E VIX Closes Higher But SPX Rally May Be Over

VIX had an inside week, not able to break out, but closing higher than last week. It appears to have made a Master Cycle low on December 8. Should it break out, it may rally to its Cycle Top at 24.26, if not higher.  The implications are enormous, since a breakout above the Bullish Flag implies higher targets to come.

(ZeroHedge)  The last two weeks have seen some ‘odd’ behavior in the relationship between equity protection (VIX) and equity price markets.

And as Brean Capital’s Peter Tchir notes, this is possibly the strangest chart I’ve done (and that is a reasonably high hurdle) but I think there is something to it.

VIX remains a fear indicator, though now it seems to send the best signals when it is measuring the Fear Of Missing Out.

 SPX challenges the double Broadening trendlines, closes beneath them

SPX peaked above the upper trendlines of two Orthodox Broadening Tops near 2272.00-2273.00 on Tuesday before slipping beneath both trendlines on Wednesday. This double reversal suggests the rally may be over. The smaller Broadening Top has a possible average target of 1604.50. It appears that point 5 of the Orthodox Broadening Top may be complete.

(Bloomberg)  What began as a record-setting streak for U.S. stocks fizzled as the week progressed, with the Dow Jones Industrial Average approaching and ultimately falling short of 20,000, as the biggest driver of the post-election rally declined.

Financial firms decreased for the first time since Donald Trump’s presidential victory, ending a five-week advance in which the group propelled benchmark indexes to records. The S&P 500 Index lost 0.1 percent to end at 2,258.07, while the Dow average climbed within 0.45 percent of 20,000 before ending at 19,843.41, a gain of 0.4 percent for the five days.

The NDX completes the terminal rally in an Orthodox Broadening Top

NDX challenged the upper trendline of an Orthodox Broadening Top on Tuesday. It has since pulled back, closing above its Cycle Top support at 4903.75. A breakdown beneath the Cycle top produces a sell signal while a further break of the lower trendline at 4650.00 confirms a further decline to the Broadening Top target.

(ChicagoTribune)  Falling technology and financial stocks pulled U.S. indexes back from the edge of record highs on Friday. Bond yields gave up some of their big gains from the last few days, and the dollar downshifted from its sharp climb against other currencies.

The Standard & Poor’s 500 index fell 3.96 points, or 0.2 percent, to 2,258.07. It had wobbled up and down through the day, never rising by more than 0.3 percent or falling by more than 0.3 percent.

The Dow Jones industrial average fell 8.83 points, or less than 0.1 percent, to 19,843.41. The Nasdaq composite fell 19.69, or 0.4 percent, to 5,437.16 after climbing above its record closing level earlier in the day. All three indexes remain within 1 percent of their record highs.

High Yield Bond Index makes a final high, reverses

The High Yield Bond Index rallied through its Cycle Top resistance at 165.33 before pulling back beneath it at the close. The reversal finally arrived on Tuesday.  A reversal back beneath the Cycle Top constitutes an aggressive sell signal. That signal is confirmed by declining beneath its Short-term support at 159.65. A failure at Long-term support at 157.19 may produce a sharp decline to mid-Cycle support at 146.43.

USB resumes its decline

The Long Bond hardly bounced this week before resuming its decline. The period of strength has passed with nary a nod. While there is a chance of a bounce next week, the overall direction appears to be down until early January. The probable target appears to be its 35-year trendline at 137.50.

(ZeroHedge)  One month ago, when we last looked at the Fed’s update of Treasuries held in custody, we noted something troubling: the number had continued to drop sharply, declining by another $14 billion in one week, and pushing the total amount of custodial paper to $2.788 trillion, the lowest since 2012. One month later, we refresh this chart and find that in last week’s update, there is finally some good news: foreign central banks finally bought some US paper held in the Fed’s custody account, which following months of liquidation, rose over the past two weeks by $23 billion, the biggest two-week advance since November of 2016, pushing the total amount of custodial paper to $2.816 trillion, the highest since early October.