VIX pulled back to test its 2-year trendline again, closing beneath its Short-term support/resistance at 13.29. The buy signal has been suspended until it rises above that level. The Cycles Model shows probable strength for the VIX through mid-August.

(Bloomberg)  After a storm comes the calm...eventually.

Front-month VIX futures closed at 12.12 on Tuesday, their lowest finish since before the record explosion in volatility in February, which roiled markets and wiped out several exchange-traded products that let investors bet on market tranquility.

VIX futures contracts are tied to the Cboe Volatility Index, a gauge of the one-month implied swings for the S&P 500 Index that’s often called the VIX or Wall Street’s “fear gauge.”

SPX consolidates beneath the upper 2-year trendline

SPX challenged the upper trendline of the 2-year trading channel for a second week at 2816.00. This final bit of strength also coincides with an important Cyclical turn date. This may be one of the longest stock market corrections in history, having ventured 159 days from bottom (February 9) to top (July 18).  Equities are entering their negative season, so care should be taken to protect what small profits there are in 2018.

(Reuters) - U.S. stock indexes edged higher on Friday as technology stocks rose on the back of solid results from Microsoft, easing fears of a rising trade spat after President Donald Trump toughened his stance against China.

Microsoft rose as much as 3.6 percent to a record high of $108.20 and was the biggest boost to the S&P 500 and the Dow Industrials.

President Trump said he was ready to impose tariffs on all $500 billion of imported goods from China, unnerving financial markets in premarket trading.

His comments on tariffs followed the United States and China imposing levies on $34 billion worth of each other’s goods earlier this month.

NDX consolidates near its Cycle Top.

NDX consolidated at its Cycle Top resistance at 7470.22, closing beneath it.  The Cycles Model suggests that the next several weeks may bring pain to equities. The period of weak seasonality may be about to begin.

(NorthmanTrader)  The $NDX keeps moving from new highs to new highs driven by a narrow group of stocks. Nothing new about that as this trend has been ongoing for some time and headlines of new record prices for such stocks such as $FB, $AMZN, $GOOGL, $MSFT are now a daily occurrence. The untouchables. Jeff Bezos is worth $140B, no that was so last week, now he’s worth $150B.

How do you quantify risk in a market that prices in no risk?

While most people are focused on stocks prices one underlying issue that appears to be largely ignored by participants is the unprecedented market capitalization expansion we are witnessing in these few select stocks.

The numbers are simply staggering. Magic money out of thin air.

$FB, $GOOGL, $AMZN, $MSFT and $AAPL. These 5 stocks now worth nearly $4.1 trillion. That makes these 5 companies the 4th largest economy of the world if you use GDP as a reference. Not bad for less than a million people employed at these 5 companies.

High Yield Bond Index declines to critical support

The High Yield Bond Index declined from a 60% retracement high to close above critical support. MUT remains on a sell signal beneath the trendline. The sell signal is confirmed beneath Intermediate-term support at 189.44. Sideways consolidations such as this imply a continuation of the previous trend.

(Bloomberg)  Junk bonds are much cheaper than they were at the start of the year, but at least one major asset manager says she’s getting out because prices are still too rich.

"We generally continue to get out of high yield. We don’t see many opportunities today," said Oksana Aronov, head of market strategy for Absolute Return Fixed Income at JPMorgan Asset Management, whose team manages $16 billion in assets. "Without sounding alarmist, I am seeing some parallels between where we were going into 2008 just in this chase for yield," said Aronov.

UST remains above Intermediate-term resistance

The 10-year Treasury Note Index maintained its position above Intermediate-term resistance at 119.91 for a fourth week, keeping it on a buy signal.The Cycles Model may allow an inverted Cycle high over the next two weeks. If so, we may see UST rally back toward the Head & Shoulders neckline near 123.00. The Commitment of Traders shows the Commercial traders remain heavily long while Speculators remain heavily short the 10-year Treasury futures.

(ZeroHedge)  Having killed the Japanese bond market, some are wondering if central bank interference has finally slayed the US Treasury market, as its numbness to news suggests a zombie-market-walking.

The 10-year Treasury yield has moved less than 9 basis points so far in July. After retreating from its May 17th high of 3.1261%, the benchmark yield has hovered between 2.8053% and 2.8950% in July...

Putting it on course for its smallest monthly range since 1973....

The Euro may extend its rally

The Euro appears to have emerged out of a Master Cycle low this week to close above Short-term support/resistance at 117.02. The Cycles Model suggests a possible three week rally that may challenge Long-term resistance at 119.85.

(Bloomberg)  The euro has been treading water. It is unlikely to find a rescuing hand from the European Central Bank, whose policy makers meet next week.

While analysts expect the shared currency to strengthen as the year progresses, conviction in that view is shaky, with strategists having pared their calls recently. The euro was knocked down after the ECB’s mid-June policy review, when President Mario Draghi dashed expectations for tightening in early 2019. Since then, trade tensions have heightened and core inflation in the euro area has been revised downward, which gives the ECB little incentive to change tack any time soon.

EuroStoxx consolidates beneath resistance

The EuroStoxx consolidated beneath Intermediate-term resistance at 3473.05 after a three week retracement from its Master Cycle low.  The Cycles Model calls for a probable decline beneath the Head & Shoulders neckline near 3250.00.

(Bloomberg)  Trading in European stock markets is so boring this summer that a strategy betting on minimal movement in shares is making more money than betting on solid appreciation.

A buy-write strategy for European blue chips -- which combines long equity exposures with sales of call options amid expectations the index moves will be muted -- has earned about 3.6 percent since May 31, compared with a 1.7 percent return for the underlying Euro Stoxx 50 index.

“A write-buy strategy should outperform in a sideways-moving market, as we currently have,” said William Hobbs, the head of investment strategy at Barclays Investment Solutions in London. “At the moment yes, betting on limited gains is a winner, but our hunch remains that the current one step forward, one step back trading environment will be resolved as the improving fundamental backdrop for corporates shines through a little more forcefully.”

The Yen bounces

The Yen appears to have reached a Master Cycle low on Thursday and has begun a bounce that may last until mid-August.  A likely target may be near 92.50.

(Bloomberg)  An increase in Japan’s appetite for risk assets overseas is having an outsized impact closer to home -- on the traditional safe haven status of the yen.

Accelerating demand for foreign equities by Japanese investors is one factor behind the unexpected slide in the nation’s currency, down more than 5 percent since the end of March. It has helped push the yen close to a year-to-date low against the dollar, undoing its standing as a refuge for traders in an environment of escalating trade tensions between the U.S. and China.

The Japanese have been net buyers of foreign stocks every week since the end of March, and purchases reached a record 985 billion yen ($8.7 billion) in the five days ended June 29, according to data from the Ministry of Finance. The yen is the third-worst performing Group-of-10 currency since the beginning of April.

Nikkei retests the trendline

The Nikkei rallied above Short-term support at 22452.57, closing above it, but still beneath the two year trendline. The potential for a swift decline through the end of July is very high.

(JapanTimes)  Stocks snapped their four-session winning streak Thursday after being weighed down by selling to cash in on gains.

The 225-issue Nikkei average shed 29.51 points, or 0.13 percent, to end at 22,764.68 on the Tokyo Stock Exchange. It rose 96.83 points on Wednesday.

The Topix index of all first-section issues closed down 1.62 points, or 0.09 percent, to close at 1,749.59 after climbing 6.16 points the previous day.

Stocks got off to a firmer start after the Dow Jones industrial average advanced for five straight sessions through Wednesday.

U.S. Dollar probes toward “Point 7”

USD made what may be the final probe toward its “point 7” target at 96.00, but was stopped by weekly mid-Cycle resistance at 95.42. It closed just above Short-term support at 94.15. A break of that support sets up a likely sell signal. The Cycles Model calls for a potential three week decline that may challenge the Cycle Bottom at 87.96 along the way.  

(Reuters) - U.S. President Donald Trump may not be happy about the strength of the U.S. dollar, but the greenback’s recent rally may partly be a product of his own making.

The U.S. dollar has been climbing against major currencies for several months, with the dollar index .DXY up nearly 7.0 percent over the last three months and on Thursday hit a one year high.

The dollar has strengthened since late 2015 as the Federal Reserve began raising interest rates against a background of steady economic growth, slowly rising inflation and the lowest U.S. unemployment rate since the 1960s.

Gold crashes through the neckline

Gold declined through the neckline of its Head & Shoulders formation at 1238.00. It has bounced after hitting its low at 1210.70 and appears to be retesting the neckline. The Cycles Model and Head & Shoulders formation agree that there is stiff resistance at 1238.00. The behavior of the bounce at that level may tell us just how bearish this formation may be.

(CNBC)  At some point, trade wars could make investors run for the safety of gold, but right now they’re running away.

Gold has broken to fresh one-year lows and is heading toward $1,200 per troy ounce, now that spot prices have broken $1,220. Gold has languished on soft physical demand and lackluster investor interest, as trade tensions and rising U.S. interest rats drive the U.S. dollar higher and spark selling in global commodities markets.

"In the current environment, gold is really struggling to garner that safe haven demand," said Suki Cooper, precious metals analyst at Standard Chartered. "It seems to me a lot of that has to do with the fact that we're in a physically weak period, and you normally would have a better floor for prices."

Crude closes beneath Intermediate-term resistance

Crude declined from its Cycle Top and upper trendline at 70.57 through Intermediate-term support/resistance at 68.41. There may be an additional attempt at a bounce, but should remain brief. The Cycles Model now suggests a continuation of the decline through the month of August with a possible 50% loss.

(Forbes)  Crude oil had a great start to the year 2018. The commodity touched $80 per barrel for the first time in almost four years on the back of Organization of Petroleum Exporting Countries’ decision to extend the oil production quotas until end of 2018. Oil companies, such as Chevron (NYSE: CVX), benefited as prices rose. However, as the trade war between the U.S. and China gets fierce, crude oil seems to be experiencing the pinch. Brent oil prices have been declining since the beginning of July, thanks to the implementation of the U.S. tariffs on several billions of dollars worth of Chinese goods. Since China has also retaliated with a stringent tariff plan against the U.S. imported goods, the tariff war is likely to become more intense in the coming months. Consequently, the markets foresee a potential economic slowdown that might dawn upon the Chinese market in the near term. Given that China is one of the key consumer of global oil, a downturn in its economy could hamper its demand for crude oil, causing oil prices to fall.

Shanghai Index consolidates beneath its Cycle bottom

The Shanghai Index consolidated beneath its Cycle Bottom at 2860.17, unable to rise above it. The Cycles Model suggests the probability of another attempt at resistance in the next week or so before the decline resumes.  Exhaustion of the decline may not set in until early September.

(ZeroHedge)  In an unprecedented turn of events, China's central bank and its Ministry of Finance are having a public feud about the future of the country's monetary policy. Worse, it comes at a troubling time for a deleveraging (at least until recently) China whose economy has slowed sharply, just saw its biggest default of 2018, and is engaged in a bitter trade - and now currency - war with the US, all of which have sent its stock market into a bear market.

The feud started a week ago when the head of research at the PBOC, Xu Zhong, commented on July 13 that the country's fiscal policy wasn’t active enough. Zhong claimed that the county's deficit was tightening as evidence that the country's "proactive" fiscal policy isn’t being implemented properly. China is aiming for a 2.6% deficit this year which is tighter than the 3% that China posted last year. In addition, another concern is that taxes for corporations are rising and are growing at a rate that is far higher than GDP.

The Banking Index closes beneath Intermediate-term resistance

BKX challenged Intermediate-term resistance at 107.12, but closed beneath it, leaving it on a sell signal. The Cycles Model suggests a very spirited decline over the next 2-3 weeks.

(ZeroHedge)  Three weeks after the PBOC cut its Required Reserve Ratio, overnight the PBOC engaged in additional stealth easing.

As we reported last night, the most notable easing shift was that the Chinese central bank would use its Medium Term Lending Facility (MLF), to support the local bond market and banks, especially those that have invested in bonds rated AA- (the local version of high yield) or look to buy more junk bond exposure, according to local press. Effectively, Beijing will directly flood banks with additional liquidity - a stark reversal to its deleveraging posture - with one simple instruction: "increase bank lending and bond purchases." And since all Chinese banks are essentially state owned, what Beijing has done is launch a form of stealth QE, one where it's not the central bank, but the country's various commercial banks that do the bond purchases, using central bank liquidity via the MLF which currently has some 4.4 trillion yuan outstanding, or $650 billion.

(ZeroHedge)  Given the seemingly unceasing stream of scandal that has flowed out of Warren Buffett's favorite bank, Wells Fargo, it's hardly surprising that after doing everything from illegally repossessing the cars of American soldiers to fraudulently "cross-selling" credit cards and other products to millions of customers, the bank is now being called out for adding opaque products to the accounts of hundreds of thousands of customers - for services like pet insurance and legal services - without first explaining how to use them.

And in the latest sign that Trump appointee Mick Mulvaney is keeping the pressure on, the CFPB is investigating how Wells collected fees for these so-called "add-on products", and recently prompted it to refund millions of dollars to customers. News of the bank's latest scandal comes just days after Wells took a $619 million charge in the second quarter to refund customers for overcharging in its foreign-exchange, wealth management and auto- and mortgage-lending units. The bank also agreed to a $1 billion settlement with the CFPB in April - the largest ever levied by the agency - over its failure to manage risk.