SPX Rallies To Intermediate-Term Resistance

 

VIX declined toward Long-term support at 16.57, extending its Master Cycle low on Friday.  The Cycle low put a new outlook on the Model, suggesting that these moves may be at a higher degree Cycle than originally thought.  

(Bloomberg)  Some of the nimblest hedge-funds that trade volatility are hoping history doesn’t repeat after suffering their worst year in over a decade.

Managers famed for posting steady profits from relative-value strategies, which shuffle between long- and short-volatility bets, lost a record 2.5 percent in 2018, according to Cboe Eurekahedge data.

You’d think funds that profit from swings would thrive from crazed markets. But these rarefied players were sunk instead by erratic moves in implied volatility and an outsized spike in U.S. equity angst versus the rest of the world.

SPX rallies to Intermediate-term  resistance

SPX extended its rally to test Intermediate-term resistance at 2680.03.  It has met the 50% retracement of its decline at 2644.00. Thus far it has been 16 market days from the December 26 low.  

(ABCNews)  Stocks in the U.S. and Europe jumped Friday as renewed hopes for progress in trade talks between the U.S. and China helped the markets finish the week with another strong gain.

Indexes jumped after Bloomberg News reported that China's government offered to buy more goods and services from the U.S., potentially eliminating its trade deficit by 2024. For investors, the encouraging news on trade builds on recent positive signs for the U.S. economy and indications from the Federal Reserve that it will be patient when considering future interest rate hikes.

The Dow Jones Industrial Average is up 5.9 percent and the S&P 500 index has risen 6.5 percent so far this year, a surprisingly strong showing coming off a punishing end to 2018.

 NDX meets Intermediate-term resistance

NDX continued its rally toward Intermediate-term resistance at 6814.12.  The Cycles Model suggests that NDX is either at or very near the end of its rally. There is a potential Head & Shoulders formation that, if triggered, may erase up to 3 years of gains.  Say tuned!

(ZeroHedge)  Earlier this week we reported that, according to Nomura's calculations, CTAs were about to cover their recent S&P short positions and turn increasingly longer the higher the market rose. And sure enough, the US stock market has only risen higher, with the latest two upside catalysts being the positive WSJ headline related to US-China trade talks on Thursday and today's Bloomberg report that China would seek to reduce its trade surplus with the US.

As a result, Nomura’s Masanari Takada writes, the bank's quant models suggest CTAs continued short-covering on major stock index futures like the S&P500 or Russell 2000 and adds, somewhat redundantly, that "US equity markets seem to have enjoyed such mechanical purchasing pressure by algo investors."

High Yield Bond Index closes above Intermediate-term resistance

The High Yield Bond Index rallied above Intermediate-term resistance at 197.44, making a 67% retracement of the decline.  The rally made more than three weeks of gains, a normal time for a retracement of this degree. The 7-year Trendline is due for a retest in the near future and with that, a potential Head & Shoulders formation that may wipe out up to two years of gains.  

(Bloomberg)  Corporate-bond funds saw inflows this week in another sign credit markets are improving following a selloff in December.

U.S. high-yield funds saw an inflow of $3.28 billion in the week ended Jan. 16, the biggest net increase since December 2016, Lipper data show. This followed an inflow of $1.05 billion last week.

U.S. junk bonds are on track for the best January in years, with a 3.45 percent return already this month. A dovish Federal Reserve, steady economic growth and lack of issuance are boosting the appeal of this market for fixed income investors, following a steep decline in prices at the end of 2018.

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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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