Let me introduce you to a new concept. It’s called cross-asset contagion.  

ZeroHedge explains it better than I can: “Nowhere else is the impact of central banks more evident than the total decoupling of global stock markets from global economic developments.

However, Bloomberg reports that as money managers attempt to diversify away from what they all know will not end well, Credit Suisse warns the overwhelming flow from central bank interventions "are driving everything" pushing their so-called cross-market contagion indicator to levels more worrisome than anytime since 2008's Lehman-inspired financial crisis.

Massive central bank stimulus with below zero rates and quantitative easing has led to increasingly dysfunctional markets, with even the negative correlation between stocks and bonds breaking down. As we have noted previously, they are now largely moving in the same direction as markets have become more driven by central banks, leaving investors with no place to hide.”

It’s all one market…

VIX broke out above all Model resistances and is on a buy (SPX sell) signal. However, it has made a breakout above the last down-cycle high of 14.24.  The next important milestone is mid-Cycle resistance at 15.79 where a buy signal may be made.    

(ZeroHedge)  While Put-Call ratios, VIX curves, and Fear-Greed Indicators are better known, the so-called "Complacency" Index - comparing real profitability of companies to their risk - has never been more complacent. In fact, markets are more 'exuberant' than at the peak in 2000 and 2007...

As Bloomberg's Christopher Langner notes, the whole world is moving together and signs of a massive bubble that spans asset classes are becoming clearer.

Historically, very high correlations are associated either with a panic or a bubble.

SPX declines to its Intermediate-term support  

SPX sold off beneath its Short-term support, also closing beneath its Intermediate-term support at 2130.94. It is on a sell signal with weekly MACD confirming it.  Long-term support and mid-Cycle support between 2056.96 and 2046.59 appear to be the next targets for the decline. However, the more important targets may be those of the two orthodox Broadening /Tops.  I am currently highlighting the lesser one, but the larger Broadening Top has a proposed target nearly 200 points lower.

(Bloomberg)  Tranquility that has enveloped global markets for more than two months was upended as central banks start to question the benefits of further monetary easing, sending government debt, stocks and emerging-market assets to the biggest declines since June. The dollar jumped.

NDX makes a new high, sells off

NDX made a new all-time high on Wednesday, then sold off Friday, closing beneath its short-term support at 4239.39 and giving a sell signal. It has reached its fractal target of 4732.24 on August 3 and peaked on August 9, then remaining flat for the next month.  Stay on the lookout for more supports being broken.

(ZeroHedge)  Unlike many of the sentiment indicators we’ve looked at recently, traders on one options exchange recently exhibited a record show of nervousness.

We’ve written a fair amount recently about the growing level of optimism, or complacency, evident in many corners of the stock market. Indeed, overly exuberant sentiment is probably the most troublesome factor in the markets right now. There is nary a time, however, when all signals and indicators are in alignment with one another. The present is no exception. And in fact, the traders on one options exchange recently demonstrated a record level of cautiousness.

High Yield Bond Index on a sell signal, declining to Intermediate-term support

The High Yield Bond Index declined beneath its Short-term support at 161.15 and Cycle Top support/resistance at 160.17 for a confirmed sell signal.  It also closed beneath Intermediate-term support at 159.04, suggesting a continuation of the decline on Monday.

(ZeroHedge)  In hindsight, the 2007 ramp in PIK Toggle note issuance was a pretty good indicator that the high-yield market was frothing over and the party was near an end. After all, it's probably not a good sign when a market completely loses discipline to the point of rushing to hand out nearly $20 billion dollars to companies that are basically admitting they may not even be able to afford the interest on the loan.  Alas, as so often is the case, history seems to be repeating itself with PIK Toggle issuances up massively so far in 2016.

USB breaks Intermediate-term support

The Long Bond broke through Intermediate-term support at 169.68, confirming a sell signal.  The next threat of breakage is Long-term support and the Broadening Wedge trendline at 164.17. Should it break through Long-term support, a potential challenge of its 34.4 year trendline at 142.40 may be indicated.  

(WSJ)  U.S. government bonds weakened, sending yields to their highest levels since late June amid continued fallout from Thursday’s European Central Bank meeting and increased speculation that the Federal Reserve could raise interest rates this month.

In late-afternoon trading, the yield on the benchmark 10-year Treasury note was 1.671%, compared with 1.614% Thursday. Yields rise when bond prices fall.

Weakness in Treasurys began Thursday, when the ECB didn’t announce fresh stimulus measures, sparking a selloff of global bonds amid concerns that foreign central banks are reaching the limits of their easing policies.

The Euro is still above Intermediate-term support

The Euro appears to have completed the right shoulder of a potential Head & Shoulders formation, but remains above Intermediate-term support at 111.70.  The Cycles Model suggests an abrupt and very strong decline may be just ahead.  A significant low may be realized in the third week of September.

(Reuters)  Multinationals should refrain from tax avoidance practices and pay their fair share of taxes, the head of euro zone finance ministers said on Saturday, in a new endorsement to the European Union fight against tax dodging.

In the wake of the 'Panama Papers' revelations of widespread tax avoidance practices, Brussels has toughened up its drive for tax fairness by tightening controls and adopting stricter rules. The recent shock multi-billion euro tax demand on Apple (AAPL) was part of that trend.

EuroStoxx closes above Long-term support

The EuroStoxx 50 Index made a new retracement high on Thursday, but sold off on Friday, closing just above Long-term support at 3029.43.   The Trading Cycle low due last week inverted, pushing back the next significant Master Cycle low into next week or the following week.  

(Reuters)  European stocks fell sharply on Friday, dropping suddenly in afternoon trade following a sell-off on Wall Street as investors reacted to less dovish than expected signals from central bankers on both sides of the Atlantic.

The pan-European STOXX 600 index was down 1.1 percent, the biggest one-day fall for the index since the start of August, after a summer which has seen a tight trading range persist for two months.

The fall added to a pullback from the previous session after some investors expressed disappointment at the fact that the European Central Bank (ECB) had not discussed an extension of the timetable for its economic stimulus programme at its policy meeting on Thursday.

The Yen pulls back to its trendline

The Yen pulled back to its trading channel trendline, closing above Short-term support at 97.36.  The uptrend appears to be challenged, but not broken.  There appears to be a new period of strength emerging through late September, giving it time to attempt to make its Cup with Handle target.  

(Bloomberg)  It seems almost nothing can put foreign-exchange traders off the yen -- not even two of the world’s most powerful central bankers.

The currency is enjoying its best week since July versus the dollar on speculation Bank of Japan Governor Haruhiko Kuroda will have little new to offer when he and his board set policy Sept. 21. And after a slew of weaker-than-expected U.S. data, markets see a diminishing chance that Chair Janet Yellen will raise interest rates at a Federal Reserve meeting ending the same day.

The Nikkei challenges Long-term support

The Nikkei challenged Long-term resistance at 16966.12, closing the week beneath it.  A selloff may send the Nikkei back to the Head & Shoulders neckline. A Trading Cycle low appears to be imminent during the next week.  The inability to make a new low may change the long-term outlook on the Nikkei.  

(Reuters)  Japan's Nikkei share average edged down in choppy trade on Friday morning, erasing earlier gains following a suspected North Korean nuclear test.

The Nikkei fell 0.3 percent from the previous close to 16,913.99 in midmorning trade, after rising to as high as 17,029.78 earlier.

In early trade, Nikkei futures and options contracts expiring in September were forecast to settle at 17,011.77.

A seismic tremor was recorded on Friday in an area around North Korea's known nuclear site, and was suspected to be the fifth nuclear test by the isolated nation, South Korea's Yonhap news agency said.

U.S. Dollar bounces off mid-Cycle support…again

USD has declined beneath all supports but its mid-Cycle support at 94.066.  The narrowing trading range belies indecision.  However, the Cycles Model suggests work to be done on the downside.  The next two weeks may leave no doubts about the directionality of the Dollar.

(Reuters)  Speculators increased favorable bets on the U.S. dollar for the first time in six weeks, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday.

The value of the dollar's net long position rose to $9.10 billion in the week ended Sept. 6, from $5.29 billion the previous week, the data showed, with some investors unwinding extended positions on the greenback in the run-up to a Federal Reserve policy meeting this month.

Investors had been reducing long dollar positions since the beginning of August as U.S. data had come out softer than expected. That culminated in a U.S. non-farm payrolls report for August that was seen as less than stellar.

Gold prepares for its final surge

Gold bounced from its Intermediate-term support at 1315.52 last week and challenged its Cycle Top resistance at 1380.97.  The Cycles Model now projects a period of strength that may last as long as mid-October. The September 20-21 FOMC meeting may shed some light on the final outcome for gold.

(WSJ)  Gold fell for the third day in a row Friday, under pressure from a stronger U.S. dollar and concerns that the Federal Reserve may raise interest rates sooner than expected.

Gold for December delivery settled down 0.5% at $1,334.50 a troy ounce on the Comex division of the New York Mercantile Exchange.

Federal Reserve Bank of Boston President Eric Rosengren spoke Friday in favor of raising rates, sparking speculation that an interest-rate increase could come as early as September.

Crude tests Intermediate-term resistance

Crude appears to have failed its test of Intermediate-term resistance at 46.59.  However, short-term support at 45.05 still holds, although weakening. Last week’s decline was very shallow.  This brings the alternate view to the forefront, with a probable three-week decline that may test the February low.

(Reuters)  Oil prices fell 4 percent on Friday, paring most of the previous session's rise as traders noted that a tropical storm was behind this week's unexpected slump in U.S. crude inventories.

The market ended up around 3 percent, its first gain in three weeks. Traders cited hopes for a global deal on stabilizing crude output after Saudi Arabia, the leading oil producer inside OPEC, and Russia, the biggest producer outside the group, agreed on Monday to cooperate in oversupplied markets.

Brent crude LCOc1 settled down $1.98 at $48.01 a barrel after rising above $50 for the first time in two weeks on Thursday. U.S. crude CLc1 was down $1.74 at $45.88.

 Shanghai Index continues trading in a narrow range

The Shanghai Index traded in a very narrow range for the last month above its Model supports, but beneath mid-Cycle resistance. The fractal Model suggests the Shanghai is due for another 1,000 point drop, possibly starting next week.  The  next Master Cycle low is due in mid-October.  

(ZeroHedge)   For a long time when it came to Chinese loan creation, analysts would only look at the broadest reported aggregate: the so-called Total Social Financing. And, for a long time, it was sufficient - TSF showed that in under a decade, China had created over $20 trillion in new loans, vastly more than all the "developed market" QE, the proceeds of which were used to kickstart growth after the 2009 global depression, to fund the biggest capital misallocation bubble the world has ever seen and create trillions in nonperforming loans.

The Banking Index reverses from its new high

BKX declined to mid-Cycle support this week after making a new high last week.  We may have seen a Cycle inversion at the end of August with a very shallow low put in last week.  That suggests a chaotic decline over the next two weeks.  

(ZeroHedge)  After last month the Fed reported that in June revolving, i.e. credit card, credit unexpectedly soared by $7.7 billion, the second highest monthly increase since the financial crisis, many were popping the champagne, ready to celebrate the return of the consumer's "animal spirits" who were out and about, and most importantly, charging it.  One month later, we find that the June revolving credit spike was even higher, rising by $9.2 billion following today's revision.However, as a result, the July consumer credit grew by just $2.8 billion to start the third quarter, the smallest amount since February, suggesting that the prior month's spike may have been a one-time fluke.

(CNBC)  In the wake of the $190 million Wells Fargo settlement over customer fraud charges, there's an increasing need for "individual culpability" for banking infractions, Federal Reserve Governor Daniel Tarullo told CNBC on Friday.

"I don't think [bank behavior] has changed enough" since the 2008 financial crisis, Tarullo said on "Squawk on the Street," citing the Wells Fargo case, in which fee-generating accounts were allegedly opened for unsuspecting customers by employees looking to hit sales targets and bonuses. As a result, 5,300 Wells Fargo employees were fired over a five-year period.

 (ZeroHedge)  Ms. Bailey, the Citizens Bank customer in Massachusetts, had sold a condo in Maine in 2013, a year after the death of her husband, who she says had handled their finances. She went to a Citizens branch in Arlington, a suburb of Boston, to deposit the money. She says bank employees pressured her not to just park the money in a savings account.

 She says she was directed to Citizens broker Andrew Jurkunas, who steered her to a CD called the GS Momentum Builder Multi-Asset 5 ER Index-Linked Certificate of Deposit Due 2021. It is one of a series of CDs based on a Goldman Sachs-designed index that tracks the performance of up to 14 exchange-traded funds and a cash-like holding. The index aggregates the performance of different combinations of some or all of the underlying funds, relying on a complex formula designed to smooth volatility.

(ZeroHedge)  Do you remember the subprime mortgage meltdown from the last financial crisis?Well, this time around we are facing a subprime auto loan meltdown.In recent years, auto lenders have become more and more aggressive, and they have been increasingly willing to lend money to people that should not be borrowing money to buy a new vehicle under any circumstances.Just like with subprime mortgages, this strategy seemed to pay off at first, but now economic reality is beginning to be felt in a major way.Delinquency rates are up by double digit percentages, and major auto lenders are bracing for hundreds of millions of dollars of losses.  We are a nation that is absolutely drowning in debt, and we are most definitely going to reap what we have sown.

(ZeroHedge)  These agreements were created 100 years ago to give juvenile defendants and first-time offenders a chance to for rehabilitate themselves. Only in the last 20 years have DPAs migrated to the field of corporate criminals, treating them like kids who’ve just gone down a bad path in life.

 The Justice Department is leaning on these toothless agreements more and more. Of the DoJ’s 283 deferred prosecution agreements since 2000, half have come since 2010, Reilly found in a working paper for BYU Law Review.

 Why has the DoJ been so keen on deferred prosecution since 2010? It coincides exactly with investigations into the 2008 financial crisis.

 – From the 2014 post: The U.S. Department of Justice Handles Banker Criminals Like Juvenile Offenders…Literally

This is a really good move by Rep. Bill Pascrell of New Jersey. Indeed, the American public certainly has a right to know the details of why the U.S. government allowed Wall Street executives to walk away free, with zero accountability and wealthier than ever before.