SPX Rally Loses Momentum

VIX finally put in its Master Cycle low at 13.41 on Monday, rallied to test Long-term resistance on Wednesday’s day of strength, then declined back to close near its low on Friday. That’s nearly a 20% trip in both directions within a week. The Cycles Model shows VIX recovering its strength over the next 2-3 weeks.

(SchaeffersResearch)  The Cboe Volatility Index (VIX) has imploded by historical measures in 2019, falling from a Dec. 26 intraday peak at 36.20 to a Feb. 22 four-month closing low of 13.51. However, a rare technical signal just flashed for the stock market's "fear gauge," which could suggest a short-term spike in volatility, if past is precedent.

According to Schaeffer's Quantitative Analyst Chris Prybal, VIX was trading 33% below its 50-day moving average earlier this week. The last time the index was at least 30% below this trendline was April 1, 2016. Overall, there have been just five other occurrences on record since 1990.

SPX rally loses momentum

SPX lost its upward momentum as it hit the .786% Fibonacci retracement level on Monday. Since then it has consolidated in a narrow range above its supports at 2775.00. It was 62 calendar days (a full Trading Cycle) from the December 26 low to the February 25 high.  

(ZeroHedge)  The buyer strike in US stocks is finally over.

After 12 consecutive weeks of outflows, which saw $50.3BN of equity fund redemptions - the worst start since 2016 - with US stocks funds suffering a $4.6 billion outflow last week even as stocks continued their relentless ascent higher, BofA reports that according to EPFR data, equities finally saw an inflow of $9.1BN in the latest week, the largest since September as the bears finally threw in the towel and joined the CTA, stock buyback and short covering frenzy.

Broken down by style, equity buying was modest and exclusively in "growth" not "value". Specifically, inflows were observed in US large cap ($4.6bn) and US small cap ($0.3bn). A breakdown by sector saw inflows in: consumer ($1.7bn), tech ($1.3bn), healthcare ($0.7bn), real estate ($0.4bn), utilities ($0.2bn), materials ($41mn), while outflows were focused on energy ($1mn), and financials ($0.5bn).

NDX makes a weekly double top

NDX also saw its high at 7161.73 on Monday, but failed to close the week at or above that level after testing Long-term support at 7046.01. The Cycles Model suggests that NDX may have seen its last day of strength of the rally on Friday. There is a potential Head & Shoulders formation beneath it that, if triggered, may erase up to 3 years of gains.

(Bloomberg)  U.S. stocks broke a three-day slide, led by a rally in shares of technology companies, propelling the benchmark S&P 500 to its fifth consecutive weekly gain. Treasuries fell, the dollar strengthened and oil slumped.

The Nasdaq 100 jumped as Amazon announced plans to open new grocery stores and Apple’s chief executive made positive comments, keeping that index on track to post its 10th straight week in the green. The S&P 500 closed above the 2,800 price level for the first time since November after struggling to hold above the threshold all week.

“People are looking for a catalyst for equities to move up,” said Erik Ristuben, the chief investment strategist at Russell Investments Management Co., said in an interview at Bloomberg’s New York headquarters.

High Yield Bond Index Makes a quadruple top

The High Yield Bond Index rallied above the December 4 high, but stalled beneath the October 3 top, making a triple top in the last 5 months. But if you look another eight months earlier, there are four tops, an extremely unusual event. The 13-month span still offers a potential Head & Shoulders formation that may wipe out up to two years of gains when the neckline is crossed.  

(Forbes)  We are living in unusual times and two sets of high yield bond metrics prove it.

High Yield Spread Curve

The high yield spread is the difference in yield between speculative grade bonds and Treasury bonds. It represents the extra interest income that investors receive as compensation for high yield issues’ greater credit risk and lesser tradability, compared to Treasurys. The spread can be measured at various points along the maturity spectrum. For present purposes, let's define the spread curve as the average spread on the longest issues, 15-plus years, minus the average spread on the shortest ones, 1-3 years.[1]

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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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