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Market Lab Report - Premarket Pulse 11/6/17

Major averages rose on lower volume. While sloppiness under the market's hood has been prevalent all year, major averages continue to trend higher. Thus, there have been no relatively clean rallies as uptrends remain meek in this QE-perverse market. As the VIX heads back towards 9 again, we may have another mini-correction such as the one that occurred on 10-20-17 when leaders got taken down a few pegs. The all-time low on the VIX is 8.84 which was hit in July of this year. Keep a close eye on the 620 5-minute bar chart of UVXY as we have discussed in prior reports.

Oil continues to trend higher on hopes the OPEC/non-OPEC supply cut agreement will be extended beyond the current end date of March 2018. Meanwhile, the Commodity Research Bureau Index which correlates closely with the price of oil has also been in an uptrend at it hits price levels not seen since early 2017. That said, weekly charts of both oil and the CRB Index show the current rally could still be a bear market rally as a major bottom in both may not have yet been achieved as shown in the oil chart below.

On a related note, Saudi Crown Prince Mohammed bin Salman is attempting to consolidate his power as he ordered the arrests of several key officials. Saudi Arabia is the world's largest oil exporter.  

As for the future of quantitative easing, European junk bonds have lower yields than 5-year US Treasury bonds as shown below in this chart:

This suggests the ECB may not keep to their word of reducing QE from $60 billion/mo to $30 billion/mo by this January but instead may keep printing to keep those yields low as the economic recovery in Europe has been on thin ice even after 9 years of quantitative easing. Any dramatic unwinding could cause an overdue correction in the stock market. Leading stocks tend to fall sharply when the major averages have even so much as corrected a scant 1-3%. Keep your stops tight.

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