SPX Rally Continues

 

VIX declined beneath the weekly mid-Cycle support at 14.93 after negating its buy signal beneath Short-term support at 16.06. This week it experienced a delayed Master Cycle low. Once it occurs, there is usually at least 3 or more weeks of rally.

(BloombergTV) In this edition of "Options Insight," Bloomberg's Greg Calderone examines the recent volatility and momentum trades in stocks with Bloomberg's Abigail Doolittle on "Bloomberg Markets: The Close."

SPX rally continues

SPX rallied higher, but the hopes for a new all-time high were dashed this week. Market internals revealed a massive rotation underway but not a lot of new money. 

(YahooFinance) Wall Street was mixed on Friday, with the S&P 500 and the Dow hovering just below all-time highs as cautious optimism regarding easing U.S.-China trade tensions was held in check by a drop in Apple stock.

Tariff-vulnerable industrials helped keep the blue chip Dow in positive territory, which was on track for its eighth straight daily advance, its longest winning streak since May 2018.

All three major U.S. stock indexes looked set to post their third straight weekly gains, capping a week that saw signs of a potential thaw in the trade war between the world's two largest economies that has gripped markets for months.

Apple Inc was the biggest drag on the major stock averages, dropping 1.8% after Goldman Sachs cut its price target for the iPhone maker's shares.

 NDX rally weakens

NDX rallied this week, but was unable to hang on to its gains as momentum stocks underperformed due to a massive rotation to value stocks. NDX was scheduled for a Master Cycle high this week and may have met its time requirement on Thursday without making a new high.  

(ZeroHedge) In the wake of the sharpest Momentum reversal in a decade, Goldman Sachs addresses some common investor questions on the equity market rotation and discuss what we expect going forward.

Q1: What just happened?

In the last two weeks, high momentum stocks have sharply underperformed what had been the equity market’s biggest laggards.

Our Momentum factor tracks the equal-weighted performance of the top 20% vs. bottom 20% of S&P 500 stocks ranked on trailing 12-month returns. The factor has declined by 14% since August 27, which marks the worst two-week return for Momentum since 2009 and ranks in the 1st percentile of historical returns since 1980.

High Yield Bond Index rises above its support/resistance cluster

The High Yield Bond Index rallied above its support/resistance cluster at 208.22 but has not made a new high. The sell signal is temporarily suspended until it declines beneath support again.. The Cycles Model warns the next step down may be a large one.   

(BloombergWarning signs are starting to flash in U.S. credit markets, according to Cantor Fitzgerald LP.

Companies sold around $13 billion of junk bonds this week, the most in more than two years, according to data compiled by Bloomberg. Risk premiums for the securities have dropped more than 1.5 percentage points this year on average, and investors aren’t getting paid much more to buy junk bonds instead of investment-grade, by some measures.

 Relatively risky junk-bond sales like a $300 million offering from Core & Main LP, a sewer and water supply distributor, show that the credit markets keep inflating, Cantor Global Chief Market Strategist Peter Cecchini wrote in a note Sept. 12. Companies are taking on more debt, he said.

Treasuries decline nearly 3%

The 10-year Treasury Note Index declined beneath three support levels, putting it on a sell signal. An investor buying at the peak would have already lost two years’ income against the net asset value in the last 10 days. Thus far the turmoil in the other markets is “under the surface” due to a rotation from momentum to value stocks. There appears to be another week or more in this sell-off, according to the Cycles Model.

(ZeroHedge) One month ago we explained why, regardless of the outcome of the US-China trade war and the fate of the US economy, the Fed may have no choice but to resume QE in the coming weeks - potentially as early as 4Q - in order ease funding pressures expected during the coming wave of accelerated Treasury supply as the US Treasury seeks to rebuild its cash balance up to $350 by mid-November.

And while the Treasury has taken its time in rebuilding the cash over the past month, with the latest Treasury cash balance just $184BN as of Sept 11, it only means the ramp up in the coming weeks will be that much more acute. So acute in fact, that as BofA rates strategist Mark Cabana writes today, "the USD funding storm has been brewing for months and is likely to make landfall in Q4."

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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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