SPX Declines, USD Reverses At Short-Term Resistance
Anthony M. Cherniawski | May 01, 2016 03:52AM ET
What s difference a week makes! VIX emerged above its Pennant formation and challenged weekly mid-Cycle resistance. This resulted in a potential buy signal (NYSE sell signal). Closing above mid-Cycle resistance at 15.89 may confirm the signal.
(ZeroHedge) The chart of the volatility index measures the “fear of a correction” that currently exists in the market. As a contrarian indicator, the “time to sell” is when there is relatively little “fear” in the market. As the yellow highlighted bars suggest, that time is likely now.
Is the recent turn higher in the VIX signaling a market correction as it has done in the past? Possibly. If so, the question will be the depth of that correction. Will it be a mild pullback as saw in early 2015, or a more major decline as seen in August of last year? My bet is that it will likely be the latter given the weakening fundamental backdrop.
SPX declines to its long-term trendline.
The SPX challenged its 4.5-year trendline near 2050.00 and made a small bounce. While the SPX is still in its uptrend, there is little room for error. A decline through 2050.00 sets up a probable challenge of the Orthodox Broadening Top trendline which has been challenged a second time. A reversal beneath the“shelf of support” may constitute a sell signal on the SPX. Trendlines are important support areas that often attract, then repel the markets.
(Bloomberg) A disastrous stretch for Apple Inc (NASDAQ:AAPL) spread misery through the market and sent the S&P 500 Index to its worst weekly drop since the start of February.
Fatigue was felt in what had been a steady march higher for benchmark indexes as the seven-year bull market in stocks passed into history as the second-longest ever. Apple plunged 11 percent on the week, extending a slump for computer and software makers to seven days, and U.S. equities capped the weakest April since 2012.
NDX plunged beneath Long-term support.
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NDX plunged beneath Long-term support, having its worst week since early February. It challenged Intermediate-term support at 4309.82, but closed above it. NDX maybe on a sell signal. The Head and Shoulders formation may be in play once NDX declines through its mid-Cycle support at 4220.61.
(WSJ) A selloff in the technology sector deepened Friday, but the Dow Jones Industrial Average and the S&P 500 closed April with monthly gains.
Still, the tech-driven declines sent stocks to their worst weekly loss since February, leading some analysts and traders to question whether sentiment for the overall market could be shifting.
On the one hand, the price of oil has climbed above $45 for the first time since November, buoying shares of energy companies. On the other, the tech sector, which has the largest sector weighting in the S&P 500, posted its second consecutive week of sharp losses with little sign of relief.
High Yield Bond Index reversed this week.
The High Yield Index challenged its Cycle Top support at 150.74, closing above it. This appears to be the worst weekly performance since January. A drop beneath its Cycle Top and weekly Short-term support at 149.72 may be construed as a sell signal for this index. Major investment firms going bullish after a rally such as this should be taken as a warning.
(WSJ) Oil prices go down? No problem for corporate bonds. Oil prices going up? Even better for corporates!
The correlation between oil and the high-yield corporate bond market seems to be getting weaker recently. Even on days when crude oil prices were losing traction in April, exchange-traded funds on U.S. dollar and euro corporate bonds were most of the time stable or even higher.
The oil-credit correlation has been a headache for credit investors – and not only those in the energy sector – since the start of the year. But the team at Goldman Sachs (NYSE:GS) Asset Management sees this correlation diminishing.
The euro may be breaking out.
The appears to be breaking above its prior high made last month. It appears that the euro may be reviving enough to break above its trendline at 117.00. The near-term target appears to be 118.03. Should its remain above the trendline a higher target may await the euro.
(TheGlobeAndMail) Overcoming years of poor health and crisis, the euro zone economy grew at its fastest pace in five years in the first quarter, driven by unlikely stars such as France and Spain.
It now stands larger that in did at its peak before the financial crisis, albeit having taken eight years to recover. The bloc also slipped back into deflation in April.
Blowing past both the U.S. and British economies, the latter weighed down by uncertainty over possibly leaving the Europe Union, euro zone growth doubled from the previous quarter, beating even the most optimistic expectations on healthy household consumption and a rebound in investments.
EuroStoxx reverses from the Broadening Wedge trendline.
The second attempt at the Broadening Wedge trendline brought a reversal to the EuroStoxx 50 Index. The decline was “caught” by weekly Short-term support at 3027.40. A decline beneath this level may produce a sell signal for Stoxx.
(ZeroHedge) The initial refugee welcome in Germany is rapidly turning to rejection as the nation plan to ban EU migrants from most unemployment benefits for five years after arrival as a senior German politician has called for an "Islam law" that would limit the influence of foreign imams and prohibit the foreign financing of mosques in Germany.
As The FT reports, Germany is planning to ban EU migrants from most unemployment benefits for five years after their arrival in dramatic response to rightwing populist assaults on chancellor Angela Merkel’s liberal immigration policies.
The proposals, which are far tougher than had been expected even a few months ago, highlight the government’s concern over growing public anxiety about immigration and the related advance of the Alternative for Germany party, the most popular rightwing grouping since the second world war.
The yen ramps beyond its Pennant objectives.
The yen appears to be rallying beyond its Pennant objectives in a new Cycle pattern. The expected Master Cycle low bounced from weekly Short-term support at 90.17 and has made a breakout. The inverted Cup with Handle formation appears to be activated. While the Cup-with-Handle target may seem farfetched, the Cycle Top at 100.49 may be attainable as a minimum target.
(WSJ) The Japanese yen hit a fresh 18-month high against the U.S. dollar Friday, triggering shock waves in Asian currency markets as the Chinese yuan was fixed more than half a percent higher, its biggest daily increase in more than a decade.
The yen gained further in Asia trading, breaking the key ¥107 level as the currency builds on Thursday’s 3.3% rise after the Bank of Japan disappointed investors by keeping monetary policy unchanged. Markets in Japan were closed Friday for a national holiday.
The Nikkei reverses from its Bearish Flag trendline.
The Nikkei reversed from its Bearish Flag trendline, closing beneath weekly Intermediate-term support at 16699.57. The decline may develop into a panic as the next support may be the Head &Shoulders neckline near 15000.00, followed by the Cycle Bottom at 13478.97.
(Bloomberg) Nikkei 225 Stock Average futures tumbled, reversing an earlier gain, after the Bank of Japan stood pat on monetary policy when most economists were expecting further stimulus.
Contracts on the measure traded in Singapore sank 3.4 percent as of 12:07 p.m. in Tokyo after rising as much as 1.8 percent before the central bank’s announcement. The BOJ kept its bond-buying program at 80 trillion yen ($733 billion) a year and made no changes to its negative-interest rate or its program for purchasing exchange-traded funds.
“It’s a total shock,” said Nader Naeimi, the Sydney-based head of dynamic markets at AMP Capital Investors Ltd., which oversees about $120 billion. “From currencies to equities to everything -- you can see the reaction in the markets. I can’t believe this. It’s very disappointing.”
U.S. dollar reverses at Short-term resistance.
USD failed its challenge of overhead Short-term resistance at 95.17. This appears to have completed the requirements of a short-term bounce. The decline has resumed, perhaps lasting through mid-May.The ultimate target for USD may be the weekly mid-Cycle support at 91.47 or the trendline beneath it near 90.50.
(Reuters) Speculators' bearish bets on the U.S. dollar hit their largest since February 2013, boosted by expectations that the Federal Reserve will take its time in raising interest rates this year, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday.
The value of the dollar's net short position rose to $4.19 billion in the week ended April 26, from short contracts valued at $1.85 billion in the previous week. Speculators were short the dollar for a second straight week.
USB reverses beneath Intermediate-term support.
The Long Bond plunged beneath weekly Intermediate-term support at 162.34 to complete its pullback, then reversed, closing beneath it. USB appears to be due for its all-time high in the next two weeks. Bonds have not been this overpriced (historically lowest yields) in over 300 years.
(Nasdaq) U.S. government bond prices pulled back in April, after a strong price gain during the first quarter, as improving sentiment over the global economic outlook sapped demand for haven assets.
Trading was volatile on Friday, the last session of April. Bond yields had risen earlier in the session, driven by higher commodities prices, including oil. But yields then eased, as U.S. stock prices fell and crude-oil prices gave up earlier strength. Bond yields fall as prices rise.
Gold reaches for 1300.00, misses.
Gold made a new retracement high at 1299.00 on Friday. This may complete the rally and leave the precious metals complex open to a reversal early next week. Additional confirmation may come as it falls beneath the trendline/Short-term support at 1245.76, followed by mid-cycle support, at 1205.95.
(WSJ) Gold prices rose to their highest level in 15 months on Friday, boosted by a weaker U.S. dollar and heightened demand for safe-haven assets.
Gold for June delivery settled up 1.9% at $1,290.50 a troy ounce on the Comex division of the New York Mercantile Exchange, closing out its fifth straight day of gains. Gold traded as high as $1,299.00 during the day’s session, its highest level since January 2015.
Friday’s move also marks the biggest one-day gain since March 17, when gold rose 2.9%.
Crude probed higher.
Crude extended its rally higher as a “salute” to the Liquidity Cycle that buoyed stocks and commodities for the last 78 days. A technical limitation may have been reached today and a reversal in crude prices is overdue. A decline beneath the next level of support at 40.37 may trigger a sharp decline in crude.
(WSJ) Oil prices fell Friday as supply data raised concerns that the global glut of crude won’t shrink as quickly as some traders expected.
Oil prices have surged in recent weeks on a weaker U.S. dollar, production outages in some regions and continued falling output in the U.S. Benchmark U.S. oil prices rose 20% this month, and global benchmark Brent crude rose 22%.
But the global crude market remains oversupplied, analysts say, and some expect prices to fall from current levels.
Shanghai Index has lost all technical supports.
The Shanghai Index has now lost its weekly Intermediate-term and Short-term support at 2955.42 and 2952.30, respectively. The decline has begun. This action may confirm a sell signal in the Shanghai. There is no visible support beneath the prior low at 2638.30.
(ZeroHedge) With the Chinese government having dramatically clamped down on various forms of capital flight in recent months (incidentally, a key driver for the surge in the price of bitcoin over the past year), Chinese residents have been coming up with increasingly more innovative forms of capital flight. One, noted previously, has been the unprecedented scramble to purchase foreign companies with no regard for price. After all, if the only intention is to have a legal basis to ship funds offshore, and debt investors willing to foot the bill, why not.
The M&A scramble became so bizarre that a month ago we reported on the story of a money-losing Chinese miner set to purchase a British computer games developer in a $300m bizarro deal that encapsulates the spirit of China’s frenzied, and often incongruous, debt-fueled shopping spree. Surely synergies abound there.
The Banking Index reverses at mid-Cycle resistance.
BKX scrambled above Long-term resistance at 70.17, but reversed course at mid-Cycle resistance at 71.24 on Wednesday, losing both potential technical supports. That, friends, may be the peak in this liquidity-driven rally. The next significant low may be due by mid-May.
(TheIntercept) A trade group for the nation’s largest banks has asserted a constitutional right to risk-free profit from the Federal Reserve.
Rob Nichols, the chief lobbyist for the American Bankers Association, argued in a comment letter Thursday that a recent federal law reducing the dividend on the stock that banks purchase as part of membership in the Federal Reserve system, violates the Fifth Amendment clause banning the uncompensated seizure of property.
Congress reduced the dividend as part of a deal to pay for transportation projects. Dividends for the stock, which cannot be bought or sold, had been set at 6 percent since the Federal Reserve’s inception in 1913. Banks cannot ever lose money on the stock; they’re even paid out if their regional Fed bank disbands. So the dividend represented a risk-free profit, earning back its investment in full every 17 years.
(CNBC) Wall Street got a first-quarter surprise when consumer deposits outpaced those of corporate clients, and it may throw a wrench into stress test plans.
Wall Street banks want to avoid passing negative interest rates along to U.S. consumers, even in a test-case scenario in this year's regulatory exams.
But options are limited and shrinking. First-quarter earnings reflected consumer deposit growth far outpacing that of corporate and commercial clients, which, in some instances, declined.
(ZeroHedge) When one month ago, Italy was scrambling to unveil a "last resort" bad bank bailout fund (which eventually received the name Atlante, or Atlas, for the Titan god who was condemned to hold up the sky for eternity, only in this case he is holding up Italy's €360 billion in bad loans), many wondered why the rush? While the explicit purpose of the fund was to allow Italy to bailout insolvent banks without the involvement of the state which is expressly prohibited by the Eurozone, the scramble appeared erratic almost frantic, and was one of the reasons why Italian bank stocks tumbled in early February.
The question: "Does someone know something?"
It turns out the answer was yes, because as we learn today, "Atlas" is about to become the proud new owner of around 90% of Italy's Popolare di Vicenza after investors only bought a fraction of the mid-tier bank's €1.5 billion IPO, Reuters reports.
(ZeroHedge) Perhaps it is merely a coincidence but just weeks after Deutsche Bank (DE:DBKGn) became the first bank to admit to rigging the gold market (and agreeing to rat out fellow manipulators) yesterday afternoon the head of Deutsche Bank's "integrity committee" announced he would resign two years before his time, which is a polite way of saying he was fired.
As the FT reports, Georg Thoma has been fired from Deutsche Bank’s supervisory board two years before his contract ends "after coming under fire from other board members in a battle over how to deal with the German bank’s past scandals."
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