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November 24, 2017

VIX

VIX was slammed in the final hour of the day on Friday to a new all-time low. This leaves the VIX with a Megaphone (reversal) formation. The lager formation that gives an upside target is the Ending Diagonal which suggests a complete retracement of the decline from January 2016.

(Bloomberg) The Cboe Volatility Index touched an all-time low amid a flurry of trading at the close of Friday’s shortened session. Exchange officials advised not making too much of it.

The gauge of S&P 500 options prices, also known as VIX, briefly hit 8.56 at about 14 seconds after 1 p.m. New York time. It quickly bounced back and settled at 9.67.

 

SPX makes another all-time high.

SPX

SPX ramped to a new all-time high on what may have been the lowest weekly volume of the year. A decline beneath the two Diagonal trendlines at 2540.00 gives a probable sell signal and suggests a substantial decline may follow.

(CBSNews) U.S. stocks closed near record highs Friday as retailers climbed at the start of the post-Thanksgiving shopping period, while energy companies rose after Bloomberg reported that a group of key oil producers plans to extend cuts in production until the end of 2018.

The Standard & Poor’s 500 index rose 5 points, or 0.2 percent, to close at a record 2,602.42. The Dow Jones industrial average added 31 points, or 0.14 percent, to 23,557. The Nasdaq composite gained 22 points, or 0.3 percent, to close at a record 6,889. Trading was muted after the Thanksgiving holiday and U.S. markets closed early, at 1 p.m. ET.

 

NDX makes a new high.

NDX

NDX made a new high on Friday, remaining above the Cycle Top support at 6303.94. The smaller Diagonal trendline and Short-term support are at 6198.56. A decline beneath that trendline may produce a sell signal.

(Reuters) – Technology stocks led the S&P 500 and Nasdaq to record closing highs on Friday, with the S&P ending above 2,600 points for the first time, while Amazon and retail stocks got a boost from signs of a strong start to the holiday shopping season.

The benchmark S&P 500 and the blue-chip Dow Jones industrials posted weekly gains for the first time in three weeks while the Nasdaq Composite posted its best weekly performance since the week to Sept. 1.

The stock market had a half session on what is known as Black Friday, the day after the Thanksgiving holiday and the unofficial start of the U.S. holiday shopping season.

 

High Yield Bond Index bounces to Cycle Top resistance.

MUT

The High Yield Bond Index bounced from Short-term support at 183.31, closing just beneath its Cycle Top at 185.90. A break of the upper Diagonal trendline and Short-term support may tell us the rally is over. A sell signal may be generated with a decline beneath the lower Diagonal trendline at 177.00.

(BusinessInsider) – Investors yanked $2 billion from high-yield bond funds over the past week, the fourth straight week of outflows, Bank of America Merrill Lynch data showed on Friday, as they took profits in an asset class that has yielded double-digit returns this year.

With cracks appearing to widen in some emerging markets, notably Turkey, investors booked profits, though outflows were moderated by a strong outlook for global growth.

An index measuring the performance of high-yield debt has delivered 11 percent returns so far this year, outstripping its investment grade and government debt counterparts.

 

USB rises to challenge Intermediate-term resistance.

USB

The Long Bond rose to challenge Intermediate-term resistance at 153.61 this week. There was a small breakout above its previous high at 153.72, so this bears watching in the next week. However, the Cycles Model suggests the period of strength may have passed, leaving USB in a potential decline that may last through mid-December.

(CNBC) U.S. government debt prices fell on Friday, as investors took their cues from the action in European bonds.

The yield on the benchmark 10-year Treasury note rose to trade at 2.338 percent at 12:11 p.m. New York time, while the yield on the 30-year Treasury bond was up at 2.765 percent. Bond yields move inversely to prices.

European bond yields also rose broadly, with the 10-year German bund yield rising to 0.37 percent. French bond yields also rose; the county’s 10-year yield traded at 0.7 percent.

 

The Euro Challenges its Cycle Top.

XEU

 

The Euro rallied through Intermediate-term support at 118.10, to challenge its Cycle Top at 119.23. The rally may extend through mid-December should the Cycle Top provide support.

(Reuters) – The euro rose for a third consecutive day on Thursday after breaking through a key technical level when a flurry of European business surveys pointed to a strengthening growth outlook for the region.

Surveys covering both the services and manufacturing industries in Europe outshone even the most optimistic forecasters in Reuters polls, indicating growth is broad-based.

The euro EUR=EBS was up 0.2 percent on the day at $1.1850 against the dollar and not far from a one-month high of $1.1862 set last week in a holiday-shortened week.

 

EuroStoxx bounces off Intermediate-term support.

STOXX50

The EuroStoxx 50 Index bounced off Intermediate-term support to challenge Short-term resistance at 3601.39. A stumble here has the potential to set off a cascading decline into motion through the end of the year.

(Investing) European markets opened lower on Thursday, as investors focused on the release of euro zone manufacturing and service sector activity data due later in the trading session.

The EURO STOXX 50 rose 0.23%, France’s CAC 40 added 0.13%, while Germany’s DAX 30 was up 0.07% by 03:30 a.m. ET (07:30 GMT).

Markets were still jittery after German Chancellor Angela Merkel failed to form a government coalition on Sunday.

Merkel she would prefer a new election to a minority government. However, German President Frank-Walter Steinmeier said that political parties owed it to their voters to try to form a government.

 

The Yen challenges major resistance.

XJY

 

The Yen rallied through Long-term resistance at 89.55 and appears to be challenging mid-Cycle resistance at 89.90 and Intermediate-term resistance at 89.74. This appears to be a breakout that may signal a major change in trend.

(ZeroHedge) Two days ago, we highlighted how Bank of Japan officials have been briefing Reuters about reducing its monetary stimulus earlier than markets had been expecting – around 1Q 2018 rather than later in the year. In particular, the yield curve control (YCC) is likely to be eased from the current target of zero percent for 10-year JGB yields. It seems the BoJ became frustrated that markets had failed to respond to his hints about the “reversal rate”, i.e. that central banks can lower rates too far and damage financial institutions and the provision of credit in the economy. The one (former) BoJ official who was prepared to go on the record explained.

“Reversal rate is a pretty shocking word to come out of the mouth of a BOJ governor. It’s unthinkable the BOJ would insert it in Kuroda’s speech without any policy intention,” said Takahide Kiuchi, who was a BOJ board member until July.

 

Nikkei has an “inside week.”.

Nikkei

The Nikkei rallied above its Cycle Top support at 21942.54, but did so in an “inside week.” Inside weeks denote uncertainty and possible distribution. This is quite a turnaround from all the excitement of the past two months…

(DailyMail) Japan’s Nikkei recouped early losses and ended slightly higher on Friday as expectations that the Bank Of Japan would buy more exchange-traded funds offset drops in automakers.

Mitsubishi Materials slumped, however, after it said its subsidiaries had falsified product data, the latest in a series of quality assurance scandals involving Japanese manufacturers.

The Nikkei share average ended up 0.1 percent at 22,550.85 points after trading in negative territory in the morning. If the index falls in the morning, the Bank of Japan (BOJ) often buys ETFs to support it.

For the week, the index rose 0.7 percent.

 

U.S. Dollar declines through Intermediate-term support.

US Dollar

USD declined through Intermediate-term support at 93.14, which activates a sell signal that may lead to a panic decline. The lower trendline of the Orthodox Broadening Top at 89.70 may be the next attractor, but the Orthodox Broadening Top formation calls for a breakout beneath the trendline, as indicated by “point 6.”

(Xinhua) — The U.S. dollar declined against most major currencies on Friday as investors were still digesting the latest Federal Reserve minutes.

According to the minutes released Wednesday, the U.S. central bank saw a possible near-term increase in interest rates but policymakers also expressed concerns about persistently low inflation, hinting that the rate hike pace could be more moderate than expected in 2018.

Trading activity was expected to be low on Friday due to the U.S. Thanksgiving holiday.

The dollar index, which measures the greenback against six major peers, was down 0.47 percent at 92.782 in late trading.

 

.Gold has an inside week.

Gold

Gold continued its consolidation with no resolution of its trend. The period of strength may have run out with a reversal soon to follow. A further break of Long-term support at 1266.55 indicates that the decline may proceed to the lower trendline of the Broadening Wedge and possibly trigger that formation.

(Bloomberg) Bulls haven’t quite given up on gold yet.

As of 2:20 p.m. in New York, volume on the Comex was 52 percent above the 100-day average for this time of day, as traders and investors roll their positions into February futures from the December contract that’s expiring on Monday. Aggregate open interest is headed for a third straight quarterly gain, the longest stretch since 2009, while holdings in exchange-traded funds are near the highest in a year.

 

Crude challenges the Cycle Top.

WTIC

Crude rallied into its Cycle Top resistance at 58.90. Oil’s period of strength may be over this weekend. If so, we may see the price of oil decline through the end of the year.

(CNBC) U.S. oil prices jumped to a two-year high on Friday as North American markets tightened on the partial closure of the Keystone pipeline connecting Canadian oilfields with the United States.

U.S. light crude hit highs not seen since July 1, 2015, on Friday, settling up 1.6 percent at $58.95 per barrel.

Trading activity was expected to be low on Friday due to the U.S. Thanksgiving holiday.

 

Shanghai Index challenges the next level of support.

Shanghai Index

The Shanghai Index declined through weekly Short-term support at 3380.95 to challenge Intermediate-term support at 3343.45. A decline beneath Intermediate-term support may invoke a sell signal. The potential for a sharp sell-off rises as Intermediate-term support is breached.

(ZeroHedge) China announced it is slashing import tariffs on 187 consumer products starting next month.

The Finance Ministry pointed to the cuts being concentrated in products in short supply domestically which, it believes, will prompt local producers to improve quality. The items in the list which, includes baby formula, diapers, electric toothbrushes, medicines, cosmetics, coffee machines and whisky, are part of the broader category of consumer goods which account for roughly 30% of total Chinese imports. Of all 187 tariff reductions, the biggest was on vermouth and similar alcohols, like Martini, which were cut from 65% to 14%. The strangest was the cutting tariffs on electronic toilet seats, where domestic production must be truly appalling from a quality perspective, or markedly insufficient.

 

The Banking Index reverses at Short-term support.

BKX

— BKX made a 56% retracement of its decline and was stopped at Short-term resistance at 99.71. If the Orthodox Broadening Top formation is correctly identified and BKX declines beneath Intermediate-term support at 97.25, the next level of support may be beneath the mid-cycle line at 81.11.

(Reuters) – Banks on mainland Europe have cut their exposures to Britain since the Brexit vote last year and are concerned about the legality of cross-border deals once the UK leaves, the European Union’s banking watchdog said on Friday.

The European Banking Authority (EBA) said banks in the EU’s 27 member countries have cut exposures in terms of assets from just over 1.9 trillion euros in June 2016 when the referendum took place, to just under 1.6 trillion euros by June 2017.

Liabilities fell from just under 1.7 trillion euros ($2.03 trillion) to just over 1.3 trillion euros over the same period.

(CNNMoney) Many too-big-to-fail banks have grown even larger during the decade since the financial crisis.

The 2008 meltdown showed how big banks that get into trouble can hold the entire global economy hostage.

Hoping to avoid another round of unpopular bailouts, financial watchdogs have forced too-big-to-fail banks to make themselves less dangerous by adding lots of capital that safeguards against losses.

But regulators continue to monitor these financial institutions, creating a list of 30 “systemically important” banks that deserve extra scrutiny.

JPMorgan Chase (JPM) sits atop that list of banks that could threaten global stability, according to new rankings published on Tuesday by international regulators.

(ZeroHedge) The ADRs of several Chinese lenders, such as recently IPO’d Qudian and Hexindai, are crashing following a report from Netease that the country has decided to halt approvals for new online microlenders, citing risky cash-loan businesses at some firms.

Bloomberg reports that the Netease report raised concern that the lenders, some of which just recently listed in the U.S., could be subject to further restrictions.

ADRs of Qudian (green) and China Rapid Finance (blue) fell as much as 20 percent, with Hexindai (red) and Yirendai also dropping…

Have a great weekend!

Anthony M. Cherniawski

The Practical Investor, LLC

2205 Hopkins Avenue

Lansing, MI 48912

www.thepracticalinvestor.com

Office: (517) 331-5200

 

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