VIX consolidated for a sixth week beneath Long-term resistance while making a double right shoulder to match the double left shoulder of a potential Head & Shoulders formation. It closed above Intermediate-term support at 10.02 but it may take a break of Long-term resistance at 10.93 to generate a buy signal. A breakout above the Ending Diagonal trendline suggests a complete retracement of the decline from January 2016, and possibly to August 2015.  

(ZeroHedge)  Toward the end of the third quarter, as the VIX was plumbing new all time lows - a trend that has largely persisted ever since - we reported that in the latest striking development involving volatility derivative products, the total outstanding Vega across the entire levered and inverse VIX ETP space had reached $375 million, an all time high.

SPX goes parabolic

SPX continues its parabolic rise in an Ending Diagonal formation. A decline beneath its Cycle Top at 2703.58 suggests the rally is over and profits should be taken. Should it break Intermediate-term support at 2616.92 and the trendline nearby, a sell signal may be generated. Should that happen, the decline may continue through the second half of January.  

(ZeroHedge)  With global equity markets now sprinting higher in a furious meltup to daily record highs, one which will most likely not end until the bubble finally bursts, destroying any shred of credibility the Fed and fractional reserve banking have left (while leading to brisk sales of pitchforks) but not before generating countless headlines such as these.

The term of the week is 'melt-up' pic.twitter.com/6phpDc47uW

— Mark Constantine (@vexmark) January 12, 2018

... we said - following Bill Dudley's surprisingly hawkish speech yesterday - that the odds of a surprise rate hike under Jerome Powell are now especially high.

NDX meets its Channel trendline

The NDX rose to meet its Trading Channel trendline this week. A decline beneath the Cycle Top at 6577.12 suggests that the rally may be over.  A further decline beneath lower Diagonal trendline and Intermediate-term support at 6302.44 may produce a sell signal.    

(IBD)  The major market averages looked to end the week on a high note Friday, even as FANG stock Facebook (FB) sold off in the stock market today after making changes to its News Feed. The tech-heavy Nasdaq rose 0.2%, while the S&P 500 and Dow Jones industrial average moved up 0.3% and 0.5%, respectively.

FANG stock Facebook sold off 4% early Friday after the company announced it was shifting its focus within the news feed from sponsored content to friend content. Shares fell below their 50-day moving average line — a crucial support level — before recovering back above it.The stock is also now mildly below a 184.35 flat-base entry. Volume was relatively light on the Jan. 3 breakout day

High Yield Bond Index extends the rally

The High Yield Bond Index may be losing momentum as it extends its rally.  The Cycles Model calls for a loss of strength over the weekend. Perhaps a reversal may be in the making? The rally may be finished should MUT decline beneath the Cycle Top support at 193.07.  A sell signal may be generated with a decline beneath the lower Diagonal trendline at 183.00.

(NYTimes)  The prospect of a strong economy in the United States and a strengthening one in much of the rest of the world is good news for workers and for many companies. But for bond investors, it is a headache.

“We’re not of the view that there is any sector that stands out as extremely cheap on a valuation basis,” said Ashok Bhatia, senior portfolio manager in Neuberger Berman’s Fixed Income Multi-Sector Group.

UST tests a lower neckline

The 10-year Treasury Note Index declined to a low not seen since April 2014. It may have created a lower neckline than was previously shown of a potential Head & Shoulders formation. The Cycles Model now suggests a potential rally through late January that may be quite strong. Should the rally materialize, the minimum target may be mid-Cycle resistance at 127.16 or higher in a panic situation.  

(CNBC)  The bond bear market is finally upon us after more than 25 years, bond guru Bill Gross said Tuesday.

Thought to be triggered by the Bank of Japan's tapering of bond purchases, his claim is making waves in the investment community and coincides with central banks increasingly moving away from global bond markets.

The call was released in a tweet from the account of Janus Henderson Group, Gross's investment firm, saying: "Bond bear market confirmed today. 25 year long-term trendlines broken in 5 (year) and 10 (year) maturity Treasuries."

The Euro vaults above Cycle Top resistance

The Euro vaulted above Cycle Top resistance at 120.60, closing at a new 3-year high. The Euro may be moving higher through mid-February, according to the Cycles Model.      

(Bloomberg)  The euro surged to a three-year high on signs that political risks in the euro area are fading and the European Central Bank may raise interest rates sooner than thought.

The common currency climbed for a third successive day after Chancellor Angela Merkel and Germany’s Social Democrats reached a preliminary accord to negotiate a coalition government. That followed minutes of the European Central Bank’s December meeting on Thursday showing that policy makers are considering a hawkish shift in their communication in the early months of 2018.

EuroStoxx temporarily finds support at the trendline

The EuroStoxx 50 Index consolidated above Intermediate-term support at 3586.53 and the nearby trendline. The rally from the Master Cycle low appears to be a five-day wonder that quickly ran out of steam. The period of strength that accompanied this snap-back was over by Wednesday.    

(CNBC)  European stocks ended in positive territory on Friday, as investors digested new earnings, data and a political breakthrough in Germany.

The pan-European STOXX 600 finished up 0.31 percent provisionally, with the majority of Europe's sectors closing in the black. On the week, the STOXX 600 ended on a positive note, up 0.29 percent.

.The Yen rallies above Long-term resistance

The Yen rallied strongly to close above Long-term resistance at 89.62. It has successfully risen above its sideways consolidation to resume the current trend.  The next hurdle appears to be mid-Cycle resistance at 90.31. There may be a lot of stored up energy ready to be put to use.  

(Reuters) - Concerns that Japan could exit stimulus sooner than expected have jolted world markets this week, including emerging economies where a stronger yen could persuade Japanese funds to dial back their slowly rising overseas allocations.

The yen’s surge after the Bank of Japan reduced its bond purchases on Monday lifted global bond yields and hit emerging currencies, many of which are suffering their worst week against the yen for months.

The BOJ has since restored the purchases, calming markets. But given that it already owns half the bond market, it may be close to winding down buying. When that happens, the yen could skyrocket as Japanese funds repatriate cash.

Nikkei peaks

The Nikkei appears to have peaked on Tuesday, then gave back all its gains during the rest of the week. A break beneath the Cycle Top at 22831.95 and Short-term support suggests the rally may be over, producing an aggressive sell signal. Confirmation comes at the crossing of the lower Diagonal trendline at 21200.00.

(BBCNews)  The Nikkei index of 225 leading Japanese shares reached its highest level for 26 years at the end of trading on Tuesday.

It added 0.6% to its value to end at 23,849.99 when the markets reopened following a public holiday on Monday - its highest level since November 1991.

The index was helped by gains on Wall Street during the holiday.

The Nikkei's rise follows Japan's longest period of economic growth in more than two decades.

U.S. Dollar plunges

USD plunged to new lows not seen since December 2014. The decline is in earnest, since the Cycles Model calls for a a probable continuation of the decline through the end of January with a likely termination near “point 6.”  

 (SeekingAlpha) Last year, the U.S. Dollar Index, a measure of the U.S. currency's strength against a basket of foreign currencies, weakened almost 10%. This was the index's worst performance in more than a decade. Meanwhile, the U.S. dollar depreciated against 85% of all major currencies. After such a dismal performance, the dollar may have been expected to correct that weakness coming into 2018 - particularly considering the early passage of U.S. tax cuts and the outlook for Federal Reserve (Fed) monetary tightening. The tide, however, may be moving in the opposite direction.

The U.S. tax reform bill has, as one would expect, boosted U.S. economic confidence. But it is not likely to have a meaningful impact on U.S. growth - in fact, market forecasts of U.S. growth have barely moved. So, the bill puts little upward pressure on the U.S. dollar.

Gold completes an irregular correction

Gold surprised everyone by rallying higher than many have anticipated. This activity has created an irregular correction.  However, time is of the essence as gold may be heading for a low near the end of January.    

(Forbes)  The technical picture remains constructive. Gold has broken through 2 resistance lines as can be seen in the daily graph.

There are contradictory cycle indications in January. The weekly and the monthly dynamic cycles point down, but the month of January has been up 53% of the time and the average gain has been 1.83%. This average percentage gain is the second highest only to September. The seasonality is likely to reduce the magnitude of the decline. Sentiment on the metal price has only recently begun to rise from readings of excessive pessimism so there is not that much optimism.

Crude closes in euphoria

Crude euphoria carried its upward momentum beyond its Cyclical period of strength as it surpassed a technical target this week. The fly in the ointment is that there may be an important low coming in the next two or more weeks, according to the Cycles Model.  A decline beneath the Cycle Top at 61.32 says the rally is over.

(Bloomberg)  Crude ended the week with a gain after breaching a key $70 threshold and rallying for five straight days.

Futures rose in New York and London, with both benchmarks closing out the biggest weekly gains since October. This week, investors saw $70 Brent crude for the first time since 2014 and a steady run of diminishing U.S. crude stockpiles amid healthy demand. Yet doubts linger that a strong price rally above that key level will persist with expanding U.S. output and a rising rig count.

Shanghai Index continues its rally

The Shanghai Index continued to rally beyond its weekly period of strength. The Cycles Model suggests that the decline may resume through the end of January.  However, an alternate interpretation suggests a potential 5-week decline lies ahead. The potential for a sharp sell-off rises as the next levels of support are breached.   

(ZeroHedge)  In the 24 hours since Bloomberg headlines proclaimed China would slow or halt its Treasury purchases, a number of events have taken place:

President Trump, while praising China over North Korea, suggested they "could do a lot more" in an interview earlier today.

Treasury Secretary Steve Mnuchin mentioned 'trade sanctions' during his appearance in The White House press briefing this afternoon.

And then tonight, Commerce Secretary Wilbur Ross has sent the White House the results of an investigation of steel imports that could lead to new tariffs on Chinese shipments, the Commerce Department announced Thursday.

The Banking Index challenges its Cycle Top

BKX challenged its Cycle Top at 112.16 as it exceeded an important Fibonacci relationship this week. The period of strength appears to have been extended, but may end over the weekend.  A decline beneath the Ending Diagonal trendline and Short-term support at 104.99 suggests the rally may be over.  A further decline beneath the lower Diagonal trendline at 100.00 may give a sell signal. If the Orthodox Broadening Top formation is correctly identified the next move may be beneath mid-Cycle support at 83.26.

(ZeroHedge)  Harnessing blockchain will be just one chapter of a dense book at Davos

Bitcoin and blockchain are likely to dominate discussions at Davos this month. But there will be a far deeper deliberation about the wider disruptive impact of technology on banks.

Financiers used to think that the post-crisis regulatory burden would make financial services less appealing for new entrants. But now they fear that non-banking rivals may target more profitable areas and skim the cream in areas such as payments or lending. Central banks are concerned too. The Bank of England recently war-gamed the impact of fintech on banks’ business models for the first time in their stress tests, suggesting UK banks could lose £1bn of profits to new competitors.

(ZeroHedge)  Yesterday, The New York Federal Reserve announced that it actually increased their $4.2 trillion balance sheet by $1 million rather than shrinking it.

This comes on the heels of The Federal Reserve announcing that it provided $80.2 billion in payments to the US Treasury in 2017. This is the lowest remittance to Treasury since 2015, but still positive.

he Fed’s $4.45-trillion of assets – including $2.45 trillion of US Treasury securities and $1.76 trillion of mortgage-backed securities that it acquired during years of QE – produce a boatload of interest income. How much interest income? $113.6 billion.

Which brings us to excess reserves. Excess reserves—cash funds held by banks over and above the Federal Reserve’s requirements—have grown dramatically since the financial crisis. Holding excess reserves is now much more attractive to banks because the cost of doing so is lower now that the Federal Reserve pays interest on those reserves.  Excess reserves as of the end of 2017 are around $2 trillion and the interest rate paid on excess reserves is now 1.50%.

(ZeroHedge)  When we reported Wells Fargo's Q3 earnings back in October, we drew readers' attention to one specific line of business, the one we dubbed the bank's "bread and butter", namely mortgage lending, and which as we then reported was "the biggest alarm" because "as a result of rising rates, Wells' residential mortgage applications and pipelines both tumbled, specifically in Q3 Wells' mortgage applications plunged by $10bn from the prior quarter to $73bn, while the mortgage origination pipeline plunged to just $29 billion", and just shy of the post-crisis lows recorded in late 2013.

Fast forward one quarter when what was already a grim situation for Warren Buffett's favorite bank, just got as bad as it has been since the financial crisis for America's largest mortgage lender, because buried deep in its presentation accompanying otherwise unremarkable Q1 results (EPS small beat, revenue small miss), Wells just reported that its 'bread and butter' is virtually gone, and in Q1 the amount in the all-important Wells Fargo Mortgage Application pipeline plunged by a whopping 23% to just $23 billion, and at the lowest level since the financial crisis.

(ZeroHedge)  On the surface (i.e. non-GAAP), JPM's Q4 results came in stronger than expected, with adjusted EPS of $1.76 (or $6.7BN in net income) beating expectations of $1.69, while "managed revenue" of $25.45BN was in line with the $25.51BN expected.