VIX rallied above weekly mid-Cycle resistance at 15.04, confirming a new buy signal. Analysts don’t seem to be paying much attention to the fact that the VIX is not only above all critical resistance levels (15.80 – 16.63), but also above its 12-month average of approximately 15.90. Things can happen quickly and violently at these levels.

SPX declines to Intermediate-term support

SPX declined to bounce from Intermediate-term support at 2947.77 after breaking through round number support at 3000.00. The narrowing trading range may have produced a modified Diamond formation. Interestingly enough, a break through the trendline at 2950.00 triggers the formation with a similar target as “Point 6” of the Orthodox Broadening Top. The Cycles Model suggests a rapid decline ahead. Prepare for a potential “limit down.” 

(CNBC) The White House is weighing some curbs on U.S. investments in China, a source familiar with the matter told CNBC. This discussion includes possibly blocking all U.S. financial investments in Chinese companies, the source said.

It’s in the preliminary stages and nothing has been decided, the source said. There’s also no time frame for their implementation, the source added.

Restricting financial investments in Chinese entities would be meant to protect U.S. investors from excessive risk due to lack of regulatory supervision, the source said.

  NDX sits on the Diamond Trendline

The back-and-forth motion of the NDX as it was squeezed into a tighter pattern created a Diamond formation. Its target agrees with “Point 6” of the massive Orthodox Broadening Top formation. We seldom have multiple confirmations of the general market direction, but in this case it should put us on high alert for a decline beneath the lower trendline at 7625.00 for a confirmed sell signal.  

(ZeroHedge) For an equity market at near all-time highs, there’s been a remarkable number of important blow-ups in recent months: WeWork, Uber, Lyft, Tesla/Nio, Netflix, marijuana stocks, vaping, and crypto currencies all come to mind. That’s important, because these are all “platform” companies/products – the exact business model that has driven significant increases in stock market value over the last 5 years. Let’s hope 2019 is just a bump in the disruptive road, because we need more of this sort of innovation. Not less.

Let’s start with some examples:

#1: WeWork, which was supposed to remake the concept of office space/leasing, had to pull its IPO, fire the company’s founder from his CEO slot, and now faces an unexpected capital crunch.

High Yield Bond Index challenges Intermediate-term support

The High Yield Bond Index declined to challenge Intermediate-term support at 209.59 where it bounced. A decline beneath it invokes a sell signal. The Cycles Model warns the next step down may be a large one.   

(SeekingAlpha) U.S. junk bonds are heading for their first weekly loss since mid-August after posting negative returns for three consecutive sessions and fund outflows in the week ended Wednesday.

Thursday's 0.6% fall was led by the energy sector and extended a weekly loss to 0.21%, pushing yields to 5.67%, according to Bloomberg Barclays index data.

CCCs led the decline with a 0.12% drop, their eighth straight decrease; yields on CCCs increased 6 basis points to 10.64%.

Treasuries rise above Cycle Top support

The 10-year Treasury Note rose above Cycle Top resistance at 130.11. Should support give way, there may be a resumption of the decline. This week the markets were kept afloat again through permanent open market operations (POMO) to stabilize bank reserves and keep the markets liquid. The Cycles Model suggests the decline may resume through mid-October.

(ZeroHedge) After a strong 2-Year, and poor, tailing 5-Y auction, moments ago the US Treasury concluded the last coupon auction for the week, selling $32 billion in 7 year paper in what was no less than a spectacular auction, with a high yield of 1.633%, which while above last month's 3-year low yield of 1.489%, stopped through the When Issued by a solid 0.5bps, the biggest stop through since March.

Confirming the strong demand for today's paper was the impressive surge in the bid to cover, which jumped from a ten year low of 2.159 in August to 2.492, the highest since March, and far above the 2.37 six auction average.

The Euro tests the neckline

 The Euro declined to the Head & Shoulders neckline at 109.00 and a new 2.5-year low this week. It remains on a sell signal that may get further confirmation as it crosses beneath the neckline. The Cycles Model suggests a period of weakness stretching through the end of October.

(Reuters)  The euro fell to more than two-year lows against the U.S. dollar on Friday as a weak growth outlook weighed on the single currency, though it rebounded after testing technical support levels.

Dismal business activity data from the euro area, especially powerhouse economy Germany, has pushed European bond yields lower across the board this week, with further pressure coming from concern over economic weakness in Britain. 

“We have had a steady drip of weak data from the eurozone this week and that is highlighting the differences between the U.S. and Europe,” said Commerzbank analyst Thu Lan Nguyen, adding that the United States is still showing signs of strength.

  EuroStoxx rally challenges Intermediate-term support 

Note:StockCharts.com is not displaying the Euro Stoxx 50 Index at this time.

The EuroStoxx 50 SPDR challenged Intermediate-term support at 37.33, closing above it. A closing decline beneath this support invokes a sell signal. The Cycles Model suggests a probable decline through the end of October. 

(CNBC) European shares traded higher on Friday as cautious optimism returns to markets over the state of U.S.-China trade relations, though gains may remain capped by escalating political uncertainty in the United States.

The pan-European Stoxx 600 closed provisionally up around 0.42% during trade, with basic resources adding 1.6% to lead gains as the majority of sectors traded in positive territory, while utilities slipped 0.4%.

The Yen consolidates 

The Yen did a little backing and filling after challenging Intermediate-term resistance at 93.15. It has been a longer than usual shakeout, but may now support a resumption of the rally through mid-October.  

(Bloomberg) The yen looks set to end September as the worst-performing Group-of-10 currency. And those betting on a turnaround by the end of the year have the weight of history against them.

The fourth quarter has proved a bane for yen bulls over the last decade, with the currency weakening an average 3.6%, and falling in seven out of 10 years. JPMorgan Chase & Co. sees it slipping to as low as 110 per dollar by the year-end, which is a 2.1% drop from current levels.

Strategists are bearish also because the yen’s seasonal weakness this year is coinciding with large redemptions of Japanese government bonds. With local yields near record lows, a bulk of this money is seen being reinvested in assets overseas.

Nikkei remains above mid-Cycle resistance.

The Nikkei Index declined this week, but remained above mid-Cycle support at 21726.44. A sell signal may be given beneath that level. The subsequent decline may last through the end of October.  

(Reuters) - Japanese shares fell the most in almost five weeks on Friday after Kansai Electric Power Co Inc revealed payments to executives from an outside individual, at a time the government is calling for improved governance to attract foreign investors.

Shares in Apple Inc supplier Japan Display Inc also tumbled the most in more than three months after a Chinese investor withdrew from an 80 billion yen ($742.46 million) bailout of the smartphone screen maker.

The Nikkei 225 index ended down 0.77% at 21,878.90 after briefly touching its lowest since Sept. 11.

U.S. Dollar attempts another rally

USD continued to rally above Short-term support at 98.07 into a probable Master Cycle high this week. Should a reversal take place, we may see the USD challenge its trendline at 96.00. Upon reversing, we may see the USD decline through the end of October.

(Bloomberg) Constitutional crisis hits the U.K. The U.S. girds for an impeachment drama. The euro zone lurches toward recession. And the U.S. stock market nearly hits a new high. What gives?

The situation isn’t as positive for U.S. assets as it might first appear. Investors have been in a defensive crouch for a while. That means putting money into safer havens, which means a net flow of money into the U.S. The latest Bank of America Merrill Lynch global survey of fund managers found a classic “risk-off” asset allocation, with investors overweight in traditional havens, such as cash and bonds – and heavy exposure to the U.S. is now part of the risk-off menu.

Gold bounces at round number support

Gold continues to bounce at 1500.00 which is an important support level. Beneath this lies a sell signal that is confirmed by Short-term support, also at 1500.00. This may set a more serious decline in motion that may have bigger implications.  

(CNBC) Gold prices fell on Friday and was on track for its third weekly fall for the month, restrained as a slew of U.S. economic data beat expectations and the dollar held near multi-week highs against major currencies.

Spot gold fell 0.4% to $1,499.22 per ounce at 0744 GMT, declining 1% for the week after a near 2% gain last week.

U.S. gold futures were down 0.6% lower at $1,506.01 per ounce.

“A bunch of U.S. economic data came way above the forecasts, like the new home sales data and that along with a strong dollar is weighing on gold right now,” said Jigar Trivedi, a commodities analyst at Mumbai-based Anand Rathi Shares & Stock Brokers.

Crude declines nearly 12% in two weeks

After a searing rally to 63.38 two weeks ago, crude made decline that gave it all back. The Cycles Model suggests that the decline may continue through October options week.

(CNBC) Oil prices fell on Friday and were heading for a weekly loss on a faster than expected recovery in Saudi output while slowing Chinese economic growth dampens the demand outlook.

Brent fell 93 cents to $61.81 a barrel, while U.S. crude slipped by 65 cents to $55.76. Both were down almost 4% over the week, representing WTI’s biggest weekly loss in 10 weeks and Brent’s biggest in seven.

Brent and WTI were also hit by a Wall Street Journal report citing unnamed sources saying that Saudi Arabia had agreed a partial ceasefire in Yemen, said analysts in the Reuters Global Oil Forum.

Brent is just above its level before attacks on Saudi facilities on Sept 14, which initially halved the kingdom’s production.

Agriculture Prices consolidate

The Bloomberg Agricultural Subindex hardly budged for a second week as the markets attempt to make sense out of the (lack of) progress in the trade talks. This action proposes a potential “buy the dip” opportunity as the rally develops legs.

(WestCentralTribune) Aaron Kjelland says he’s “inherently an optimist.” That’s a good thing, even a necessity, in modern agriculture. But it’s especially important this growing season — one that began for Kjelland with too little rain and that’s now plagued with excess moisture, harvest delays and major quality concerns in his wheat crop.

“It’s been a challenging year, that’s for sure. And there are farmers who’ve had greater challenges than we've had,” said the 38-year-old who farms with his father, Orville, near Park River in northeastern North Dakota.

Spring wheat farmers across the Upper Midwest — producers throughout North Dakota, in much of Montana and South Dakota and in northwest Minnesota grow the crop — have struggled in 2019. Poor wheat prices, too little rain in some areas and too much in others during planting and now, during harvest, far too much precipitation have brought both financial and emotional distress.

Shanghai Index challenges Intermediate-term support

The Shanghai Index challenged Intermediate-term support at 2924.74, closing above it for the week. However, it has given a potential sell signal after giving up all near-term strength. The Cycles Model suggests another three weeks of decline  

(ZeroHedge) In what appears to dismiss President Trump's claims that a deal is a lot closer than you think, Bloomberg reports that the White House is said to support a review of investment limits for China.

Among the options the Trump administration is considering:

• delisting Chinese companies from U.S. stock exchanges and

• limiting Americans’ exposure to the Chinese market through government pension funds.

The Banking Index closes beneath the Diamond trendline

BKX closed beneath the lower trendline of the Diamond formation, triggering that pattern. It has given a sell signal that may last through the end of October. 

(CNBC) The Federal Reserve has used open market operations to soothe the short-term funding market, and now its temporary fix faces a test as the third quarter ends.

The Fed has used overnight and 14-day market operations to stabilize the repo market, used by financial institutions to fund themselves on a short term basis. The Fed was reacting to a sudden spike in rates Sept. 16 and 17, and it is under pressure to permanently resolve the issue, which seems to stem from a cash crunch in the overnight borrowing market, rather than a credit crisis.

During the temporary panic in the overnight funds market, rates spiked to as high as 10%, and the Fed’s own benchmark federal funds rate briefly traded at 2.30%, 0.05 above the Fed’s target range on Sept. 17. The weighted average Treasury repo rate in the Fed’s operation was at a subdued 1.80% Friday. In the past several days, the Fed expanded its facilities, as they met high demand, but by Friday, both its $100 billion overnight repo and its $60 billion 14-day were undersubscribed.

(ZeroHedge) Last week’s failure in the US repo market might have had something to do with Deutsche Bank’s disposal of its prime brokerage to BNP, bringing an unwelcome spotlight to the troubled bank and other foreign banks with prime brokerages in America. There are also worrying similarities between Germany’s Deutsche Bank today and Austria’s Credit-Anstalt in 1931, only the scale is far larger and additionally includes derivatives with a gross value of $50 trillion.

If the repo problem spreads, it could also raise questions over the synthetic ETF industry, whose cash and deposits may face escalating counterparty risks in some of the large banks and their prime brokerages. Managers of synthetic ETFs should be urgently re-evaluating their contractual relationships.

Whoever the repo failure involved, it is likely to prove a watershed moment, causing US bankers to more widely consider their exposure to counterparty risk and risky loans, particularly leveraged loans and their collateralised form in CLOs. The deterioration in global trade prospects, as well as the US economic outlook and the likelihood that reducing dollar interest rates to the zero bound will prove insufficient to reverse a decline, will take on a new relevance to their decisions.

(ZeroHedge) A few unfortunately-placed hurricanes could leave US taxpayers shouldering billions of dollars in worthless mortgages on homes in natural disaster-prone areas, while the banks that originally underwrote those mortgages get off scott-free. In a scenario that might sound familiar to readers who remember the run-up to the financial crisis, new research has found that Fannie Mae and Freddie Mac have been buying mortgages on homes in disaster-prone areas and packaging them up into securities, without charging a premium that accurately reflects long-term disaster risks.

The New York Times reports that the new findings "echo the subprime lending crisis of 2008, when unexpected drops in home values cascaded through the economy and triggered recession." The only difference is that, this time around, the loans will have a 0% chance of rebounding, since the homes might be literally underwater

One professor said the mortgage market's exposure to natural disasters could be massive - possibly even as large as the losses from the subprime crisis.