Where’s The Santa Rally?

VIX eased down to challenge the weekly short-term support at 20.48 on Thursday. On Friday it bounced to close above its Cycle Top support/resistance at 21.25. Wall Street doesn’t seem to be alarmed. See the article below.

(Bloomberg)  Wall Street is making peace with the new normal of higher volatility as stocks careen between agonizing sell-offs and sudden rallies.

After the gut-wrenching $2.5 trillion wipeout in the S&P 500 since early October, traders are resting at relative ease as they prep for market bumps down the road.

A measure of expected changes in the Cboe Volatility Index is sitting near its lowest level since 2016 versus the underlying fear gauge, while demand to hedge tail risks is at multi-year lows.

SPX bounced at the neckline, round trips back to were it started

SPX challenged the Head & Shoulders neckline at 2583.23 on Monday, then made a near-50% retracement before losing nearly all of its gains at the close of the week. The sentiment that this action is only a test of the low is fading fast. The Cycles Model still holds out for another week or more of decline.

(Bloomberg)  U.S. stocks closed at their lowest level since April, with Treasuries rising alongside the yen, as mounting concern over the health of the global economy overshadowed positive trade developments and signs of strength from the American consumer.

The S&P 500 Index tumbled 1.9 percent Friday, after testing February lows, erasing the week’s gains. Health-care and technology stocks were among the biggest decliners. The Dow Jones Industrial Average sank almost 500 points, led by Johnson & Johnson’s biggest rout in years amid mounting legal peril. Retailers retreated even after monthly data indicated U.S. consumers are still spending. Oil and gold fell.

NDX is repelled at Short-term resistance as bounces become weaker

NDX attempted a rally to Short-term resistance at 6835.08, but couldn’t hold its gains. The Cycles Model suggests weakness may extend for at least another week with potentially devastating results.  The Head & Shoulders neckline is in striking distance, which may accelerate the decline. The Long-term (7-year) trendline is at 6000.00.  

(CNN)  Earlier this year, tech stocks were on fire. Now many are struggling, and their prospects don't seem to be getting any better.

Tech has been rattled by the escalating trade war between the United States and China. Relations between the two countries could turn even more sour after Chinese tech giant Huawei's chief financial officer was detained in Canada.

Meng Wanzhou's arrest at the request of the United States sent shock waves through global stock markets last week. Chinese tech stocks were among the hardest hit.

Meanwhile, a Chinese court banned the sale and import of most iPhone models. The practical effect of the injunction is not yet clear. The ruling was announced publicly Monday but put into effect last week. Apple (AAPL) said in a statement that all iPhone models remain available in China.

High Yield Bond Index reverses most of its gains

The High Yield Bond Index made a new low on Monday, then rallied back up to the Long-term trendline at 200.14. However, it could not keep those gains, ending the week at a loss. It is on a sell signal, but confirmation may be found beneath Long-term support at 194.10.  

(ZeroHedge)  While the market's frenzied attention has lately shifted to the cracks appearing in the leveraged loan market, which as we reported last night is seeing the "wheels come off" following record outflows, a collapse in loan prices, massive original issue discounts, pulled deals, banks retaining loans on their books unable to find buyers and a general sense that the market is about to freeze, one should not forget the original bogeyman that many believe will be the cause of the next credit crisis when the upcoming recession finally hits: a wholesale downgrade of investment grade (or BBB) rated companies into the junk space as rating agencies finally wake up to the reality of what the combustible mix of record debt, declining cash flows and a contracting economy mean for US corporations.

And it is here that things are once again moving from bad to worse.

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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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