VIX declined beneath the June 9 low at 9.37. In doing so, it may have fulfilled the requirements for its Ending Diagonal formation. The Cycles Model suggests a reversal is imminent. Once complete, the upside move may be very fast.
(ZeroHedge) How Bad a Damage If Volatility Rises: The Bear Trap of Short Vol ETFs
As if there was any need for any more threats to financial stability in a world overburdened with debt facing rising interest rates on bubble valuations in both bonds and equities, within an environment dominated by economic policy shifts and political gridlock, there is a potential bear trap right in today’s most fashionable investment products, which risks deflating fast: Short Vol Exchange-Traded Notes and, more broadly, volatility-driven investment vehicles. In this note we will discuss briefly the former.
SPX “throws over” the Ending Diagonal trendline
SPX “threw over” the 5-year Diagonal trendline this week, making a probable final high. This may be the end of the line for this rally. SPX appears to be due for a possible Master Cycle low to follow in the next week or so.
(ZeroHedge) One can finally put all references to “cash on the sidelines” in the trash can, not only for purely logistical reasons (when someone buys a stock, the seller ends up with the cash), but also from a purely cash allocation basis. According to the latest BofA flow show report, Michael Hartnett writes that as of the latest week, private client cash – i.e., high net worth individuals, or those who still allocate capital to single-stocks and ETFs on a discretionary basis (unlike the broader US public which has long ago given up on the stock market), is now at a record low, taking out the cash levels observed in the period just prior to the last market peak in 2007: “GWIM cash allocation % AUM falls to all-time low of 10.4%.”
NDX makes a new double high
NDX inverted its Cycle, making a second “throw over” high. This action appears to complete both the Cycle and Wave patterns. This may lead to a sharp reversal in the immediate future.
(ZeroHedge) Readers are surely aware of the saying “sell in May and go away”. It is one of the best-known and oldest stock market truisms.
And the saying is justified. In my article “Sell in May and Go Away – in 9 out of 11 Countries it Makes Sense to Do So” in the May 01 2017 issue of Seasonal Insights I examined the so-called Halloween effect in great detail.
The result: in just two out of eleven international stock markets does it make sense to invest during the summer months.
(ZeroHedge) “Buy and Hold”… for 17 years to turn a profit.
After a nine-day winning streak the S&P 500 Technology Sector has finally surpassed its dotcom bubble peak. Today’s 992.29 close is above the previous record of 988.49 on March 27 2000.
High Yield Bond Index consolidates above support
The High Yield Bond Index traded in a tight range above its multiple supports. The sell signal may be reinstated beneath those support levels. The Cycles Model suggests weakness may develop on a timetable similar to that of equities.
(ZeroHedge) The traditional benchmark asset allocation is 60/40 – 60% in stocks, 40% in bonds. Such a “balanced” allocation is considered to be a moderately conservative investment posture as drawdowns in equity prices have typically been partially offset by gains on fixed income holdings. Since the financial crisis of 2008, the appetite for higher returns sparked by historically low yields on many fixed income assets may have changed that asset allocation calculus. What may appear to be nuance to some could cause a gross underestimation of risk if equity prices fall.
To explain, consider a simple proxy 60/40 portfolio. We assign the S&P 500 to represent the 60% equity component. Many investors opt for a split between the Dow, NASDAQ or Russell 2000, but for purposes of this analysis, the S&P 500 will suffice. On the fixed income side there are many types of debt securities in which to invest but for the 40% allocation we allocated 20% to U.S. Treasuries, 10% to investment grade corporates and 10% to high-yield corporate bonds.
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