when Lehman went down. Yesterday, Donald Trump appointed CNBC Commentator Larry Kudlow to Gary Cohn’s job as director of the NEC. Kudlow was chief economist of Bear when I joined the firm in the early 1990s.”

VIX futures have been down modestly, but remained above the 50-day Moving Average during overnight trading.  The buy signal is active.

TNX is easing down the yield ladder this morning.  According to the Cycles Model, yields may fall until the end of March once the decline gets into gear.  There are just too many bond shorts not to sweep the stops and prune their numbers.  The Lip of the Cup with Handle is usually permeable, so the most likely target may be the Head & Shoulders neckline at 24.75.

MarketWatch opines, “Bond market bears are latching on to a closely watched piece of auction data to argue that appetite for U.S. Treasurys is waning just as the government prepares to unload more than $1 trillion in new issuance in 2018.

But Ian Lyngen and Aaron Kohli, strategists at BMO Capital Markets, in a Monday note, were skeptical that a decline in the bid-to-cover ratio—which measures the amount of bids relative to the amount of supply available in Treasury auctions—portends lower prices and higher yields for Treasurys.”

USD futures rebounded overnight, but have not been able to overcome the 50­-day Moving Average at 90.05.  The Cycles Model suggests that USD may rally through early April, so there still appears to be enough time to meet the point 7 target.

The Banking Index is one of the largest beneficiaries of stock buybacks recently.  That has not been enough, however, to propel stock prices to new all-time highs.  The primary reason is that retail investors (and possibly bank officers and board members?) have been selling hand-over-fist.  In a rising interest rate environment, why would companies go further into debt to buy their own stock?

The reasons are numerous, but the trend will not end well.  The blue throw-over trendline that has been exceeded since late November has been broken.  A break of the 50-day Moving Average may confirm it, giving BKX its own sell signal.

Regards,

Tony

Anthony M. Cherniawski

The Practical Investor, LLC

2205 Hopkins Avenue

Lansing, MI 48912

www.mrpracticalinvestor.com

Office: (517) 331-5200

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. 

 

 

March 14

Will equities have another failed ignition?

SPX has “hammered” at the 50-day Moving Average ar2747.00 four times today, but bounced each time.  There appears to be a strong “defense” at the 50-day.  Perhaps the next attempt may break through.  This, coupled with the VIX buy signal and the Hi-Lo breakdown (below) give us a strong sell signal.

The Hi-Lo dropped beneath its trendline at 56.00 and has stayed there.  While it did not decline beneath yesterday’s low of 13.00, the fact that it is likely to close beneath the trendline is a good sign.

 

VIX is confirming its sell signal, as indicated this morning.

Good Morning!

SPX futures are higher, but may simply be back-testing the broken trendline of this rally.

After suggesting that the crash may be underway by now, I must admit that the market has its own mind.  Instead of a bottom, we have another Cycle inversion.  The last top on January 26 was day 254 of the last Master Cycle.  Yesterday was day 257 of the current Master Cycle.  There’s no avoiding the fact that something else is at work.  With central banks pushing their liquidity into the market, we should not be surprised that the Cycles have turned upside-down.

I did a cursory study of past crashes and found that the May 6, 2010, August 24, 2015 and February 6, 2018 flash crashes were all within a few days of a Pi Date.  The 9-11-2001 crash came within 2 weeks of a Pi date.  The 1987 crash did not happen on a Pi date.   Pi date crashes appear to be a recent phenomenon.

It turns out that the next Pi date happens to be March 28.  It also happens to fall within the parameters of major crashes which all seem to fall within 60 or so days from a major peak.  My best estimate for a Cycle (crash) low at this time is Wednesday March 28 through Thursday April 5 .

NDX futures appear to be bouncing off the Cycle Top support at 7033.78.  A break of that level may allow an aggressive short position.

The Cycle Inversion serves to explain the new high in the NDX.  There seems to be no other explanation.  What I can point out is that the NDX has a history of declining in far less than 60 days.  In fact, the average decline appears to fall between 17 and 26 days.  That puts the low between March 30 and April 5.

ZeroHedge observes, “After two consecutive days of failed S&P ignition attempts, in which US stocks opened sharply higher only to close near the lows, on Wednesday the algos will try for the third consecutive time to escape the recent late-day selloff funk. S&P futures are higher after declining on Tuesday following a fresh personnel shakeup in the Trump administration and renewed US trade war speculation with China dampened investor sentiment.”

VIX futures have fallen away from the 50-day Moving Average, but may not stay below it for long.  Yesterday may have been an early call on the VIX buy signal, but as the SPX stops making (relatively) new highs, the impulse to short the VIX will become weaker.

Bloomberg reports, “The VIX options market saw activity surge Friday as the Cboe Volatility Index dropped to its lowest level since Feb. 1.

The latest move involved closing a portion of March $25 calls when about 121,000 contracts were bought for 25 cents per contract. Those same calls may have been sold Feb. 2 for 62 cents.

The trade could even be the work of the VIX “Elephant,” whose nickname was bestowed by Macro Risk Advisors’ Pravit Chintawongvanich and has been notable in recent months for large trades. He or she looks to be continuing to unwind a portion of a March three-way trade that was largely closed out on Feb. 6, one day after the VIX index spiked 116 percent.”

TNX futures still trade in a narrow band.  The Cycles Model projects a strong impulse through Friday, suggesting a breakout to the upside in yields.  At the moment I am looking for a breakout above the previous high at 29.14.

ZeroHedge observes, “They’re back. I thought they had all given up, but like an old college buddy who’s going through a bad divorce and just needs a place to crash for a ‘few days,’ the corporate credit skeptics are a tough lot to shake. 

This crew is a left-over remnant of the 2008 Great Financial Crisis. After watching the global financial system implode in a crisis that threatened to topple the entire world economy, there is a group of market participants who believe the next dislocation is right around the corner – only this time will be even worse given the increased debt levels. Although their views can be nuanced, usually they believe the market stresses from the last crisis will simply replay in a more dramatic fashion. In 2008 stocks fell, credit spreads exploded higher, VIX shot to the moon and sovereign long-dated bonds were the best asset to own by a long shot. Therefore at the hint of any trouble, they skedaddle to put on whichever part of this trade is most in fashion.”

USD is still trading in a narrow range, as well.  The Cycles Model appears to be positive through April 5.  That suggests Wave (C) may be underway until then.

Possibly due to the lackluster moves in the USD, commodities also don’t appear to be moving.

Regards,

Tony

Anthony M. Cherniawski

The Practical Investor, LLC

2205 Hopkins Avenue

Lansing, MI 48912

www.thepracticalinvestor.com

Office: (517) 331-5200

 

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. 

March 13, 2018

VIX gives a buy signal…

VIX has risen above its 50-day Moving Average, giving it a buy signal.  The NYSE Hi-Lo hasn’t yet given a sell signal, but 2 of 3 signals may be considered an aggressive sell for SPX.  Aggressive buys and sells are subject to drawdowns, but are usually worth the hassle in a situation like this.

SPX crossing the Short-term trendline

SPX appears to have broken through the rising trendline under the past 2 week’s rally.  This gives us a probable aggressive sell for those who were stopped out.

CPI spikes stocks higher…

10:07  A look at the NDX monthly chart shows another Fibonacci target was hit this morning.

Good Morning!

SPX futures had been on the rise in the overnight market.  More recently, the rally has faded as a key inflation report came online.  Futures spiked to 2805.00 before settling back to a more modest increase so far…

ZeroHedge reports, “After yesterday’s aborted market liftoff, which saw the S&P spike at the open then fizzle lower amid easing trade tensions and a goldilocks US economy, today world stocks are going for it again, with European stocks climbing following a mostly green Asian session.”

NDX futures appear to be challenging the 2-hour Cycle Top this morning.  A new high for NDX is indicated.  At the same time, the zigzag from the 6645.03 low may be nearing completion.

ZeroHedge reports, “Broadcom executives should’ve seen this coming.

For months now, Singapore-based Broadcom has pursued a merger with US-based Qualcomm, raising its bid for the largest US-based technology firm to $117 billion, which is developing chips that are expected to be integral to 5G network technology in the US. Then, national security issues reared their head.

Earlier this month, the Committee on Foreign Investment in the US inserted itself into the negotiations (following a requestfrom lawmakers) by ordering Qualcomm to delay its March 6 shareholder meeting to give CFIUS more time to investigate the takeover bid.”

VIX futures suffered a brief dip to 15.58 in after hours action yesterday.  After a seeming recovery, it dipped again at the release of the CPI report.   This was an inside move, so no directionality was revealed.

TNX futures declined as the CPI report was released.  It now appears that Wave 4 still may have further to go.

ZeroHedge reports, “January’s Core CPI spiked rates over 12bps but since then they have fallen back to almost unchanged and rallied into today’s February print, suggesting a miss.

However, February CPI printed higher than January, rising 2.2% YoY as expected. However, Core CPI slowed from January to 1.8% (es expected). Drops in new and used vehicles, food, and fuel prices helped steady the consumer cost rise.”

USD futures dipped to test Intermediate-term support at 89.60 this morning.  It appears to be caught in a range between Intermediate-term support and the 50-day Moving Average at 90.15.  A breakout in either direction may give us a better view of what’s to come.  The Cycles Model suggests a period of strength in the USD through the end of March.

Anthony M. Cherniawski

The Practical Investor, LLC

2205 Hopkins Avenue

Lansing, MI 48912

www.mrpracticalinvestor.com

Office: (517) 331-5200

 

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. 

March 12, 2018

If the market looks so good, why do the technicals stink?

There was a strong demand for the 10-year treasuries at the Fed auction today.  The treasury market was surprisingly calm.

ZeroHedge reports, “Having earlier sold 3Y Notes and 6M Bills to a surprisingly eager market in two rather strong auctions, at 1:01pm the Treasury concluded today’s sale of $145 billion in paper, with the sale of $51BN in 3M Bills and $21 billion in 10Y Notes, in two more strong auctions.

The high yield of 2.889% was on the screws with the When Issued, and 9bps above February’s 2.811%. It was also the highest yield since January 2014.”

Now what happens when $145 billion of liquidity gets sopped up.  Is there enough to keep the markets elevated, too?

 

SPX appears to have completed a double zigzag Wave Y.  We have to be careful here, because three zigzags makes an Ending Diagonal Wave C.  The line in the sand where that probability becomes much less is at 50-day Moving Average and the Diagonal trendline at 2743.99, so there is no chart sell signal at this time.  I have changed the Wave Structure from Waves (1) and (2) to Waves (A) and (B) of Primary Wave [1].  Wave (C) is next and we will view it with an eye to its Fractal Dimension.  Wave (C) by necessity will be a multiple of Wave (A).  Wave 1 of (C) is likely to take out or test the February 9 low.

ZeroHedge reports, “On Friday we remarked how ‘odd’ the surge in stocks was relative to the unchanged levels of bonds, dollar, and gold. While this morning started exuberantly (as usual), stocks have given back their overnight gains and are sinking rapidly back to other asset-class realities.”

 

VIX is fast approaching its 50-day Moving Average at 16.49.  Crossing it will give a VIX buy signal.

The NYSE Hi-Lo Index declined at the open, but bounced on the trendline, so it is still on a buy signal.  This is a lagging indicator, so if we see the VIX above tis 50-day and the SPX beneath its 50-day, we may still use 2 of 3 indicators for an aggressive sell on the SPX.

Good Morning!

On Friday, SPX closed short of the upper Diagonal trendline near 2800.00.  weekend, SPX futures rose to 2805.00, then backed away.  It is possible that the futures completed the task of testing that trendline over the weekend.

ZeroHedge remarked, “The “goldilocks” mood that was unleashed after Friday’s jobs report (high growth, low inflation) has spread around the globe, sending Asian and European markets higher as trade-war concerns took a back seat to economic optimism. The dollar slipped and Treasuries held strady even as the US Treasury prepares to sell $145 billion in debt today (including both 3Y and 10Y Paper), while most commodities fell.”

NDX futures also rose to 7175.25, but have fallen back as well.  There appears to be trendline resistance near 7150.00.  We shall see if it holds.

NorthmanTrader has some observations to help us this morning.  “It was a good week to be bullish and the buying was ferocious and on the surface it appears that bulls won a major victory and bears look to have flailed again. Correction over. New highs on Nasdaq with $SPX recapturing all key moving averages including the 50MA, the 21MA, the weekly 5EMA and all is looking rosy again. Next week bullish OPEX, a sheepishly dovish Fed again the week after and then mark-ups for the month and quarter end. One can firmly smell the standard bullish seasonal script.

Or is it all a big lie? And if so, who is lying? After all, nothing is more ferocious than bear market rallies. Bear market are you nuts? Just look at $AMZN. To the moon Alice, to the moon.

Let’s have a look at the larger picture shall we?

First off, was the bullish outlook this week a surprise? No, it wasn’t if you paid attention to the signals and charts.”

The glaring non-confirmation comes from the VIX futures which have just climbed to a high of 15.57.  The 50-day Moving Average is at 16.38, which is an actionable buy signal.

TNX futures are still hovering near the high.  The Fed is preparing to sell $145 billion of 3-year and 10-year paper.  That may be the canary in the coalmine.

Bloomberg reports, “Add one more thing to the list of worries for the world’s most indebted nation: weakening demand at its bond auctions.

While there’s no danger of the U.S. being unable to borrow as much as it needs, over the past two years, the drop-off has been unmistakable. Based on the number of bids that investors submitted versus the amount sold, average demand for 10-year notes has fallen to the lowest since October 2009.”

As usual, I will be posting more on my website.

All the best,

Tony

Anthony M. Cherniawski

The Practical Investor, LLC

2205 Hopkins Avenue

Lansing, MI 48912

www.mrpracticalinvestor.com

Office: (517) 331-5200

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. 

 

 

March 8, 2018

Wave 2 is going for its final test of the 50-day Moving Average.

3:45 pm.

SPX made an unexpected second probe of the 50-day Moving Average at 2741.08, but fell short, reaching 2740.45.  This was a surprise because of the very low volume, as seen in the lower right corner.  A break of the Short-term support at 2724.50 and the Diagonal trendline gives us a confirmed sell signal.  It appears that there was one final sweep of the stops to take out all short positions before the plunge.

VIX longs were eviscerated, as well.  VIX declined 16% from yesterday’s close to extend the Master Cycle and Wave II low.  After this action, it appears likely that the decline may go through options expiration next Friday.  Hang on!

 

SPX futures are doing a Fractal repeat of Wave (2) at a smaller degree.   In this case, the overhead resistance appears to be the 50-day Moving Average at 2740.10.  Considering that the futures have already reached 2733.25, the final burst to the morning high in the cash market may be muted.  Instead, it is likely that the decline may start rather abruptly near the open.  This is where the 4.3 day crash may begin.  If so, it may end precisely on day 258 of the Master Cycle – Wednesday, March 14.  I have observed that crashes generally start at the final test of Wave 2 at the 50-­day Moving Average or an Ending Diagonal trendline.  The Fractal Dimension suggests a Wave (3) low near 2100.00, exceeding both the Head & Shoulders and Broadening Wedge formations.   

A word of warning…The rally out of the low will be very dynamic.  The quarter end will only be two weeks away from the bottom and there may be an overwhelming effort to repair the damage before quarter end.  Profit taking is a must.   

ZeroHedge reports, “As trade war fears ease (again) following news late on Wednesday that the White House would consider tariff “carve outs” for Canada and Mexico, markets are modestly higher ahead of a fresh monetary policy catalyst from the ECB this morning. Mario Draghi will be the center of attention today as investors wait to see whether there will be any moves toward an exit from stimulus measures amid the threat of a potential trade war. That said, the ECB is unlikely to make major changes to guidance at today’s meeting as inflation remains far below a target of just under 2%, even with stronger economic growth.” 

 NDX futures are also doing a similar Fractal repeat.  This time it appears the retrace is 89.4% instead of 97%.  However, the Fractals are similar.  It was the NASDAQ that Sir John Templeton had shorted in early 2000, with similar results to date.  Ultimately, the NASDAQ declined 62% to the low on April 17, 2000.  His short had increased an approximate tenfold in the decline.   

In a classic understatement, “Daniel Pinto, the head of JP Morgan Chase & Co.’s colossal investment bank (which houses its M&A and trading operations) warned that equity markets could decline by as much as 40% over the next 2-3 years – though he believes the present cycle has at least another year left to run.” 

 

VIX futures made a deeper low at 17.09 this morning.  It may be testing its 50-day Moving Average at 16.16, but does not have to decline all the way. 

 

 

TNX appears to have made a Trading Cycle low yesterday.  The Cycles Model now suggests a probable two-week rally.  If this decline was a Wave 4, it will have been 75% the size of Wave 2.  It appears that the Wave 5 spike may be quite steep.  

It appears that TNX may be affected by Draghi’s statement this morning.  ZeroHedge reports, “The market’s base-case scenario was for ECB President Draghi to manage expectations by keeping a balanced approach to latest developments in the euro area and abroad, with no significant change in forward guidance, which was confirmed by the fact that overnight volatility in the euro trading at its second lowest reading before an ECB meeting in the past year.”

 

 

USD futures suddenly took a turn for the worse this morning after the ECB announcement.  We must watch the Cycle Bottom support at 88.75.  Should the USD decline beneath it, the odds of another sell-off increase dramatically.  In truth, the Orthodox Broadening Top in the Weekly chart shows the lower trendline at 89.50.  This may mean a very weak Point 7 inside the formation may have already been made…

 

 …there seems to be an open conflict between the USD, which should be in a rally and USD/JPY, which needs to complete its decline. 

 Regards,

 

 Tony

March 7, 2018

Good Morning!

SPX futures are down nearly 20 points as I write.  They had reached a low of 2681.50 at 7:00 pm yesterday when Gary Cohn tendered his resignation.  What investors don’t realize is that the SPX had closed just beneath the monthly Cycle Top and 9-year throw-over line at 2728.60 yesterday.  That left the SPX vulnerable to a sell-off.

Should the sell-off continue, the Head & Shoulders and Broadening Wedge formations shown in the 2-hour chart both suggest that the lower Diagonal trendline near 2200.00 may be challenged or possibly violated.  This literally opens the door to a sell-off that may completely retrace the rally from the March 2009 low.

VIX futures are considerably higher this morning, despite a pullback from the overnight high of 20.49.

TNX futures have pushed back from the Cycle Top resistance as it initiates a Wave [c] of 4 decline.  Since Wave (5) appears to be an Ending Diagonal, Wave [c] may overlap Wave 1.  However, the Head & Shoulders neckline may prove to be an adequate barrier to a further decline.

USD futures appear to be challenging Intermediate-term support at 89.64.  They may decline further to test the Cycle Bottom at 88.77 before launching Wave [iii] of C.

USD/JPY took a big hit in overnight trading and is on a bounce this morning.  However, the damage appears to be done.  It now appears that USD/JPY may decline further to its “Point 6” target near 103.00.

 

 

 

March 6, 2018

The Hi-Lo Index just cracked the trendline at 65.00 in the final minutes of the day.  However, the SPX remains on a sell signal because it remains beneath the 50-day Moving Average at 2739.55.  This shows how tough it is to remain short, as the indicators are being pressed hard to keep investors long and defenseless.  The Cycles Model suggests a very deep bottom for the Hi-Lo in the next week. 

NDX sits on the edge of the abyss. 

NDX sits on the edge of a potential 1700.00 point drop in the next couple of days.  Should that take place, all bets are off that the market will survive options expiration the following week.  

 

Wave 1 is 2.6 times the size of Wave (1).  Should the Fractal Similarity continue, Wave 3 may be as large as 640 points.  That puts the end of Wave 3 of (3) near 2100.00.  What happens over the next  day may be the beginning of the crash fractal. 

 

Good Morning!

SPX futures surged overnight to test the 50-day Moving Average at 2738.70.  They hit an overnight high of 2734.25 before reversing.  Today is a double Pivot day, suggesting the turn may register early today if not at the open.

This decline from the 2789.15 high will have taken 8.6 days by Friday mid-afternoon.  That is a likely spot to take downside profits on a swing trade since next week is quad witching options week.

VIX declined to 17.68 in the early morning session.  Today is also a pivot day for the VIX.

TNX appears to be retesting the Cycle Top resistance as it completes a Wave [b] of 4.  Wave C may extend to Intermediate-term support at 26.86 or possibly go lower, depending on how panicky stock investors become.

USD futures pulled back to 89.42 this morning as it tests Intermediate-term support at 89.66.  It decline as low as the Cycle Bottom at 88.80 before moving higher.

Regards,

Tony

Anthony M. Cherniawski

The Practical Investor, LLC

2205 Hopkins Avenue

Lansing, MI 48912

www.mrpracticalinvestor.com

Office: (517) 331-5200

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. 

Fractal Similarity is being Tested…

Fractal similarity may be tested this afternoon.  If correct, Wave (v) of [i] may end between 2540.00 and 2560.00 which is above the Head & Shoulders neckline.  Wave 1 of (1) is 54.6 points.  Wave [i] of 1 of (3) should hit near 2543.00 to keep precise fractal similarity.  This may give the bulls a sense of relief, since the bottom may not be violated.  Note that the fractal is the form and not the exact Wave count.  Let’s see how closely it follows the fractal. 

 

 

SPX futures are down, but may bounce later today.

March 2, 2018

Good Morning!

SPX futures have gapped beneath yesterday’s low and are still descending as I write.  There are five completed declining waves, but this decline may expand to nine or possibly 13 waves.  All of them are variations of an impulsive decline.  The alternate is an expanded Wave (b) from which a sharp retracement may be launched, similar to the Friday before Black Monday in 1987.

ZeroHedge observes, “While it appears the market’s demise is being pinned on President Trump’s trade-wars turmoil, we humbly suggest there are more than a few other reasons why stocks are behaving badly this week…

Dow is down 1400 points since Powell’s hawkish comments on Tuesday…

Followed by terrible macro data Wednesday and month-end deleveraging pain for RPs. While Fed’s Powell started dovishly on Thursday, he reverted to hawkish fears about inflation and then Fed’s Dudley piled on with comments about four rate-hikes still being gradual…

And then Trump confirmed the trade tariffs… which then saw stocks rebound dramatically into the close.

Overnight BoJ’s Kuroda spooked stocks with chatter of ending QE at some point in the future…

And then Trump tweeted and sparked another leg down.

So… who is to blame? Take your pick.”

NDX futures are down 75..0 points as I write, which puts it beneath the 50-day Moving Average.  It also confirms the chart-based sell signal when it crossed mid-Cycle support/resistance at 6788.97.  The NDX 50-day may be a point that may be fought over by the bulls and bears.  If this morning’s decline is a Wave (b), it it likely to close back above the 50-day with the bulls declaring (a temporary) victory.

ZeroHedge reports, “As if markets did not have enough to worry about with this weekend’s Italian election and SPD “grand coalition” referendum, overnight stocks were slammed by growing worries of global trade war as well as a warning from BOJ governor Kuroda that Japan’s QE may be coming to an end.

As noted earlier, Kuroda hint that the BOJ will start thinking about how to exit its massive monetary stimulus program around the fiscal year starting in April 2019 sent the USDJPY tumbling, pushing it to the lowest level since November 2016. Kuroda’s statement slammed Japan stocks, with the Topix Index deepening losses while Japanese bond yields climbed.”

VIX appears to be completing its first impulse off the Master Cycle  low at 15.29.  If correct, we may see VIX expand higher before correcting.    A probable target may be near 31.00 to 33.50.

The alternate view is that VIX may have completed Wave [A] of an A-B-C Wave, which implies little or no further rally until after the correction.  However, this Wave [A] is nearly 2X the size of its predecessor, suggesting that a Wave [C] could be nearly 80 points.

The NYSE Hi-Lo Index mad small progress in the decline, but stayed in a narrow range near the lows all day.  If there is a retracement today, it may go back toward the trendline.  I expect to see a very strong retracement at this point to take out those shorts with stops on them.  There is no mercy for the shorts in a bear market.  That is why we find our best position to go short and stay with the program with no stops.  The Cycles and indicators will tell us when to exit.

TNX futures are being hesitant about the decline with another pullback.  That’s the nature of corrections.  TNX remains on a sell signal.

In the meantime, Bloomberg makes a sport of guffawing at investors looking to treasuries as a safe haven in a stock decline.

Bloomberg comments, “As the Dow Jones Industrial Average tumbled more than 500 points Thursday, investors bought Treasuries as a haven — even though the new Federal Reserve chief this week has highlighted the potential for an acceleration in interest-rate hikes.

What could be behind the seemingly illogical move is a “Pavlovian reflex” developed during the three-decade bull run in bonds, according to Anatole Kaletsky, founder and chief economist of Gavekal Research Ltd.”

(Ed.) The fact is, treasuries may be re-connecting in the old inverted relationship between stocks and bonds.

USD futures have pulled back as far as Intermediate-term support at 89.73 in what may be a Wave [ii] correction.  The structure suggests an Ending Diagonal Wave C.  The correction may go as low as the Cycle Bottom at 88.85 before launching a Wave [iii].

Gold futures are on the rebound, but in a corrective pattern.  The retracement ma not go further than the top of Wave [a] at 1342.90.  This pattern is very confusing, especially to the gold bugs.  My top pattern is Wave [i] and [ii] of C of (1) of [3] in an Ending Diagonal decline are finishing today with Wave [iii] beginning next week.

Gold may be going down in a jagged but impulsive Super Cycle Wave c decline with a target well beneath 1000.00.

Crude oil futures appear to be finishing their first impulsive decline from the Wave [4] high.  There may also be a bounce somewhere above the neckline before the weekend.  However, the decline may soon resume.  The Ending Diagonal trendline has been broken with a complete retracement of the rally as its initial target.

I will be copying this email to my website and adding further comments there.  At the suggestion of a subscriber, I intend to send email notices at important junctures.  However, I have plans to travel in April and may have limited use of my email.

Regards,

Tony

Anthony M. Cherniawski

The Practical Investor, LLC

2205 Hopkins Avenue

Lansing, MI 48912

www.mrpracticalinvestor.com

Office: (517) 331-5200

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