SPX Intermediate Support Challenged But Holds

VIX challenged the two-year trendline and mid-Cycle support on Friday morning to complete an extended Master Cycle low. The correction finally appears to be complete and a rally above Short-term support/resistance at 15.82 may put the VIX back on a buy signal. The next Cycle Top may occur in the next 2-3 weeks.

(ZeroHedge)  Heading into this morning’s payrolls data, a few traders noted the sudden plunge in liquidity (which is normal) but chaotic noise in equity futures trading and even more so in VIX.

As soon as the data hit, VIX suddenly flash-crashed from 16.75 to 13.31…

Which just happens to be the 100-day moving average…

Bloomberg notes that it appears an options trader dubbed the “Elephant” has returned to close out a portion of a March three-way trade.

SPX runs up to the Cycle Top and Upper Trendline

SPX made another run up to challenge the upper long-term trendline and Cycle Top resistance at 2796.71. Last week I suggested that Long-term support may be tested without a breakdown. Instead, Intermediate-term support was challenged, but held. The Model now calls for a new challenge of the supports with possibly different results.

(Reuters) – A marked shift toward protectionism by President Donald Trump caused sharp outflows from U.S. large-cap stocks this week, Bank of America Merrill-Lynch (BAML) strategists said on Friday.

Investors rushed into government bonds and other safer assets amid rising fears of an international trade war after Trump’s plans for tariffs on imported steel and aluminum met barbed responses from allies and trade bodies.

Overall, investors pulled money out of equities, though the damage was mostly in the United States where $10.3 billion flowed out of U.S. equity funds, while global equity funds suffered just $0.4 billion of outflows, according to EPFR data cited by BAML.

NDX makes a new all-time high

The NDX found its legs at Short-term support at 6818.70 to rally back above its upper Diagonal trendline. Investors are giddy, but the NASDAQ is not confirmed by the other indexes nor its own indicators. Either NDX and the other indices make new highs on Monday (confirmation) or the NDX may retest the lows along with the others (non-confirmation) over the next few weeks.   

(CNBC)  U.S. stocks surged on Friday, pushing the Nasdaq composite to a record, after February jobs growth far exceeded expectations.

The tech-heavy advanced 1.8 percent to 7,560.81 and hit intraday and closing records, erasing the losses from last month’s correction. The Nasdaq 100, which is made up of the 100 largest companies in the Nasdaq composite, also reached a record high. Friday marked the first time since Jan. 26 that either index reached a record high.

Shares of Facebook, Amazon, Netflix and Google helped lead the gains.

High Yield Bond Index stalls in its consolidation zone

The High Yield Bond Index stalled in its consolidation zone without making a new high. The sell signal remains and the Cycles Model suggests that Long-term support at 181.68 may be broken this week. This action is a glaring non-confirmation of the bull market, since high yield bonds have a high correlation with equities.

(Bloomberg)  In early February, most of the investing world was watching stocks take a tumble. Matt Pasts, the manager of BTS Tactical Fixed Income Fund, which was invested almost entirely in junk bonds, studied a computer model used by his small investment firm in Lexington, Mass. The model gave him a distress signal: Sell. On Friday, Feb. 9, Pasts sold all of his $900 million mutual fund’s high-yield bond investments so that the fund was fully in cash.

BTS Asset Management Inc. employs no credit analysts to study the fundamentals of bonds. Pasts is a market timer, trying to suss out whether the whole high-yield asset class is going to rise or fall in value. He watches trend and momentum measures, such as the moving average of the price of exchange-traded funds that track the junk bond market. When not in junk, BTS is either in Treasuries or cash.

UST may be in danger of losing Cycle Bottom support

The 10-year Treasury Note Index traded in a very narrow band as its hovers close to Cycle Bottom support at 120.21. Normally we may expect a retest of the Head & Shoulders neckline near 122.85. However, the Model shows extreme weakness that may turn into a rout for bonds over the next two or more weeks.