Who Knows What’s Going On In The Markets

Does anyone really know what is going on in the markets?  

ZeroHedge reports, “In his latest Global Equity Strategy update piece, Credit Suisse strategist Andrew Garthwaite takes a random walk across Wall Street’s trading desks, and confirms what many know: namely, that nobody actually knows anything.

Garthwaite writes that “his team has come across almost no one who seems to have outperformed or made decent returns this year.” He cites data from Morningstar according to which in the year to July 1st, just 29 out of 242 funds in the Investment Association UK All Companies sector beat the performance of the FTSE All Share. Moreover, the Dow Jones Credit Suisse Long/Short equity index, which tracks hedge fund performance, fell by 5% year-to-date.”

Both traders and clients are totally clueless. Which way will they jump?

VIX rallied early in the week, but pulled back to the trendline by the close.  This appears to be a valid reversal pattern.  If so, payback may be coming in a very big way to those who have become complacent.    

(Bloomberg)  The trader love affair with (VIX) exchange-traded notes that rise as stock market turbulence increases is getting torrid again. That’s good news for equity market bulls, if history is any guide.

SPX at Cycle Top resistance a third week

SPX has been challenging its Orthodox Broadening Top and weekly Cycle Top resistance at 2174.36 for the past three weeks. During the last two weeks its trading range has been less than 1% (2155.79 to 2177.09). Normally, a flat trading range may indicate a consolidation prior to a continuation of the trend.  However, SPX has fulfilled all its requirements for a completed uptrend. In fact, the Wave [5] fractal target was 2157.71,  a target that was achieved nearly three weeks ago. Could that be why the rally suddenly ran out of steam?

(ZeroHedge)  While stocks surged to start the months, they end with the longest narrow (<1%) range in 45 years… (Ryan Detrick, senior market strategist at LPL Financial, noted on Twitter that Thursday marked the 11th straight day the S&P 500 closed inside a 1% trading range, the first time this has ever happened, according to records going back to 1970. So for the first time since at least the Nixon administration, stocks have been stuck inside an insanely tight window.)

NDX could not reach its Cycle Top resistance

NDX made a new high this week, but could not reach its weekly Cycle Top at 4776.83. However, it did reach its fractal target at 4732.24 on Friday. The delay in reaching its target may be why the rally had extended the past two weeks. On the other hand, the Dow Jones Industrials have not made a new high since July 20, after peaking short of its fractal target.

(ZeroHedge)  Two weeks ago, an already bearish Jeff Gundlach appeared to hit the “glass floor” of negative sentiment, and smash right through it.

On July 13, the new bond king said that there is “big money” to be made on the “short side.” Gundlach added that he has been selectively betting against shares in the Standard & Poor’s 500 index and continues to favor emerging market bonds over high-yield “junk” debt. Gundlach was just as skeptical about bonds, warning that the yield on the 10-year Treasury note at around 1.38% to 1.39% “is a terrible trade location. It is the worst trade location in the history of the 10-year Treasury.”

High Yield Bond Index makes a second weekly loss

The High Yield Bond Index made two back-to-back weekly losses.  Note that it reacts to similar pivots as equities, preceding the Dow high by almost a week.  Investors should now be on the alert for a decline beneath its short-term support at 158.46 for a probable sell signal.

(MarketRealist)  High-yield bond issuance rose last week due to better yields—compared to sub-zero yields in other developed countries.

According to data from S&P Capital IQ/LCD, dollar-denominated high-yield debt amounting to $4.1 billion was issued in the week ending July 22. In the previous week, junk bonds worth $3.9 billion were issued. The number of transactions was down slightly to seven last week from eight the previous week.

The total US dollar-denominated issuance of high-yield debt stands at $61.5 billion year-to-date in 2016. This is 32.0% lower compared to the same period in 2015.