“Throughout my financial career, I have continually witnessed examples of other people that I have known being ruined by a failure to respect risk. If you don’t take a hard look at risk, it will take you.” – Larry Hite

1. Governing Crisis in Germany — Germany’s Angela Merkel said she would prefer fresh elections to ruling with a minority government after talks on forming a three-way coalition collapsed. Subsequently, President Frank-Walter Steinmeier stated Germany is facing its worst governing crisis in the history of its post-WWII democracy and pressed all parties in parliament “to serve our country” and form a government.
2. Europe’s First Bitcoin Mutual Fund — a Paris-based asset manager has launched Europe’s first bitcoin mutual fund. Tobam is classifying it as an alternative investment fund since it’s not traded on an exchange, but it does have daily liquidity based on market closing prices. JPMorgan (NYSE:JPM) is also reportedly getting into bitcoin futures trading even though CEO Jamie Dimon believes it’s a fraud.
3. Russia-OPEC Agree on Framework to Extend Oil Cuts — OPEC and Russia have crafted the outline of a deal to extend their oil production cuts to the end of next year, although both sides are still hammering out crucial details. Moscow and Riyadh now agree they should announce an additional period of cuts at the Nov. 30 meeting. West Texas Intermediate crude extended gains to the highest level since July 2015. Futures for January delivery rose as much as 1.6 percent to $58.92.

The week ahead — Economic data from Econoday.com:

“Only fools and liars buy at exact bottoms and sell at exact tops!” — unknown

1. S&P & ISDA Declare Venezuela in Default — S&P has downgraded Venezuela’s foreign currency sovereign credit rating to “selective default” after it failed to make $200M in payments on its global bonds. The decision capped off a day in which the government promised to keep paying its debts, but offered no firm proposals, at a conference in Caracas. Furthermore, the International Swaps and Derivatives Association (ISDA) has ruled that Venezuela and its state oil company PDVSA have defaulted on their debts. The decision will trigger credit-default swaps, with the details of how they will be settled to be determined by the committee on Nov. 20.
2. FDA Approves First Digital Pill — The FDA has approved the first digital pill – made by Otsuka Pharmaceutical (OTCPK:OTSKY) and Proteus Digital Health (Private:PRDI) – that is embedded with a sensor and can tell doctors whether, and when, patients take their medicine. While a patient can block transmissions via a smartphone app, the technology is still likely to prompt questions about privacy.
3. Norway, World’s Biggest Wealth Fund Wants Out of Oil and Gas — Norway finance ministry said it will study the proposal and decide what to do in “fall of 2018” that would entail the fund, which controls about 1.5 percent of global stocks, dumping as much as $40 billion of shares in international giants such as Exxon Mobil Corp. and Royal Dutch Shell Plc. Norway relies on oil and gas for a fifth of economic output, would be less vulnerable to declining crude prices without investments in the industry .
4. House Passes GOP Tax Reform Bill — the House of Representatives has passed a bill that would result in the biggest overhaul of the U.S. tax system in 31 years. It would reduce the number of individual brackets, increase the child tax credit, abolish the estate tax by 2025, chop the corporate tax rate to 20% and make other tweaks aiming to make businesses more competitive. But there are warning signs as the focus in Washington turns to the Senate’s companion bill.
5. AAII Bullish Sentiment Crashes — AAII bullish sentiment from this week crashed from 45.1% down to 29.35%. That’s the largest one-week decline since April 2013!

Meanwhile, Bearish sentiment didn’t see quite as big a move as bullish sentiment, but it did spike by 12 percentage points, and that’s the largest one-week increase since February 2016.

The week ahead — Economic data from Econoday.com:

“While markets often make double bottoms, three pushes to a high is the most common topping patterns” — J. Bollinger

1. GE Considers More Asset Sale — General Electric is considering options for its aircraft leasing unit, including the sale of all or part of the business, as CEO John Flannery searches for new divestitures, Reuters reports. With a fleet of 1,339 planes worth an estimated $25B, GE Capital Aviation Services ranks only behind AerCap (NYSE:AER) as the globe’s largest lessor.
2. Saudi Arabia ‘s Princes, Businessmen, Officials Arrested in Anti-Graft Drive — Saudi Arabia announced a new wave of arrests of royals and ministers in a Saudi corruption probe. It was orchestrated by Crown Prince Mohammed bin Salman, who’s backed OPEC-led output cuts. The purge also led to the arrest of business billionaire Prince Al-Waleed, whose investment firm Kingdom Holding has big stakes in Citigroup (NYSE:C) and Twitter (NYSE:TWTR).
3. Longest Overbought Streak For S&P 500 Since 2012 — courtesy of BIG, looking further back at the current bull market, there have only been three other periods where the S&P 500 closed at overbought levels for 40 or more trading days. The chart below shows the S&P 500 through the course of the entire bull market dating back to March 2009. As shown, two of those prior streaks occurred within ten trading days of each other when a 45-trading-day streak ended on 11/12/10 and another one began on 12/1/00. In both the one and six months that followed these prior streaks coming to an end, the S&P 500 was up all three times.

4. Democrats Win Big in Elections — Democrats scored a number of closely watched elections last Tuesday, in what some called a referendum on President Trump. Republicans lost races for governorship in Virginia and New Jersey, as well as control of the Washington state Senate. Mayoral races, too, produced a string of Democratic victories, most notably in New York City, where Mayor Bill de Blasio cruised to a second term.
5. U.S. Oil Service Firms Face Big Write-offs as Venezuela Nears Default — As Venezuela teeters on the edge of default, U.S. oil service companies face the prospect of hundreds of millions of dollars in write-offs for overdue payments from the PDVSA state-run oil company. Halliburton (NYSE:HAL), Schlumberger (NYSE:SLB), Weatherford (NYSE:WFT) and Baker Hughes (NYSE:BHGE) all hold outstanding bills and receivables, according to Reuters, which cited the most recent financial reports.
6. High-Yield Bond in Correction — The two largest junk bond ETFs, State Street’s (JNK) and BlackRock’s (HYG), are at their lowest levels in seven months as declines and fresh outflows inject volatility into the asset class. The downward movement has been intensified by lackluster quarterly results by some of the largest high-yield bond issuers, which are often among the biggest holdings of the popular ETFs. With high-yield bonds and the tech-heavy index of Nasdaq 100 stocks moving in tandem for most of their history, a recent breakdown in correlation suggests the selloff gripping junk is set to spread farther.

The week ahead — Economic data from Econoday.com:

“Of course there is always a reason for fluctuations, but the tape does not concern itself with the why or wherefore. It doesn’t go into explanations. I didn’t ask the tape why when I was fourteen, and I don’t ask it today at forty…” — Jesse Livermore

1. GOP Unveils Overhaul the Tax System — GOP unveils the tax overhaul plan that would reduce the number of income tax brackets, raise the child tax credit and preserve popular retirement savings plans. The GOP aims to permanently lower the corporate tax rate to 20 percent. The House bill would also slash the number of income tax brackets from seven to four: 12 percent, 25 percent, 35 percent and 39.6 percent. The bill is also expected to raise the child tax credit to $1,600 from its current maximum of $1,000. It’s also expected to preserve popular retirement savings plans like 401(k)s and Individual Retirement Accounts. However, the plan would cut a popular mortgage interest deduction in half. While it would maintain the current deduction of $1 million in mortgage debt for current homeowners, that cap would be slashed to $500,000 for newly purchased homes and allow taxpayers to write off up to $10,000 in state and local property taxes.
2. ITC Proposal for 35% Duty on Imported Solar Panels — the U.S. International Trade Commission has recommended the Trump administration impose an import tariff of up to 35% on solar panels to protect U.S. manufacturers. “That’s below the price that people have been hoarding panels for,” said Cowen analyst Jeffrey Osborne. “On the demand side, job cuts won’t be as bad as feared, but on the manufacturing side, job creation won’t be as big.
3. Apple Could Drop Qualcomm Components in Future iPhones — locked in an intensifying legal dispute with Qualcomm (NASDAQ:QCOM), Apple (NASDAQ:AAPL) is designing iPhones and iPads for next year that would jettison the chipmaker’s components, sources told WSJ. Modem chips from Intel (NASDAQ:INTC) and possibly MediaTek would be placed in the devices instead as Qualcomm is reportedly withholding software critical to testing its chips in Apple prototypes.
4. Powell Set to be Trump’s Fed pick Replacing Yellen — President Trump has settled on Fed Governor Jerome Powell as next Fed Chairman, WSJ reports. If confirmed, he would take up the reins at the central bank in February. He is seen as the “safe choice” because he’s not expected to veer drastically from current Fed policy. That would mean gradually raising short-term interest rates in quarter-percentage-point steps through 2020, while slowly shrinking the Fed’s $4.2T balance sheet.
5. Venezuela Seeks to Restructure Debt — Venezuela’s Nicolas Maduro has announced plans to make one final $1.1B principal payment for a bond issued by state-owned oil company PVSDA. The country would then aim for a restructuring and refinancing, although it has few avenues to do so because of U.S. sanctions. Estimates of Venezuela’s total outstanding debt vary, with some analysts putting the figure between $100B-$150B.
6. Weekly Sentiment Survey from AAII — in this latest week’s sentiment survey from AAII, bullish sentiment increased from 39.6% up to 45.1%. That’s the first 40%+ reading in six weeks and the highest level since the first week of January.

Meanwhile, Bearish sentiment dropped nearly 4.5% percentage points to 25.57%.

The week ahead — Economic data from Econoday.com: