After multiple challenges of Short-term and Intermediate-term resistance, VIX rallied in the final hour on Friday to close above Long-term resistance at 10.98. This action generates a clear buy signal.  A breakout above the Ending Diagonal trendline suggests a complete retracement of the decline from January 2016, and possibly to August 2015.  

(SeekingAlpha) 2017 has been a record year for volatility, or for the lack thereof do be more precise. The VIX hit numerous records this year, such as the most consecutive closes below 10, the lowest intraday move ever, the lowest close ever and so on. With such moves in the VIX it’s safe to say that this was one of the lowest volatility years in decades, if not ever. The VIX’s median in 2017 was around 11, sharply lower than its long-term median of over 18 going back to 1993.

SPX closes at its Cycle Top

SPX saw a further erosion of prior gains this week, closing within 10 ticks of its Cycle Top at 2673.51.  A further decline beneath its Cycle Top suggests the rally is over and profits should be taken. Should it break Intermediate-term support and the trendline at 2583.52, a sell signal may be generated. Should that happen, the decline may continue through the month of January.  

(CNBC)  U.S. stocks closed lower Friday, the last trading day of the year, with no S&P 500 sectors ending higher.

The S&P 500 closed about half a percent lower but still held gains of 19.4 percent for the year, its best since 2013. Information technology soared 36.9 percent and materials gained 21.4 percent as the top performers for 2017, while energy and telecommunications were the only sectors in the red for the year.

Selling suddenly accelerated in the last several minutes heading into Friday's close. Traders said there was no apparent reason for the broad sell-off, which hit all three major indexes. It took several minutes for stocks to settle before the Dow Jones industrial average finally ended about 118 points lower, erasing gains for the week.

NDX declines beneath Cycle Top resistance

The NDX closed the week beneath Cycle Top resistance at 6484.61 with a loss for the week.  A decline beneath the lower Diagonal trendline at 6320.00 and Intermediate-term support at 6213.59 may produce a sell signal.    

(CNBC)  It's no secret to market watchers that the Nasdaq has seen a monster year, up nearly 30 percent year to date and on pace for 14 months of nearly uninterrupted gains.

But there's one more record to add to the books: the technology-heavy index is on pace for its sixth straight positive year, its longest annual string of gains since its six-year streak ended in 1980.

The Nasdaq also has posted a record number of all-time high closes this year.

These highs come as many are concerned with some parallels being drawn between the index's recent price action and that of the dot-com bubble era. Some see the rally petering out next year.

High Yield Bond Index rally loses momentum

The High Yield Bond Index suffered a sharp reversal on Friday, losing most of its weekly gain. The rally is substantially extended, but a break of the Cycle Top at 190.60 may tell us the rally is over.  A sell signal may be generated with a decline beneath the lower Diagonal trendline at 180.00.

(MarketWatch)  Some big U.S. mutual funds are investing in high-yield securities that overseas regulators warn may not be suitable to retail investors.

The securities at issue are called contingent convertible, or CoCo bonds. A recent Wall Street Journal report said contingent convertible bonds are ending 2017 with near-record low yields, warning that regulators should be vigilant if and when the bonds rally, since the high yields may attract more retail investors.

UST bounces at the neckline

The 10-year Treasury Note Index bounced at the neckline to complete a right shoulder of a potential Head & Shoulders formation. The Cycles Model now suggests a potential rally through mid-January that may be quite strong. Should the rally materialize, the minimum target may be mid-Cycle resistance at 127.23 or higher in a panic situation.  

(Reuters) - Most U.S. Treasuries were little changed on Friday with many investors and traders out ahead of Monday’s New Year's Day  holiday, before a heavy week of data due in the new year.

Trading volumes have been light this week, with the market focused mostly on $88 billion in new short and intermediate-dated supply, which was sold to mostly below average demand.                                       

The economic calendar was light this week, though data next week will include numerous manufacturing and service sector releases in addition to the employment report for December.

The Euro rises to Cycle Top resistance

The Euro continues to rally above Intermediate-term support at 117.88 to close just beneath Cycle Top resistance at 120.07.  The Euro is gaining strength and should be moving higher through the end of January.      

(CNBC)  If you are wondering which currency, other than the U.S. dollar, to hold at the start of a new year, past trades show you'll be better off with euros.

Using data analytics platform Kensho, CNBC looked at the average return when holding sterling, euros and the yen against the dollar at the start of a new year.

It concluded that for the last three years, you'd have been mostly better off with euros.

EuroStoxx  breaks down beneath Long-term support

The EuroStoxx 50 Index broke through the Broadening Wedge trendline and Long-term support at 3529.97, generating a sell signal.  A stumble here has the potential to set off a cascading decline into motion in 2018. It appears that a new Master Cycle low is due in the next week or so.    

(Reuters) - European stocks steadied on Friday, the final trading day of 2017, and were set to record their strongest year of gains since 2013 thanks to a surge among tech stocks and a robust resources sector.

The pan-European STOXX 600 index was down 0.1 percent in thin volumes on the day, while euro zone blue chips .STOXX50E declined 0.2 percent.

Britain's FTSE 100 .FTSE hit a new record and was 0.2 percent higher in a half-day of trading for the index, while Italian equities .FTMIB declined 0.4 percent after the president dissolved parliament on Thursday and an election day was scheduled for March 4.

The Yen consolidates beneath resistance

The Yen continued its consolidation above Short-term support at 88.63 but beneath Intermediate-term resistance at 89.01. The Yen may rally back through the support/resistance cluster to new highs through the month of January. There may be a lot of stored up energy waiting to be put to use.  

(Bloomberg)  Patrick Bennett, strategist at Canadian Imperial Bank of Commerce, discusses Japan's industrial output and retail sales figures and his outlook for the yen. He speaks on "Bloomberg Markets: Asia." (Source: Bloomberg)

Nikkei continues to “ride” above its Cycle Top

The Nikkei may be losing momentum but continues using its Cycle Top support at 22548.20 to stay elevated. It has not made a new high since early November.  A break beneath the Cycle Top and Short-term support suggests the rally may be over and may produce an aggressive sell signal. Confirmation comes at the crossing of the lower Diagonal trendline at 21000.00.

(Reuters) - Japan’s Nikkei share average erased early modest gains and ended slightly lower on its final trading day of the year on Friday, but the index still gained nearly 20 percent in 2017.

The Nikkei ended the day down 0.08 percent at 22,764.94 points, while the broader Topix was also down 0.08 percent at 1,817.56.

Advancers outnumbered decliners 332 to 266, with 64 issues ending unchanged.

The stronger global economy, as well as domestic political stability and the Bank of Japan’s ultra-easy monetary policy helped lift Japanese corporate earnings in 2017, which in turn helped push the Nikkei up 19.1 percent and the Topix up 19.7 percent.

U.S. Dollar on a sell signal

USD continued its decline beneath Intermediate-term support/resistance at 93.13, confirming its sell signal. The Cycles Model calls for a a probable continuation of the decline through the end of January with a likely termination near “point 6.”  

(Reuters) - The dollar fell to its lowest in over three months against a basket of major currencies on Friday, marking its steepest annual drop since 2003, on doubts over durability of a pickup in U.S. economic growth in wake of last week’s tax overhaul.

One of the most dramatic market developments in 2017 was the breath-taking rise of bitcoin BTC=BTSP and other cryptocurrencies. While they have pulled back at year-end, many of these digital currencies have surged in value this year.

The greenback may lag further against its peers in 2018 as investors expected other major central banks to reduce their stimulus while the Federal Reserve has signaled it would raise interest rates further, analysts said.

Gold rallies above round number resistance

Gold rallied above round number resistance at 1300.00. The anticipated week of strength may have exceeded investors’ expectations for a year-end splash.  While the strength may not wear off for a few more days, a strong reversal is building. Time to take profits while you can.    

(Reuters) - Gold extended its rally to a three-month high on Friday, leaping toward its biggest one-year rise in seven years as a wilting U.S. dollar, political tensions and receding concerns over the impact of U.S. interest rate hikes fed into its rally.

Gold’s gains coincide with the greenback, in which gold is priced, sliding toward its worst year since 2003, damaged by tensions over North Korea, the Russian scandal surrounding U.S. President Donald Trump’s election campaign, and persistently low U.S. inflation.

Crude rallies to its Cycle Top

Crude may have used the final bit of Cyclical strength to rally to its Cycle Top at 60.37. Oil’s period of strength may have been depleted as the next three weeks may be much lower, according to the Cycles Model.  

(SeekingAlpha)  On June 21, many market pundits and analysts were calling for the price of crude oil to hit $40 or lower when the price dropped to its lowest level of the year at $42.05 per barrel on the nearby NYMEX futures contract. The price broke a critical technical level when it fell below the November 2016 low at $42.20, and things were looking mighty ugly for the energy commodity.

Meanwhile, the June 21 price that caused bearish sentiment in the oil market to reach a crescendo turned out to be the low for 2017. When the price moved back to $50 per barrel, only a handful of market participants believed that NYMEX crude oil could challenge, or much less rise above, its high for the year at $55.24 per barrel which came during the very first week of trading in 2017. However, in November crude oil moved to a new high on the year, and it went from a technical breakdown to breakout in five months.

Shanghai Index holds steady above  Long-term support

The Shanghai Index consolidated above Long-term support at 3259.78 as it closes its year-end on a less positive note than 2016. The Shanghai Index appears to be on a sell signal. The Cycles Model suggests that the decline may resume through mid-January. The potential for a sharp sell-off rises as the next levels of support are breached.   

(ZeroHedge)  When it comes to the global economy, few things matter as much as China, the trajectory of its economy and especially the pace and impulse of its credit creation, which is ironic because virtually all data coming out of China is fabricated and manipulated, and thoroughly untrustworthy, either on purpose or "by accident."

The latest example of the former was highlighted over the weekend, when we discussed that a nationwide Chinese audit found some local governments inflated revenue levels and raised debt illegally, once again making a mockery of China's credibility on the global stage. As Bloomberg reported ten cities, counties or districts in the Yunnan, Hunan and Jilin provinces, as well as the southwestern city of Chongqing, inflated fiscal revenues by 1.55 billion yuan, the National Audit Office said in a statement on its website dated Dec. 8.

The Banking Index declines beneath its Cycle Top

BKX began a decline beneath its Cycle Top resistance at 110.61, but has not broken any critical supports.  A decline beneath the Ending Diagonal trendline at 105.00 suggests the rally may be over.  A further decline beneath Intermediate-term support at 100.79 or the trendline at 100.50 may give a sell signal.  If the Orthodox Broadening Top formation is correctly identified the next move may be beneath mid-Cycle support at 82.61.

(ZeroHedge)  As is usually the case, there is a sudden and desperate scramble for liquidity to window-dress balance sheets and it has sent China 7-day repo-rates (the premium for locking in liquidity across the calendar new year) to 6.00% - the highest since year-end 2013.

Perhaps in response to this apparent crisis, The PBOC has also announced that banks will be allowed to use reserves at the central bank of up to two percentage points to meet liquidity needs during the February lunar new year celebrations.

China's central bank is allowing temporary reserves use for 30 days to cover any liquidity needs.

Notably, at the same time, overnight Hong Kong Dollar HIBOR rates exploded higher...

Suggesting there is more than a little tightness in Chinese money markets ahead of the calendar new year.

This was also very evident in JPY, EUR, and GBPliquidity markets... until today...

hat is no longer the case in Japan, Europe, or UK as miraculously basis swaps exploded higher (less penalizing) today as The ECB tapped the Fed’s FX swap line for $11.9b for 21 days at 1.89%, the most since December 2012, and BOJ tapped the line for $101m for eight days at 1.91%, most since Oct. 4.

If everything is so freaking awesome out there in the global economy - why are these extreme measures being taken by The Fed, The PBOC, The ECB, and The Bank of Japan?

(Reuters) - China’s foreign exchange regulator will cap overseas withdrawals using domestic Chinese bank cards at 100,000 yuan ($15,370) per year in an effort to target money laundering, terrorist financing and tax evasion, it said on Saturday.

Individuals who exceed the annual quota will be suspended from overseas transactions for the remainder of the year and an additional year, the State Administration of Foreign Exchange (SAFE) said in a notice posted on its website.

Under the new rules SAFE will submit a daily list of individuals banned from making overseas bank card withdrawals, and banks must suspend the users by no later than 5 p.m. the same day, the notice said.

Domestic card users will also be barred from withdrawing more than 10,000 yuan a day overseas, it said.

(WSJ)  Washington extended a helping hand to banks in 2017, pushing stocks in the sector higher for a second year in a row.

President Donald Trump’s election in late 2016 prompted a surge in bank stocks on hopes that a tax overhaul and deregulation would help profits. Now, the tax and regulatory changes are finally happening, and they are proving a potent antidote to persistently low long-term interest rates, subdued trading activity and slowing loan growth.

Investors have grown increasingly confident banks’ bottom lines will be huge beneficiaries of a lower tax rate. The KBW Nasdaq Bank index rose 16% in 2017. Although shy of the 19% gain for the S&P 500, the advance puts the bank index’s total increase since the 2016 presidential election at 42%. Nearly all of the 2017 bank gains occurred in the last four months of the year when new tax legislation gained steam.