VIX tested Long-term resistance at 14.17 before closing beneath Short-term support/resistance at 12.99. The probe above critical support/resistance may have triggered a probable buy signal in the VIX. The Cycles Model shows a likely surge strength for the VIX through mid-October.

(Bloomberg)  U.S. stocks have been on a tear over the past week. So why has the market’s “fear gauge” barely budged?

The stickiness of the Cboe Volatility Index, which tracks the 30-day implied volatility of the S&P 500 Index based on out-of-the-money options, eerily echoes conditions that prevailed in early 2018.

SPX tops out at a Fibonacci targets on Wednesday

SPX made a new all-time high late Thursday after noon while hitting two Fibonacci targets at 2916.40 in an inverted Cycle high. Both price and time targets have been met. This begs the question, what will the markets do for an encore? The last time the SPX made an inverted high, it had a 10-market-day selloff.  Food for thought.

(CNBC)  U.S. stocks dropped Friday as the United States and Canada put off resolving their trade dispute. Several indexes closed with historic highs for the month of August, as both the Nasdaq Composite and the S&P 500 notched all-time highs this week.

The Dow Jones Industrial average closed down 22 points, with losses in Boeing and Goldman Sachs offsetting gains in Apple and Nike. The S&P 500 rose 0.01 percent while the tech-heavy Nasdaq Composite traded up 0.26 percent.

NDX peaks a day later

NDX challenged its Cycle Top on Thursday, closing the week right on it. This confirms the SPX high and suggests the two indexes may do a conjoined decline.  The Cycles Model suggests that the next several months may bring pain to equities. The period of weak seasonality may be about to begin.   

(BusinessInsider)  Everyone knows major tech indexes are sitting at record-high levels. But under the surface, a dirty little secret lurks.

Last week, the number of stocks in the tech-heavy Nasdaq Composite index trading at one-year lows outnumbered those at one-year highs, according to data compiled by The Leuthold Group.

This is cause for concern.

The bottom line in this chart shows a proprietary indicator maintained by Leuthold that's designed to identify times when the numbers of new highs and new lows have been simultaneously large. The firm has found over time that when it climbs above a certain level, it signals selling in the Nasdaq.

High Yield Bond Index still up against trendline resistance

The High Yield Bond Index continues to rally beneath the trendline to a marginal new 74% retracement of the February decline.  A sell signal is confirmed beneath Intermediate-term support at 193.19. “Flag” consolidations such as this imply a resumption of the previous trend.

(NASDAQ)   Bankers and investors are gearing up for a string of junk bond sales backing leveraged buyouts next month in a major test for one of the best performing fixed-income markets this year.

Syndicate bankers say some US$25bn-$30bn of new junk-rated bond sales are slated to hit the market in September with some roadshows ready to be announced right after Labor Day.

High-yield bonds have been one of the best performing segments in fixed income so far this year, posting total returns of 1.79%, according to JP Morgan.

UST consolidates above support

The 10-year Treasury Note Index bounced off Short-term support on Thursday at 120.06, remaining above critical support. From here we may see UST rally back toward the Head & Shoulders neckline near 123.00. This rally may be painful for the speculative short sellers in treasuries.

(CNBC)  U.S. government debt prices edged higher on Friday.

The yield on the benchmark 10-year Treasury note was lower at around 2.844 percent while the yield on the 30-year Treasury bondwas in the red at 2.994 percent. Bond yields move inversely to prices.

Friday marks the deadline for a new trade deal to be secured by the U.S., Mexico and Canada. While an agreement has been struck between the States and Mexico to replace the current NAFTA pact, Canada has yet to secure its place.

The Euro pulls back at resistance

The Euro challenged Intermediate-term resistance at 116.65, but closed beneath Short-term support/resistance at 116.19.  An inversion appears in which the Euro may aim for Long-term resistance at 119.62 as its target.

(Bloomberg)  Euro-area inflation unexpectedly slowed in August, which may add to policy makers’ concerns as they prepare to pare back stimulus amid increasing economic risks.

Consumer-price growth came in at 2 percent, below the 2.1 percent reading in July that economists expected to see repeated. The core measure, which strips out volatile components such as energy and food, fell to 1 percent, also below expectations.

Inflation rates have leaped toward the European Central Bank’s goal of just below 2 percent in recent months on the back of higher energy prices, but underlying price pressures are still subdued and only building gradually. After recording the fastest economic growth in a decade in 2017, momentum has moderated this year and uncertainty around the outlook has risen.

EuroStoxx repelled at Intermediate-term resistance

The EuroStoxx were stopped at Intermediate-terms resistance at 3464.20 and proceeded to decline to mid-Cycle support at 3386.42. Should Stoxx decline through that support there is a high probability that it may take EuroStoxx to the Head & Shoulders target.

(Reuters) - European shares fell for a second day on Friday on reports that U.S. President Donald Trump is planning more tariffs on China, with Europe’s STOXX posting its worst monthly performance since February.

The pan-European STOXX 600 ended the session down 0.8 percent. Germany’s DAX, heavier in trade-sensitive industrial stocks, fell 1 percent.

All sectors except one were in negative territory. Sparring over trade between Trump and the European Union weighed on car stocks, down 1.6 percent and the worst-performing sector.

The Yen rallies back above Long-term support

The Yen challenged Long-term support again this week as it consolidates for its next move higher, closing at the high of the week.  Although there appears to be stiff overhead resistance, XJY appears capable of reaching its potential target at 92.50. The pullback mentioned last week appears to be over, or nearly so.

(MarketPulse)  The Japanese yen has edged higher in the Thursday session, erasing the losses seen on Wednesday. In North American trade, the pair is trading at 111.26, down 0.38% on the day. On the release front, Japanese retail sales dropped to 1.8%, but still beat the estimate of 1.5%. Later in the day, Japan releases Tokyo Core CPI, with a forecast of 0.8%. In the U.S, Core PCE Price Index edged up to 0.2%, while Personal Spending remained pegged at 0.4%. Both of these indicators matched the estimates. Unemployment claims rose to 213 thousand, just below the forecast of 214 thousand.

Investors are keeping a close eye on Tokyo Core CPI, the fourth Japanese inflation indicator this week. Although the indicators have been within expectations, inflation remains a headache for the BoJ, as a radical program monetary easing has failed to coax inflation to the target of around 2 percent. 

Nikkei breaks out of a Triangle consolidation

Nikkei broke out of its Triangle consolidation to complete the retracement of the February decline. The period of strength may have ended on Thursday, leaving last week’s high as a false breakout. Violating Long-term support at 22421.82 confirms a new sell signal. The Cycles Model calls for a new Master Cycle low in mid-September.

(Reuters) - Japan’s Nikkei ended flat on Friday, snapping an eight-day rally after U.S. President Donald Trump said he is ready to quickly ratchet up a trade war with China, rattling Asian markets.

The Nikkei share average ended 0.02 percent, or 4.35 points, lower at 22,865.15 points, after rising eight consecutive sessions.

The benchmark index hit the psychologically important mark of 23,000 this week, but failed to stay above that level at the market close.

U.S. Dollar bounces off Intermediate-term support

USD bounced from Intermediate-term support at 94.41 toward the mid-Cycle resistance at 95.43.  The anticipated Trading Cycle low came in on Tuesday. The bounce may not last another week. USD is on a sell signal where investors may wish to sell on the bounces.    

(Bloomberg)  Citigroup Inc. is bullish on the dollar. U.S. President Donald Trump could change that.

The administration’s preference for a weaker greenback, combined with its unpredictable policy moves, pose a key risk for foreign exchange markets, according to Calvin Tse, North American head of G-10 FX strategy at Citigroup in New York. Even though the chances are slim, investors can’t ignore the possibility that the Treasury may intervene by selling dollars, Tse said.

“We remain structurally bullish,” as strong growth and relative yields attract capital to the U.S., Tse said in an email. “The biggest risk to our view, however, is that the Treasury decides to intervene to weaken the USD. Though still a tail risk, if they were able to corral the Fed to participate, this would be a game changer for the USD outlook.”

Gold tests Short-term resistance

Gold tested Short-term resistance at 1221.94 this week before easing back down. The rally may be complete, suggesting a renewed decline to new lows. However, should it find support above the Cycle Bottom, it may rally higher in September.     

(SeekingAlpha)  As the gold price hit its highest level since Aug. 10 on Wednesday, investors are weighing the prospects for the metal’s first meaningful rally since January. As we’ll discuss in today’s comments, it’s still too early to assume with certitude a bullish resolution to gold’s latest bottoming attempt. However, the weight of evidence is now more in favor of the gold bulls’ short-term success than it has been in several months.

Gold was stable on Wednesday after a sharp pullback in the previous session. The December gold futures price remained above its 15-day moving average in the latest session, and well above its Aug. 16 intraday low of $1,167. Yet the leading gold exchange-traded funds, including the SPDR Gold Trust (GLD), haven’t met the basic requirements of an immediate-term bottom as we’ve talked about in recent commentaries. In my experience, if the gold ETFs don’t confirm a bottom along with the actual gold price then the buy signals tend to be weak and therefore not reliable. While December gold did technically close two days above its 15-day moving average this week without invalidating the signal, the gold ETFs did not. We’ll discuss this in more detail in today’s commentary.

Crude challenges the Diagonal trendline

Crude challenged Intermediate-term resistance and the Diagonal trendline at 68.88 on Wednesday and closed above them this week. The bounce may be fading, as the period of strength may have passed. Crude is due for a Trading Cycle low in the next week or so. A break of Long-term support may set up a cascading decline over a period of months.

(OilPrice)  Oil production in Texas dropped in June 2018 compared to the same month last year, the first yearly drop since February 2017, figures by the Railroad Commission of Texas showed on Thursday, highlighting recent concerns that the pipeline bottlenecks in the Permian may have started to negatively affect production growth.

Figures for June 2018, the latest available and still preliminary data based on production volumes reported by operators, showed that Texas’ total oil production, including crude oil and condensates, fell to 98.922 million barrels for the month, compared to 101.3 million barrels that Texas pumped in June 2017, figures by the Railroad Commission of Texas show.

Shanghai Index repelled at Short-term resistance

The Shanghai Index made an attempt at challenging Short-term resistance at 2771.19, but was repelled, resulting in a loss for the week. There is likely to be a retest of the low in the next week or so. The reasons are that while it made the minimum pattern, the bounce was early and the Head & Shoulders target hasn’t yet been reached. Trying to call the bottom here may be dangerous.

(Bloomberg)  A Chinese fund manager with hundreds of thousands of social media followers has turned bullish on the country’s stocks, particularly the health-care sector.

Chen Yu, general manager of Beijing Shennong Capital Asset Management Co., said concerns over the U.S. trade dispute and China’s deleveraging campaign have long been priced in, and that market weakness isn’t down to fundamentals -- it has stemmed from mood swings. He is getting ready to go all-in on equities, converting cash that’s accounting for 40 percent of his 2 billion yuan ($293 million) of assets under management.

The Banking Index continues to consolidate above supports

BKX closed flat this week after making a marginal new high on Monday.  The strength we observed is waning, but a sell signal is not given until BKX declines through critical support at 107.92. The Cycles Model calls for an initial decline through mid-Cycle support at 95.76 to set the pace.

(ZeroHedge)  Three bankrupt US firms with “direct” links to the Indian billionaire Nirav Modi were involved in transactions related to an alleged multibillion-dollar international scheme for which Modi has been charged by Indian authorities, according to Bloomberg. The firms sought protection from creditors earlier this year as the celebrity jeweler’s empire quickly unraveled. In February, the Punjab National Bank, India’s second-largest state lender, reported that the Indian billionaire had siphoned billions of dollars from its coffers.

John J. Carney, an examiner appointed by the US bankruptcy court, found “substantial evidence” that officers at Firestar Diamond Inc., A. Jaffe Inc., and Fantasy Inc., knew about the scheme alleged by Indian officials, according to the report filed Saturday. The Examiner uncovered millions of dollars of diamond transactions by various shadow entities owned by Modi, where payment can be traced to proceeds from the alleged bank fraud, the report said.

(ZeroHedge)  Bank of America has frozen the accounts of Saeed Moshfegh, an Iranian student getting his Ph.D. in physics at the University of Miami who has been in the country for more than a decade. To maintain the accounts, all he had to do was show proof of legal residency every six months, however, earlier this month, that all changed.

“I think it’s onerous, but I’d been doing it,” said Moshfegh, who has lived in Florida for the past seven years.

Earlier this month, Moshfegh went to his local branch in the South Miami district. He was instructed that the documentation this time could not be accepted. Bank officials insisted he produce different paperwork, according to Moshfegh.

(ZeroHedge)  In what may be the most innocent violation to emerge out of Wells Fargo in years, the WSJ reports that Wells has fired or suspended more than a dozen employees in its investment bank and is investigating dozens of others over violations of the company’s expense policy regarding after-hours meals.

According to the report, Wells Fargo employees ranging from analysts to managing directors in New York, San Francisco and Charlotte, doctored receipts on dinners that they charged to the bank.

“We became aware that certain Wells Fargo Securities team members were not complying with the after-hours meals reimbursement policies after they were brought to the attention of our leaders by concerned team members,” a Wells Fargo spokeswoman said in a statement. “We took action to address the issue and we continue to investigate the matter.”