But Wait…There’s More!

April 17, 2020

VIX found support this week at the weekly Cycle Top at 37.83, closing above it.  The rally in the VIX is far from over, as the Cycle Top support implies a much larger rally to come.  As impossible as it may sound, the VIX is about to become one of the most crowded trades in the next phase of this market.

SPX Meets Resistance At The Neckline…

SPX rallied this week to close just above its weekly mid-Cycle support/resistance at 2860.23 and its old Head & Shoulders neckline at 2855.94.  All told, this may be a fitting end to Cycle Wave II after a 25-calendar day rally.

The Orthodox Broadening Top is not yet complete.  Having made “point 6” at the March 23 low, it may be completing “point 7” at today’s  high.  Should it reverse here, the Model implies a 1000-point decline to “point 8.”

But wait.  There is a proposed Head & Shoulders neckline at the low that suggests a further decline, if the neckline is broken.  Thee are no promises, just observations.

(ZeroHedgeIt’s Hard Not to Be ‘Depressed’

Here come the depression-level data. US jobless claims soared a further 5.2 million in the past week, meaning that around 22 million jobs have now been shed in the past four weeks. That undoes all the jobs created since the end of the Global Financial Crisis, which is seen as unprecedented in the structural economic damage that it wrought. Yet we are still only four weeks in to this: does anyone think the sudden slump in demand from 22 million newly unemployed, let alone the broader impact of ongoing lockdowns, won’t see a further massive initial claims print next week, and the week after, and the one after that, and so on?

I have written about economics and markets for over 20 years and try (and often fail) to detach myself from some of the wilder, more unusual, or more illogical and/or unsustainable movements one sees. However, US equities rallying for a fourth successive week on the back of a fourth successive print showing millions of US citizens losing their jobs is a real splinter in the mind’s eye: maybe if everyone loses their job equities could double?

(ZeroHedgeWith 9% of S&P 500 firms having already reported Q1 earnings including all of the major banks, results have generally disappointed relative to already tepid expectations. 43% of companies have missed consensus expectations, on pace for the highest rate since at least 1998 with earnings set to drop by 15% Y/Y, but it’s Q2 where the real pain will be with Goldman now expecting S&P 500 to plunge by a record 123% plunge.

NDX Challenging The Christmas 2108 Trendline.

NDX bounced from its 8.5 year trendline at 6771.91 on March 23.  That left the uptrend in the NDX intact, which explains the strength of this rebound.  However, it is now challenging the Christmas 2018 trendline at 8800.00.  Should it slip beneath the trendline, it may be an indication of a strong reversal and a retest of the March low.

(BloombergWeekly flow data from Bank of America Corp. and EPFR Global continue to show a clear investor preference for money-market funds. Assets under management in this category have swelled to $4.5 trillion following seven week of inflows that added $877 billion to the cash pile.

Labeled a “mountain of cash” by BofA strategists led by Michael Hartnett, money-market funds have seen steady additions as investors shun risk assets amid concerns about the deadly pandemic’s impact on global economic growth. The fund manager survey from early April showed that institutional investors now hold the most cash since the 9/11 terrorist attacks.

High Yield Bonds Rallied To Their Cycle Bottom Resistance.

High Yield Bonds stalled after challenging the Cycle Bottom resistance at 172.37.  They made merely a 48% retracement of the March decline.

(Bloomberg) U.S. junk bond funds saw a record $7.66 billion inflow as investors followed the Federal Reserve, which plans to buy the debt. The increase through April 15 is the third straight weekly gain this month, including the prior peak of $7.1 billion on April 1, according to Refinitiv Lipper.

“You can thank the Fed,” said Greg Zappin, a money manager at Penn Mutual Asset Management. “High-yield spreads have tightened about 300 basis points and the market is open to issuance, so I’m not surprised money is flowing in.”

Risk assets have benefited from stimulus programs enacted to shore up the economy as the fallout from the virus continues to wreak havoc. The extra yield investors demand to own junk bonds instead of Treasuries narrowed to 740 basis points as of Wednesday, according to the Bloomberg Barclays U.S. Corporate High-Yield index. Spreads hit 1,100 basis points on March 23, the widest since the 2008 global financial crisis.

Treasuries Making Their Last Gasp.

10-year US Treasury Notes appear to be on their final probe to an all-time new high.  The Cycles Model suggests that the high may be just days away.

(NYTimes) When seen from a distance, core bond funds lately have had the deceptive appearance of ducks serenely gliding along the waters’ surface.

They’ve made money for investors. The largest bond mutual fund and exchange-traded fund — the Vanguard Total Bond Market Index Fund and the iShares Core U.S. Aggregate Bond E.T.F. — both gained more than 2 percent for the first three months of the year.

But that belies a two-week period in March when every corner of the bond market was furiously paddling to stay afloat. It’s worth looking closely at what happened, to be prepared for the possibility of further shocks in the future.

The Dollar Is In Consolidation.  Which Way Next?

USD has been consolidating between the Short-term support at 98.48 and the Cycle Top at 101.04.  The Cycles Model suggests a downtrend for the next two months.

The Nikkei Retracement May Be Over.

The Nikkei 225 Index has rallied to retrace 46% of its losses since its low on March 19.  The Cycles Model suggests the rally may be over, or nearly so.  It is nearing “point 7” of the Orthodox Broadening Top.  “Point 8” completes the formation at the final low.  It is anticipated to be complete in mid-June.

(Bloomberg) While a thousand points divides bulls from bears on the outlook for the S&P 500, the figure for Japan is more like 11,000.

That’s the gap between the highest and lowest year-end forecast for the Nikkei 225 Stock Average, according to a monthly survey of five Japanese asset managers and brokerages. Nomura sees the blue chip gauge at 23,000 by the end of 2020 — up from about 19,800 Friday — while renowned bear Myojo Asset Management Co. expects a decidedly more pessimistic plunge to 12,000.

The five-digit difference compares with a 3,000 point gap in January — which didn’t include Myojo, according to data compiled by Bloomberg. Some strategists have warned of the possibility of another sell-off that could send Japanese stocks back to test the lows seen in March, while others have said the worst is behind investors.

The Yen Consolidates Above Support.

The Japanese Yen has risen above weekly Long term support at 92.17.  The next break out level is the weekly Cycle Top at 94.79.  The Cycles Model allows nearly 2 months to rally.  The Yen may be considered a safe haven in the event of a market decline.

(Bloomberg) The yen’s advance this week may be a sign of things to come, with strategists in Tokyo saying the currency could climb toward 100 against the dollar in the next few months.

Citigroup Global Markets Japan Inc. says the yen stands to gain as the Federal Reserve’s massive monetary stimulus weighs on the greenback. MUFG Bank Ltd. sees the risk of a worsening coronavirus pandemic forcing Japanese funds to dump overseas assets and snap up the haven currency.

Euro Stoxx 50 Closes Beneath The Cycle Bottom.

The EuroStoxx 50 ETF may have completed it retracement to the Cycle Bottom resistance at 30.96, closing beneath it.  Should the retracement be complete, there may be a swift decline to the end of April.

(Bloomberg) European banks are seeking to avoid setting aside billions of euros to cover bad loans after the coronavirus outbreak, in a departure from U.S. competitors collectively taking a $25 billion hit.

European lenders are set to report comparatively small increases in loan loss reserves in the first quarter and plan a similar approach during the rest of the year, according to senior bankers and regulators, who asked not to be identified because the earnings figures have yet to be released. They have the blessing of regulators to be flexible applying rules to avoid a spike in provisions.

The Euro Downtrend May Steepen.

The Euro appears to be consolidating between the Head & Shoulders neckline and weekly Short-term resistance at 109.65.  Should it lose its grip, we may see the Euro plummet to parity with the USD or lower in the next month or so.

The Shanghai Index Rallies To Resistance.

The Shanghai Index has rallied back to its Short-term resistance at 2862.05 where it appears to have made an engulfing pattern.  his engulfing pattern appears to be bullish.  However, the Cycles Model suggests a potential reversal in the next week or so.

(Bloomberg) For China traders fed up with markets doing nothing for days, even Friday’s set of historic economic data failed to give them a sense of direction.

The Shanghai Composite Index closed 0.7% higher, stuck near its 30-day average, on turnover that was about half the recent peak. The offshore yuan added 0.1% to also trade close to its average level for the past month. The yield on 10-year government debt hasn’t moved more than 4 basis points in either direction for a week.

Gross domestic product shrank 6.8% in the first quarter from a year ago, the worst performance since at least 1992 when official releases of quarterly GDP started, missing the consensus forecast of a 6% drop. Factory output fell 1.1% in March, retail sales slid 15.8%, while investment decreased 16.1% in the first three months of the year.

Gold Makes A New High, then plummets. 

Gold appears to have hit its Master Cycle high on Tuesday at 1788.80, reversing 90 points by Friday.  Crossing the Cycle Top at 1644.09 confirms the decline is underway.  The Cycles Model suggests a month of decline may be ahead.  Crossing the Broadening Wedge trendline and Head & Shoulders neckline implies a bearish outcome.

Crop Prices May Have Seen Their Low.

Agricultural products appear to have hit their low price on April 6.  If so, confirmation of a reversal in trend comes above the Cycle Bottom at 14.17.

(KokomoTribune) A year ago, area farmers faced an unprecedented spring as perpetual rain led to a historically late planting season, with some farmers considering not even growing a crop.

Now, farmers once again face an unprecedented problem, but it has nothing to do with the weather.

It’s the havoc created by the novel coronavirus pandemic.

Over the last few months, the uncertainty created by the worldwide outbreak has roiled markets and caused crop prices to plummet.

Crude Oil Consolidates At The Low.

West Texas Crude revisited the 19-handle this week, making a new low.  However, it managed to close the week above it.  The month-long consolidation suggests there may be more downside to come, but there may be a further bounce before that takes place.

 

 

 

 

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