VIX tested its Cycle Top at 20.18, then pulled back to close above Intermediate-term support at 15.76. It remains on a buy signal. The Cycles Model shows probable strength for the VIX for the next two weeks.

(Bloomberg)  It’s summer. But in the Florida offices of Raymond James & Associates and at brokerages around the U.S., February is still in the air.

Repercussions from that month’s rout won’t go away -- not in chats with clients, not in the market itself. Gone are the days when you could buy an exchange-traded fund tracking the S&P 500 and turn off the ringer. Look away for five minutes, and some customer is on the phone demanding to know what the latest swerve did to his portfolio

SPX saved by the bounce

SPX was headed for a YTD loss earlier this week until a bounce off Intermediate-term support at 2703.56 saved the quarter-end gain.It is now on a sell signal. Equities are entering their negative season, so care should be taken to protect what small profits there are in 2018.

(ZeroHedge)  The bounce in the S&P in the last 24 hours (off unchanged for the year) has saved the major US equity market index from its worst start to a year since 2010.

2018 has also been a 'different' year in terms of volatility.  As Bloomberg notes, a procession of awful days is battering investor nerves. While most of 2018’s sessions have been up ones, when the market falls, it falls hard. Single-day drops are 20 percent bigger than gains, on average, the widest gap in seven decades.

NDX gaps down, closes above its “sell signal”

The NDX gapped down on Monday and could not fill the gap, leaving it technically vulnerable to a sell-off. However, it closed above Short-term support at 7031.80. The Cycles Model suggests that the next two weeks may bring pain to equities. The period of weak seasonality may be about to begin.

(Bloomberg)  What looked like a sturdy rally turned into another display of the technology sector’s vulnerability to trade tensions, with the stock market’s favorite industry pacing a reversal that steepened into the close.

Up as much as 0.9 percent an hour into the session, tech stocks gave it all back and more after Donald Trump’s top economic adviser, Larry Kudlow, reiterated the White House’s hard line on commerce. From peak to trough, the Nasdaq 100 Index retreated almost 161 points, the biggest plus-to-minus swing since April 24.

“There is a lot of uncertainty regarding what China can do against tech -- can they hold up deals, can they do anything else to hurt the industry?” said Mark Kepner, an equity trader at Themis Trading LLC. “There is a lot of nervousness.”

High Yield Bond Index continues its sideways consolidation

The High Yield Bond Index has challenged Long-term support at 188.97 but closed above it for the week. MUT remains on a sell signal beneath the trendline. The sell signal is confirmed beneath Long-term support.  

(MarketWatch)  The flare-up in market volatility has left investors scratching their heads when it comes to the relative outperformance of the safest segment of the corporate bond universe over its riskiest.

With stocks coming under pressure this year, with the Dow DJIA, +0.23% and the S&P 500 SPX, +0.08% struggling to reclaim their February all-time highs, bond buyers would be expected to turn their noses at high-yield issuers with burdensome debt loads and take shelter in the bonds of investment-grade firms, which carry more robust balance sheets. But instead, the two ends of the corporate debt market appear to have reversed their traditional roles, with investment-grade bonds struggling and high-yield debt, or ‘junk’, remaining at their lofty valuations.

UST emerges above Intermediate-term resistance

The 10-year Treasury Note Index rose above Intermediate-term resistance at 119.95, putting it on a buy signal. The Cycles Model may allow an inverted Cycle over the next two weeks. If so, we may see UST rally back toward the Head & Shoulders neckline near 123.00. The Commitment of Traders shows the Commercial traders are heavily long.

(ZeroHedge)  Concluding the week's trio of coupon auctions, moments ago the Treasury sold $30 billion in 7 Year paper at a yield of 2.809%, "on the screws" with the When Issued, and just like this week's prior 2 and 5-Year auction, a decline from last month's 2.93%. This was the second consecutive "belly" auction that has seen the high yield decline after hitting a cycle high of 2.952% in April.

The internals were average, with Indirects dropping from 65.5% last month to 60.6%, below the 64.7% 6 month average; at the same time Directs increased from 12.9% to 15.2% while Dealers were left with 24.1%.

The Euro resumes its corrective rally

The Euro resumed its rally after a jittery week of testing its lows. The Cycles Model suggests another week of strength to complete the retracement.    

(Bloomberg)  The euro and Italian bonds rallied after European Union leaders agreed to a package of measures to help the country deal with migration, an issue that had threatened to create political rifts in the region.

The common currency surged by the most in a month and Italian securities jumped across the board, with yields on the 10-year benchmark dropping to the lowest level this week. Italian stocks rallied as much as 1.6 percent. Rookie Italian Prime Minister Giuseppe Conte said the country was “no longer alone” following the deal to stem the flow of migrants into the bloc and spread the burden of handling those who do arrive.

EuroStoxx bounces at mid-Cycle support.

The EuroStoxx 50 Index extended its decline to mid-Cycle support at 3344.09, where it bounced. It remains on a sell signal beneath Long-term and Intermediate support. The Cycles Model calls for a Master Cycle low in mid-July.

(Bloomberg)  Investors’ patience with European stocks is wearing thin.

This year was supposed to be the moment when European equities would finally catch up with the U.S. stock market, lifted by a revival in economic growth and corporate earnings while worries over the region’s populist leaders was set to fade. Instead, Europe has been the worst performer among developed countries in the first half of the year.

Unnerved investors, including Schroders Plc, have pulled out of overweight positions on concerns spanning from Italy’s political crisis to the damage from a simmering trade war and the European Central Bank’s dithering on the interest rate outlook. The level of disenchantment has been so strong that the region’s stock valuations have tumbled to near 2016 levels, prompting a number of contrarian asset managers to start shopping for bargains.

The Yen declines beneath Long-term support

The Yen declined beneath Long-term support at 90.87 this week, reconfirming its sell signal. The Cycles Model suggests a probable decline through mid-July in a resumption of the decline toward “point 6.”  

(Reuters) - The dollar held firm versus the yen on Friday, supported by quarter-end buying as well as an absence of any fresh escalation in trade-related tensions between the United States and its major trading partners.

Still, trade worries look set to dominate the market with traders increasingly worried about the impact of Sino-U.S. trade disputes on China’s economy.

The dollar firmed to 110.49 yen, having made gains for the last three sessions and nearing this month’s high of 110.905, helped by seasonal buying at the end of quarter and half-year.

The yen, which tends to be bought on signs of economic stress because of expectations of Japanese asset repatriation, also lost some support after U.S. President Donald Trump indicated he would take a softer approach on Chinese investments in U.S. technology companies.

Nikkei challenges its double support

The Nikkei challenged both Intermediate-term and Long-term support at 22080.90, but managed to close the week above them. The potential for a decline over the next month to the Cycle Bottom at 15175.99 is very high.

(NASDAQ)  The Nikkei 225 continues to wilt as trade-war worries and higher oil prices take some wind out of stock markets worldwide.

So much for the fundamentals. How much technical trouble the index is in is more debatable, even if the more obvious signs do not look great if you're a bull.

The Tokyo blue-chip benchmark has been in clear retreat ever since making its mid-June highs around 23000 in the middle of the month. Moreover, those highs themselves must count as 'lower highs' as they're below the previous significant peaks which were scaled on May 21, if only by a whisker.

U.S. Dollar probes mid-Cycle resistance a second time

USD probed mid-Cycle resistance a second time this week, making a marginal new high. However, it did not break out above mid-Cycle resistance at 95.45. The Cycles Model calls this a Cycle Inversion, suggesting a key reversal may be at hand.  

(Bloomberg)  For steadfast dollar bears, a two-month uptick in the currency does not a trend make.

Despite a 5.8 percent advance since March for Intercontinental Exchange Inc.’s U.S. Dollar Index, long-term outlooks are trending downward once again, indicating many strategists aren’t buying the greenback’s recent rally. In fact, forecasts compiled by Bloomberg suggest the U.S. currency is set to decline by 11 percent through the end of 2019.

The gauge has climbed to the highest since July as trade-war fears escalate and short-end Treasury yields grind higher amid the Federal Reserve’s well-telegraphed march toward tighter monetary policy. Yet banks such as BNP Paribas SA and Credit Agricole SA say the factors supporting the dollar could fade into the second half of 2018 and beyond.

Gold enters “bounce window”

Gold continues its decline while in a “bounce window,” suggesting that it has made its time target, but may have a lower price target. A chart formation (not shown) suggests 1230.00 – 1235.00. Should it occur early next week, the Cycles Model suggests a quick bounce to the mid-Cycle support at 1278.92 may follow.

(Reuters) - Gold prices rose on Friday from six-month lows as a weaker U.S. dollar prompted

bargain hunting, but bullion was on track for weekly and monthly declines and analysts said many speculators maintained short positions, leaving prices vulnerable to further losses.

Spot gold added 0.4 percent at $1,252.81 an ounce by 1:34 p.m. EDT (1734 GMT). On Thursday, it touched $1,245.32, its lowest since Dec. 13, 2017.    

U.S. gold futures for August delivery settled up $3.50, or 0.3 percent, at $1,254.50 per ounce.

"Gold is finding support from the weak U.S. dollar and firm euro...and is at least recouping the losses it incurred yesterday," Commerzbank said in a note.

Crude blows out the trendline

In an unexpected move, Crude rallied back above the Broadening Top trendline to make a new high not seen since November 2014. However, a Cycle turn is due by next week. The Cycles Model now suggests a probable decline through the month of August with a 50% loss.

(GlobeAndMail)  Oil prices rose on Friday, rallying on concerns that U.S. sanctions against Iran would remove a substantial volume of crude oil from world markets at a time of rising global demand.

U.S. crude was up more than 8 percent on the week, while Brent crude gained more than 5 percent.

“Now everyone is focused on the issue of spare capacity and the future,” said Tamar Essner, Nasdaq’s lead energy analyst. The market’s attention has shifted to a spate of disruptions after weeks of focus on supply coming online from OPEC and other major producers, she said.

U.S. crude rose 70 cents a barrel to settle at $74.15, on track for a weekly rise of 8.2 percent. The session high of $74.43 was the highest since Nov. 26, 2014.

Shanghai Index declines beneath the Cycle Bottom

The Shanghai Index declined through its Cycle Bottom at2865.76, closing beneath it. There may be a few days of testing that support/resistance zone before resuming its decline. The narrow Cycle bands indicate the probability of increased volatility, especially since the band is broken on the downside.

(ZeroHedge)  Being huge, consequential and technologically advanced, China isn’t normally lumped into the “emerging” category with Brazil and Argentina. To most observers they’ve already left the kids table and are now seated with the developed-world adults.

But that might be premature. A big part of China’s economic ascendance was purchased with borrowed money – including a lot of US dollars – and came at the perceived expense of US well-being. And the US now wants to redress what it sees as unfair terms of trade in the most abrupt way possible.

This leaves China with huge debts to service and – possibly – a declining trade surplus with which to do it.

The Banking Index breaks down beneath the neckline

BKX declined beneath Long-term support at 106.40 and the Head & Shoulders neckline at 105.00. This confirms the sell signal for BKX. The Cycles Model suggests a month-long decline ahead.

(NYTimes) The nation’s largest banks, back to making big profits a decade after the financial crisis, are set to pay out billions of dollars to their shareholders.

The banks’ regulator, the Federal Reserve, signed off on the payments after the banks passed annual stress tests, whose results came out on Thursday. The Fed carries out the tests, which were introduced after the crisis, to assess how big banks would fare in a deep recession.

After passing, the six largest United States institutions are now free to distribute over $125 billion in stock buybacks and dividend payments. One revealing exercise is to compare the size of the banks’ requested payouts with the profits that analysts expect the banks to make in the second half of this year and the first half of next, the period covered by the capital plans. On average, those six banks plan to distribute 102 percent of their profits to shareholders.

(Bloomberg)  It’s time for investors to stop fighting the last war. The next downturn most likely won’t be triggered by another meltdown of the financial system.

The Federal Reserve has concluded its stress test of big banks, a look into whether they have enough money set aside to withstand another 2008-type financial crisis. The Fed announced last week that all 35 banks examined are sufficiently capitalized. It disclosed the second and final round of results on Thursday afternoon, giving all but one bank a passing grade and the go-ahead to return money to shareholders.

Investors didn’t need the Fed to tell them that banks are in better shape than they were a decade ago. The signs are everywhere. Profits have fallen across the industry since the financial crisis, an  indication that banks are taking on less risk. Profit margins for the S&P 500 Financials Index averaged 9.3 percent from 2008 to 2017, down from an average of 13.8 percent from 2003 to 2007, the years leading up to the crisis. Return on equity is down to an average of 5.2 percent from 14.5 percent over the same periods.

(ZeroHedge)  One day after Deutsche Bank's US operations failed the Fed's "stress test", it appears that this outcome had been priced in by the market as DB's stock price rose as much as 3% in early Friday trading...

... although looking slightly higher in the capital structure reveals ongoing skepticism, with the yield on DB's 6% contingent convertibles rising, and set to hit 10% any moment.

However, much to the chagrin of investors in the biggest European lender, the barrage of bad news facing Deutsche Bank is not nearly over, and as the WSJ reports, the sharp drop in DB's stock price could mean the exit from a major European index, jeopardizing its inclusion in the giant funds that track that benchmark, and assuring new all time lows as mutual fund liquidate their holdings.

(ZeroHedge)  Tougher Federal Reserve stress tests forced six U.S. banks to scale back proposals for doling out more cash to shareholders, while failing Deutsche Bank's US unit on "qualitative" grounds:

• The Fed failed the U.S. subsidiary of Deutsche Bank AG, citing “widespread and critical deficiencies” in its planning, limiting the unit’s ability to send capital home to Germany.

• Goldman Sachs Group Inc. and Morgan Stanley -- agreed to freeze payouts at previous years’ levels. Both banks were required to rein in their dividend and stock buyback plans after the Fed warned their initial, more bullish, proposals would have left them with inadequate capital buffers.

• JPMorgan Chase, American Express, KeyCorp and M&T Bank Corporation also rethought their original plans for payouts to shareholders, although they got the thumbs up after submitting more modest plans in the past week, the Fed said.