VIX rose above its Cycle Top at 20.07, closing above it. The Cycles Model shows probable weakness lasting another week, but the upcoming election may hold sway over volatility.
(Bloomberg) Stocks are chaotic. The reaction in markets for equity volatility is anything but.
Pravit Chintawongvanich, equity derivatives strategist at Wells Fargo Securities, flags that measures of short- and longer-term protection against haywire markets are showing no signs of overreacting. Those include the Cboe Volatility Index, which rises and falls along with demand for options.
“The dumb money is saying the economy is headed south,” he said. “The smart money says, ‘This too shall pass.’”
SPX declines into correction mode
SPX fell through its 2.5-year trendline, confirming its sell signal. It closed beneath its December 29 closing price at 2673.61. The Cycles Model now implies a choppy bounce back to retest the trendline at 2760.00, possibly by mid-term elections.
(FoxBusiness) Stocks continued a week of see-saw trading Friday as falling shares of major tech companies offset optimism over a strong third-quarter GDP report. The selling was led by large-cap tech companies, including Amazon and Google, both of which posted mixed quarterly results.
The Dow Jones Industrial Average fell 296 points, or 1.19 percent, though stocks pared much of their losses from earlier in the session. At its intraday low, the blue-chip index was down 539 points. The broader S&P 500, which briefly dipped into correction territory, declined about 1.7 percent. The tech-heavy Nasdaq Composite slid 2.06 percent.
NDX really loses its mojo
NDX continued its decline beneath Long-term support at 7119.92 with bad news coming from all sides. There is the possibility of a bounce next week, but the disappointments appear to be unrelenting. The Presidential Cycle usually finds a bottom in October of mid-term elections. However, the campaigning is getting more rancorous. The outcome of the election is often based on whether the stock market is positive for the year at election day.
(ZeroHedge) Regular readers will recall when back in March, Bank of America cautioned that after the tech bubble in 2000, the housing bubble in 2006, we were witnessing the third biggest bubble of all time: the e-Commerce bubble.
Well, after several weeks of sharp volatility which has hammered tech stocks, slammed momentum trades and hurt growth factors, the tech sector is once again sharply lower after hours largely on the back of disappointments from Google and Amazon, with the ETF which tracks the Nasdaq 100 dropping about 2%, and threatening to slide back into a bear market.
The reason for this latest weakness in the QQQs may be that investors are finally realizing that the latest Nasdaq bubble may have popped, if for no other reason than what is shown in the Bloomberg chart below: namely revenue growth at the two e-commerce titans, Google and Amazon, appears to have finally peaked.
High Yield Bond Index breaks through the trendline
The High Yield Bond Index has broken through its long-term trendline to close above Long-term support at 194.02. A sell signal may be confirmed beneath that support. High yield bonds are also anticipating further weakness through the end of the month.
(Bloomberg) Companies yanked back the reins on bond sales this month amid the widespread carnage in financial markets.
Just $6 billion of new U.S. investment-grade bonds hit the market this week, short of the $15 billion to $20 billion estimate, according to data compiled by Bloomberg. It’s the third time in four weeks issuance missed expectations and the worst week since August. October’s supply looks likely to fall well below estimates of $110 billion and the $114 billion of volume seen in the same period a year earlier.
UST rallies above Short-term resistance
The 10-year Treasury Note Index rose above Short-term support/resistance at 118.83. The bounce is three weeks old and may be subject to a consolidation. However, the Cycles Model suggests a probable rally may continue over the next 2 weeks. The next barrier to overcome is Long-term resistance at 120.01.
