E VIX Broke Out Above Its Cycle Top

VIX broke out above its Cycle Top resistance at 23.52, giving a strong buy signal. The following pullback stayed above the 50-day Moving Average at 19.45, giving a good long entry position for traders. It appears that few are aware of the potential for a breakout above the Head & Shoulders neckline at 29-30.00.

-- The NYSE Hi-Lo Index came up for air today but sank into the negative zone by the close. This appears to be more indicative of the confusion in the market than a change of trend. The Cycles Model anticipates a further decline through mid-December.

(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.

Markets are “beginning to accept a shift in the volatility regime back to more historically average levels,” said Patrick Hennessy, head trader at IPS Strategic Capital in Denver, Colorado.

-- SPX appears to have completed a near-50% retracement from Monday’s new low today. Monday’s new baseline lowered the Head & Shoulders neckline and its potential target. The 50-day Moving Average (2741.48) made a Death Cross on the 200-day by declining beneath it at 2760.00. The SPX is no longer positive for 2018.    

(Bloomberg) U.S. stocks advanced as the outlook for trade took a positive turn and the British prime minister defeated a challenge to her leadership.

The S&P 500 rose 0.5 percent after an afternoon slump that pared its gain by more than half. It marked the fourth straight day that investors sold an early rally, a trend that’s a stark reversal from months where traders bought any meaningful dip. Oil’s retreat coincided with the move, amid reports that deep discord exists among OPEC members ahead of planned output cuts.

“We’re in a stock market correction. All rallies are suspect,” said Michael Antonelli, the managing director at Robert W. Baird & Co.

-- NDX made a 59% retracement from its Monday low, challenging Intermediate-term resistance at 6840.15.  It appears to have met strong selling pressure and is in retreat at the close. The 50-day Moving Average (6974.34) has crossed beneath the 200-day Moving Average at 7075.04, giving yet another technical sell signal.  Should the NDX break the Head & Shoulders neckline at 6442.36, the selling may accelerate. 

(CNBC) Large-cap tech and telecom stocks rallied on Wednesday, with one exception: Verizon.

As the Nasdaq Composite Index popped 1 percent at the close, Verizon sunk 2.7 percent following a downgrade from Morgan Stanley and the news that it will take a $4.6 billion charge for its failing media business, Oath.

Verizon made public the hefty goodwill impairment charge Tuesday in its 8-K filing, acknowledging the business turned out to be less valuable than initially expected.

"Verizon's Media business, branded Oath, has experienced increased competitive and market pressures throughout 2018 that have resulted in lower than expected revenues and earnings," according to the filing. "These pressures are expected to continue and have resulted in a loss of market positioning to our competitors in the digital advertising business."

The High Yield Bond Index declined to its lowest point since October on Monday, then made a 55% retracement on Tuesday. It is beneath the 50-day Moving Average at 199.95 and on a sell signal.

(ZeroHedge2018 is looking like being the worst year for investment grade credit markets since 2008's Lehman-led collapse...

And worse still, Citigroup's analysts are weary that the clock is ticking for the riskiest corporate bonds...

“The markets are entering a new phase of increased volatility,” they wrote, and “we are a long way from a sustained high yield recovery.

Prices for bonds rated CCC or lower (the weakest high yield credits) have dropped about 8.7% since the credit selloff started in early October, according to Bank of America Merrill Lynch Indexes. And as prices fall, yields on CCC-rated bonds have climbed to 11.5%  - well above the current coupon around 8.1% (meaning dramatically higher refunding costs).

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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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