VIX staged an inside week after a throw-under of its massive Ending Diagonal formation. An aggressive buy signal may be forthcoming should the VIX rally above its Intermediate-term resistance at 13.02. The breakout above the higher resistance zone at 13.33-13.94 implies higher targets to come. The abrupt turn made in August 2015 may be repeated here.

(SeekingAlpha)  With another week behind us where the equity market gained just under one percent, the CBOE Volatility Index or VIX actually gained some ground ending the week up 3.7% in the 10.90s. Even with last week's volatility gain, many market commentators see VIX 9s in the near future, and that would be the first time since 2007 that single digit VIX was hit. Although, this past Wednesday, just about the time of the announcement that the Fed was leaving its funds rate unchanged, the CBOE recorded a 9.97 VIX level for a brief moment before the index returned to the mid 11s. It may have been simply a rogue print, but the CBOE has not removed it as of yet. Wednesday's questionable print aside, the VIX may be moving into territory rarely seen.

SPX “throws over” the Broadening Top

SPX threw over the upper trendline of its Orthodox Broadening Top, making a new high. A reversal of a throw-over may be a strong indication of a change in trend.  A decline beneath the Cycle Top support and Short-term support, both near 2275.00, gives the SPX a sell signal. A break of those supports may send the SPX to its cycle Bottom at 1903.19, or possibly lower.

(ZeroHedge)  A curious dichotomy has emerged in global fund flows.

According to the latest flow report from BofA's Michael Hartnett, "it's risk-on in Bonds, it's inflation-on in Stocks, and EM is now playing role of cyclical catch-up trade." In short, in the last week the Trump Trade has emerged from the dormancy in which it had faded for the past month.

But when one looks at where the money is flowing, it is going everywhere except where one would expect, as US stocks continue to be shunned, based on EPFR data.

The NDX "throws over" the Orthodox Broadening Top

NDX also threw-over the upper trendline of its Orthodox Broadening making a new high. It is very extended and must cross beneath its Cycle Top support at 5039.22 to give it a possible sell signal. A further break of the weekly Intermediate-term support at 49828.70 confirms a sell signal.

(Bloomberg)  Every day since President Donald Trump took office seems to bring a new political shock, so you might be surprised to learn that the stock market is just shy of all-time highs.

The new president may be unpredictable, but that volatility has yet to spill over into the financial markets. But remember, regardless of the president, there’s a high probability that investors will see a bear market during a commander in chief’s time in office. Bear markets are a natural outcome of a complex system such as the stock market, which is driven by emotions that can often take things to the extremes.

It’s no fun worrying about bear markets when we are close to all-time highs, but we should prepare for a downturn before it occurs, not after it’s already underway.

High Yield Bond Index challenges Short-term support

The High Yield Bond Index Challenged Short-term support at 164.03, closing above it. It also appears to have closed at its Ending Diagonal trendline, potentially neutralizing its sell signal. A broken Diagonal trendline implies a complete retracement of the rally may occur, so a confirmation above or beneath the trendline would clear things up. Is this the canary in the coal mine?

(Morningstar)  Although earnings reports have been generally mixed and fourth-quarter GDP was below the average consensus estimate, investors have continued to bid up the prices of risk assets in anticipation of faster economic growth ahead. Within the corporate bond market, the high-yield sector has significantly outperformed the investment-grade sector. While the average spread of the Morningstar Corporate Bond Index was relatively range-bound and only tightened 2 basis points year to date, the average spread of the Bank of America High Yield Index has tightened 30 basis points through Feb. 6.

USB repelled by resistance

The Long Bond appears to have been repelled by Intermediate-term resistance at 152.71. The Cycles Model suggests that there may be some strength left in this rally and indicates another attempt at mid-Cycle resistance at 158.80 may be made. The next week may give us some inclination just how strong it is.

(Bloomberg) Top bond traders are starting to come to a new consensus about the direction of U.S. borrowing costs.

After weeks of turmoil at the end of 2016, an increasing number of them have come to believe there's a good chance that Treasury yields will fall before they rise. 

BlackRock's Larry Fink, for example, noted that markets have probably gotten a bit ahead of themselves. It will most likely take until 2018 for Congress to put some of the new administration's policies in place. If that's the case, "there’s greater probability that the 10-year Treasury is below 2 percent, and we’ll have a market setback," Fink said at a conference this week.

The Euro sits on the Lip

The Euro sits on the Lip of the cup with Handle formation after a bounce from the same trendline last week. A break beneath the Lip may bring another week of decline, with parity as a possible outcome.  

(Reuters)  Euro zone lenders and the International Monetary Fund have reached agreed between themselves to present a common stance to Greece later on Friday in talks on reforms and the fiscal path Athens must take, euro zone officials said.

Such a united stance would be a breakthrough because the two groups have differed for months on the size of the primary surplus Greece should reach in 2018 and maintain for years later as well as the issue of debt relief.

(Bloomberg)  Whatever the outcome of France’s presidential elections, it probably won’t raise the odds of an exit from the euro, most analysts say.

he chances of anti-euro candidate Marine Le Pen winning the second round on May 7 are slim and even if she does, the National Front party leader is unlikely to get a majority in the legislative vote in June, according to banks including Barclays Plc and UniCredit SpA. Without strong support in Parliament, her ability to push for a referendum on the country’s membership in the currency union will be limited, according to most currency strategists and economists.

EuroStoxx finds support

The EuroStoxx 50 Index bounced from mid-Cycle support at 3229.97 to challenge Short-term resistance at 3281.35, making a 59% retracement of its decline. This may allow the decline to resume.  A decline beneath mid-Cycle support at 3229.97 confirms the existing sell signal.

(CNBC)  European stocks are the cheapest they've been relative to their U.S. counterparts in nearly 40 years, and they have more upside potential for profit growth, making them an attractive buy even with looming political risk, according to analysts at Bank of America Merrill Lynch.

The analysts made a bullish case Thursday to buy Europe, based on the idea that corporate earnings there have bottomed and are set to see double-digit growth for the first time since 2010. On a price-to-book basis, Europe is the cheapest it has been to the U.S. in nearly 40 years

The Yen pulls back from Intermediate-term resistance

The Yen challenged Intermediate-term resistance at 89.16 before pulling back in a consolidation. It may need another day of consolidation near mid-cycle support at 87.38 before surging higher next week. The strength of the rally may be determined by the Yen’s behavior at Intermediate-term resistance at 89.61.

(ZeroHedge)  Update: the notable statements from Trump's prepared remarks:

• Calls Japan a friend, 'steadfast ally' and says committed to security of Japan

• Says seeking relationship that is free, fair and reciprocal.

• Defending against North Korean nuclear threat is a "very, very, very" high priority

• Thanks Japan for hosting our military

It is not clear what sparked the algos, but one of those keywords launched a mini USDJPY buying spike.

The Nikkei challenges Short-term resistance 

The Nikkei challenged Short-term support at 19258.36, closing above it. This week’s action left another inside candle that must break below 18650.00 to confirm the sell signal. A loss of the next supports suggests a potential decline to the Cycle Bottom at 15102.06 or lower.

(Bloomberg)  Donald Trump is moving Japanese stocks again, this time in a good way. And exporters are reaping the benefits.

The U.S. president’s comment Thursday that a “phenomenal” overhaul of business taxes will come within weeks sent the dollar surging against the yen, helping shares in Tokyo rise the most since Jan. 4 to erase a weekly decline.

U.S. Dollar bounces to Intermediate-term resistance

USD finally had its bounce, testing Intermediate-term resistance at 100.69, making a 39% retracement. Should the bounce not be finished, it may do so early next week, according to the Cycles Model. The ensuing decline may continue to be described in superlatives.

(Reuters)  The U.S. dollar hovered near its highest level against a basket of major rivals in 11 days on Friday after comments from U.S. President Donald Trump did little to shake optimism that his administration would reform tax policy soon.

At a joint news conference with Japanese Prime Minister Shinzo Abe, Trump avoided repeating harsh campaign rhetoric that accused Japan of taking advantage of U.S. security aid and stealing American jobs.

Trump did not reiterate his recent accusation that Japan was one of several countries devaluing their currencies to the disadvantage of the United States, but said in reference to currency devaluations that countries would be at a level playing field soon.

The Gold rally may have run out of time

Gold reached a 48.3% retracement of its decline, fulfilling the pattern requirements for the Orthodox Broadening Top. It has also run out of time, according to the Cycles Model. It may be ready for the decline phase of the pattern.  A new sell signal may be forthcoming at a decline beneath mid-cycle support at 1205.32.

(Reuters)  Gold steadied on Friday, but remained below this week's three-month top as the U.S. dollar and Treasury yields came off their highs after the currency initially jumped on U.S. President Donald Trump's promise of a major tax announcement.

 Spot gold was up 0.02 percent at $1,230.78 an ounce by 2:24 p.m. EST (1924 GMT), while U.S. gold futures for April delivery settled down 0.07 percent at $1,235.90. On Wednesday, spot gold reached its highest since mid-November at $1,244.67.

 Gold prices were on track for a second weekly gain, up 1 percent from late last Friday.

The dollar pared gains against a currency basket on Friday after earlier strength from U.S. President Donald Trump's pledge to announce a major tax plan within weeks cooled some market nerves, reinvigorating dollar bulls.        

Wall Street hit record highs for a second day on hopes of the business-friendly tax cuts.      

Crude continues its narrow consolidation

Crude initiated a decline early in the week, but bounced back into its consolidation zone to challenge Short-term resistance at 53.35.  A decline beneath Intermediate-term support at 50.75 produces a sell signal for crude. The Cycles Model suggests a potential turn date on Monday. The Cycles are compressed here, making sudden, dramatic moves highly probable.

(OilPrice)  WTI snapped out of a two week coma on Wednesday trading to a low of $51.22 following an API report revealing a 14m bbl crude oil build which was later confirmed by EIA data. Technicians feared that a break below recent support near $51.50 and a spike in US crude stocks to within 3m bbls of their all-time high meant that oil’s ‘5 handle’ could be in jeopardy. A closer look at the data, however, brought relief to the market and a bounce back to the $53 mark with traders realizing that the second largest weekly crude oil build on record may not have been the fundamental disaster that the algorithmic traders had pounced on.

Shanghai Index retracement extends

The Shanghai Index extended its bounce, retracing more than 62% of its decline which started on November 29. The fractal Model suggests the Shanghai is due for another 1,000 point drop. The index restores its sell signal beneath Intermediate-term support at 3157.13.

(Reuters)  China's main stock indexes rose on Friday and produced their biggest weekly gains in more than two months, led by infrastructure and material shares, as the country pledged to push its "One Belt, One Road" initiative.

The blue-chip CSI300 index rose 0.5 percent, to 3,413.49 points, while the Shanghai Composite Index added 0.4 percent to 3,196.70 points.

For the week, the CSI was up 1.5 percent, while the SSEC gained 1.8 percent. Both notched up their best gains since the week ended Nov. 25.

Market reaction to China's better-than-expected January trade data in January was largely muted.

The Banking Index rally stopped at resistance

BKX made a third attempt at a breakout, but halted at flat-line resistance at 93.50. The lesser period of strength may have expired on Friday. BKX appears to be ready for a larger decline that may extend through mid-March, according to the Cycles Model.  

(ZeroHedge)  Last October, as part of the Podesta email leaks, we disclosed the particularly close relationship between Fed governor Dan Tarullo and Barack Obama, which emerged as part of a previously undisclosed memo involving the AIG bailout. We speculated that as a result of this now public disclosure it was possible that Tarullo's days at the Fed were numbered should Donald Trump win the election. Trump won, and moments ago Dan Tarullo unexpectedly announced that he is resigning in early April, just days after the Fed's general counsel Alvarez also announced that he is departing the Fed.

What makes Tarullo's resignation particularly notable is that Tarullo has been the Fed's "regulatory point man" since 2009, suggesting some regulatory friction has emerged.

(American Enterprise Institute)  ObamaCare isn’t the only Obama-era legislation that President Trump and the GOP are eager to dramatically modify. The Dodd Frank financial reform law is also being targeted for big changes. Much of the controversy has centered on possible reforms to the Consumer Financial Protection Bureau. That is one of many aspects of the Financial CHOICE Act, a bill which would provide an alternative regulatory framework to Dodd Frank.

But the bill would do far more than that. As my AEI colleague Paul Kupiec explains in a recent analysis, “It gives banks a choice: either continue under Dodd-Frank regulations or, alternatively, choose to maintain higher minimum capital – by meeting a higher ‘leverage ratio’ of 10% – in return for being exempt from many Dodd-Frank regulations that are seen as overly burdensome and micromanaging bank operations.”

(ZeroHedge)  Raising rates on reverse repos, hiking the cost it charges on its Medium-Term Loan Facility and Standing Lending Facility, five consecutive day without a reverse repo liquidity injection (or rather a CNY715 billion liquidity drain), and now in the latest indication of overall tightening of monetary conditions, China has started to hike mortgage rates.

According to press reports, some bank branches in Beijing, Guangzhou and Chongqing have raised mortgage rates for first-home buyers recently. The China Securities Journal confirms as much, reporting that China's banks in some big cities have started to lower discounts on lending rates for fist-time home buyers, joining recent steps to curb financial risks stemming loose credit conditions.

(ZeroHedge)  Being able to print your own money and buy stocks at any price sure can be fun. Just as the SNB which unlike many other (if ever fewer) central banks admits to doing just that.

In its latest 13F filing, the Swiss National Bank reported that the value of its portfolio of US stocks rose again in the fourth quarter, increasing by 1.6% from $62.4 billion as of Sept. 30 to a record high $63.4 billion at the end of the year.

Over the past two years, the total Assets under management of this massive hedge fund, which occasionally engages in massive currency manipulation with disastrous results, have increased from $26.7 billion to $63.4 billion, a 138% increase, mostly as a result of relentless currency manipulation and monetization of various assets, including both bonds and stocks.