VIX has bounced from its mid-Cycle support at 15.45 this week to test the Cycle Top resistance at 23.93.  A buy signal was given last Thursday. The current period of strength may last through the weekend. ZeroHedge comments on the VIX.

The NYSE Hi-Lo Index has been closing under 0.00 for the past week.confirming the NYSE sell signal.  Today’s number is sure to be revised lower after the final numbers are calculated. The ETFs double count stocks, so they must be recalculated after the close, since passive ETFs tend to “average up” in down markets…until they don’t.  A similar practice was used leading up to the crash in 1929 with mutual funds.

(Bloomberg)  The number of market indexes now exceeds the number of U.S. stocks. Traditional ones such as the S&P 500 are collections of securities weighted by market value, and index funds mimic them as a low-cost way to deliver the market’s performance. Many new indexes are different: They include stocks based on custom criteria, such as having low volatility or high dividends.*

What drove the jump?

Demand. Many new benchmarks essentially repackage active investment strategies into indexes, says Eric Balchunas, senior exchange-traded fund analyst at Bloomberg Intelligence. They can then be tracked by so-called smart-beta ETFs, which fund companies are rolling out rapidly.

SPX slipped beneath its 2.5-year Ending Diagonal trendline, suggesting the decline may go further than anticipated by most analysts. An Ending Diagonal is a formation that may be completely retraced. The trigger event is a crossing of the lower Diagonal trendline. The smaller Ending Diagonal formation anticipates a decline to 2532.69.  The larger Diagonal formation anticipates a decline to 1810.10.

(Bloomberg)  U.S. stocks tumbled the most since February as fresh concern about the impact of the trade war with China roiled technology and industrial shares. Treasuries rose with the yen amid demand for haven assets.

The broad selloff took the S&P 500 to the lowest in three months, the Dow Jones Industrial Average plunged as much as 836 points and the Nasdaq 100 Index tumbled more than 4 percent for its worst day in seven years. All 30 members of the blue-chip index retreated, with Boeing and Caterpillar dropping at least 3.8 percent. Computer companies led the S&P 500 to a fifth straight loss, the longest slide since Donald Trump’s election win.

NDX fell through its uptrend line to its 200-day Moving Average at 7035.25.  This is the line in the sand that held up the rally since June 2016. A break here says that the uptrend is over.  ZeroHedge adds additional comments on the after-ours session.  

(CNBC)  Technology stocks got clobbered on Wednesday, suffering their worst day in more than seven years, as concerns over rising interest rates punished the overall market, particularly shares of companies that have been the best performers.

The S&P 500 Information Technology Index closed at $1,220.62, down 4.8 percent, marking the biggest decline since August 18, 2011, when the index dropped 5.3 percent. All 65 members of the index fell. The broader S&P 500 dropped by 3.3 percent and the Dow Jones Industrial Average tumbled 3.2 percent.

The tech sector includes the largest companies by market cap in the U.S. and those that have been the biggest contributors to the extended rally. Shares of Apple, Microsoft and Amazon are up sharply for the year as investors bet they will continue to deliver strong earnings growth and take market share.

The High Yield Bond Index halted its rally on Tuesday, then fell nearly 5% on Wednesday.  A sell signal may have been made as it declined beneath its Cycle Top support at 206.44. A further decline beneath Intermediate-term support at 202.56 may confirm the sell signal.  

(ZeroHedge)  Last week, the euphoria over US high yield bonds hit new post-crisis highs when amid a sharp slowdown in supply, a rise in the oil price and generally solid economic conditions, insatiable buyers of junk sent the Bloomberg Barclays Corporate high yield spread to the lowest since before the financial crisis, dropping as low as 303bps, the tightest level since late 2007 before drifting somewhat wider during the late week bond rout.

As US junk bonds have remained surprisingly resilient in the face of last week's rate rout, even as investment grade spreads have continued to drift wider resulting in a , questions have started to emerge about just how much longer this high yield complacency can sustain.

UST bounced out of its Master Cycle low on Friday.  It has the capability of rallying back to retest the Cycle Top at 121.62, or extend slightly higher. Bond shorts were being encouraged by this Cycle extension, but it has all the earmarks of a false breakout.  

(ZeroHedge)  After a poorly received, tailing 3-Year auction, moments ago the Treasury dumped the second load of supply for the day when it sold $23 billion in 10Y paper. The auction, not surprisingly, could have been stronger.

Stopping out at a high yield of 3.225%, the highest since April 2011, it tailed the When Issued 3.222% by 0.3 bps, the first tail since May 2018.

The internals were even uglier: the Bid to Cover slumped from 2.58 in September to just 2.39, the lowest since February, and far below the 6 auction average of 2.55. And while Indirect bidders stepped up, taking down 64.5% of the auction, the highest since July, and above the average of 60.4, the Direct bid tumbled from 13.4% to 5.4%, the lowest since February, and less than half the 11.4% average. As a result dealers were left with 30.1%, the most going back all the way to April.

The U.S. Dollar eased away from its retracement high of 95.84 made Tuesday. The Cycles Model suggests weakness may prevail through the end of the month. The Head & Shoulders formation, if broken, indicates a probable target by Early November.  

(Bloomberg)  The current run-up in U.S. Treasury yields and the dollar poses a major stress test for a global financial system that has become even more dependent on the American currency since the last credit conflagration.

Mehul Daya and Neels Heyneke, strategists at South Africa’s Nedbank Group Ltd. who have analyzed the role of the greenback’s liquidity in past crises, argued that “a stronger U.S. dollar and the global cost of capital rising is the perfect cocktail, in our opinion, for a liquidity crunch” in a note Thursday.

A key feature of the global financial crisis a decade ago was a chronic shortage of dollars that eventually spurred the Federal Reserve to set up swap lines with more than a dozen central banks to ease funding pressures. Yet the world has doubled down since then: dollar credit to borrowers outside the U.S. -- excluding banks -- climbed to 14 percent of global gross domestic product by March, from 9.5 percent at the end of 2007, according to estimates cited in a Bank for International Settlements paper.

The Yen bounced from the bottom trendline of the Orthodox Broadening Top toward the 50-day Moving Average at 89.45. Once accomplished, the decline resumes for another week or longer. The Cycles Model maintains that the “point 6” target given by the Broadening Formation is still on the table. News articles are all over the board and don’t recognize the bounce.

The Nikkei consolidated in an “island” in mid-decline after making a new high last Wednesday. The decline beneath the Cycle Top support gives the Nikkei Index a sell signal. The Cycles Model suggests a probable two months of decline ahead.  

(Reuters) - Japan’s Nikkei edged higher in choppy trade on Wednesday as investors picked up defensive stocks on the dips, while index-heavyweight SoftBank dived on news it was to buy a majority stake in U.S. shared office space provider WeWork.

Retailers Don Quijote Holdings jumped 9.4 percent and FamilyMart UNY rose 5.0 percent after the Nikkei Business online reported in late trade that FamilyMart is considering selling all of its UNY unit to Don Quijote.

The Nikkei share average ended 0.2 percent lower to 23,506.04, after switching between positive and negative territory through the day.

The Euro may have found its reversal point yesterday and appears ready to rally at least through the weekend. The target for the bounce appears to be the mid-Cycle resistance at 119.19. The pattern infers a possible panic rally during that time.  

(Reuters) - The euro and sterling rose on Wednesday, underpinned by optimism for a Brexit deal, while the dollar lost ground against a basket of currencies even as U.S. bond yields hovered at multiyear peaks.

The common currency’s gains were limited by worries about the sustainability of Italy’s public finances, though Italian Economy Minister Giovanni Tria reiterated on Wednesday that the government would do everything in its power to regain the confidence of financial markets.

“There is more optimism that they will find some agreement between Britain and (the) European Union before Brexit,” said Steve Englander, global head of G10 FX research at Standard Chartered Bank in New York.

EuroStoxx 50 Index declined to its Head & Shoulders neckline at 3275.00 for a second time in 5 weeks. It appears to have closed beneath it, suggesting the decline may continue for another possible two weeks. If so, the target infers at least a 15% decline from the neckline.

(CNBC)  European stocks closed sharply lower Wednesday, amid a global sell-off for equities, with technology and mining stocks leading the losses.

The pan-European Stoxx 600 closed provisionally down by 1.46 percent. Tech and basic resources were the two biggest losers on aggregate, but most sectors struggled amid fears over global economic growth and rising interest rates.

Investor sentiment has taken a hit this week after an IMF report lowered its global gross domestic product forecast for both this year and next. In the United States, fears that the Federal Reserve is ready to push the cost of borrowing higher has also had a knock-on effect to global markets.

Gold bounced out of its Master Cycle low on September 28 at 1184.60, but was repulsed by the 50-day Moving Average. Thus far, the decline has maintained above the low. Should it break through the 50-day, we may see a rally lasting a month or more in gold.  The rally may go as high as the mid-Cycle resistance at 1278.73.

(Investing.com) - Gold prices gained on Wednesday as the U.S. dollar weakened after Treasury yields eased from recent highs in the previous session.

Gold futures for December delivery on the Comex division of the New York Mercantile Exchange gained 0.18% to $1,193.60 a troy ounce by 1:40AM ET (05:40 GMT).

The U.S. dollar index that tracks the greenback against a basket of other currencies was down 0.1% to 95.29.

Reports that U.S. President Donald Trump felt the Federal Reserve is hiking rates too fast received some focus.

“I think we don’t have to go as fast,” Trump told CNBC. "I don't want to slow it down even a little bit,” he said, adding that he believed there was no need to raise rates when there were no signs of inflation in the economy. Trump did, however, acknowledge that he has not discussed with Federal Chair Jerome Powell about the central bank's rates decision.

West Texas Intermediate Crude may still be in the window for a Master Cycle high in the next week. The next level of resistance is at 81.00. The trendline is just beneath the close at 72.50 which may prove support for a final probe higher. However, a stumble may prove to be disastrous as a Broadening Wedge formation indicates a potential steep decline ahead.

(OilPrice)  The American Petroleum Institute (API) reported a major build of 9.75 million barrels of United States crude oil inventories for the week ending October 5, compared to analyst expectations that this week would see a much smaller build in crude oil inventories of 2.62 million barrels. The build is the largest build since February 2017, according to Zerohedge.

Last week, the American Petroleum Institute (API) reported a build of 907,000 barrels of crude oil.

The API reported a build in gasoline inventories as well for week ending October 5 in the amount of 3.4 million barrels. Analysts had predicted a draw of 42,000 barrels in gasoline inventories for the week.

The Shanghai Index opened down on Monday after coming off a one-week long National Day Holiday through October 7. For the past two days, SSEC consolidated at Intermediate-term support/resistance at 2723.81. The Cycles Model suggests the decline may continue through the end of the month for the next Master Cycle low.     

(ZeroHedge)  As China returns from its Golden Week vacation, it is not just its currency and stock market that is collapsing...

As Bloomberg reports, an indicator produced by a Beijing-based business school in the style of the closely-watched purchasing managers index plunged last month, adding to concerns about the slowing economy and raising the question of whether business conditions may be worse than official statistics show.

The index is based on a survey of CKGSB students and graduates who are executives at companies operating in China. The respondents represent around 300 privately-owned small and mid-sized enterprises across several sectors of the economy.

"Most surveyed companies are now experiencing unprecedented difficulties and have become increasingly pessimistic about business prospects for the next six months," Li Wei, the economics professor at CKGSB who oversees the survey, said in a commentary accompanying the September survey results.

"For most, business has never been worse."

BKX appears to have made a Master Cycle low on October 2, but another Master Cycle low may be hot on its heels. If correct, this calls for a brief (1-2 week) bounce to test overhead resistance at 109.17. However, a breakdown beneath the Head & Shoulders neckline may usher in a decline to its implied target by the end of the month. There is another potential formation…a Broadening Wedge with an even deeper target of 82.40.

(Investopedia)  This was supposed to be a big year for bank stocks to enter a longterm “golden age” fueled by rising interest rates, tax reform, and a more relaxed regulatory environment. But financial stocks have failed to deliver. Now, one of the sector's biggest bulls has thrown in the towel. Dick Bove, chief strategist for Hilton Capital Management, is telling investors to sell most bank stocks on the belief that rising interest rates, rather than bolstering bank profits, will actually work against them. “The market doesn’t have a clue based upon the things I hear,” Bove told CNBC.

(CBSNews)  There's nothing like paying a fee to access cash that's already yours -- and for banks, the fee business is getting more and more lucrative.

Banks charged noncustomers record amounts to use their ATMs this year, according to a Bankrate study, with the average ATM charging $3.02. Plus, the average bank charge to use an out-of-network ATM is $1.66. That makes the all-in average to withdraw your own money from an unknown bank $4.68. And it means ATM fees for noncustomers have risen for the past 14 years, said Bankrate analyst Greg McBride. 

"The reason that's gone up every year is no one is worried about alienating noncustomers," he said.

(CNBC)  China's central bank said on Sunday it would cut the amount of cash that most banks must hold as reserves to lower financing costs and spur growth, amid concerns over a potential economic drag from an escalating trade dispute with the United States.

The reserve requirement cut, the fourth by the People's Bank of China (PBOC) this year, comes after Beijing has pledged to expedite plans to invest billions of dollars in infrastructure projects as the economy shows signs of cooling further, with investment growth slowing to a record low.

Reserve requirement ratios (RRRs) - currently 15.5 percent for large institutions and 13.5 percent for smaller banks - would be cut by 100 basis points effective Oct. 15, the PBOC said.

The central bank will inject a net 750 billion yuan ($109.2 billion) in cash into the banking system with the cut by releasing a total of 1.2 trillion yuan in liquidity, with 450 billion yuan of that to offset maturing medium-term lending facility (MLF) loans.

(ZeroHedge)  With Italian government bond yields blowing out in recent months to the highest levels in over 4 years, the one sector that has been hit hardest have been Italy's banks, which have lost a third of their market value in the 6 months since peaking in April.

While traditionally higher yields tend to be positive for local banks which can earn a greater profit on the net interest margin, Italy has in recent years been an "upside down" basket case in this regard largely due to banks' massive holdings of Italian sovereign debt.

And, as Bloomberg recently wrote, while the balance sheets of Italian banks are much-improved since the Eurozone sovereign debt crisis of 2011, banks used much of the funding later injected by the European Central Bank to buy even more sovereign debt.

Until next week…