SPX Claws Back A Large Loss

VIX had a wide-ranging but inside week as it consolidated the gains from the previous week. The Cycles Model suggests Cyclical strength may dominate through the end of the month.

(Bloomberg)  No more easy optimism.

After four months of cruising ahead, stocks are facing choppy waters. UBS Wealth Management on Friday advised its clients to buy protection against trade war-fueled volatility, which it says is here to stay. Nomura Holdings Inc. in turn warned that this week’s recovery in global equities could be short-lived and price swings will return in late May.

SPX claws back a large loss, but may have lost the battle

SPX began the week making a new low, but clawed back nearly 61.8% of the losses from the beginning of May. But that may not have been enough. The algos were put to work, attempting to move the SPX above 2900.00 where Dealer/Institutional Gamma Hedging would force the market even higher, but to no avail. SPX closed beneath weekly Short-term support at 2878.92, leaving it on a sell signal. The next potential target, known as “Point 6” lies beneath the December 26 low.

(Bloomberg)  Need a reason to sell? There’s plenty. Seduced by prospects for a big year, a lot of stock investors don’t want to hear them.

While drops like Monday and Friday are getting common, just as notable has been the S&P 500’s resilience. Consider the last two weeks, when five times the index has clawed back more than half of its overnight losses. Instead of bailing, traders are splurging on hedges. Volume in bearish puts is jumping.

NDX caught between Intermediate-term support and Short-term resistance

NDX declined to Intermediate-term support at 7327.07, bouncing back and closing under Short-term resistance at 7567.11.  It is on a sell signal. Cyclical weakness may dominate through mid-June.

(ZeroHedge)  Despite the S&P 500 having made a new all-time high just a few weeks ago, many of the supposed market leaders have not kept pace.

Instead, almost all of the FAANNGs (Facebook, Apple, Amazon, Netflix, Nvidia, Google) peaked out either in the summer or fall months of 2018 and have meandered under those previous highs since then. Why is this important?

For one, these are some of the biggest companies in the world, with four of them occupying a top 10 spot in terms of market cap. Beyond that, it calls into question the significance of the modest new high made in the S&P 500. After all, if the leadership group of the cycle is now all of a sudden struggling to lead, what does that portend for the broader market?

High Yield Bond Index closes above Intermediate-term support

The High Yield Bond Index made a new low on Monday, then proceeded to rally back above Intermediate-term support/resistance at 207.18. It is on a sell signal but needs confirmation beneath that support. Point 6 may be the Cycle Bottom at 161.95. The Cycles Model warns the decline may have legs.    

(Bloomberg)  Goldman Sachs Group Inc. has shifted money to the sidelines of the municipal junk-bond market, waiting for it to crack.

The company’s $7.3 billion High Yield Municipal Fund, the third biggest focused on the riskiest state and local government debt, had about 62 percent of its assets in investment-grade securities by the end of April. It marks the fund’s biggest move ever away from the lowest-rated bonds and a wager that the run-up in prices will reverse as speculative projects start to run into distress, said Ben Barber, head of municipal bonds at Goldman Sachs’s asset management arm, which oversees $62 billion of the securities.

Treasuries gap higher

The 10-year Treasury Note Index gapped higher on Monday and hasn’t looked back. It remains on a buy signal with a potential target at the Cycle Top resistance at 127.85.  The Cycles Model suggests the rally may continue through mid-June.

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Disclaimer: Nothing in this article 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 ...

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