I remember Oct 15, 2014 like it was yesterday.   SPX had risen sharply on the back of the yen carry trade, popping through important Fib resistance at 1823. But, it had just broken trend line and channel support.  To make matters worse, it had just dropped through its SMA200 at 1905.The culprits? USDJPY had reversed off heavy resistance and its 10-week rising channel had broken down.  And, equally concerning, the bond market signaled more stock carnage to come.

As we noted at the time:

The more troubling development for Mr. Market is the bond market. The 10-yr note futures shot through the previous high overnight, complicating the prospects of a quick resolution to the market’s correction.

Note that while we might see a reversal today on the white Fibonacci grid — the .786, .886 or the 1.272 itself — we still have to deal with the grey grid, which suggests the possibility of a drop to the .786 at 1798 or the .886 at 1770.

A drop to 1800 would have meant giving up that important Fib support at 1823.  More importantly, a 10% correction would occur with a drop to 1817.33 or lower.  Who needed those headlines in the middle of spectacular rally to new all-time highs?

The solution?

SPX’s plunge halted at 1820.66 — 3.33 points above what would have been an official correction.  No fuss, no muss.  The Fib line which had once loomed as formidable resistance could now be reclassified as support.

What has been is what will be,
and what has been done is what will be done,
and there is nothing new under the sun.
Ecclesiastes 1:4-11

As I went to sleep last night, marveling at how SPX had taken a rather circuitous path to our 2703.62 target,I wondered whether the 2.24 Fib would hold.

I found myself thinking back to 2014.  Maybe Fed President Bullard would make another appearance.  I didn’t have long to wait.

On CNBC this morning…

click to play video


Futures are currently up 27 points off their overnight lows (bounced at the 10-day moving average, probably about 60 seconds after Bullard was booked on CNBC.)  At least we weren’t kept in suspense too long!

Oh, and for those wondering why/how yesterday unfolded as it did, take a look at VIX.  See that little dip (yellow arrow) below the trend line from Jan 26?  Yep, that’s all it took.

When VIX climbed back above the yellow trend line, SPX promptly gave up all its pre-minutes ramp job.VIX has obviously proven it’s still incredibly powerful.  Who needs a 40% spike when a 20% one can put on the brakes so effectively?  The flipside, of course: if VIX decides to pop up to 26 anyway, SPX will likely ignore Bullard and also test its SMA10.

Bullard might be able to divert attention from the interest rate problem.  But, it clearly hasn’t gone away.

This time, it’s a spike in rates rather than a plunge.  So it’s a different kind of interest rate problem.  As a result, this one might be tougher to rectify.  And, the implications for the overall economy are much more serious.

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