VIX broke out against the prior week’s high, but ended the week below all critical support/resistance areas. A buy signal awaits it above Intermediate-term resistance at 10.70, with further confirmation above weekly mid-Cycle resistance at 14.64. It has an inverted Head & Shoulders formation that, when triggered, offers us a potential target for the next rally.

(RealInvestmentAdvice)  I have argued that risk is under-priced because in large measure of the structural changes in the markets and participants positioning.

Risk is an ever-present condition that cannot be eliminated, though it can be shifted through time and redistributed in form.

In today’s market many believe that they have achieved protection over risk, but they actually are becoming its servant.

SPX challenges its Broadening Wedge

SPX pulled back this week, then proceeded to challenge its Cycle Top and Broadening Wedge trendline at 2579.33 again. A decline beneath the upper Diagonal trendline at 2550.00 may signal an end to the rally.  A further decline beneath the Broadening Wedge formation at 2455.00 gives a sell signal and suggests a much deeper decline may follow.  

(TheMacroTourist)  I have been meaning to write this post for quite some time. As an ex-ETF trader, I have watched with bemusement as investors have both embraced and shuddered at the wide adoption of ETFs. But most pundits are missing the larger picture. ETFs are just a symptom of the bigger phenomenon. The true battle lies in the passive versus active debate.

Let me get this out of the way right off the bat. I have no dog in this hunt. I see both the benefits and the negatives to each side. Yet as a trader, I definitely have a view on which end of the boat is leaning lopsided right now.

NDX “throws over” the Ending Diagonal

NDX has been testing the top trendline of its smaller Ending Diagonal since May.  This week it made another all-time closing high by throwing over the Diagonal.  Short-term support and the lower Diagonal trendline lie at 6031.13.  A decline beneath that trendline may produce an aggressive sell signal.    

(ZeroHedge)  The Nasdaq is dramatically outperforming the rest of the major US equity indices today…

In fact this this is the biggest Nasdaq outperformance of the S&P since May 2009…

We saw some weakness in the stocks of tech megacaps recently, not so much because of a concern about mediocre earnings but rather because a concern about valuations being stretched,” said Walter Todd, chief investment officer at Greenwood Capital Associates.

“The numbers Google and Amazon reported may trigger a rotation back into tech megacaps and probably a further rally.”

Putting the massive gains in context…

The Nasdaq 100 has added over $180 billion in market cap today – the biggest addition since the day after Aug 2015’s Flash Crash.

High Yield Bond Index reverses beneath its Cycle Top

The High Yield Bond Index made an all-time high on Tuesday, then sold off, closing beneath its Cycle Top at 184.53. A break of the upper Diagonal trendline at 181.00 may tell us the rally is over. What’s happening in Europe is also happening in the US.

(Bloomberg)  If 2017 is judged to be the year of big but boring refinancings for the European high-yield market, next year is shaping up to be a different proposition with leveraged buyouts and lower-rated credits expected to drive a bigger share of bond sales.

Yield-hungry investors have embraced the glut of supply in Europe so far this year, helping borrowers secure ultra-low funding costs and negotiate favorable terms on their bond transactions. This has been fueling issuers’ appetite, and may open the door to more LBO-driven activity, as well as supply from “riskier” credits in 2018, bankers have said.

USB reverses from a Master Cycle low

The Long Bond reversed on Friday from a two-week overdue Master Cycle low. This allows a 2-3 week rally that may allow USB to rise to mid-Cycle resistance at 157.96. In other words, the right shoulder of a potential Head & Shoulders may come closer to completion. However, should it go higher, there is the possibility of new all-time highs in USB.