SPX Saved By The Bounce

VIX tested its Cycle Top at 20.18, then pulled back to close above Intermediate-term support at 15.76. It remains on a buy signal. The Cycles Model shows probable strength for the VIX for the next two weeks.

(Bloomberg)  It’s summer. But in the Florida offices of Raymond James & Associates and at brokerages around the U.S., February is still in the air.

Repercussions from that month’s rout won’t go away — not in chats with clients, not in the market itself. Gone are the days when you could buy an exchange-traded fund tracking the S&P 500 and turn off the ringer. Look away for five minutes, and some customer is on the phone demanding to know what the latest swerve did to his portfolio

SPX saved by the bounce

SPX was headed for a YTD loss earlier this week until a bounce off Intermediate-term support at 2703.56 saved the quarter-end gain.It is now on a sell signal. Equities are entering their negative season, so care should be taken to protect what small profits there are in 2018.

(ZeroHedge)  The bounce in the S&P in the last 24 hours (off unchanged for the year) has saved the major US equity market index from its worst start to a year since 2010.

2018 has also been a ‘different’ year in terms of volatility.  As Bloomberg notes, a procession of awful days is battering investor nerves. While most of 2018’s sessions have been up ones, when the market falls, it falls hard. Single-day drops are 20 percent bigger than gains, on average, the widest gap in seven decades.

NDX gaps down, closes above its “sell signal”

The NDX gapped down on Monday and could not fill the gap, leaving it technically vulnerable to a sell-off. However, it closed above Short-term support at 7031.80. The Cycles Model suggests that the next two weeks may bring pain to equities. The period of weak seasonality may be about to begin.

(Bloomberg)  What looked like a sturdy rally turned into another display of the technology sector’s vulnerability to trade tensions, with the stock market’s favorite industry pacing a reversal that steepened into the close.

Up as much as 0.9 percent an hour into the session, tech stocks gave it all back and more after Donald Trump’s top economic adviser, Larry Kudlow, reiterated the White House’s hard line on commerce. From peak to trough, the Nasdaq 100 Index retreated almost 161 points, the biggest plus-to-minus swing since April 24.

“There is a lot of uncertainty regarding what China can do against tech — can they hold up deals, can they do anything else to hurt the industry?” said Mark Kepner, an equity trader at Themis Trading LLC. “There is a lot of nervousness.”

High Yield Bond Index continues its sideways consolidation

The High Yield Bond Index has challenged Long-term support at 188.97 but closed above it for the week. MUT remains on a sell signal beneath the trendline. The sell signal is confirmed beneath Long-term support.  

(MarketWatch)  The flare-up in market volatility has left investors scratching their heads when it comes to the relative outperformance of the safest segment of the corporate bond universe over its riskiest.

With stocks coming under pressure this year, with the Dow DJIA, +0.23% and the S&P 500 SPX, +0.08% struggling to reclaim their February all-time highs, bond buyers would be expected to turn their noses at high-yield issuers with burdensome debt loads and take shelter in the bonds of investment-grade firms, which carry more robust balance sheets. But instead, the two ends of the corporate debt market appear to have reversed their traditional roles, with investment-grade bonds struggling and high-yield debt, or ‘junk’, remaining at their lofty valuations.

UST emerges above Intermediate-term resistance

The 10-year Treasury Note Index rose above Intermediate-term resistance at 119.95, putting it on a buy signal. The Cycles Model may allow an inverted Cycle over the next two weeks. If so, we may see UST rally back toward the Head & Shoulders neckline near 123.00. The Commitment of Traders shows the Commercial traders are heavily long.

(ZeroHedge)  Concluding the week’s trio of coupon auctions, moments ago the Treasury sold $30 billion in 7 Year paper at a yield of 2.809%, “on the screws” with the When Issued, and just like this week’s prior 2 and 5-Year auction, a decline from last month’s 2.93%. This was the second consecutive “belly” auction that has seen the high yield decline after hitting a cycle high of 2.952% in April.

The internals were average, with Indirects dropping from 65.5% last month to 60.6%, below the 64.7% 6 month average; at the same time Directs increased from 12.9% to 15.2% while Dealers were left with 24.1%.