VIX declined beneath the June 9 low at 9.37. In doing so, it may have fulfilled the requirements for its Ending Diagonal formation.  The Cycles Model suggests a reversal is imminent.  Once complete, the upside move may be very fast.   

(ZeroHedge)  How Bad a Damage If Volatility Rises: The Bear Trap of Short Vol ETFs

As if there was any need for any more threats to financial stability in a world overburdened with debt facing rising interest rates on bubble valuations in both bonds and equities, within an environment dominated by economic policy shifts and political gridlock, there is a potential bear trap right in today’s most fashionable investment products, which risks deflating fast: Short Vol Exchange-Traded Notes and, more broadly, volatility-driven investment vehicles. In this note we will discuss briefly the former. 

SPX “throws over” the Ending Diagonal trendline

SPX “threw over” the 5-year Diagonal trendline this week, making a probable final high. This may be the end of the line for this rally.  SPX appears to be due for a possible Master Cycle low to follow in the next week or so.

(ZeroHedge)  One can finally put all references to "cash on the sidelines" in the trash can, not only for purely logistical reasons (when someone buys a stock, the seller ends up with the cash), but also from a purely cash allocation basis. According to the latest BofA flow show report, Michael Hartnett writes that as of the latest week, private client cash - i.e., high net worth individuals, or those who still allocate capital to single-stocks and ETFs on a discretionary basis (unlike the broader US public which has long ago given up on the stock market), is now at a record low, taking out the cash levels observed in the period just prior to the last market peak in 2007: "GWIM cash allocation % AUM falls to all-time low of 10.4%."

NDX makes a new double high

NDX inverted its Cycle, making a second “throw over” high. This action appears to complete both the Cycle and Wave patterns. This may lead to a sharp reversal in the immediate future.  

(ZeroHedge)  Readers are surely aware of the saying “sell in May and go away”. It is one of the best-known and oldest stock market truisms.

And the saying is justified. In my article “Sell in May and Go Away – in 9 out of 11 Countries it Makes Sense to Do So” in the May 01 2017 issue of Seasonal Insights I examined the so-called Halloween effect in great detail.

The result: in just two out of eleven international stock markets does it make sense to invest during the summer months.

(ZeroHedge)  "Buy and Hold"... for 17 years to turn a profit.

After a nine-day winning streak the S&P 500 Technology Sector has finally surpassed its dotcom bubble peak. Today's 992.29 close is above the previous record of 988.49 on March 27 2000.

High Yield Bond Index consolidates above support

The High Yield Bond Index traded in a tight range above its multiple supports. The sell signal may be reinstated beneath those support levels.  The Cycles Model suggests weakness may develop on a timetable similar to that of equities.  

(ZeroHedge)  The traditional benchmark asset allocation is 60/40 – 60% in stocks, 40% in bonds. Such a “balanced” allocation is considered to be a moderately conservative investment posture as drawdowns in equity prices have typically been partially offset by gains on fixed income holdings. Since the financial crisis of 2008, the appetite for higher returns sparked by historically low yields on many fixed income assets may have changed that asset allocation calculus. What may appear to be nuance to some could cause a gross underestimation of risk if equity prices fall.

To explain, consider a simple proxy 60/40 portfolio. We assign the S&P 500 to represent the 60% equity component. Many investors opt for a split between the Dow, NASDAQ or Russell 2000, but for purposes of this analysis, the S&P 500 will suffice. On the fixed income side there are many types of debt securities in which to invest but for the 40% allocation we allocated 20% to U.S. Treasuries, 10% to investment grade corporates and 10% to high-yield corporate bonds.

USB rises above Long- and Intermediate-term support

The Long Bond has recovered from its low and risen above both Intermediate-term support and Long-term support at 153.27. It has stopped just short of weekly Short-term resistance at 153.95. The rally has quite a distance to go, since it must complete the right shoulder near 165.00 before plunging through the neckline near 146.40.  

(Bloomberg)  The unknown bond trader who placed a potentially record wager in the Treasury options market may have just netted a $10 million profit.

The $10 million worth of put and call options on 10-year Treasury futures that the trader purchased on July 11 expired Friday at 3 p.m. in New York. At expiry, the benchmark 10-year yield was about 2.23 percent, down about 15 basis points from when the so-called strangle trade was initiated. This kind of position gains value if there’s a major swing in prices in either direction. Futures prices rose to 126-10, representing profit of about $10 million for whomever made the bet, assuming they didn’t pare the position as it turned profitable.

The Euro broke through Cycle Top resistance

The Euro broke through Cycle Top resistance at 115.66 this week, but the breakout may be short-lived.  The Cycles Model now calls for a major reversal.  The challenge of the Cycle Top may be a sucker’s play.  A decline beneath Short-term support at 113.22 may be a sell signal.

(CNBC)  The euro could be on track to hit $1.20 against the dollar before the year is out, according to analysts who say that it is set to ride a wave of improved euro zone data and weakening investor conviction in the U.S.

The single currency hit a two-year high of $1.1655 against the dollar Thursday after European Central Bank (ECB) President Mario Draghi said the euro zone was showing signs of "unquestionable improvement" and pointed to plans to begin discussing possible changes to its quantitative easing (QE) program in the fall.

In early deals Friday it moved higher to $1.1668, up significantly from the low of $1.1488 seen in the immediate wake of the ECB's decision to keep interest rates on hold. Analysts suggest that the upwards momentum is set to continue.

EuroStoxx retests the Head & Shoulders pattern

The EuroStoxx 50 Index bounced back to test both Short- and Intermediate-term resistance at 3531.48 but was violently repelled back to the Head & shoulders neckline at 3245.00. This decline reconfirms the sell signal for the EuroStoxx and the new Head & Shoulders neckline may define the next downside target. The Cycles Model calls for another week of decline.  

(CNBC)  Bourses in Europe closed sharply lower on Friday as euro strengthened and fresh corporate earnings failed to boost sentiment.

The pan-European Stoxx 600 closed a little over 1 percent lower with most sectors moving south. The German DAX closed down 1.7 percent, it's worst trading day this year.

Meanwhile, the French CAC closed down about 1.8 percent.

Auto stocks led the falls in early-afternoon trade, down by more than 3 percent, driven by earnings. Valeo dragged down the sector, down by 6 percent, after its first half year result came in short of analysts' expectations.

The Yen rally picks up steam

The Yen rallied above Long-term resistance at 89.88 this week in a period of strength that may last until the end of the month. The longer-term trend may be recognized by speculators as it breaks out above its prior highs. The Yen is on a full-blown buy signal.

(Bloomberg) Yen bears may want to seize the day amid the global turn toward central bank tightening by looking away from the greenback and betting Japan’s currency will extend its slump against other major peers.

This year’s most profitable trades against the yen among major developed peers have involved the Aussie, the euro and the Scandinavian currencies, while the dollar has been the lone loser. Growing expectations that central banks other than the Federal Reserve will start to normalize policy have helped shore up the euro, the pound and the loonie. Speculators built up the biggest bets on yen declines against the dollar since 2015, only to be frustrated as the currency became mired in a range of 110 to 115 a dollar for most of this year.

Nikkei held in place by rising support

The Nikkei continues to consolidate (inside fashion) just above Short-term support and round number support at 2000.00. Should the support break, the Nikkei may be on a sell signal. Further confirmation of the decline lies at Intermediate-term support at 19580.77.

(BusinessInsider)  Japan's Nikkei share average edged down on Friday morning as investors took in the European Central Bank's policy talk, while individual companies such as Yaskawa Electric soared on strong profit forecasts.

The Nikkei dropped 0.3 percent to 20,094.31 in midmorning trade. For the week, the benchmark index is on track to fall 0.1 percent.

The European Central Bank (ECB) left its ultra-easy monetary policy unchanged, and President Mario Draghi said that policymakers would discuss potential tweaks to its bond-buying programme in the autumn.

U.S. Dollar breaks the neckline of its Head & Shoulders formation

USD broke through the neckline of its Head & Shoulders formation this week.  The Cycles Model now allows for a continued decline for up to a week. That suggests a probable bounce back to the neckline after testing Cycle Bottom support at 92.72. The lack of a significant bounce at the proposed neckline suggests another location for the Head & Shoulders at a lower level.  Stay tuned.  

(ZeroHedge)  Growth in the supply of US dollars fell again in May, this time to a 105-month low of 5.4 percent. The last time the money supply grew at a smaller rate was during September 2008— at a rate of 5.2 percent. 

The money-supply metric used here — an "Austrian money supply" measure — is the metric developed by Murray Rothbard and Joseph Salerno, and is designed to provide a better measure than M2. The Mises Institute now offers regular updates on this metric and its growth.

The "Austrian" measure of the money supply differs from M2 in that it includes treasury deposits at the Fed (and excludes short time deposits, traveler's checks, and retail money funds). 

M2 growth also slowed in May, falling to 5.6 percent, a 20-month low. 

Gold bounces off the Head & Shoulders neckline

Gold declined to the neckline of its Head & Shoulders formation before bouncing back to challenge Intermediate-term resistance at 1254.88. The Cycles Model suggests a probable decline that may last 1-2 weeks. Gold may go into freefall beneath the Broadening Top trendline at 1175.00.

(CNBC)  Gold prices jumped Friday, boosted by increasing weakness in the dollar.

Futures for August delivery climbed 0.75 percent to $1,254.90 per ounce. The gains lifted the precious metal above its 50-day moving average — a key technical indicator — for the first time since June 15 on an intraday basis. The metal was also on track for its biggest weekly gain since May.

"Gold is range bound between $1,200 and $1,300 and right now we're in the middle of that range," said Michael Shaoul, chairman and CEO of Marketfield Asset Management. "I think gold can get to $1,300 and run out of gas, but if it breaks above, then things get interesting."

Crude breaks mid-Cycle resistance

The Crude rally challenged mid-Cycle resistance at 46.02, briefly rising above it. However, it closed beneath the mid-Cycle and is due to challenge the neckline of the new Head & Shoulders formation at 42.00.  A decline beneath the Head & Shoulders neckline is bearish and must be treated with respect. Crude is on a sell signal.

(Barrons)  Oil prices are sinking on reports that OPEC's July supply could rise, wiping out gains prompted by better-than-expected U.S. inventory data. Tanker-tracking firm PetroLogistics reportedly sees oil output rising by 145,000 barrels per day this month, flying in the face of agreed production cuts.

The Organization of the Petroleum Exporting Countries agreed to reduce output by some 1.2 million bpd until March of next year in an effort to rebalance global supply and demand and support oil prices. West Texas Crude has fallen 2.2% on the news to around $45.88 as of Friday afternoon. Brent has tumbled 2.1% to $48.25.

Shanghai Index rises to mid-Cycle resistance

The Shanghai Index made a probable Trading cycle low on Monday, then rallied to test mid-cycle resistance at 3259.49.  Every dip appears to be bought, making Cyclical analysis difficult.  It is now due for a probable 1-2 weeks of weakness. The potential for a sharp sell-off is rising.    

(ZeroHedge)  China's overall housing market remained resilient in June according to official NBS data on Tuesday, with the average property price rising 0.7% for the month and 10.2% on an annual basis (fractionally below the 10.4% yoy increase in May) even as the decline in Tier 1 cities accelerated and home prices in Beijing fell for the first time in more than two years, while Shanghai declined further and Shenzhen stalled, pointing to significant cooling in China's biggest real estate markets.

Overall, housing prices increased in more cities in June compared with May - out of the 70 cities monitored by China’s National Bureau of Statistics (NBS), 59 saw housing prices increase in June, vs. 57 in May.

The Banking Index eases lower

BKX eased lower this week, with no supports being challenged. Weakness may develop as as early as next week as BKX declines beneath its Intermediate-term support at 92.30 again.      

(Bloomberg)  The last time big U.S. banks made so much money, the financial world was heading toward the brink of collapse. This time, it’s stiff regulation that’s in danger.

Ten of the nation’s biggest lenders including JPMorgan Chase & Co. and Bank of America Corp. together made $30 billion last quarter, just a few hundred million short of the record in the second quarter of 2007, according to data compiled by Bloomberg. The achievement comes just as the industry’s long campaign against post-crisis rules finds traction with the Trump administration.

(ZeroHedge)  While Goldman's overall results reported moments were generally solid, with the bank reporting Q2 revenue of $7.89 billion (exp. $7.52 billion) and net earnings of $1.83 billion, or EPS of $3.95, above the $3.39 expected, compared with $3.72 for Q2 of 2016 and $5.15 in Q1 2017, there was just one number everyone was focused on: the bank's most profitable segment, its FICC revenue, which however was painfully disappointing, at just $1.159 billion, down 40% Y/Y and roundly missing expectations of $1.47 billion, the bank's worst performance in this segment going back to Q4 2015. Also, despite the top-line beat, overall Goldman revenues were the lowest going back to Q1 2016.

(ZeroHedge)  After yesterday's stunning 40% plunge in Goldman's FICC revenue, market watchers and MS shareholders were nervously anticipating the release of today's Morgan Stanley Q2 earnings data. In retrospect, they had no reason to be worried, because moments ago MS reported revenue and EPS which both beat expectations, with Q2 EPS of $0.87 (est $0.76) on revenue of $9.5BN vs est. $9.13BN, up from $8.91BN a year ago.

(ZeroHedge)  By now everyone is probably familiar with one of the scariest financial charts created recently by Bank of America: it shows that not only have central banks injected a record $15.1 trillion in liquidity since the crisis, but in 2017 alone - a time when the global economy is supposedly improving - they added a record $1.5 trillion, or as BofA's Michael Hartnett calculated, $3.1 trillion annualized.

Or maybe not: in a little noticed comment from Hartnett made later in June, Hartnett observed that "central banks in aggregate still printing: bought $350bn in April, $300bn in May, <$100bn in June…big 5 central banks buying less but not yet selling."

And while the ECB quietly tapered from €80 to €60BN last December (even though Mario Draghi went to great lengths to described the tapering as a non-event) and is expected to announce a formal tapering again, most likely during Jackson Hole , nowhere is this quiet slowdown in central bank purchases more evident than in the balance sheet of the BOJ, whose average purchases have declined sharply in recent months from a JPY80trillion average to a far lower level:

(Should we amend that to Q3 2017 instead?)