SPX Reverses Beneath Long-Term Support

VIX put in a lower (Master Cycle) low at 13.38 on Monday, challenging Long-term support/resistance at 16.31. It made a 37% rally from its low to the high before settling back beneath it at the close. The Cycles Model shows VIX making more impressive gains next week.  

SPX Reverses Beneath Long-Term Support

After nearly a month above Long-term support at 2747.53, SPX declined and closed beneath it this week. This puts it on a sell signal with a potential of retesting the December low.

(Bloomberg)  A $10 trillion global stock rally is showing signs of fragility, and you can blame the economy.

Both the American and European benchmarks posted their biggest weekly losses since the darkest days of December’s sell-off, with the S&P 500 dropping 2.2 percent. While the week ended with the European Central Bank’s dovish turn and President Donald Trump predicting a “very big spike” in U.S. markets once a trade deal with China is reached, stock declines were a sign that after a sharp two-month rally, risk appetite has weakened and the bar for positive surprises has been raised.

Reality is starting to bite. Riskier stocks are falling back to Earth. Investors are pulling money from equities and pouring it in bonds. And trend-following quantitative funds are cutting their U.S. equity positions.

 NDX makes a key reversal

NDX made a daily Key Reversal on Monday, then a weekly Key Reversal, closing beneath Long-term support at 7035.42 on Friday. It may now be on a sell signal. There is a potential Head & Shoulders formation beneath it that, if triggered, may erase up to 3 years of gains.

(ZeroHedge)  Elizabeth Warren has finally found some common ground with President Trump.

In her latest soaring policy pronouncement, Elizabeth Warren on Friday is preparing to announce a new plan calling for the breakup of the biggest tech firms - with a focus on Alphabet, Facebook and Amazon - to combat their abusive practices and anti-competitive behavior. Her proposal comes as the Trump Administration takes its first tentative steps toward breaking up big tech with a new FTC task force. President Trump has repeatedly accused Amazon of being a monopoly and accused it of killing jobs and stifling competition.

According to the New York Times, Warren plans to officially announce the policy during a stump speech in Long Island City, the Queens neighborhood where Amazon had planned to open one of its HQ2s before pressure from local progressive politicians prompted the company to pull out.

High Yield Bond Index reverses

The High Yield Bond Index also had a Key Reversal on Monday.  However, the weekly decline following was not as deep as equities’. The potential Head & Shoulders formation appears to be still in play. 

(Barron’s)  High-yield bonds outperformed investment-grade debt in the first two months of this year—and are now so expensive that Martin Fridson, chief investment officer at Lehmann, Livian, Fridson Advisors, says that investors should shift their cash into higher-quality bonds.

The back story. After a steep selloff put a deep freeze on high-yield bond issuance at the end of last year, the market has rebounded. The high-yield bond market posted a 6.4% total return in the first two months of the year, and the iShares iBoxx $ High Yield...

Treasury reverse after a fake-out breakout

The 10-year Treasury Note Index made a fake-out move last week that was quickly reversed. It closed above mid-Cycle support at 122.50, putting it on a buy signal. The Cycles Model calls for a continuation of the rally with the Cycle Top as the target.

(Bloomberg)  Bond-fund managers are starting to whisper about the prospect of more Federal Reserve quantitative easing to fight the next U.S. downturn, underscoring just how acute concerns over flagging global growth have become less than three months after the central bank last raised interest rates.

Gene Tannuzzo at Columbia Threadneedle says the likelihood the Fed resumes bond buying in 2020 is increasing as a rising tide of risks prompt monetary officials the world over to pivot toward more accommodative policy. Thomas Atteberry of First Pacific Advisors sees the next U.S. recession occurring in one to two years, and is positioning for the return of QE by moving into three- and four-year Treasuries, as well as mortgage pools with 10- to 15-year amortizations.

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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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