VIX revisited its 2-year Ending Diagonal trendline one week after punching through it during Options Expiration. The move appears reflexive, but this time the VIX did not go beneath the trendline. Re-crossing the mid-Cycle resistance at 13.62 confirms the VIX buy signal.  

(ZeroHedge)  One of the catalysts cited for the recent breakout in the S&P was the corresponding breakdown in the VIX, which as we noted on Wednesday breached the triangle formation in which it had been trapped since February, sliding to the downside and erasing the elevated levels seen in the post Feb 5 panic.

However, while the VIX has tumbled, the realized vol in the market continues to be surprisingly high. That's the take of Goldman's derivatives strategist Rocky Fishman, who writes today that "the VIX closed yesterday at its lowest level since January", a level which as he shows in the chart below, is "too low given how much the SPX is moving."

SPX hits trendline resistance

This week SPX continued its rally toward the 2-year trendline at 2730.00, tagging it on Friday. Some would debate whether it remains on a sell signal. If so, a close beneath Intermediate-term support at 2705.61 re-confirms the sell signal.

(ABCNews)  Health care companies led U.S. indexes modestly higher on Wall Street, closing out the market's biggest weekly gain since March.

Drug makers and other health companies ended broadly higher Friday after President Donald Trump announced plans to rein in drug prices that didn't seem to pose immediate threats to health care company profits.

CVS Health rose 3.2 percent and Merck climbed 2.8 percent.

Those gains outweighed losses in technology companies. Chipmaker Nvidia fell 2.2 percent.

The S&P 500 index rose 4 points, or 0.2 percent, to 2,727.

NDX also at the trendline

The NDX also tagged its 2-year trendline, making a 73% retracement of its decline. A decline beneath Intermediate-term support/resistance at 6754.49 restores the sell signal. Declining through Long-term support at 6528.47 confirms the sell signal.

(ZeroHedge)  "This is not a time to be rewarded for long market exposure..."

Those are the warning words from yet another billionaire hedge fund manager as expectations of further market disruptions loom.

A day after the largest hedge fund in the world shifts to a net short equities position, as Ray Dalio's Bridgewater no longer "feels pretty stupid" about being out of US stocks; Dan Loeb's Third Point puts his money where his mouth is and dramatically increases his short bets.

Market shifts are inherently difficult to anticipate and when they happen, they do not ring a bell but they do blow a dog whistle, as we have said in the past. Our job is to listen carefully and to take decisive action when we suspect change is afoot. We believe that the increase in our short book and our reduced net and gross reflect what we are hearing.

High Yield Bond Index bounces back to the 2-year trendline

The High Yield Bond Index bounced back to the two-year trendline, closing above Intermediate-term support/resistance at 190.13. However, Long-term support may not hold, since the rallies are getting progressively weaker. A broken Diagonal trendline infers a complete retracement to its origin.  

(SeekingAlpha)  "High yield" is one of those topics that many authors and readers seem to love to wring their hands over. A recent example is this article, on which I commented in an effort to provide some perspective: The High Yield 'Fear Factor' - Hype Or Harbinger? And this one: Leveraged Loans Major Concern for Janney's Fixed income Chief.

Credit risks abound in all credit investments, like high yield bonds, senior secured loans (sometimes called "leveraged loans"), collateralized loan obligations ("CLOs," which are securitized vehicles that buy loans), business development companies ("BDCs," which are companies that lend to small and medium sized companies). But they are nothing new and are the sort of risks that bankers and credit professionals have been analyzing, modeling, managing and projecting for years.

UST consolidates

The 10-year Treasury Note Index trades in a narrow range above its Cycle low of two weeks ago. It may be in a retracement rally that has the potential to retest the Head & Shoulders neckline. This is a common occurrence and it is surprising that it hasn’t happened sooner.

(ZeroHedge)  What a difference a month makes.

Exactly one month ago, when the Treasury reported its latest monthly budget deficit, we noted that Federal spending surged in March, rising 7% from $392.8BN from a year prior to $420BN, the second highest monthly government outlay on record, and with tax receipts disappointing, it meant that the March budget deficit of $208.7 billion was 18% higher than $176.2BN deficit recorded last March, and was the biggest March budget deficit in US history.

Fast forward to today when anyone who took this one month and extrapolated it as an indication of US economic health got the shock of a lifetime, when the US posted its largest monthly budget surplus on record in April, and the highest Federal Government Receipts ever - at just over half a trillion dollars…

The Euro makes reversal on Thursday.

The Euro appears to have made a Master Cycle low on Wednesday, then reversed on Thursday. Triangles are known to make a false breakout at the end of the formation. It now has the capability of a parabolic rally to or above 127.00 by the end of May or early June. Triangles are often known to signal a “one and done” final rally.

(USNews)  The head of the European Central Bank is urging political leaders to repair gaps in the way the euro is set up to prevent another crisis — including by finding money to help governments hit by deep recessions.

Mario Draghi said Friday in a speech in Florence, Italy, that sharing some government funds could provide "an extra layer of stabilization" for countries facing economic and market turmoil that can't be calmed through national budget and economic policies.

He conceded, however, the idea would be complex to enact and faces political resistance. Draghi didn't specify what form the support might take, calling it a "fiscal instrument."

EuroStoxx completes the right shoulder.

The EuroStoxx 50 Index may have peaked on Thursday, but hasn’t pulled back enough to call Friday’s action a full-fledged reversal. While the rally retraced 70% of the prior decline, the Cycles Model suggests it may have another day or two early next week to prove the rally is over.

(ZeroHedge)  European stocks are up seven straight weeks (the longest win streak since March 2015), accelerating into the green for 2018 this week...

All as European economic data surprises crash to their weakest since August 2011.

Once again - bad news is good news...

Draghi gets his excuse to keep doing "whatever it takes" and drone-like investors buy on his coattails.

The Yen consolidated at the mid-Cycle

The Yen reversed off the Long-term support at 90.88 last week to begin the next phase of its rally. This week it consolidated around mid-Cycle support/resistance. The Cycles Model suggests that a rally may develop that has the potential to reach or exceed the Cycle Top resistance at 98.61 in the next three weeks.  

(MarketRealist)  Japanese yen continues to depreciate

Last week, the Japanese yen (JYN) depreciated against the US dollar for a sixth consecutive week as the US dollar continued to rally. The US dollar rallied due to the Fed’s hawkishness and continued economic improvement. As Japanese markets were closed for three days last week, there was limited data reported from the Japanese economy. In the week ended May 4, the yen (FXY) closed at 109.1 against the US dollar (UUP), depreciating 0.06%. Japanese equity markets (EWJ) on the other hand, witnessed limited volatility as indexes were closed for three days. The Nikkei 225 (JPXN) closed the week ended May 4 with a minor change of 0.02%.

Nikkei makes a final surge

The Nikkei made what may be its final surge to a 64% retracement of its decline form the January 26 high.  A decline beneath the trendline and Intermediate-term support at 22060.12 renews the sell signal. The potential for a decline to the Cycle Bottom is very high.  

(Reuters) - Japan’s Nikkei share average rose to a three-month high on Friday, buoyed by tepid U.S. inflation data easing concerns over the Federal Reserve hiking rates at an accelerated pace, as well on gains for several companies posting solid earnings.

The Nikkei closed the day up 1.16 percent at 22,758.48 after brushing 22,769.16, its highest since Feb. 5. The index gained 1.3 percent this week.

There were 163 advancers on the benchmark index against 59 decliners.

The broader Topix rose 0.98 percent to 1,794.96.

U.S. Dollar consolidates

USD rallied to a new retracement high on Wednesday, but eased back for the remainder of the week. It has passed the half-way point to its anticipated target at “Point 7.” The rise in the USD is finally being recognized by the media. A panic Cycle may develop in equities, boosting the flow back into the USD as a safe haven.

(Reuters) - Speculators' net short dollar position in the latest week fell to its lowest level in nearly three months, according to calculations by Reuters and Commodity Futures Trading Commission data released on Friday.

The value of the net short dollar position was $10.84 billion in the week ended May 8, from $15.15 billion the previous week. This week's dollar net shorts were the smallest since the week ended Feb. 20.

Short-term investors have been short the dollar since mid-July last year.

U.S. dollar positioning was derived from net contracts of International Monetary Market speculators in the yen, euro, British pound, Swiss franc and Canadian and Australian dollars.

Gold bounced off Long-term support

Gold bounced off Long-term support at 1307.04 on Wednesday, taking a swing at Intermediate-term resistance at 1331.92.  Although Gold may continue its bounce a while longer, it seems to have met a minimal retracement level and may not have much further to go.  

(Reuters) - Physical gold demand lacked vigour this week in top Asian hubs as high domestic prices suppressed appetite for the metal, with prices in India swinging to a discount for the first time in three weeks.

“Wedding season demand has been waning and retail consumers are waiting for a correction in prices,” said Mukesh Kothari, director at Mumbai bullion dealer RiddiSiddhi Bullions.

Dealers in India were offering a discount of up to $1 an ounce from official domestic prices this week, compared with a premium of $1.50 last week.

Crude prices stall at a critical level.

Crude made a new high on Thursday to achieve the 50% retracement level of its decline from April 2011 to February 2016 (70.44). This is often recognized as a standard retracement of a long-term trend, taking 26 months. A break beneath the Cycle Top and trendline at 66.30 may indicate a reversal is underway.  A further decline beneath Intermediate-term support at 64.83 confirms it.

(NYTimes)  A cutback in world oil output, engineered by some of the biggest producers, has more than doubled prices from their ebb two years ago. Now, a looming decision by President Trump on the Iran nuclear agreement is pushing them even higher.

Benchmark prices for American crude oil closed above $70 a barrel on Monday for the first time since 2014 as traders factored in a prospective United States withdrawal from the accord, which eased international sanctions on Iran in exchange for restrictions on its nuclear program.

Investors fear that a withdrawal would lead to new sanctions on Iran, the world’s fifth-largest producer of crude oil last year, further curtailing a global supply that is already relatively tight.

Shanghai Index bounces to the mid-Cycle resistance

The Shanghai Index extricated itself from the Lip of a bearish Cup with Handle formation to challenge mid-Cycle support/resistance at 3162.50. The lip of the formation has been tested and broken, so the mid-Cycle may not hold. The Cycles Model suggests a lengthy decline, perhaps until mid-June.       

(AsiaTimes)  Tensions in the South China Sea are on the boil again amid new reports that China has deployed advanced missiles to land features in the disputed maritime area.

According to new reports, China has installed several Surface-to-Air Missiles (SAMs) and Anti-Cruise Ballistic Missiles (ACBMs) systems across the Paracel and Spratly island chains, parts of which are claimed by multiple regional states including the Philippines and Vietnam.

Weeks earlier, China also deployed electronic jamming equipment to the maritime area, giving it the ability to disrupt the command-and-control communications of rival states’ military assets operating in the South China Sea.

The Banking Index rallies to Intermediate-term support

After testing Long-term support, rallies toward its 2-year trendline at 111.50, closing above Intermediate-term support/resistance at 110.41 on Friday. The sell signal is in question. Cycles Model suggests that the Banking Index may decline through the end of the month.

(ZeroHedge)  Two weeks after Deutsche Bank wasted no time at all to lay off 400 US bankers, or roughly 10% of total, as the bank's post-disastrous earnings purge began, today the purge is accelerating and according to Bloomberg, the biggest European bank is considering a sweeping restructuring, a less scary phrase than "mass termination" in the U.S. "that could result in cutting about 20% of staff in the region" although Bloomberg caveats that the as a formal decision has not yet been made, the total figure may end up lower.

Some more details from Bloomberg:

Deutsche Bank isn’t targeting a specific level of cuts at the U.S. unit and the final figure will depend on each business line’s decisions, according to another person briefed on the matter. The company had about 10,300 employees in the U.S. at the end of 2017, or about a tenth of its global workforce.

(CNNMoney)  Banks have been walking away from low-income homebuyers seeking loans, and that has affordable housing advocates worried.

Newly-released federal data on mortgage lending from the Consumer Financial Protection Bureau shows people with low- and moderate-incomes made up only 26.3% of borrowers in 2017, down from 36.6% in 2009.

In part, that's due to federal rules that sought to crack down on the subprime lending tactics that helped bring on the financial crisis. Also, skyrocketing housing costs have locked many people of modest means out of the market.

But the data reveals another profound shift. Big banks are moving away from mortgage lending entirely, while independent mortgage companies — or "non-banks" — pick up the slack.

(Reuters) - A return to profit for troubled Italian bank Monte dei Paschi di Siena (BMPS.MI) added impetus to signs of a tentative recovery among the country’s battered lenders on Friday.

Italian banks have been laid low by a recession that pushed soured loans up to nearly one fifth of total lending, forcing them to write down debt for 138 billion euros ($165 billion)in the past five years — wiping out profits and capital in the process.

But an economic recovery has brought default rates among Italian companies back down to pre-crisis levels, easing the pressure on banks.