E North Korea And Markets: Hope For The Best, Prepare For The Worst

VIX crossed above all the Model resistance levels to challenge the Ending Diagonal trendline, closing above weekly mid-cycle support at 14.95. It is clearly on a weekly buy signal. My warning last week, “Once confirmed, the upside move may be very fast.” was accurate. Ending Diagonal patterns are known to completely retrace themselves, once broken.

(Bloomberg)  Through most historical lenses, the tempest in equities over the last three days is barely noticeable. View it next to the market’s eerie dormancy heading into the fraught month of August and it stands out.

Suddenly ended was a feat with no precedent in U.S. stocks, the S&P 500’s streak of 15 straight days without swinging 0.3 percent in either direction. Selling picked up Thursday to swell the three-day decline to 1.7 percent -- practically a rout in a market that hasn’t had a peak-to-trough drawdown exceeding 3 percent in nine months.

SPX Crosses beneath its “Brexit” trendline

SPX declined beneath its Ending Diagonal trendline and beneath its Cycle Top resistance, leaving a confirmed sell signal in place. The next potential target may be Long-term support at 2343.06.  A meltdown in the Risk Parity Models may bring the SPX considerably lower.

(Reuters) - U.S. stocks were modestly higher in late morning trading on Friday as investors cautiously dipped back into riskier assets, after a three-day losing streak on concerns over escalating tensions between the United States and North Korea.

A weaker-than-expected July consumer price data also supported the recovery.

Still, the S&P and the Dow were on track to post their biggest weekly loss in about five months and the Nasdaq on course to post its biggest weekly fall in about six weeks.


NDX closes at weekly Cycle Top support

NDX declined, but closed at Cycle Top support. This action did not produce a weekly sell signal, although coming very close.  A further decline beneath Intermediate-term support and its Brexit trendline at 5741.75 may produce that signal.    

(ZeroHedge)  In the world of giant bond funds, imitation of trades just may be the sincerest form of flattery.

Just two days after DoubleLine's Jeff Gundlach told Bloomberg and CNBC that he was taking profits in high risk assets, including corporate profits, building a buffer and loading up on VIX as a surge in volatility was his "highest conviction trade" (and correctly so, as just one day later VIX soared from 10 to 17), that "other" bond titan, Pimco said it was doing precisely the same.

Speaking to Reuters, Pimco's chief investment officer, Dan Ivascyn, said on Friday that his firm which oversees more than $1.6 trillion of assets "has built up an above-average cash position firmwide and has held S&P put options as geopolitical and military risks mount."


High Yield Bond Index reverses from its all-time high

The High Yield Bond Index reversed lower this week after surging to an all-time high. The Cycles Model suggests a top may have been made last week. A sell signal may be generated should MUT fall beneath Intermediate-term support and its Ending diagonal trendline at 167.13.

(Bloomberg)  It could be the beginning of the end for an 18-month rally in junk bonds.

A high-yield bond fund run by BlackRock Inc. slumped on Thursday to its lowest level since March, a day after Morgan Stanley warned a correction may already be underway. The cost of protecting speculative-grade bonds against default in the credit-default swap market climbed to its highest level since July 6. Investors demanded the most extra yield in almost a month to buy junk debt, according to a Bloomberg Barclays index fixed late Wednesday.


USB launches from Intermediate-term support

The Long Bond surged higher after testing Intermediate-term support at 153.32.  Treasuries have begun their period of strength. The rally has quite a distance to go, since it must complete the right shoulder of a potential Head & Shoulders formation near 165.00 before a major reversal takes place.  

(ZeroHedge)  n a mirror image of yesterday's ugly, tailing 10Y auction, moments ago the Treasury sold the last batch of paper for this week, when it auctioned off $15 billion in 30Y bonds, in a strong sale which printed at 2.818%, stopping through the When Issued 2.819%, the lowest yield for the tenor going all the way back to October 2016 as the curve has aggressively flattened since then.

The internals predictably were solid, with the Bid to Cover rising to 2.139 from last month's 2.306, above the 6 month average of 2.27. But it was the surge in foreign bidders that stood out as Indirects took down 66.8%, the second highest on record with the exception of July 2016 when indirects were awarded a record 68.5%. Directs declined modestly from 6.4% in July to 5.4%, leaving Dealers with 27.8%, one of the lowest on record.

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