VIX challenged its Intermediate-term resistance at 10.22 but did not break above it, closing near an 88.6% retracement  A breakout above the Ending Diagonal trendline suggests a complete retracement of the decline from January 2016, and possibly to August 2015. The December target may be the Cycle Top at 23.11.

(ZeroHedge)  While the fear-tracking VIX has been languishing near record lows this year, a gauge of so-called ambiguity, meant to chronicle the degree of uncertainty investors have in the probabilities they use to make decisions, has been at all-time highs in recent months, indicating that there’s more fear built into the stock market than common measures of volatility suggest.

SPX throws over its Cycle Top support/resistance

SPX threw-over its double trendlines and weekly Cycle Top support at 2649.45, closing above them for the week.  The Cycles Model proposes a pullback next week.  Should it break Intermediate-term support and the trendline at 2557.80, the decline may be severe.  

(ZeroHedge)  There is a fascinating table in JPMorgan's 2018 year-end outlook released overnight, previewed yesterday by head quant Marko Kolanovic: it shows that a funny thing happened as the so-called experts were looking for signs of retail euphoria (and repeatedly were unable to find it): everyone went "all-in" stocks, and not just retail investors and US households, but mutual funds, hedge funds, pensions, systematic, and sovereign wealth funds.

As JPMorgan calculated first one month ago when looking at the equity positioning of the main investor types, "allocations are near historical highs, not leaving much room for further increases."

NDX throws over Cycle Top resistance

NDX rallied above its Cycle Top at 6411.78 this week to make a new all-time high.  A decline beneath the lower Diagonal trendline at 6180.00 and Intermediate-term support may produce a sell signal.    

(ABCNews)  After driving the overall domestic market to dozens of new highs this year, the tech sector is poised for another stellar year in 2018.

Led by Amazon, Apple, Alphabet (Google), Netflix and Facebook, tech will probably remain the energizer bunny of market sectors.

The sector’s performance runs much broader and deeper than these household names. For example, in the third quarter, 90 percent of tech companies reported better-than-expected earnings and 84 percent beat revenue estimates.

High Yield Bond Index surges higher

The High Yield Bond Index made a new high on Monday, then declined through Wednesday, closing the week at a nominal new high. A break of the Cycle Top at 188.46 may tell us the rally is over.  A sell signal may be generated with a decline beneath the lower Diagonal trendline at 179.00.

(Morningstar)  Despite a few hiccups along the way, high-yield bond funds have been on an impressive run since the 2008 financial crisis. From April 2009 through November 2017, the median high-yield bond fund returned 10.9% annualized. By comparison, the Bloomberg Barclays U.S. Aggregate Bond Index (often used as a proxy for a core investment-grade fixed-income allocation) only returned 4.0% annualized over the same period.

USB broke above its consolidation

The Long Bond broke above Intermediate-term resistance at 153.47 and its consolidation zone. The Cycles Model suggests a potential rallythrough the end of the month that may be quite strong.    

(ZeroHedge)  Before you shut down that terminal for the year, hoping that the year is - mercifully - finally over, you may want to consider that according to former Lehman trader and current Bloomberg macro commentator Mark Cudmore, the Christmas pain trade is about to be unveiled, and it will be especially painful for all those short Treasurys. As Cudmore warns, with ten-years stuck in a 2.3%-2.43% range for the past seven weeks, "the arguments are adding up for a violent downside break during the weeks ahead."

The Euro may be testing support

The Euro declined beneath its Short-term support at 117.62.  Should the weakness continue, it may terminate at Long-term support at 114.35.  However, there is potential strength emerging in XEU that may propel it higher into the new year.    

(Reuters) - The European Union is not under pressure to make quick changes to the way the euro zone works because the economy is doing well, Lithuanian president Dalia Grybauskaite said on Friday.

Entering a summit of EU leaders, that is to set the direction for talks on deeper euro zone integration over the next six months, Grybauskaite said:

“Negotiations will go ahead, especially if the circumstances of our economic development will be different. Today is quite a peaceful time so I think we will not be under pressure to be very, very fast.”

EuroStoxx  weakens near Long-term support.

The EuroStoxx 50 Index weakened, declining beneath Intermediate support but closing above the Broadening Wedge trendline and Long-term support at 3521.83.  A stumble here has the potential to set off a cascading decline into motion through the end of the year.     

(CNBC)  European closed lower on Friday, with sentiment curbed by concerns over plans to overhaul the tax system in the U.S.

The pan-European Stoxx 600 closed provisionally lower, down almost 0.2 percent, with most sectors and major indexes trading in negative territory. Retail stocks were by far the worst-performing sector, down more than 2 percent, after H&M reported fourth-quarter sales below its own expectations. Shares of the fashion retailer fell almost 13 percent to their lowest level since 2009.

The Yen strengthens

The Yen caught a bid to rise above Short-term support/resistance at 88.52. The Yen may rally back through the support/resistance cluster to new highs. There may be a lot of stored up energy in this move.  

(NASDAQ)  The Japanese Yen market remained focused elsewhere Friday and didn't react much to a satisfactory Tankan survey from its home country.

The large manufacturing current conditions index rose to 25 from 22, slightly beating the 24 expected in the process. Large non-manufacturing firms scored 23, the same as before and just below the 24 level forecast. Outlooks were mixed with large manufacturers slightly more downbeat than expected. They scored 19, no worse than last time but a bit weaker than forecast.

Nikkei retests its Cycle Top

The Nikkei consolidated within its retracement range, then eased back down to Short-term support at 22424.23.  A break beneath the Cycle Top and Short-term support suggests the rally is over and may produce an aggressive sell signal. Confirmation comes at the crossing of the lower Diagonal trendline just above Long-term support at 20273.75.

(JapanTimes)  The benchmark Nikkei average extended its losing streak to a fourth session Friday, weighed down by an overnight fall in U.S. equities.

The 225-issue Nikkei average fell 141.23 points, or 0.62 percent, to end at 22,553.22 on the Tokyo Stock Exchange. On Thursday, the key market gauge lost 63.62 points.

The Topix index of all first-section issues lost 14.67 points, or 0.81 percent, to close at 1,793.47, after shedding 2.70 points the previous day.

U.S. Dollar challenges Intermediate-term support

USD declined to challenge Intermediate-term support/resistance at 93.17, closing above it. The Cycles Model calls for a a probable continuation of the decline with a likely termination at “point 6.”  .  

(ZeroHedge)  Very quietly, in the last few days, cross currency basis swaps (CCBS) related to the dollar have reversed their rise and started collapsing deeper into negative territory… again. This might not be of much interest to buyers of global equity markets at this point, but it is signalling ominous signs of growing funding stress in the financial “plumbing”.

As Bloomberg notes “cross-currency basis swaps, which money managers and corporate treasurers outside the U.S. can use to borrow in dollars, remain close to the widest levels since January even after quarter-end, when such financing strains typically dissipate. The market was a key indicator of stress during the financial crisis, and while it’s nowhere near the alarming levels of that era, it’s still garnering the attention of analysts.”

Gold bounces at mid-Cycle support

Gold bounced at mid-Cycle support only to retest Long-term resistance at 1266.70.  The Cycles Model suggests that may proceed to the lower trendline of the Broadening Wedge and possibly trigger that formation over the next 2-3 weeks.  

(Bloomberg)  Hedge funds are pulling out of gold bets as more exciting moves in equities and cryptocurrencies make safe-haven investments look boring.

Money managers cut their bets on a bullion rally at the fastest pace in five months as prices head for their worst quarterly loss in a year. Speculators are throwing in the towel as the metal failed to sustain the gains that took futures to a one-year high in September.

Crude testing Short-term support

Crude challenged Short-term support at 56.31 again this week, but closed above it. Oil’s period of strength may be over but a new trend has yet to be established.  Nonetheless, the odds are strong that we may see the price of oil decline through the end of the year.

(OilPrice)  or the second month in a row, the IEA has poured cold water onto the oil market, publishing an analysis that suggests 2018 could hold some bearish surprises for crude.

The IEA’s December Oil Market Report dramatically revises up the expected growth of U.S. shale, which goes a long way to torpedoing the excitement around the OPEC extension.

Late last month, when OPEC agreed to extend its production cuts through the end of 2018, the U.S. EIA came out with data – on the same day as the OPEC announcement – that showed an explosive increase in shale output for the month of September, up 290,000 bpd from the month before.

Shanghai Index tests long-term support

The Shanghai Index made an attempt to rally but closed lower, testing Long-term support at 3256.32.  The Shanghai Index appears to be on a sell signal.  Last week’s predicted bounce is over.  The Cycles Model suggests that the decline may resume through early January.  The potential for a sharp sell-off rises as the next levels of support are breached.   

(MisesInstitute)  Many of our readers might remember the late 80s. There were hundreds of movies, songs and books about the inevitable Japanese economic invasion. The ones of you that did not live that period can see that it did not happen.

Why? Because the Japanese growth miracle was built on a massive debt bubble and, once it burst, the country fell into stagnation for the better part of two decades. It still has not recovered.

China presents many similarities in its economic model. Massive debt, overcapacity and central planned growth targets.

The Banking Index stalls beneath its Cycle Top

BKX pulled back for its Cycle Top resistance at 109.29, testing the upper trendline of its Ending Diagonal formation.  A decline beneath that trendline suggests the rally is over.  A further decline beneath Intermediate-term support at 99.21 may give a sell signal.  If the Orthodox Broadening Top formation is correctly identified the next move may be beneath mid-Cycle support at 82.03.

(ZeroHedge) The clock is ticking down and there are only about three weeks to go before the dreaded MiFID II regulatory structure is implemented on 3 January 2018. While it’s been difficult to judge the industry’s preparedness for the change, several aspects of the new regulations have attracted the most debate and concern. These have included transaction reporting, unbudling of research costs and whether institutional investors will absorb the costs or pass them on to their clients and trade identifiers. As the deadline nears, one of these issues – Legal Entity Identifiers (LEI) - has assumed more significance than the others. 

The enforcement of LEI’s to identify legal entities is targeting increased market transparency via audit trails. Each market participant will need its own 20-character “alphanumeric code” and the relevant codes for buyers, sellers and issuers of the security will be required to complete a trade.

(ZeroHedge)  The Bank of England is putting the United Kingdom on alert.  Should the UK keep borrowing money, as Corbyn's Labor Party has advocated, there will be a “Venezuela-style” economic collapse that will devastate normal citizens.

A senior Bank official has warned that the UK’s economy would be unlikely to surviveborrowing any more cash. Richard Sharp, a member of the Bank’s Financial Stability Committee, claimed an extra £1trillion had already been borrowed since the 2008 financial crisis, and any more could see the economy collapse in the same quick manner that Venezuela’s did.

(Forbes)  Total deposits for the five largest U.S. banks have grown by 4.3% over the last twelve months – above the industry-wide growth figure of under 4%. This is a commendable feat by these banking giants, given their massive deposit base which averaged more than $5.3 trillion in Q3 2017. This represents a share of more than 40% of the $13.2 trillion U.S. deposit market, and this figure is likely to trend even higher as the largest banks continue to outperform the overall industry.

Deposits across U.S. commercial banks have grown sharply since 2010 due to the prevailing low interest rate environment since the economic downturn. This is because the resulting lack of lucrative investment options led investors to shift some of their liquid assets into interest-bearing deposits – leading U.S. deposits to swell at well above 5% annually over 2012-16. With the Fed hiking benchmark interest rates by 25 basis points on five occasions since December 2015, the interest rate environment has finally begun showing signs of improvement. This, in turn, has tempered the deposit growth rate over recent quarters.