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November 17, 2017

VIX

VIX rallied from its mid – Cycle resistance at 14.59 before closing above Long-term support at 11.11. VIX is on a buy signal. The inverted Head & Shoulders formation now has a completed right shoulder giving a potential target for the next move higher when the neckline is exceeded.

(Barrons) The CBOE Volatility Index spiked to 14.5 early Wednesday morning and is hanging out at the 13 level as of this afternoon. Meanwhile in ETF land, the leveraged ProShares Ultra VIX Short-Term Futures (ticker: UVXY) is up more than 5% and its unleveraged sister ProShares VIX Short-Term Futures (VIXY) notched a 2.5% gain.

Harvard Management Company took the other side of the bet on volatility, according to filings submitted to the Securities & Exchange Commission last week. Quarterly holdings documents showed that Harvard’s endowment added a modest stake in the ProShares Short VIX Futures ETF (SVXY). I wonder what they are using the ETF for? Assuming, the position remains open, Harvard Management will have to see the market remaining calm.

SPX tests Short-term Support.

SPX

SPX declined to weekly Short-term support on Wednesday at 2552.96, which is in the vicinity of a 6-year Diagonal trendline. A decline beneath weekly Short-term support and the upper Diagonal trendline may signal an end to the rally. A further decline beneath the lower Diagonal trendline at 2525.00 gives a probable sell signal and suggests a much deeper decline may follow.

(Bloomberg) Soapmaker and real-estate stocks have taken over a rally that used to be led by social networks and smartphone makers. Companies with stable earnings and dividends have shepherded gains in November, the first time this year that the two best-performing industries are defensive ones.

So, while this looked like just another boring week in the bull market, it was actually a departure from the first 10 months, when leadership was rotating among cyclical companies. Investors are evincing an appetite for safety even as the market is poised for its longest streak of monthly gains in a decade.

 

NDX stalls near the high.

NDX

 

NDX made a new high on Thursday, then pulled back on Friday. The Cycle Top is at 6266.33 while the lower Diagonal trendline and Short-term support are at 6140.00. A decline beneath that trendline may produce a sell signal.

(BusinessInsider) All is not well beneath the surface of the stock market.

Market dislocations are running rampant, suggesting turbulence ahead that could go well beyond the modest weakness that major indexes have seen over the past two weeks. And to make matters worse, some of the market’s most ominous technical indicators are flashing serious warning signals.

John Hussman, the president of the Hussman Investment Trust and a former economics professor, is particularly concerned about the growing dispersion of stock market returns.

 

High Yield Bond Index challenges Short-term support.

MUT

The High Yield Bond Index challenged Short-term support at 182.64, closing above it. A break of the upper Diagonal trendline near 180.00 and Short-term support may tell us the rally is over.

(ZeroHedge) Following this month’s drop in junk bond prices and the 40 bps spread widening in high yield last week – the largest since November 2016 – Bank of America has come up with an apt title for its weekly fund flow report: “Nightmare on Bond Street”…

… and with good reason: last week, US junk bond funds and ETFs reported a $4.43bn outflow this past week – the third largest outflow on record and the largest since August 2014. This follows a smaller $0.94Bn outflow the prior week. Non-US HY contributed an additional $2.3bn worth of redemptions, bringing the global junk outflow figure to -$6.7bn, also the 3rd largest ever.

 

USB continues to consolidate at Long-term support/resistance.

USB

The Long Bond bounced above Long-term support/resistance at 152.59 this week. There was no breakout, so this appears to be an ongoing consolidation. The Cycles Model suggests the period of strength may have passed, leaving USB in a potential decline starting next week.

(NASDAQ) A lawsuit has been filed in Manhattan federal court against a few Wall Street banks, claiming that traders at such banks collaborated with each other to manipulate auctions of the $14 trillion US Treasury bond market. The malpractice helped banks earn more at the cost of their clients.

This lawsuit is an extension of the class-action suit filed earlier in 2015 by several pension funds and wealthy individual investors. This new lawsuit claims that dealers at several banks secretly shared their client information in online chat rooms to rig auctions of the bond markets.

 

The Euro Challenges Intermediate-term support.

XEU

 

The Euro bounced out of an early Master Cycle low, challenged Intermediate-term support at 118.03, but closed beneath it. The average rally out of such a low usually lasts three weeks on average.  However, should the rally fail, it may be aiming toward Long-term support at 113.16 or possibly mid-Cycle support at 111.25.

(Bloomberg) When the going gets tough, traders are increasingly buying the euro these days.

Europe’s common currency, which just a few years ago was almost a byword for political instability and faced threats to its very existence, is now attracting buyers at times when risk assets around the world are being sold. Part of that is due to haven flows and investors unwinding carry trades. But it also reflects a market that is increasingly upbeat about growth and inflation in Europe even as central bankers remain reticent about dialing back stimulus.

 

EuroStoxx declines beneath Short-term support.

STOXX50

The EuroStoxx 50 Index declined beneath weekly Short-term support at 3594.82, creating a sell signal. It closed above Intermediate-term support at 3535.64  A stumble here has the potential to set off a cascading decline into motion over the next six weeks.

(NASDAQ) European equity benchmarks opened mainly higher on Friday only to quickly fall into negative territory as a weaker greenback pushed the euro and pound sterling higher, the latter weighing heavily on London’s benchmark index.

Around three quarters of the stocks listed on London’s key equity gauge, the FTSE 100, generate the majority of their revenue in foreign currencies. When the British currency rises, the value of sales made overseas in foreign currencies is weakened when they are converted back into pounds sterling. The rise in the pound coincided with positive UK retail sales figures on Thursday and, later, reports that US President Donald Trumps campaign had been asked to hand over documents in a Russia-related investigation.

 

The Yen gains Short-term support.

XJY

 

The Yen rallied above Short-term support, creating a potential buy signal. This must be monitored, since a breakout above Long-term resistance at 89.49 and Intermediate-term resistance at 89.85 may signal a major change in trend.

(CNBC) Something notable is happening between the U.S. dollar/Japanese yen relationship and its correlation with various markets.

Let’s start with the dollar’s relative softness. Despite some strong U.S. economic data and a much more hawkish central bank stance relative to other G-7 nations, the dollar has been surprisingly weak. Over the last month, the U.S. dollar/Japanese yen relationship has failed to break out above its key 115 level on multiple occasions and now finds itself mired around the 113 mark as markets appear to be at a loss for direction.

 

Nikkei bounces, but cannot hold onto its gains.

Nikkei

The Nikkei declined to its Cycle Top support at 21945.71, then bounced on Thursday. The bounce extended until Friday morning, then reversed, erasing most of its gains and closing lower for the week. This has commentators stumped. As a result, there is little being said in the media on Friday. This is quite a turnaround from all the excitement of the past two months..

 

U.S. Dollar declines to Short-term support.

US Dollar

USD declined to challenge Short-term support at 93.42, closing above it. A further decline activates a sell signal that may lead to a panic decline. The lower trendline of the Orthodox Broadening Top at 89.80 may be the next attractor, but the Orthodox Broadening Top formation calls for a breakout beneath the trendline, as indicated by “point 6.”

(Reuters) – The U.S. dollar was lower on Friday along with Wall Street stocks as investors pulled back from technology stocks and were skeptical President Donald Trump’s Republican party would succeed in its efforts at overhauling U.S. tax law.

U.S. Treasury yields edged lower, in line with declines in U.S. stock indexes and German 10-year bond yields, as risk appetite faded. The yield curve continued to flatten after strong U.S. housing starts data for October and investors bet on further rate hikes from the Federal Reserve.

“The front end of the curve is building in the greater and greater probability of Fed rate hikes,” said Tom Simons, money market economist at Jefferies in New York.

 

.Gold challenges Intermediate-term resistance.

Gold

Gold rallied out of its consolidation lows to challenge Intermediate-term resistance at 1293.19. There appears to be a few more days of strength, but a reversal may soon follow. A further break of Long-term support at 1264.25 indicates that the decline may proceed beneath the lower trendline of the Broadening Wedge and possibly trigger that formation.

(Reuters) – Gold jumped to a one-month high on Friday as the dollar softened on uncertainty

about the progress of a proposed overhaul of the U.S. tax code that would be the biggest since the 1980s.

“With the ultimate fate of tax reform in Congress in serious doubt and the Alabama Senate race threatening to narrow the already wafer-thin GOP majority, sentiment has turned sharply

against the dollar, which may finally allow gold to test key medium-term resistance at $1,310 early next week,” said Tai Wong, head of base and precious metals trading at BMO Capital

Markets in New York.

 

Crude reverses beneath its Cycle Top.

WTIC

Crude dropped 5% in a week’s span by Wednesday, but bounced, leaving a flat result for the week on Friday. A sell signal may be made by a decline beneath Short-term support at 53.10. We may see the price of oil decline through the end of the year..

(OilPrice) The crude oils stockpiles of China fell for the first time in 12 months on the back of a drop in imports to the lowest in a year and robust processing rates at local refineries, S&P Platts reports, citing its latest calculations that are based on what official data is available from Beijing.

The stockpiles fell by 27.41 million barrels in October from September, S&P Platts said, with refineries processing 11.94 million barrels of crude daily, up 7.4 percent on the year. Imports during the reported month, on the other hand, averaged just 7.34 million bpd. As a result, inventories at the end of October stood at 11.06 million bpd. This, S&P Platts noted, was a 4.5-percent increase on the year, however.

 

Shanghai Index at the bottom of its trading range.

Shanghai Index

The Shanghai Index declined to the bottom of its trading range, buoyed by weekly Short-term support at 3380.33. The period of strength may now be over. The potential for a sharp sell-off rises as Intermediate-term support at 3336.64 is breached.

(ZeroHedge) Overnight we highlighted that despite a massive weekly net liquidity injection by the PBOC (which ended on Friday when the PBOC drained a net 10bn in liquidity) Chinese stocks failed to hold on to Thursday’s gains, and resumed their slump… … headed for their worst week in 7 months.

However, it was more than the simply a question of liquidity flows, because it once again appears that Beijing is involved in micromanaging daily stock moves, only unlike the summer of 2015 when China blew a huge stock bubble in a few months, which then promptly burst leaving China scrambling for the next year to figure out how to avoid contagion, this time Xinhua had a different message: sell.

 

The Banking Index bounces from Intermediate-term support.

BKX

— BKX bounced from Intermediate-term support at 97.03 to close at Short-term resistance at 99.20. If the Orthodox Broadening Top formation is correctly identified, the next level of support may be beneath the mid-cycle line at 80.85.

(ZeroHedge) A small savings bank in Michigan, Flagstar Bank, has come up with a genius, innovative new mortgage product that they believe is going to be great for their investors and low-income housing buyers: the “zero-down mortgage.”  What’s better, Flagstar is even offering to pay the closing costs of their low-income future mortgage debtors.  Here’s more from HousingWire:

Under the program, Flagstar will gift the required 3% down payment to the borrower, plus up to $3,500 to be used for closing costs.

According to the bank, there is no obligation for borrowers who qualify to repay the down payment gift.

The program is available to only certain low- to moderate-income borrowers and borrowers in low- to moderate-income areas throughout Michigan.

Borrowers would not have to repay the down payment or closing costs. But a 1099 form to report the income would be issued to the Internal Revenue Service by the bank. So the gifts could be taxable, depending on the borrower’s financial picture.

Flagstar said borrowers who might qualify for its new program typically would have an annual income in the range of $35,000 to $62,000. The sales price of the home — which must be in qualifying areas — would tend to be in the range of $80,000 to $175,000.

(Reuters) – Global banks raised concerns on Friday over a provision in the U.S. Senate tax bill aimed at cracking down on tax avoidance by multinational corporations that they said could hurt the banking industry.

“Banks initially looked to be one of the major winners of Republican lawmakers’ efforts to overhaul the U.S. tax code, and publicly they have been very supportive.

(ZeroHedge) Score one for the poetic irony pages.

Two months after JPMorgan CEO Jamie Dimon lashed out at bitcoin, calling it a “fraud” which is “worse than tulip bulbs, warning it won’t end well”, will “blow up” and “someone is going to get killed” and threatened that “any trader trading bitcoin” will be “fired for being stupid” as it was merely a tool for money-laundering, today Swiss daily Handelszeitung reported that the Swiss subsidiary of JPMorgan was sanctioned by the Swiss regulator, FINMA, over money laundering and “seriously violating supervision laws.”

As the newspaper adds, the Swiss sanctions relate to breaches of due diligence in connection with money laundering standards. In other words, JPMorgan was actively aiding and abeting criminal money laundering.

The report further notes, the Finma decision was issued on June 30 and should have been published the following week but JPMorganm tried to prevent the publication of the judgment. More recently, the Federal Administrative Court dismissed the appeal.

Have a great weekend!

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. 

 

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