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]

Treasury bonds may have had a false breakout

The 10-year Treasury Note Index completed its Triangle formation with a breakout to the downside. However, the termination of Triangles often ends up with a false breakout, followed by a swift reversal in the opposite direction. The Cycles Model calls for a resumption of the rally with the Cycle Top as the target.

(CNBC)  U.S. government debt yields jumped off their session lows Thursday after the first print on fourth-quarter gross domestic product growth topped Wall Street’s expectations.

At around 2:03 p.m. ET, the yield on the benchmark 10-year Treasury note, which moves inversely to price, was higher at around 2.719 percent, while the yield on the 30-year Treasury bond was higher at 3.096 percent.

U.S. economic growth was better than expected as 2018 came to a close, with GDP rising 2.6 percent, according to a first estimate the government released Thursday.

The Euro may have another false breakout

The Euro bounced above Intermediate-term resistance at 13.75, closing above it.  However, the prior “breakouts” were head-fakes and this one is likely to meet the same fate.  There is a potential Head & Shoulders formation beneath 111.00 that suggests a downside target that may be attained in the next month.  

(Bloomberg)  As Europe’s economic outlook darkens, more funds are turning against the euro.

Manulife Asset Management, which oversees $364 billion globally, is shorting the currency in one of its funds on worsening economic data, growing political fault lines and the European Central Bank looking increasingly likely to engage in more easing. The risk in holding European assets means M&G Investments portfolio manager Wolfgang Bauer is short the euro as a hedge.

“We are short the euro against the dollar in our fund,” said Grant Peterkin, a senior managing director at Manulife’s Absolute Return Rates Fund. “This is purely because we feel that data, especially in core Europe, has deteriorated pretty rapidly. That’s coupled with a central bank turning a little more dovish on expectations that data might continue to worsen over the next three to six months.”

EuroStoxx breaks above Long-term resistance

The EuroStoxx rally broke through Long-term resistance at 3299.06 and closed above it. The Cycles Model suggests Cyclical strength may peak early next week, with weakness to follow through the middle of March. A sell signal may be made beneath the long-term trendline at 3250.00.

(CNBC)  Investors don’t seem to understand the importance of China’s economy for European stocks, particularly for Germany and Northern Europe, according to Philip Saunders, co-head of multi-asset at Investec Asset Management.

Speaking to CNBC’s “Squawk Box” on Wednesday, Saunders said that Chinese demand has “been a very significant driver of growth” for those shares over the last few years. And, when that demand slips, it’s led to declines.

“The extreme weakness of (European) markets last year was connected to the Chinese credit cycle, which now shows signs of turning around,” Saunders said, referencing the slew of fiscal and monetary stimulus measures implemented by Beijing in 2018 and the beginning of this year.

The Yen appears to have lost its last support

The Yen fell beneath Long-term support at 89.93, where it appears that the decline may continue. However, the Cycles Model suggests a reversal may be at hand. Rising above Long-term support/resistance may give a powerful buy signal.

(Reuters) - The dollar rose on Friday, hitting 10-week-highs against the yen, as risk appetite improved amid a more upbeat outlook on the euro and the prospect of a trade deal between China and the United States.

“Risk-on sentiment amid a global stock rally worked in favor of the euro and commodity rivals like the loonie, Aussie and kiwi dollars, while rising Treasury yields have pulled the greenback out of its biggest hole in weeks,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

Friday’s slew of weaker-than expected U.S. economic data weighed on the dollar initially, especially the manufacturing index, but the greenback rallied to trade higher on the day.

Nikkei loses momentum

The Nikkei lost some of its upward momentum earlier this week as it appears to be completing its rally as it approaches the 50% retracement (21697.00) of last Year’s decline. The Cycles Model turns negative early next week, remaining so through late March. The bounce may be running out of time.

(Reuters) - Tokyo’s Nikkei share average surged to 2-1/2-month highs on futures buying after the dollar rose against the yen on the back of strong U.S. economic growth, giving Japanese exporters a boost.

The Nikkei rose 1.0 percent to 21,602.69, the highest close since Dec. 13. For the week, the benchmark index gained 0.8 percent and posted its third straight weekly gain.

Exporters took advantage of a weaker yen after the dollar rose 0.4 percent to 111.73 yen, the highest level since Dec. 20.

“Short-term investors are seen buying back futures while they pick up cheap cyclical shares as the yen is weaker,” said Naoki Fujiwara, a fund manager at Shinkin Asset Management.

U.S. Dollar closes above Intermediate-term resistance

USD declined to challenge Short-term support at 95.97 on Thursday, but rallied back above Intermediate-term resistance at 96.27, where it closed for the week. The Cycles Model suggests that the short-term strength may have passed. Once back beneath Intermediate-term support/resistance, it may develop a sell signal.

(CNBC)  The dollar rose on Friday, hitting 10-week-highs against the yen, as risk appetite improved amid a more upbeat outlook on some major economies of the world and the prospect of a trade deal between China and the United States.

The dollar index, a gauge of the currency’s value against six major currencies, rose 0.4 percent on Friday, posting its largest daily percentage gain in two weeks.

“Looking at the whole G10 (Group of 10 major currencies) space, there has been more follow-through from U.S.-China trade optimism that was already in the process of getting priced in during the month of February,” said Stephen Gallo, European head of FX strategy, at BMO Capital Markets in London. “Meanwhile, one of the biggest boosts to the U.S. dollar is coming from a weak yen,” he added.

Gold closes beneath its uptrend line

Gold plummeted beneath its Diagonal trendline and round number support at 1300.00. Last week’s sell signal produced an immediate result.The Cycles Model suggests another 2-3 weeks of decline ahead.  The Head & Shoulders formation matches targets with the already existent Broadening Wedge formation.

(CNBC)  Gold prices fell 1 percent to its lowest level since the end of January on Friday, and was headed for its biggest weekly fall in 6-1/2 months, as the dollar recovered and global stock advances spurred risk-taking.

Spot gold was $1,295.99 an ounce at 2:04 pm ET, having fallen below the key 1,300 level for the first time since Jan. 28. It is down about 2 percent so far this week, its biggest fall since the week ending Aug. 17.

U.S. gold futures settled $16.90 lower at $1,299.20.

Crude reverses at mid-Cycle resistance

Crude oil challenged mid-Cycle resistance on February 22, then again on Friday, March 1. Both last week’s and this week’s challenges were rebuffed. The Cycles Model calls for a 2-3 week decline that may challenge the Cycle Bottom at 40.43.

(Forbes)  Up 140% since the shale revolution took flight in 2008, the U.S. has seen a meteoric rise in crude oil production

The numbers continue to amaze and surpass all expectations from even the most well-financed banks and modelers.

U.S. crude oil output was long thought to have peaked back in 1970 at just under 9.7 million b/d.

Now, EIA estimates that we have touched 12 million b/d for the week ending February 15.

This surge has continue to obliterate "Peak Oil" theory, the stories of which topped out in July 2008 when oil prices hit a whopping $145 per barrel.

Shanghai Index approaches mid-Cycle resistance

The Shanghai Index continued its rally to nearly reach the 50% retracement of last year’s decline and the mid-Cycle resistance at 3063.56. The Cycles Model now suggests a potential decline to new lows with the next Cycle Bottom approaching in late March. It may decline as far as 2000.00-2200.00.

(MarketWatch)  On Thursday, MSCI  MSCI, +2.97% said it would quadruple the contribution of Chinese companies to the MSCI Emerging Markets benchmark 891800, +0.06%  over the course of this year, upping their share to 3.3% and giving international investors the option to gain more exposure to Chinese stocks listed on the Shanghai Composite Index SHCOMP, +1.80%  or Shenzhen Composite Index 399106, +1.20%

With the higher weighting of mainland equities, international capital will likely flow into China’s stock market, integrating the People’s Republic further into global capital markets. The introduction of the Stock Connect trading program, which allows two-way trading between Hong Kong and the mainland, has already ramped up flows.

The Banking Index stalls at resistance

BKX tested Long-term resistance at 102.15 on Friday, but was rebuffed. It closed beneath mid-Cycle resistance at 100.59. The Cycles Model suggests a probable decline over the next 3-4 weeks. Should BKX decline beneath the neckline, the structure may become more bearish.

(SeekingAlpha)  Recent attention on Warren Buffett's stock picks has focused on his large Apple (NASDAQ:AAPL) position, which is newsworthy because it is the single largest position in Berkshire Hathaway's (NYSE:BRK.A) (NYSE:BRK.B) portfolio and also because it goes against his traditional views on technology stocks as being too hard to understand. However, a close reading on his current portfolio demonstrates that Buffett is making an even larger bet on big US banks.

As of December 31, four of the largest commercial banks - Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC), JPMorgan Chase (NYSE:JPM), and U.S. Bancorp (NYSE:USB) - made up 28% of Berkshire Hathaway's $183 billion portfolio - or approximately $52 billion. If you add in Berkshire's stakes in other financial companies and banks including American Express (NYSE:AXP), Bank of New York (NYSE:BK), Goldman Sachs (NYSE:GS), PNC Financial Services (NYSE:PNC), M&T Bank (NYSE:MTB), then the total goes to 41% of Berkshire's current equity portfolio. This article will focus on the three largest commercial banks, but nevertheless, Buffett is betting big on US financial companies.

(Bloomberg)  Swedbank AB regularly topped rankings of Europe’s safest banks half a decade ago. On Thursday, Sweden’s finance ministry told regulators to explain how the venerable institution had become enmeshed in allegations of money laundering.

Like Danske Bank A/S of Denmark, Swedbank built its reputation in one of the world’s richest corners, until allegations tying the lenders to Eastern European strongmen, North Korean weapons dealers and Russian oligarchs wiped billions of dollars off their market values.

Danske in 2018 admitted to being at the center of a $230 billion dirty money scandal and last week, Swedbank was linked to the case. The common thread is allegations that the Nordic banks, which piled into their neighbors across the Baltic Sea in the 2000s after Estonia, Latvia and Lithuania joined the European Union, enabled money laundering via their operations in those countries.

(ZeroHedge)  Months before Beijing abandoned its deleveraging plans and approved a gargantuan 4.64 trillion yuan credit injection (including the "shadow" credit that the government had vowed to curb) - which, as we pointed out at the time, resembled the January 2016 "Shanghai Accord" intervention (when Beijing famously intervened to stop global stock markets from careening off a cliff) - a team of S&P credit analysts warned in an October report that China's debt burden might be much larger than previously believed.

Against a backdrop of soaring corporate defaults, the team from S&P warned that investors could safely tack on another ~40% of debt/GDP to China's total (with even more likely hidden from view) after a careful analysis of a new source of shadow debt being tapped by local governments to further their development plans. These Local Government Financing Vehicles, or LGFVs, represented "an iceberg with titanic credit risks" as local officials had increasingly turned to these sources of shadow financing to finance development projects while bureaucrats in Beijing struggled to turn off the credit taps.