E Weekend Update – May 20, 2016

VIX broke above prior highs and challenged its weekly Intermediate-term resistance at 16.91 before falling back beneath weekly mid-Cycle support/resistance at 15.97.  This may indicate a potential buy signal (NYSE sell).  Further confirmation of the buy signal lies with a close above the mid-Cycle resistance and Intermediate-term resistance.

(Bloomberg)  Since its April low, the Chicago Board Options Exchange Volatility Index — a gauge tracking U.S. equity swings — has climbed 25 percent through Thursday, beating similar indexes for other asset classes, Bloomberg Tradebook highlighted in a note. While still much lower than at previous peak levels, the VIX’s average this year is the highest since 2011 amid concern over global growth, the timing of Federal Reserve interest-rate increases and lackluster earnings.

SPX breaks its “shelf of support  

SPX broke through its critical shelf of support at 2044.00, then retraced to its Short-term resistance at 2061.11 before the close.  A decline beneath the “shelf of support” may may alert us to a potential sell signal on the SPX regardless of the retracement. Trendlines are important support areas that often attract, then repel the markets.  

(Reuters)   U.S. stocks were higher in early afternoon trading on Friday, with the S&P on track to eke out its first weekly gain in four weeks as technology and financial stocks rose.

The tech-heavy Nasdaq Composite index was up 1.13 percent and was on track to end four straight weeks of losses, boosted by gains in Microsoft and Apple.

The S&P financial sector index rose 0.91 percent as a flurry of comments from U.S. Federal Reserve officials, suggested a possibility of an interest rate hike as early as June.

The index has risen about 2 percent since the Fed released minutes of its April meeting on Wednesday.

NDX consolidates between support and resistance.

NDX broke through Intermediate-term support at 4330.29 but bounced to consolidate between it and Long-term resistance at 4421.20.  This suggests weakness ahead.  The Head and Shoulders formation may be in play once NDX declines through its mid-Cycle support at 4239.96.

(ZeroHedge)  Now that 13-F reporting season is over, we have the data to compile who bought, who sold, and what the top holdings of the largest hedge funds are.

To help in that endeavor, we used the latest Q1 Hedge Fund quarterly ownership highlights courtesy of FactSet. This is what it found:

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High Yield Bond Index retraces to its cycle top

The High Yield Index completed a retracement to its Cycle Top support at 151.24 after testing new lows.  It may have also completed an important reversal pattern.  This may be construed as a sell signal for High Yield Bonds.  

(MarketRealist) High yield bond issuance activity gained traction last week on improved Market sentiment. According to data from S&P Capital IQ/LCD, dollar-denominated high yield debt amounting to $6.9 billion was issued in the week ended May 13, 2016. It was the fourth-largest YTD (year-to-date). In the previous week, high yield issuance stood at $3.8 billion. The number of transactions increased to 11 last week from five the previous week.

Last week brought the total US dollar-denominated issuance of high yield debt to $60.8 billion in 2016 YTD. This is lower by 46.0% compared to the corresponding period of 2015.

The Euro is testing critical support

The Euro declined to its Intermediate-term support at 112.10 prior to its weekly close just above it. A further decline beneath Intermediate-term support suggests a sell signal may be in place for the Euro.