VIX challenged the 2-year Ending Diagonal trendline near 12.50 again, closing beneath the confluence of Long-term and mid-Cycle support/resistance at 13.47. The VIX may rise to a buy signal above that level. The Cycles Model suggests that Friday’s low was a belated Master Cycle low that may precipitate a month-long rally.  

(CNBC)  A concerning disconnect may be emerging between equities and the market's measure of volatility, according to one portfolio manager.
Dennis Davitt of Harvest Volatility Management told CNBC's "Trading Nation" he's carefully watching the Cboe Volatility Index, widely considered the market's "fear gauge" as it measures equities' expected volatility over 30 days. Here are his reasons why.
• Stocks kicked off the week in rally mode across the board, with the Dow surging triple digits and going positive for the year, and the S&P 500 surging nearly 1 percent.
• Despite the market's strong showing, Cboe's VIX didn't decline as much as investors might expect; it was briefly positive on the session, falling a bit more than 1 percent by the market's close. This signaled market participants may not be buying into the market's rebound from recent lows.

SPX between trendline resistance...and trendline support

This week SPX rallied again to its 2-year trendline at 2742.24 on Tuesday, but declined to its 7-year trendline support at 2700.00 at the end of the week. It has the potential of creating a sell signal by declining beneath 2700.00 with confirmation at Intermediate-term support at 2690.00.

(ZeroHedge)  WASHINGTON - Citing leading economic indicators for its robust forecast of the nation’s fiscal climate, a new report released Tuesday by the U.S. Bureau of Economic Analysis found that the prevailing financial expansion will only continue and the economy will be invincible forever this time.

“All available data tell us that the once-cyclical nature of the markets has stabilized, and the booming economic growth, low unemployment rates, and manageably slow rates of inflation that the country is currently enjoying are, in fact, unalterable and permanent,” said Herman Dale, lead author of the study.

NDX is in a sideways consolidation

The NDX has made a sideways consolidation since its May 14 high. Volume is dropping off, suggesting investors are sitting on their hands, waiting for the NDX to break out or break down.  Declining through Intermediate-term support at 6752.71 puts the NDX on a sell signal.

(RealInvestmentAdvice)  “Apple has just announced that next quarter they will quadruple their sales of their iPhone X+ as every person on the planet now owns one.”

If that were a real announcement the stock price should immediately skyrocket higher, right? Nope, it didn’t.

In fact, it didn’t move at all.

Why? Because, no one bought or sold a single share.

How can that be?

Because the whole world is now “passively” investing.

Well, that’s the way a lot of advisors are proposing as the way you should invest. The problem is that it is lazy money management, so why are you paying for the advice, but more importantly, markets don’t function that way.

High Yield Bond Index fails at Intermediate-term resistance

The High Yield Bond Index continues to challenge the two-year trendline but has been repelled down beneath Intermediate-term resistance at 188.21.  MUT is now on a sell signal. The next area of support is Long-term support at186.93, but it may not hold, since the rallies are getting progressively weaker.  A broken Diagonal trendline infers a complete retracement to its origin.

(ZeroHedge)  Having peaked last summer after troughing in early 2016 following the 2015 oil crisis which led to a surge of E&P-linked defaults and prompted the Fed to quietly order banks to suspend marking-to-market their energy exposure, junk bonds have been gently leaking for the past year...

... and while spreads remain compressed - which is understandable in a world where any outsized yield is fiercely bought by managers of "other people's money" regardless of the underlying fundamentals - yields continue to creep higher, tracking the broader rates market, and it is only a matter of time before America's highly indebted, "zombie" corporations most of which are rated somewhere in deep junk territory, hit their tipping point and trigger a mass default avalanche.

UST rises to Short-term resistance

The 10-year Treasury Note Index has reversed course, testing Short-term resistance at 119.80. While there may be a pullback, the expected Cycle low appears to have been made. If so, we may see UST rally back to the Head & Shoulders neckline at 123.00.  

(ZeroHedge)  While stocks are bid off earlier lows, US Treasury bond yields are plunging this morning, extending the week's collapse and perhaps signaling the record short speculative positioning is starting to unwind...

Who will be right?

10Y Yields are way below the 3.00% Maginot Line...

And 30Y Yields are at 6-week lows...

Is the big bond bear positioning about to unwind en masse?

The Euro continues lower

The Euro appears to have both its time and short-term price targets. In all probability, today may have been the final low for this Cycle. The Cycles Model may have inverted, turning anticipated strength into weakness. If so, there is an indication of a turn over the weekend.

(Reuters)  A new government is taking shape in Italy which is worrying the EU and financial markets over Rome's commitment to the euro and the economic rules that membership entails. Here are answers to five key questions:

IS ITALY DITCHING THE EURO?

Certainly not.

After an inconclusive March election, the president this week asked political novice Giuseppe Conte to form a government. He was nominated by two anti-establishment, Eurosceptic parties, The League, far-right and strong in the north, and 5-Star, big in the poorer south. But although critical of the effect the single currency has had on the economy, their joint draft program foresees retaining the euro.

EuroStoxx reverses, challenging Long-term support

The EuroStoxx 50 Index declined to challenge Long-term support at 3514.12. By closing above that level of support, it may be given the opportunity to rally early next week, but that is not assured. It goes on a sell signal beneath Long-term support with confirmation beneath Intermediate-term support at 3450.00.

(CNBC)  European stocks closed slightly higher on Friday amid continued uncertainty surrounding Italy's government-in-waiting. Traders also continued to monitor U.S.-North Korea relations.

The pan-European Stoxx 600 closed up 0.14 percent, with most major bourses negative and sectors mixed.

Italy's designated Prime Minister Giuseppe Conte, whose credentials have been hit with scrutiny, met with Bank of Italy Governor Ignazio Visco on Friday. Italian short-dated bond yields soared as uncertainty over the country's incoming anti-establishment government continued. The two-year note rose as high as 35 basis points on Friday. Italy's FTSE MIB benchmark, meanwhile, was down 1.54 percent.

The Yen makes a Master Cycle low

The Yen made its Master Cycle low on Monday and hasn’t looked back since then. The Cycles Model now suggests that a bounce may develop over the next two weeks.  A likely target may be Intermediate-term resistance at 92.91. An alternate target may be the Cycle Top resistance at 98.62, should the trend remain positive through Options Expiration.

(Investopedia)  In Wednesday's Daily Market Commentary webinar, our analysts discussed the importance of using exchange rates as an early warning sign of bearish moves in the stock market. Stock investors may not be generally aware that the Japanese yen and the U.S. stock market have a high level of inverse correlation. If the yen is rising, there is a good chance that stocks will languish or fall. Conversely if the yen is falling in value, stocks will likely be rising.

The negative correlation between these two assets is because many investors borrow yen (similar effect as shorting) to buy higher-yielding assets like U.S. stocks. Therefore, if there is a lot of yen borrowing (shorting), chances are good stocks are rising and the currency is falling. The yen is also a so-called “safe haven” investment during times of geopolitical risks, which tends to boost its value and while stocks are hurt by uncertainty.

Nikkei challenges the two-year trendline

The Nikkei declined this week to challenge the two-year trendline at 22450.00.  A decline beneath the trendline at 22450.00 and Short-term support at 22194.21 renews the sell signal. The potential for a decline over the next two months to the Cycle Bottom is very high.

(EconomicTimes)  Japan's Nikkei share average fell to more than two-week lows on Thursday as automakers slumped after the Trump administration launched a national security investigation into car and truck imports that could lead to new US. tariffs. 

The Nikkei ended 1.1 per cent lower at 22,437.01, the lowest closing since May 9. 

The Nikkei volatility index soared to 18.29, the highest level since mid-April. 
 

U.S. Dollar may have reached a retracement high

USD rallied to a new retracement high on Friday, reaching an important Fibonacci retracement level at 38.2%.. The Cycles Model allows a few more days of possible rally, but a minimum target has been met at the juncture of an inverted master Cycle high.  

(Reuters) - Speculators' net short dollar bets fell in the last week to the lowest since early January, according to calculations by Reuters and Commodity Futures Trading Commission data released on Friday.

The value of the net short dollar positions, derived from net positions of International Monetary Market speculators in the yen, euro, British pound, Swiss franc and Canadian and Australian dollars, was $7.98 billion in the week to May 22. That compares with a net short position of $9.82 billion the previous week and is the smallest net short dollar position since early January. To be short a currency means traders believe it will fall in value.

Gold bounced off the trendline and mid-Cycle support

Gold bounced off mid-Cycle support and the lower trendline of the Broadening Wedge at 1277.92 on Monday.  The bounced challenged Long-term resistance at 1308.54 and the neckline of a Head & Shoulders formation (not shown) that implies a target of 1235.00 in the next 4-5 weeks. Crossing the lower trendline of the Broadening Wedge and mid-Cycle support at 1277.92 implies a much deeper low may be in store.

(CNBC)  Gold prices just had their best day in more than a month as renewed tensions with North Korea pushed investors into less risky assets.

Trying times call for the safety trade, says one market watcher.

"It makes sense to hold it as a pure play because of all the geopolitical risk that's out there. It's still a calamity hedge," Mark Tepper, founder and president at Strategic Wealth Partners, told CNBC's "Trading Nation" on Thursday.

The GLD Gold Trust SPDR ETF spiked nearly 1 percent on Thursday in its best one-day gain since the beginning of April. Tepper has a 3 percent position in GLD, preferring it over gold miners because it is a noncorrelated asset class not subject to moves in the stock market.

Crude prices decline to the Cycle Top

Crude made a new high on Tuesday, then declined to challenge Short-term support at 67.84, closing above it. The inverted Master Cycle high was four days later than the Cycles Model had indicated. A break beneath the Cycle Top and trendline at 67.15 may indicate a reversal is underway.  A further decline beneath Intermediate-term support at 65.41 confirms it.

(Bloomberg)  The world’s largest oil exporter just made quite a policy swerve. Within six weeks, Saudi Arabia has gone from advocating higher prices to trying to stop the rally at $80 a barrel.

The U-turn scrambled the outlook for oil markets, hit the share prices of oil majors and shale producers and set up a diplomatic wrangle with other members of the Organization of Petroleum Exporting Countries.

What changed? The supply threats posed by the re-imposition of U.S. sanctions on Iran oil exports earlier this month and the quickening collapse of Venezuela’s energy industry are both part of the answer, but they’re secondary to Donald Trump. On April 20, the president took to Twitter to lambaste the cartel’s push for higher prices. "Looks like OPEC is at it again," he tweeted. "Oil prices are artificially Very High!"

Shanghai Index repelled at Intermediate-term resistance

The Shanghai Index rose, challenging Intermediate-term resistance at 3191.64 on Monday, then reversed, declining beneath mid-Cycle support at 3167.58. That action may have put the Shanghai on a sell signal which is confirmed beneath the Lip of the Cup with Handle formation at 3080.00.. The Cycles Model suggests a lengthy decline, perhaps until mid-June.       

(ZeroHedge)  It may have been the US that cancelled the North Korea peace summit, but China is ultimately responsible, at least according to veiled hints from President Trump. In his Thursday statement, Trump veered between threats of military action and entreaties to the North Korean dictator to schedule another summit after pulling the plug on their planned meeting. The president lamented that dialogue with Mr Kim had been “good until recently” when things abruptly changed. "I think I understand why that happened,” he said, but did not elaborate.

And, as we noted last night, ahead of North Korea's conciliatory statement, Trump this week pointed a finger at Beijing saying that Kim’s attitude had shifted after a meeting with President Xi almost three weeks ago.

The Banking Index declines beneath Intermediate-term support.

BKX declined beneath Intermediate-term support at 109.70, leaving a potential sell signal in play.   Cycles Model suggests that the Banking Index may decline through the end of July.

(Bloomberg)  In his corner of American finance, where hard selling meets hard luck, Angelo Christian is a star, and he looks the part. He’s wearing black caiman shoes and a Bordeaux-red silk shirt, tight and open wide at the chest. His dark widow’s peak is slicked high with gel. He has 180,000 Facebook followers and a budding YouTube network, where he shares original videos such as “How to Master Your Mind” and “How to Manage a $50 Million Pipeline.”

Each time Christian sells a home loan, the company he works for, American Financial Network Inc., takes as much as 5 percent—$12,500 on a $250,000 loan, to be distributed among his staff, corporate headquarters, and, of course, himself. As he and his team chase more than 250 leads a week, they’re on pace to close 50 a month. Christian says he has a Lamborghini on order to go with his Mercedes.

(CNBC)  Global investment banks reaped the most first-quarter revenue in three years, but that didn't stop the industry from firing traders as a years-long contraction continues, according to a report.

The world's 12 biggest banks generated $43.9 billion in revenue from trading stocks and bonds and advising on mergers and security issuance, according to financial research firm Coalition. That's 3.3 percent more than the year-earlier period as strong equities trading results offset declines in bond trading and investment banking, the firm said Thursday.

(Reuters) - European Union finance ministers reached an agreement on Friday on reforming bank capital rules, a major step towards boosting the bloc’s financial stability and a stepping stone towards a deal on a backstop for its bank-rescue fund in June.

The accord came after 18 months of heated debate among the 28 EU governments on how to apply new global bank capital rules that overhauled financial regulations after the 2007-2009 global crisis.

It paves the way for another breakthrough on the bloc’s bank rescue fund, which ministers committed on Friday to equip with a backstop, although the final decision will be made only in June.

The two measures are seen as interlinked because the banking capital rules are expected to reduce bank risk, which would allow more sharing of risk among euro zone countries in the form of a common backstop to prop up the sector’s rescue facility, known as Single Resolution Fund.

(ZeroHedge)  When it comes to the latest rout in Italian bonds, which has continued this morning sending the 10Y BTP yield beyond 2.40%, a level above which Morgan Stanley had predicted fresh BTP selling would emerge as a break would leave many bondholders, including domestic lenders with non-carry-adjusted losses...

.. there has been just one question: when does the Italian turmoil spread to the rest of Europe?

One answer was presented yesterday by Goldman Sachs which explicitly defined the "worst-case" contagion threshold level, and said to keep a close eye on the BTP-Bund spread and specifically whether it moves beyond 200 bps.

Should spreads convincingly move above 200bp, systemic spill-overs into EMU assets and beyond would likely increase. Italian sovereign risk has stayed for the most part local so far. Indeed, the 10-year German Bund has failed to break below 50bp, and Spanish bonds have increased a meager 10bp from their lows. This is consistent with our long-standing expectation that Italy would not become a systemic event. That said, should BTP 10-year spreads head above 200bp, the spill-over effects onto other EMU sovereigns would likely intensify.