E VIX Broke Above The Head & Shoulders Neckline

VIX broke above the Head & Shoulders neckline at 30.00 on Christmas Eve, then pulled back to retest neckline support today. The VIX has been on a buy signal since October. There appears to be no commentary on the VIX in the media.

-- The NYSE Hi-Lo Index shows its bearish side by continuing to close beneath the Cycle Bottom resistance. The Cycles Model anticipates a further decline through the end of December. These are daily numbers, not cumulative.

(ZeroHedge) For years, as the market rose in seemingly uninterrupted fashion buoyed by trillions in excess central bank liquidity and algos programmed to buy any dip while frontrunning each and every buy order, virtually nobody - except for a few "fringe", "fake news" blogs - complained about the threat posed by algo trading and the quiet but dire deterioration in market liquidity.

Now that the S&P has finally suffered its first bear market in a decade, the mass media is out in full force looking for scapegoats and, predictably, in an attempt to deflect attention from the biggest, and only, culprit behind each and every bull-bust cycle namely the US central bank, has focused on "computerized trading."

-- Today’s rally in the SPX was one for the records, but still a bear market bounce. This may be enough to relieve the oversold condition. However, there is more downside risk this week, according to the Cycles Model.    

(ZeroHedge) Last Friday, when stocks were tumbling, we reported, "some good news for the bullswhich was lost in the overall chaos over the latest mutual fund liquidation discussed earlier.

And no, we did not anticipate that President Trump would activate the Plunge Protection Team over the weekend: the good news in question was that as Wells Fargo calculated U.S. defined-benefit pensions fund would need to implement a "giant rebalancing out of bonds and into stocks" - in fact the biggest in history - with the bank estimating roughly $64 billion in equity purchases in the last trading days of the quarter and year, prompting the banks to ask if traders are about to make pension rebalancing "great" again.

Judging by today's market action, the answer is a resounding yes, even though as Wells warned investors and traders looking for a desperately needed respite from market gyrations "may have to deal with yet one more seismic bout of volatility before Dec 31 finally pops up on their calendar dials."

-- NDX bounced today to possibly test resistance at its Cycle Bottom at 6353.66. There appears to be one more probe to lower prices that may continue through the year-end. While the rally looks impressive, a bear market may give even more impressive declines. 

(TheGuardian) US stock markets staged a post-Christmas rally on Wednesday, soaring sharply higher after their worst ever performance on Christmas Eve.

After wobbling at the open the S&P 500 Index, the DowJones and Nasdaq had all recorded significant gains by the end of the day. The Dow added over 1,080 points (4.9%), its biggest points gain in history, the S&P rose 4.9% and the Nasdaq, which has suffered the most in recent falls, closed 5.8% up.

The Dow and S&P 500 dropped more than 2.5% on Christmas Eve, their worst ever pre-holidays performance. Worries about rising interest rates, Donald Trump’s attacks on the Federal Reserve for raising those rates, a government shutdown and the continuing trade tensions between the US and China have all rattled investors and the major indices were on the brink of a bear market – a 20% fall from their most recent high.

The High Yield Bond Index declined to its lowest point for 2018 on Monday. Today it bounced, recovering all of Monday’s losses. However, the Cycles Model suggests that the decline isn’t over yet. 

(Bloomberg) Bond traders have a technical name for what just happened to the U.S. high-yield bond market. They call it a “puke.”

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Gary Anderson 1 year ago Contributor's comment

Interesting read. Certainly, finding the reason stocks are behaving as they are would allow us to not be so comfortably (or perhaps uncomfortably) numb as we heard many years ago from Pink Floyd:

What seems to be the trouble

Are we feeling out of sorts

Do you think they're gone forever

Can you show me where it hurts

I think I know what's wrong

A lot people get this way

Take two of these four times a day

I'll drop in when I pass this way again

There is no pain, you are receding

A distant ship smoke on the horizon

You are only coming through in waves

Your lips move but I can't hear what you're saying

When I was a child I had a fever

My hands felt just like two balloons

Now I've got that feeling once again

I can't explain, you would not understand

This is not how I am

I have become comfortably numb.