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NDX Reverses From Final High; Gold Challenges Cycle Bottom

Published 11/15/2015, 11:35 PM
Updated 07/09/2023, 06:31 AM

VIX Weekly Chart

VIX rose above all weekly Model resistance levels except the Cycle Top at 21.92, firmly giving its buy signal. The next move calls for a breakout to new highs. While traders are anticipating a calmer season ahead, the VIX warns the opposite may happen.

SPX triggers its Broadening Top formation.

SPX Weekly Chart

The SPX may have triggered its Broadening Top formation while declining beneath Long Term support/resistance at 2062.67. The Broadening Top formation has a high degree of reliability and agrees substantially with the lower Head & Shoulders formation. A loss of further supports beneath today’s close may lead to a flash crash much larger than the last.

(WSJ) U.S. stocks fell Friday, helping push major indexes to their first weekly declines in nearly two months.

The Dow Jones Industrial Average declined 203 points, or 1.2%, to 17245. The S&P 500 lost 1.1%, weighed down by declines in retail stocks, and the Nasdaq Composite fell 1.5%.

For the week, the Dow declined 3.7% and the S&P slipped 3.6%.

NDX reverses from its final high.

NDX Weekly Chart

NDX reversed down from point 5 of its Orthodox Broadening Top, otherwise known as a 5-point reversal. Point 6, which is likely to be near its Cycle Bottom support at 3213.99, may be its next target. This may happen in a surprisingly short period of time.

(Reuters) U.S. stock indexes fell sharply on Friday, weighed down by consumer retail and technology stocks after disappointing forecasts from Cisco (O:CSCO) and department store chains for the key holiday shopping season.

The Dow and the Nasdaq were off nearly 1 percent, while the S&P 500's decline was curtailed as the index held steady near its 100-day moving average.

Dow component Cisco fell 6 percent to $26.17 after it gave a weak forecast, citing a slowdown in order growth and weak spending outside the United States. The stock was the second-biggest drag on the S&P and the Nasdaq.

High Yield Bonds decline to mid-Cycle support.

MUT Weekly Chart

The High Yield Index declined through its Long-term support at 139.73 and its Broadening Wedge trendline before closing just above mid-Cycle support at 137.64. Intermediate-term support at 135.30 may be the last support left before challenging its Cycle Bottom/Head & Shoulders neckline at 122.50-125.00. The Cycles Model suggests a major decline in HY over the next several weeks.

(SaltLakeTribune) How upended have the rules of investing become? How's this: Investors are talking about whether problems in the market for corporate bonds may spill over into stocks and drag down their prices.

That question could have caused smirks years ago. Stocks have historically been the riskier investment, prone to big swings, while bonds just chugged along. But analysts say the high-yield corporate bond market has become increasingly fragile. Conditions may be lining up where investors one day find no buyers for bonds when they look to sell, or at least none at a palatable price.

The euro bounces within the Flag formation.

Euro Weekly Chart

The euro may be making its Master cycle low at the lower trendline of its Flag formation this week. There is good reason to believe that the euro may bounce for the next 2-3 weeks as it seeks the upper trendline of this expanding Flag. It is probable that the euro trend toward parity with the USD may resume with a vengeance once this head-fake is complete.

(ZeroHedge) But the biggest event overnight came from Europe, where Draghi managed to once again jawbone the euro lower by ober 50 pips when he told European lawmakers in a prepared testimony that downside economic risks are "clearly visible," repeating his October press conference statement, adding that the ECB will reexamine degree of accommodation in December as "inflation dynamics have somewhat weakened."

And the statement that crushed the euro: "If we were to conclude that our medium-term price stability objective is at risk, we would act by using all the instruments available within our mandate to ensure that an appropriate degree of monetary accommodation is maintained." I.e., another "whatever it takes" moment.

EuroStoxx repelled at Long-term resistance.

EuroStoxx 50 Weekly Chart

After challenging weekly Long-term resistance at 3485.74, EuroStoxx fell away, declining to Intermediate-term support at 3339.90. A loss of Intermediate-term support may be problematic, as a further decline to weekly mid-Cycle support at 3259.60 is likely to follow. Should that occur, EuroStoxx may remain in a decline through the end of the year.

(Reuters) A signal from European Central Bank president Mario Draghi that further policy easing is coming next month drove European markets on Thursday, sparking a brief rebound in stocks and pushing the euro and bond yields lower.

In an address to the European Parliament Draghi said inflation dynamics had somewhat weakened and that a "sustained normalisation" of inflation could take longer to achieve than thought.

"At our December monetary policy meeting, we will re-examine the degree of monetary policy accommodation," Draghi said.

The yen may bounce.

JPY Weekly Chart

The yen appears to have reached an early Master Cycle low and completed a bullish Flag formation that implies a target at or above mid-Cycle resistance at 90.38. The bounce may last up to three weeks and may even visit the Cycle Top at 105.43.

(NewsMarkets) Japanese assets traded in Europe shrugged off the Bank of Japan’s decision to leave monetary policy unchanged earlier on Friday, when some observers had expected it to loosen policy to boost sluggish economic growth and weak inflation. However, yen weakness could be on the cards.

Towards the end of the European day, the yen was just a tad firmer, with the dollar down to 120.41 yen from 121.13 late on Thursday. The yield on the 10-year Japanese government bond, or JGB, was also up only modestly, at 0.305%, compared with 0.296% late on Thursday. Earlier, the Nikkei 225 stock-market index had actually closed higher – up 0.8% at 19,083.10.

The Nikkei rose above Long-term resistance.

Nikkei Weekly Chart

The Nikkei rose above the lower trendline of its Broadening Wedge and Long-term resistance at 19309.82, closing above both, but easing back from its high on Thursday. Broadening formations allow throwbacks before the final decline which may reach their targets. A probable reversal may be at hand, with weakness in the Cycle showing for the next three weeks. Should the subsequent decline go beneath mid-cycle support at 16980.66, the Nikkei may experience a flash crash taking it to its cycle Bottom support at 12633.87.

(Reuters) Japan's Nikkei share average tumbled on Friday morning, snapping a seven-day winning streak after a sharp drop in Wall Street and as weaker commodity prices weighed on stocks such as metals companies and trading houses.

Underperforming the already weak market was Toshiba Corp (OTC:TOSYY), which dived more than 8 percent after it said its U.S. nuclear unit Westinghouse had booked losses in the 2012 and 2013 fiscal years. It was the fourth biggest loser on the board.

The Nikkei dropped 0.9 percent to 19,522.48 in mid-morning trade after rising 5.4 percent for the past seven days. For the week, the index has risen 1.3 percent.

U.S. dollar is repelled at Round Number resistance.

USD Weekly Chart

The US dollar appears to have been repelled at Round Number resistance and its prior high at 100.00. This usually calls for an imminent pullback to Long-term support, currently at 96.61, but should a financial event happen, it may decline to trendline support at 92.00. The Cycles Model calls for a Master Cycle low near the end of the month.

USB bounces at the Broadening Wedge trendline.

USB Weekly Chart

The Long Bond bounced at the Broadening Wedge trendline at 151.00.USB has formed a Master Cycle low at the trendline, keeping the long-term trend intact. The 34-year trendline lies at 136.50.

(IBD) Treasuries rose, pushing yields to the lowest in a week, after data showed U.S. retail sales increased less than forecast in October and producer prices unexpectedly declined.

Yields fell as separate reports showed consumer purchases rose 0.1% in October, below the 0.3% median forecast of 84 economists surveyed by Bloomberg, and producer prices declined for a second month even as a gain was expected. While a gauge of consumer confidence exceeded forecasts, an underlying metric showed inflation expectations matched a 13-year low hit in October.

Gold is challenging its Cycle Bottom.

Gold Weekly Chart

Gold fell beneath its weekly Cycle Bottom at 1092.60, but hasn’t broken beneath its July low at 1072.30. It is possible that an early Master Cycle low may be in the making, but there is no clear reversal pattern, yet. The Cycles Model suggests an alternate pattern with more sustained low at the end of November or early December. A decline beneath 1072.30 may bring on the alternate view. With the loss of support, a lot may happen in the meantime.

(Bloomberg) Gold traded near a five-year low as investors sold bullion-backed funds amid expectations the U.S. will increase interest rates this year, damping the appeal of the metal.

Bullion for immediate delivery slid as much as 0.5 percent and traded down 0.2 percent at $1,082.75 by 2:46 p.m. in New York, according to Bloomberg generic pricing. It reached $1,074.25 on Thursday, the lowest since February 2010. Gold futures for December delivery lost less than 0.1 percent to settle at $1,080.90.

Gold is heading for a third annual loss as investors brace for the first U.S. interest rate increase since 2006 when Federal Reserve officials meet next month. New York Fed President William C. Dudley said the conditions for liftoff “could soon be satisfied.”

Crude triggers potential Bearish Flag formation.

Crude Weekly Chart

Crude lost the ongoing battle with Intermediate-term resistance at 45.55 and began making new lows not seen since August. It appears to have triggered a bearish Flag formation with a minimum target of 26.09. With no further supports at hand, crude oil may go into free-fall should a financial event occur that may take the price of crude well below the minimum target.

(WSJ) The price of U.S. oil tumbled near $40 a barrel, capping a tumultuous week across commodities.

Fresh signs of increasing supplies and slackening demand, especially in China, pummeled markets from crude oil to coffee to copper. The S&P GSCI index, which tracks the prices of 24 commodities, shed 4% this past week to close at its lowest level since August.

The declines this week came as a flurry of disappointing economic data came out of China, a major consumer of raw materials. Meanwhile, indications emerged that commodity supplies would remain abundant longer than many investors had expected. Another factor was a strengthening dollar, which encouraged producers outside the U.S. to ramp up commodity sales, while concerns rose about global demand.

Shanghai Index reverses beneath resistance.

SSEC Daily Chart

The Shanghai Index rally peaked on Monday short of Long-term resistance at 3744.77. Last week I had called for the reversal by the end of the week, so there was no surprise, although I was more certain that Long-term resistance would be reached. The Cycles Model now suggests a decline through the end of November. However, should the Head & Shoulders neckline be breached, the decline may extend through early December.

(ZeroHedge) Early in September, as Beijing was just coming to grips with the fact that stocks can go down as well as up and that artificially propping up the entire market is well nigh impossible no matter how much money you throw at it, we brought you the following rather chilling quote from a fund manager who was “summoned” by authorities in the midst of what amounted to a witch hunt aimed at anyone thought to be responsible for "maliciously" taking stocks lower. Speaking to a friend, the fund manager said the following: "If I don't come back, look after my wife.”

The Banking Index reverses below Long-term resistance.

BKX Weekly Chart

BKX reversed beneath Long-term resistance at 73.88 in an abrupt sell-off that began on November 6. A further loss of mid-Cycle support by mid-week may bring the neckline of the Head & Shoulders formation in play. There seems to be a lack of awareness of the magnitude of this potential decline.

(Bloomberg) The European Central Bank found capital gaps totaling 1.74 billion euros ($1.87 billion) among nine lenders it tested, with the biggest hole at Portugal’s Novo Banco SA.

“Shortfalls amount to 1.74 billion euros resulting from CET1 ratios falling below the threshold of 5.5 percent in the adverse stress-test scenario, after including impact of asset quality review,” the ECB said in a statement on its website on Saturday. “Banks will be required to address remaining shortfalls in a timely manner by issuing capital instruments or undertaking other eligible measures to restore their capital positions to the required levels.”

(ZeroHedge) The last 3 days have seen the biggest surge in US energy credit risk since December 2014, blasting back above 1000bps. This should not be a total surprise since underlying oil prices continue to languish in "not cash-flow positive" territory for many shale producers, but, as Bloomberg reports, the industry is bracing for a wave of failuresas investors that were stung by bets on an improving market earlier this year try to stay away from the sector. "It’s been eerily silent," in energy credit markets, warns one bond manager, "no one is putting up new capital here."

The market is starting to reprice dramatically for a surge in defaults...

(SovereignMan) Late last week, a consortium of financial regulators in the United States, including the Federal Reserve and the FDIC, issued an astonishing condemnation of the US banking system.

Most notably, they highlighted “continuing gaps between industry practices and the expectations for safe and sound banking.”

This is part of an annual report they publish called the Shared National Credit (SNC) Review. And in this year’s report, they identified a huge jump in risky loans due to overexposure to weakening oil and gas industries.

Make no mistake; this is not chump change.

(Bloomberg) Greek bank investors are being asked to inject new funds into the lenders for the second time in less than 20 months, even as doubt remains that the country will receive the next round of bailout funds.

The National Bank of Greece SA and Eurobank Ergasias SA joined Piraeus Bank SA and Alpha Bank AE on Thursday in starting book-building processes as they seek to fill part of 14.4 billion-euro ($15.5 billion) hole in their accounts identified by the European Central Bank. The state-owned Hellenic Financial Stability Fund will contribute the rest from loans from Greece’s latest bailout, but not before imposing mandatory losses or "burden sharing” on shareholders and creditors of the banks.

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