E Interesting Times...

 

VIX may have reached a second Master Cycle low in less than a month, patterned after the May-June lows last year.  Volatility shorts have been having a field day until now. Today is options and futures expiration for the VIX. The conditions are ripe for a reversal.

-- The NYSE Hi-Lo Index made a lower high today, adding evidence that the Master Cycle is complete as of February 1. The Cycles Model tells us to expect a significant low by mid-March.

(ZeroHedge) While stocks continue their scorching post-Christmas rally, the big story so far of 2019 is not so much the move in the market which was to be expected once the Fed capitulated to petulant traders, but the fact that investors have so far shown no faith in the sustainability of the rally and instead have been withdrawing capital from equity funds for the duration of the rally.

Confirming this, the latest BofA Fund Managers Survey showed that professional investors' allocation to global equities tumbled 12% to just net 6% overweight, the lowest level since September 2016, and the biggest MoM drop relative to the performance of global equities (+7% from Jan 4th start of Jan'19 survey) to Feb 7th (end of Feb'19 survey) on record.

-- The SPX rally extended into its (inverted) Master Cycle high today, closing above its 200-day Moving Average at 2743.78. Cycles require meeting both time and price targets.  In this case, the time was extended to accommodate the price target. The next agenda item is a retest of the December low. 

(Bloomberg) U.S. equities put in their fourth straight session of gains as optimism over trade negotiations countered some of the jitters that Senator Marco Rubio triggered when he announced a bill to tax buybacks on equal footing with dividends.

Rubio’s tweet Wednesday about his buyback proposal slowed an advance in the S&P 500 Index, but the benchmark still finished higher, even after Netflix dragged on the communication-services sector late in the day. The dollar gained and Treasuries edged lower as data showed U.S. inflation remained contained.

Equities have been climbing this week in part on news that President Donald Trump is open to extending a March 1 deadline to raise tariffs on Chinese products if the two sides are near an agreement. High-level talks between the U.S. and China are set for later this week. Also buoying stocks was news that Trump is closer to accepting a border spending deal, averting another government shutdown.

-- NDX may have completed its rally this morning by challenging the 200-day Moving Average at 7049.52 but closing beneath it.   Should it reverse, it will have completed the right shoulder of a new Head & Shoulders formation.  If valid, new downside lows may be made.  I will publish the target at the break of the neckline.

(ZeroHedge) One of the bigger "mysteries" of the market in 2019 has been how, with virtually everyone selling US equities, something confirmed not only by fund flow data...

...  but also the latest BofA Fund Manager Survey, which showed that that professional investors' allocation to global equities tumbled 12% to just net 6% overweight, the lowest level since September 2016, and the biggest MoM drop relative to the performance of global equities (+7% from Jan 4th start of Jan'19 survey) to Feb 7th (end of Feb'19 survey) on record...

... have stocks managed to stage not only a dramatic rebound from the December lows, but also enjoyed the best January since 1987, with the rally continuing well into February. In fact, as shown in the chart below, the YTD performance in the S&P is tied for second best since 1990 (on par with 1997) and only trailing the return of the 1991 market.

The High Yield Bond Index also made a new retracement high today. The High Yield Index is on the same or similar Cycle with Equities. A Major low appears to be due in mid-March. 

(Bloomberg) Need more proof that investor appetite for risk-taking is returning in the U.S. junk-bond market? Take a look at the debt being offering by Ascend Learning, the educational software maker acquired two years ago by Blackstone Group and the Canada Pension Plan Investment Board in a leveraged buyout.

The $300 million high-yield offering is the first since July that will be used to fund a dividend to a company’s owners, a purpose that’s typically seen by investors as riskier than other types of deals. It was the first such deal to launch since Bruin E&P Partners sold $600 million of notes in July to, among other things, fund a payout to its equity sponsors, data compiled by Bloomberg show.

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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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