VIX launched from the two-year trendline support at 12.30 to briefly overcome Intermediate-term resistance at 17.56.  However, it completed the week with a round trip back to the combination Long-term support and mid-Cycle support at 13.37, closing above them.  

(Bloomberg)  The Italian political imbroglio was a boon for haven assets like U.S. Treasuries on Tuesday. But it didn’t spur a feeding frenzy in the instruments equity investors use to protect against stock swings.

The dearth of demand bodes ill for exchange operator Cboe Global Markets Inc., whose proprietary products include options and futures on the oft-vexed VIX index. The so-called "fear gauge" that tracks the 30-day implied volatility on the S&P 500 Index jumped 3.8 points on Tuesday, its fifth-largest jump of 2018. Yet volume in options linked to the VIX were meager.

SPX whipsaws investors

SPX declined through its 2-year trendline at 2745.00 on Tuesday, but bounced at its Short-term support at 2680.18, sending back above the trendline. It has created a whipsaw effect, where a sell signal is given one day and a buy signal the next.

(YahooFinance)  Wall Street stocks rose on Friday after the latest monthly jobs report pointed to strength in the U.S. economy and geopolitical tensions eased.

Technology stocks led the rally, with gains in heavyweight companies such as Apple (NasdaqGS: AAPL - news) , Microsoft (Euronext: MSF.NX - news) and Alphabet (Xetra: ABEA.DE - news) lifting the S&P 500 tech index to a record high.

Government data showed that in May the U.S. economy added 223,000 nonfarm jobs and average hourly wages increased 0.3 percent, both topping economist estimates. The unemployment rate fell to an 18-year low of 3.8 percent. Data on construction spending and industrial production also pointed to accelerating economic growth.

Markets got a reprieve as Italy installed a coalition government, removing the risk of a repeat vote dominated by debate on whether the country would quit the euro.

Further calming geopolitical concerns, U.S. President Donald Trump announced the resumption of plans for a summit with North Korea's leader Kim Jong Un on June 12.

NDX is above 7000 again

The NDX has broken out of its sideways consolidation to better its May 14 high. There are two items of concern: 1. Volume has dropped even lower on the breakout…and 2. NDX remains beneath its two year trendline. Declining through Intermediate-term support at 6771.75 puts the NDX on a sell signal.

(ZeroHedge)  Earlier we showed that despite some significant cross-asset volatility, not to mention substantial declines especially across emerging markets and Italian stocks and bonds, in the month of May quite a few markets and asset-classes shrugged off the EM and Italian woes, and posted modest if steady returns, including the FTSE 100 (+2.8%), Stoxx 600 (+0.2%) and, of course, the S&P 500 which rose +2.2% in the month.

Yet what is far more remarkable is just how concentrated the S&P gains were in May, and how just one company was responsible for a quarter of the S&P500's gains.

 As Bloomberg's Andrew Cinko calculates, it was all about Apple, which accounted for 23% of the S&P 500's gains last month, its biggest contribution since August of last year.

High Yield Bond Index fails at Long-term support, but scrambles back

The High Yield Bond Index declined through Long-term support at 187.28, but scrambled back above it today. MUT remains on a sell signal. The rallies are getting progressively weaker. A broken Diagonal trendline infers a complete retracement to its origin.  

(BusinessInsider)  The experts who investigate transport disasters, crimes, and terror incidents usually create a chronology of events. Reading them in hindsight can be haunting—you know what's coming and you want to scream, "Don't do that!" But of course, it's too late.

We do something similar in economics when we look back at past recession and market crashes. The causes seem obvious and we wonder why people didn't see it at the time.

One of the examples today is a brewing crisis in the high-yield bond market. The problem is massive illiquidity. Trading can and will dry up in a heartbeat at the very time people want to sell.  Yet few investors are aware of that.

UST rallies above Intermediate-term resistance

The 10-year Treasury Note Index gapped above Intermediate-term support/resistance to make a 30% retracement of the decline starting last September.  The pullback was expected, in order to test the new technical support. If so, we may see UST rally back to the Head & Shoulders neckline near 123.00.  

(ZeroHedge)  It appears The Fed's desperate efforts to normalize interest rates (and its balance sheet) before the next recession strikes is reflexively driving a significant part of the economy towards that very end.

As the Mortgage Bankers Association reports, mortgage applications decreased 2.9% from one week earlier.

The Refinance Index decreased 5% from the previous week to its lowest level since December 2000.

The Euro bounces

The Euro bounced on Tuesday after meeting both its time and short-term price targets.  The initial target for the bounce may be Long-term resistance at 120.17. Normally a bounce like this may last 2-3 weeks.  However, a rally above Long-term resistance may lengthen the retracement.

(OfTwoMinds)  Papering over the structural imbalances in the Eurozone with endless bailouts will not resolve the fundamental asymmetries.

Beneath the permanent whatever it takes "rescue" by the European Central Bank (ECB) lie fundamental asymmetries that doom the euro, the joint currency that has been the centerpiece of European unity since its introduction in 1999.

The key imbalance is between export powerhouse Germany, which generates huge trade surpluses, and its trading partners, which run large trade and budget deficits, particularly Portugal, Italy, Ireland, Greece and Spain.

Those outside of Europe may be surprised to learn that Germany's exports are roughly equal to those of China ($1.2 trillion), even though Germany's population of 82 million is a mere 6% of China's 1.3 billion. Germany and China are the world's top exporters, while the U.S. trails as a distant third.

EuroStoxx gap through Intermediate-term support

The EuroStoxx 50 Index gapped through Intermediate-term support at 3444.96, recovered to close above it this week. However, supports have been broken and now have a higher probability of not holding at the next decline. It is on a sell signal.

(Reuters) - European shares breathed a sigh of relief on Friday with Italian stocks supported after a deal to form a coalition government ended three months of political deadlock and removed the risk of another general election.

The pan-European STOXX 600 index rose 1 percent, while German stocks .GDAXI gained 0.9 percent and Britain's FTSE 100 .FTSErose 0.3 percent.

Italian stocks .FTMIB rallied as much as 2.9 percent, the standout performers in Europe as Italian banks .FTIT8300 gained 3.8 percent. Recent political uncertainty has roiled Italian stocks, resulting in a slide of more than 9 percent for the Italian benchmark in May, its worst month since June 2016.

The Yen meets resistance

The Yen challenged Short-term resistance at 94.95 on Tuesday, then sold off toward Long-term support at 90.93, closing above it. The Cycles Model now suggests that a resumption of the decline toward “point 6” may be imminent, as the period of strength may have passed.  

(Bloomberg)  The Bank of Japan cut purchases of bonds for the first time since February, taking advantage of a global slide in yields brought on by political risks in Europe and trade tensions.

The BOJ trimmed buying of debt maturing in the five-to-10 year zone by 20 billion yen ($183 million) to 430 billion yen at Friday’s regular operation. While the 10-year yield jumped the most in six weeks following the move, the yen weakened instead of gaining as expected by analysts.

Nikkei breaks the two-year trendline

The Nikkei continued its declined this week to break the two-year trendline at 22450.00.  A decline beneath the trendline at 22450.00 and Short-term support at 22306.68 renews the sell signal.  The potential for a decline over the next two months to the Cycle Bottom is very high.

(JapanTimes)  The Nikkei average edged slightly lower on the Tokyo Stock Exchange on Friday, hurt by concerns over trade friction between the United States and other major economies.

The benchmark 225-issue Nikkei average lost 30.47 points, or 0.14 percent, to end at 22,171.35. On Thursday, the key market gauge gained 183.30 points.

But the Topix index of all first-section issues climbed 1.72 points, or 0.10 percent, to 1,749.17, after rising 11.32 points the previous day.

The Tokyo market opened weaker after poor performances of U.S. and European equities Thursday, which were dampened by new U.S. tariffs on steel and aluminum imports.

U.S. Dollar may have reached a retracement high.

USD rallied until Tuesday, but did not reach either its “Point 7” target or the mid-Cycle resistance at 95.45, which is common for this type of retracement.  That may indicate a weakness in the rally or it may extend as Cycles Model may allow a few more days of possible rally, but a minimum target has been met at the juncture of an inverted master Cycle high.  

(Xinhua) -- The U.S. dollar index increased against most other major currencies in late trading on Friday, as investors meditated on the country's better-than-expected jobs report.

U.S. total nonfarm payroll employment increased by 223,000 in May, much higher than economists' estimate of 188,000, and the unemployment rate edged down to 3.8 percent, the Labor Department said Friday.

In May, average hourly earnings for all employees on private nonfarm payrolls rose by 8 cents to 26.92 U.S. dollars. Over the year, average hourly earnings have increased by 71 cents, or 2.7 percent, according to the department.

"At 3.8 percent, the unemployment rate is now at its 2000 cycle low. If it falls any more, we'll have to go back 50-60 years to find a comparable level of employment health," said Chris Low, chief economist at FTN Financial, in a note.

Economic activity in the manufacturing sector expanded in May, and the overall economy grew for the 109th consecutive month, according to the latest report released by the Institute for Supply Management (ISM).

.Gold rallies to Long-term resistance

Gold tested its Broadening trendline, then rallied to challenge Long-term resistance at 1309.35, closing beneath it and the neckline of a Head & Shoulders formation (not shown) that implies a minimum target of 1235.00 in the next month. Crossing the lower trendline of the Broadening Wedge and mid-Cycle support at 1276.45 implies a much deeper low may be in store.

(MarketWatch)  Contrarians continue to wait patiently for when gold-market sentiment will support a strong rally. Very patiently.

That’s because it’s been more than a year since sentiment among gold market-timers was so pessimistic that a contrarian buy signal could even be considered. Since then, the gold-timing community has been quick to turn bullish at any sign of gold market strength and reluctant to turn bearish at any sign of weakness in the yellow metal. GCQ8, -0.52%  

That behavior is just the opposite of the “Wall of Worry” that bull markets like to climb.

Crude prices decline to Intermediate-term support

Crude declined beneath its Cycle Top and trendline at 67.40, indicating a reversal is underway. Crude closed at its Intermediate-term support at 65.81, on the verge of a sell signal. A further decline beneath Intermediate-term support at 65.81 confirms it.

(Reuters) - Oil prices retreated on Friday after strengthening early in the session as U.S. President Donald Trump’s remarks on trade led the dollar to strengthen against other currencies, weakening greenback-denominated commodities including crude.

Trump told Canada and the European Union to do more to bring down their trade surpluses, a day after hitting the two U.S. allies and Mexico with import tariffs on their steel and aluminum.

The president’s comments led the dollar .DXY to strengthen and dollar-denominated commodities to sell off, said John Kilduff, a partner at Again Capital Management.

U.S. West Texas Intermediate crude CLc1 fell 48 cents to $66.56 a barrel by 12:03 p.m. EDT [1603 GMT]. For the week, WTI was on track for a 1.9 percent fall, adding to last week’s near 5 percent decline.

Shanghai Index makes a new low

The Shanghai Index declined beneath the Lip of the Cup with Handle formation at 3085.00, confirming the sell signal. The Cycles Model suggests a stong decline, perhaps until mid-June.

(ZeroHedge)  As we sit here on Wednesday the “markets” appear to be recovering from yesterday’s rout in both the U.S., as well as Europe. e.g., Italy and its contagion fears. Many across the mainstream business/financial media landscape are now waving their “all clear” pom-poms.

Whether this is true, in regards to Europe, is an open question at best. Yet, for the record, I think it’s anything but solved. Only contained, for the moment. But that’s for another article.

What I believe one should be focused on is not Europe – But China, and Shanghai in-particular. Here’s why:

Currently no matter how bad the circumstances may be in Italy at the moment, the ECB led by Mario Draghi are still in “Whatever it takes” mode.

The Banking Index gapped down to Long-term support

BKX gapped down to Long-term support at 104.96 on Tuesday, then rallied back to Short-term resistance, closing beneath it.  It is on a sell signal. Cycles Model suggests that the Banking Index may decline through the end of July.

(NYTimes)  That banks can’t be completely trusted to judge the risks they take was a painful lesson regulators learned from the Great Recession. Or so it seemed.

After financial institutions’ casino-like investments in complex derivatives and questionable mortgage lending nearly collapsed the global financial system a decade ago, Congress established the Volcker Rule as part of the Dodd-Frank reform act in 2010. The Volcker Rule restricted banks from speculating with depositors’ money. It limited them to trading on behalf of customers — market making — or to hedge potential risks from swings in interest or foreign currency rates. The banks were also banned from investing in hedge funds and private equity funds.

Under the rule, in force since 2015, any security held for less than 60 days is deemed a proprietary trade — speculation with the bank’s accounts. More important, banks had to demonstrate to regulators that such trades were for permitted purposes and were not the product of some clever trader’s hunt for enhanced returns.

(ZeroHedge)  Back in September 2016, when its stock was imploding over capitalization and solvency concerns, the market was transfixed with the daily drop in Deutsche Bank stock price, which tumbled, eventually sliding below €10, and only implicit promises that Germany would bail it out, prompted a slow, if painful reversal. And yet, at no point in that period did the stock close at a level below where it closed today: a new all time low, crashing 7.2% to €9.16 following reports that the bank was on the Fed's "Secret" probation list.

However, the one saving grace is that unlike in 2016, or 2008, Deutsche Bank did not feel it needed to make an official statement addressing the recent stock crash. Because, as traders know all too well, the one thing that assures a banking crisis is imminent is for a bank to promise, plead and vow there is no reason to be worried as no crisis is imminent.

But not anymore, because shortly after 8pm local Frankfurt time, Deutsche Bank's new CEO - experiencing a bizarre case of dreadful deja vu as his stock crashed to new all time lows - decided to validate everyone's worst fears by issuing a report addressing "media reports about the regulatory ratings of our US entities" and which after prefacing that "we do not comment on any supervisory ratings as our communication with regulators is confidential", goes on to comment extensively on the bank's supervisory ratings.

(ZeroHedge)  Adding insult to ruinous injury, just hours after Deutsche Bank stock crashed to all time lows after it was revealed that it had been put on the Fed's "secret" probation list one year ago, overnight S&P downgraded Deutsche Bank's credit rating by one notch to BBB+ from A-, just three away from junk, citing "significant execution risks in the delivery of the updated strategy amid a continued unhelpful market backdrop" adding that "relative to peers, Deutsche Bank will remain a negative outlier for some time."

S&P had initiated the credit review on April 12, shortly after the Christian Sewing was appointed new CEO, replacing John Cryan, saying repeated leadership changes pose questions over its long-term direction, against a background of chronically low profitability.

In its statement (see below), S&P said that "Deutsche Bank’s updated strategy envisages a deeper restructuring of the business model than we previously expected" and that while management is taking “tough actions to cut the cost base
and refocus the business in order to address the bank's currently weak profitability" the bank "appears set for a period of sustained underperformance compared with peers, many of whom have now finished restructuring."

The good news is that S&P said the rating outlook is stable, reflecting its view that management will “execute its strategy in earnest and, over time, will show progress against its 2019 financial objectives and so achieve its longer-term objective of a more stable and better-functioning business model.”