SPX Reverses From All-Time High

VIX closed above Long-term resistance at 14.25, confirming a probable buy signal in the VIX. The Cycles Model shows a likely surge in strength for the VIX through mid-October.

(Bloomberg)  Strategists are predicting a pickup in volatility after an usually quiet August, seeing choppy waters ahead for traders who took a summer break.

U.S. stock price swings were so muted last month that by some measures it was the calmest August since 1967. The Cboe Volatility Index, also known as the VIX or Wall Street’s fear gauge, averaged 13.6, lower than the five-year average of 14.6. Blame seasonality or traders who took a summer break, but strategists say don’t get too comfortable.

SPX reverses from its high

SPX reversed from its all-time high this week. Both price and time targets have been met. The Cycles Model now implies a powerful decline that may last through early November. The last time this has happened was in 2008.

(Bloomberg)  U.S. stocks fell for a fourth straight days after President Donald Trump’s threat to escalate the trade war with China roiled technology and multinational shares. The dollar climbed and Treasuries fell as wage gains bolstered the prospects for further rate hikes.

The Nasdaq 100 Index capped its worst week since March as Apple slumped on its warning that the Trump administration’s musing over levying virtually everything imported from China would hit a broad range of its products. The S&P 500’s weekly drop was the most since June and Boeing led declines in the Dow Jones Industrial Average. The dollar rallied versus major peers and the offshore Chinese yuan fell the most in a week. The 10-year Treasury yield pushed above 2.94 percent.

NDX begins September poorly

NDX had its worst start of September since 2008, challenging its weekly Short-term support at 7419.30.  A continued decline beneath that level trips the NDX sell signals. The Cycles Model suggests that the next several months may bring pain to equities. The weakest part of the Presidential Cycle may have arrived.

(Tumblr)  September of the 2nd year of the Presidential Cycle is historically the weakest month of the 4-year cycle.

Since working off its early year correction, the U.S. stock market has been on one of those inexorable runs that we’ve seen on so many occasions in recent years. Such runs have seen the market essentially steamroll any and all potential pitfalls that may arise. This recent run has been no exception as the stock rally has basically remained bulletproof to any exogenous hazards (real or fake). But just when the market is on this roll, even breaking out to new highs and apparently incapable of going down, a bout of selling strikes, seemingly out of nowhere. However, if we look a little deeper, perhaps we shouldn’t be surprised by the recent weakness.

High Yield Bond Index eases down

The High Yield Bond Index rally ended last Thursday.  Since then it has eased downward, but nothing is broken yet.  A sell signal is confirmed beneath Intermediate-term support at 193.69.  “Flag” consolidations such as this imply a resumption of the previous trend.

(CNBC)  Investors are showing more signs of concern about some of the market’s biggest sources of return, including tech stocks and emerging markets, but they have been moving big into another risk-on asset this quarter: high-yield bonds.

The iShares iBoxx High Yield Corporate Bond ETF (HYG) is No. 2 among all exchange-traded funds in the current quarter in new money from investors, only outpaced by iShares S&P 500 ETF (IVV), bringing in near-$3 billion, according to XTF.com. That’s more than the asset-gathering behemoth $100 billion Vanguard S&P 500 ETF (VOO). In August the iShares high-yield bond ETF ranked seventh among all ETFs for monthly flows, taking in close to $1.4 billion.

UST challenges Intermediate-term support support

The 10-year Treasury Note Index declined to challenge Intermediate-term support at 119.90. From here we may see UST rally back toward the Head & Shoulders neckline near 123.00. This rally may be painful for the speculative short sellers in treasuries as it may induce short-covering.