VIX extended its corrective decline with a weekly low at 9.11, making eight consecutive daily closes beneath 10.00. It is beneath all technical supports and must rise above its Intermediate-term resistance at 10.83 for a buy signal, with further confirmation above weekly mid-Cycle resistance at 14.79. It has an inverted Head & Shoulders formation that, when triggered, gives us a potential target for the next rally.  

(Barrons)  Trading in CBOE Volatility Index options has become a mirror into the collective soul of investors. Even as stocks grind higher, and the Standard & Poor’s 500 index is the least volatile it has been since 1965, an increase in VIX options trading shows investors are having a hard time believing what they are seeing.

As a result, many investors have bought upside VIX calls to hedge stocks, and even high-yield bonds, that the volatility market’s trading pattern is at an extreme.

SPX is in a throw-over

SPX rallied in a throw-over of its 5-year Ending Diagonal pattern.  A decline beneath the upper Diagonal trendline at 2540 may signal an end to the rally.  A decline beneath the Broadening Wedge formation at 2400.00 gives a sell signal and suggests a much deeper decline may follow.  

(CNBC)  U.S. stock index futures pointed to a slightly weak open Friday, after the latest jobs report disappointed Wall Street.

Dow Jones industrial average and S&P 500 futures fell 20 points and 3.25 points, respectively, while Nasdaq 100 futures declined 7.75 points.

The Bureau of Labor Statistics said the U.S. lost 33,000 jobs last month, marking the first contraction in the labor market since 2010. Economists polled by Reuters expected a gain of 90,000 jobs.

Despite the weak headline number, average hourly earnings rose to an annualized rate of 2.9 percent. Hourly earnings are closely watched by investors looking for indications on inflation. The unemployment rate also fell to a 16-year low of 4.2 percent.

NDX rallies to the top of the Ending Diagonal

NDX also rallied this week, making a new high at the Ending Diagonal trendline today. Short-term support and the lower Diagonal trendline lie at 59323.38.  A decline beneath that trendline may produce a sell signal.    

(Bloomberg)  While human analysts are still overwhelmingly bullish on Alphabet Inc. and Facebook Inc., a new robot analyst at Wells Fargo says it’s time to sell. 

Late last month, Wells Fargo analyst Ken Sena introduced AIERA, short for artificially intelligent equity research analyst, a bot that does massive automated grunt work to support human analysts as they track stocks and make trade recommendations. And while analysts are known to skew toward buy ratings, the new bot doesn’t seem to share the bias.

“AIERA’s approach this week appears decidedly more conservative (than last week), as she places a ‘hold’ recommendation on 11 names and even going so far as to place Google and Facebook in the ‘sell’ category,” Sena says in a new note sent out to clients on Friday.

High Yield Bond Index pushing against its Cycle Top

The High Yield Bond Index appears to be pushing at its Cycle Top at 182.90 but could not make a breakout.  A break of the upper Diagonal trendline at 180.00 may tell us the rally is over. This is no time for complacency.

USB closes beneath Long-term support

The Long Bond closed beneath Long-term support at 152.29 to make a potential Master Cycle low this week. A resumption of the rally may be imminent. Should the right shoulder of a potential Head & Shoulders reach proportionality, the rally may go to 165.00. However, should it go higher, there is the possibility of new all-time highs in USB. The next rally will tell.  

(Bloomberg)  Don’t expect the U.S. Treasury market to go back to “normal” once the Federal Reserve starts reducing its crisis-era debt investments.

At least that’s the message from the likes of Credit Suisse, Goldman Sachs and Pimco.

While the Fed’s quantitative easing suppressed yields and erased the margin of safety which investors have historically needed to own long-term Treasuries, the firms say it isn’t a foregone conclusion the opposite will happen as the central bank reverses course. If anything, that buffer, otherwise known as the term premium, may remain well below its long-run average for years to come.

The Euro bounces on Intermediate-term support

The Euro bounced at Intermediate-term support at 116.89 while making a probable Master Cycle low. This suggests a probable probe to retest the Cycle Top at 118.30 before resuming its decline. However, traders are still hopeful of a further rally.

(CNBC)  The rise of populist politics in Italy should still be front and center for investors in Europe, despite recent tensions in Spain with Catalonia possibly declaring independence in the coming days.

"Italy is not generating sustained growth and it still has the issue of bad loans," a Brussels-based official, who preferred to remain anonymous due to his participation in key EU economic meetings, told CNBC over the phone.

"The euro zone is growing, even Greece is growing … But let's not get carried away with the short-term success," he added.

EuroStoxx  consolidates at its retracement high

The EuroStoxx 50 Index consolidated near the top of an oversized right shoulder of a small Head & Shoulders formation. The Cycles Model suggests that the normal period of strength may have been “brought forward” for the quarter end, leaving potential weakness ahead. A reversal has the potential to set a cascading decline into motion over the next several weeks.     

(BusinessInsider)  Europe's major benchmarks were set to end a tumultuous week on a slightly softer note, while Spanish bank stocks remained under pressure after Catalonia said it would defy Madrid and hold its planned parliament meeting on Monday.

The pan-European STOXX 600 dipped 0.2 percent in early trading, but remained on track for its fourth straight weekly gains.

Spain's IBEX fell back 0.6 percent after a strong rally in the previous session when investors' nerves over Catalonian independence eased.

The main Spanish benchmark was set for its worst week in two months, having sunk to its lowest level in more than six months on Wednesday as investors sold Spanish assets in the deepening political crisis.

The Yen dips beneath Long-term support

The Yen closed beneath Long-term support at 89.18, making its Master Cycle low on Friday.  The Cycles Model suggests a probable 2 week rally that may break out above the prior highs. A lift above mid-cycle resistance at 89.55 puts the Yen back on a buy signal. .  

(Bloomberg)  The same political party has run Japan for all but four years since 1955. That’s not stopping some yen traders from taking out a little bit of insurance on the outcome of the looming Oct. 22 election. 

Options trading shows a noticeable gap in so-called risk reversals between two-week contracts and one-month ones, a period in which the lower-house election falls. There were similar gaps in March, when the French presidential election featured the possibility of an anti-euro candidate winning, and last October, in the run-up to the U.S. election.

Nikkei vaults to a two year high

The Nikkei rallied to a new two-year high this week. This appears to be a Cycle inversion, which indicates a possible end of a trend. It’s time for Primary Wave [C] to begin..

(EconomicTimes)  Japan's Nikkei share average scaled a fresh two-year peak on Friday and posted its fourth straight weekly gain, buoyed by the impact of a weaker currency as well as record highs on Wall Street.

The Nikkei ended 0.3 per cent higher at 20,690.71 points, after probing its highest levels since August 2015. For the week, it added 1.6 per cent.

On Thursday, the S&P 500 posted its sixth straight record high close on Thursday, its longest run since 1997, as investors cheered.

U.S. Dollar challenges Intermediate-term resistance

USD challenged Intermediate-term resistance at 93.79 before closing beneath it this week. The retracement appears to be complete after having successfully completed its period of strength this week. The lower trendline of the Orthodox Broadening Top at 90.00 may be the next attractor, but the formation calls for a breakout beneath the trendline, as indicated by “point 6.”  .  

(Reuters) - The U.S. dollar tumbled and debt yields pared sharp gains on Friday on a report that North Korea is preparing to test a long-range missile, reversing earlier jumps after U.S. jobs data for September raised the likelihood of an interest rate hike in December.

A Russian lawmaker just returned from a visit to Pyongyang was quoted by Russia’s RIA news agency as saying that North Korea believes the missile can reach the U.S. West Coast.

Gold bounces at mid-Cycle support

Gold continued its decline to mid-Cycle support at 1258.09, where it bounced. However, the may not be complete as there appears to be yet another week of decline to its Master Cycle low. Gold remains on a sell signal.

(MarketWatch)  Gold prices ended higher Friday, reversing from earlier gains as investors offered a mixed reaction to monthly U.S. jobs data and looked to comments from Federal Reserve officials for clues on the central bank’s plan for interest rates.

The jobs report, which included a mixed bag of revisions to recent months’ data and signs of rising wages, wasn’t seen derailing the Federal Reserve from a gold-negative interest-rate hike later this year, but Dallas Fed President Robert Kaplan said Friday that he remains undecided over whether to support a rate increase in December.

Crude begins its decline

Crude had a week-long decline, crossing Long-term support at 49.80. The sell signal may be confirmed by crossing Short-term support at 49.07. The Cycles Model suggests a probable two-week decline ahead before a Trading Cycle bounce may occur.

(Investing) - Crude oil continued to decline on Friday, as traders grew cautious due to the possibility of higher U.S. crude stocks caused by incoming tropical storm Nate and the closing of a number of oil facilities in the Gulf of Mexico.

The U.S. West Texas Intermediate crude November contract was down $1.28 or about 2.52% at $49.55 a barrel by 9:20 a.m. ET (13:20 GMT), its lowest since September 19.

Elsewhere, Brent oil for November delivery on the ICE Futures Exchange in London was down $1.02 or about 1.79% at $55.98 a barrel.

Shanghai Index remains on Holiday

The Shanghai Index has been on holiday this week. The chances of an inversion into the second week of October are quite high. Although this may be the negative season for Chinese stocks, there are political reasons for a short-term boost in prices. However, the potential for a sharp sell-off is rising.    

(Quartz)  Close to 700 million people in China are expected to travel during the country’s National Day holidays, known as the Golden Week, which kicked off on Sunday (Oct. 1). That’s about half the country’s nearly 1.4 billion population.

In the first two days of the week-long break, China’s tourist spots have already received some 227 million visitors who spent around 190 billion yuan ($29 billion), according to data from China’s National Tourism Administration for Sunday and Monday (links in Chinese). The CNTA has predicted more than 700 million tourist trips this year—a 10% increase compared with the same period in 2016. (An individual can be counted twice, for making two trips between two destinations.)

The Banking Index extends its Broadening formation

BKX extended its Broadening Top formation to a new high, although this is not an all-time high. It appears to run out of its period of strength over the weekend. If the Orthodox Broadening Top formation is correctly identified, the next level of support may be the mid-cycle line at 79.30.   

(CNBC)  Bank stocks are showing some signs of life after moving sideways for the bulk of this year. While some strategists are counting the ways the upside could continue, others are more cautionary on the group.

Large exchange-traded funds that track bank and financials stocks have been on a tear as the likelihood rises for another Federal Reserve rate hike this year, and responding to the potential for higher interest rates across the board.

The S&P Financials exchange-traded fund, the XLF, hit its highest level in nearly 10 years in Friday trading. A large bank stock-tracking ETF, the KBE, has surged over 10 percent in the last month alone.

(ZeroHedge)  No matter what Jamie Dimon may say, bitcoin’s durability can be expressed by one simple fact: With a market cap of $100 billion, digital currencies have become too big for banks to ignore.

As Bloomberg recalls in a story about how banks are preparing to confront the thorny regulatory issues related to dealing in bitcoin and other digital currencies, on the same day Dimon trashed bitcoin, calling it a “fraud,” his firm’s private bank hosted a panel featuring cryptocurrency investors, and even helped some wealthy clients transact in a bitcoin exchange-traded product listed in Stockholm, raising questions about whether the bank violated its fiduciary duty in doing so.

Dimon isn’t the only one of his peers to harbor reservations about bitcoin. Bridgewater Associates’ Ray Dalio and BlackRock’s Larry Fink have criticized itas a “bubble” and a “a tool used by criminals.” Morgan Stanley CEO James Gorman defended bitcoin, arguing that it is “more than just a fad.”

(Bloomberg)  The Trump administration is undermining guidelines for leveraged debt established to prevent a rerun of the financial crisis.

With the Treasury Department’s encouragement, Goldman Sachs Group Inc. is among underwriters arranging buyouts that skirt guidelines meant to contain excessive leverage. Deals for chemical maker Avantor Inc. and anti-virus software maker McAfee LLC sought to pile a combined $12 billion on the companies’ balance sheets, overstepping limits set out three years ago by banking regulators.

The rules were written after banks were stuck with more than $200 billion of unsellable debt in the financial crisis. The load destabilized a system already groaning under the weight of defaulted subprime consumer loans. The new deals have sparked a debate between those who credit the guidelines for reining in excesses and others, including the U.S. government, who say they are too restrictive.

(ZeroHedge)  A new study of public pension returns by Cliffwater LLC has found that the median U.S. state pension plan returned just 5.9% annually over the 10 years ended June 30, 2016.Meanwhile, as Pension and Investments notes, the top performing state pension, the $15.6 billion Oklahoma Teachers' Retirement System, was the only fund that managed to eek out a return over 7% during the same period.

U.S. state pension plans returned a median annualized 5.9% for the 10 years ended June 30, 2016, vs. 6.8% for the 10 years ended June 30, 2015, said Cliffwater's most recent annual state pension performance report. 

The average 5.7% return for the 10 years ended June 30, 2016, fell within a wide range of individual pension plan returns (3.7% to 7.1%).