Still traveling today, but should be back in the office tomorrow morning.  The big news over the weekend, of course, is Macron’s victory in the French election.  While the EU might not be saved, at least its demise has been postponed a bit.

Here are the charts I’d keep an eye on today.

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I’m on the road today, but wanted to post a few quick charts.  The biggest development last night was oil, which continued falling after breaking through the support we discussed several days ago.

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CL tested the SMA200 for several days before finally closing below it on Monday.  I had really expected the moving average to hold, so had deleted the additional downside targets a couple of weeks ago.

Here’s a chart from last month, with those targets still intact.  The red .786 at 42.68 and the purple .618 at 37.2 still work. But, note that CL just tagged (close enough) the midline of our preferred red channel and is getting a nice bounce.

We also have to think about what even lower prices would mean: a big drop in inflation — relieving all pressure to raise rates, and potentially even more accommodative measures.  There are a few Fed official slated to give speeches today, so it’ll be interesting to hear what they have to say.

I’m actually glad the white channel finally broke down.  It never made much sense to me as the upside it indicated was always pretty ludicrous.

CL’s initial plunge has been bought, probably just to ensure the damage is contained before markets open.  Could be that 43.76 was the bottom, in which case we should get a backtest of the broken white channel.Futures have managed to hold steady thus far, but our downside targets remain intact should they be allowed to play out.

VIX is still within striking distance of its all-time lows.

And, USDJPY never quite reached its SMA100 yesterday, meaning it can ramp quite a bit without actually breaking out.  Of course, if it does break out, there is plenty of room between current prices and its ultimate upside target at 120.11.That’s about it for now.  I might get a chance to post later this afternoon.

GLTA.

The BoJ, which has been the most egregious manipulator of markets for years now, has a problem.  All it would take to solve it is about 60 points on the NKD.  This is a very screwed up chart, in so many ways — not the least of which is that it has no basis in fundamentals.  The election of a protectionist president in the US was supposed to benefit Japan how, exactly?

But, as in the US, the narrative was adapted to fit the objective.  Also, as in the US, Apr 17’s VIX smackdown prevented the next logical step — a simple 50% retracement to tag the rapidly rising SMA200 at 17940.  The NKD remains the poster child for broken, heavily manipulated markets.

Beginning on Dec 20, 2016, NKD has tagged the .786 Fib at 19669 eight times and come close a couple of dozen more.  There have been five near breakouts since the Jan 9 high of 19745 — only 0.38% above the .786.  Are we really supposed to believe the BoJ can’t engineer a 0.38% rally?

The reality is that can do it any time they like.  The timing just hasn’t been right — begging the question: is it now?

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My working theory for oil price forecasting got a big boost yesterday.  Regular readers will recall that we’ve had some very accurate calls over the past 15 months — ever since calling the low on Feb 11 [see: USDJPY Finally Relents.]

My premise back then was that algos had become so focused on the price of oil that it needed to rebound in order to prevent the collapse of stock prices below critical support.  It also gave USDJPY, previously the most important driver of algos, a chance to fall back to earth lest Japan develop “inconvenient” inflation.

Since then, however, the focus has shifted to micro-managing inflation numbers.  The dollar had dropped almost 9% in only 5 months, and desperately needed support.  All the jawboning in the world wasn’t helping.  But, when CPI topped 2% and kept going — largely  on the back of rising oil prices — the FOMC’s rate hike narrative finally sounded plausible.

WTI rose from 26.05 on Feb 11, 2016 to 55.24 on Jan 3, 2017, allowing CPI and PCE to finally break out.  But, all good things come to an end.  With PCE finally topping 2% and CPI at 2.7%, it was time to put the brakes on — lest investors begin to worry about stagflation.

And, that’s exactly what happened.  In March, the EIA reported gas prices increased 18.364% YoY versus February’s 32.48%.  This allowed CPI to drop a little: 2.4% versus 2.7% in February.  It was a little hard to swallow, given the actual price increases observed in the real world.  But, it was hardly surprising, given that many government economic data is made to order.

For any Kool-Aid loving believers in the veracity of government statistics, just know that the April YoY increase in gas prices came in at the same level.  The exact same level: 18.364%.In other words, inflation is being very carefully managed via the very careful management of gas prices — or at least the reporting of same.  This gives the Fed plenty of room to put the brakes on any further rate increases for the time being — should they so choose. And, it means that WTI’s drop through important support, yesterday, could be quite meaningful.

I’ll be watching RBOB like a hawk with today’s EIA inventory report.  It finally tagged our 1.5259 target from Mar 3 [see: What is the Fed Trying to Tell Us?]  And, like WTI, it is slipping below important support.We remain short from yesterday with our downside targets intact.

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Just last week, we reiterated how VIX has evolved from a reliable indicator of market risk to a tool with which stock prices are being supported [see: How Broken is the Market?]  Since December, tags on the bottom of the long-term yellow channel above have increased in frequency from once a year to about once every four sessions.

As if on cue, VIX’s actions yesterday should put any lingering doubts to rest.  It was hammered to single digits, lower than it has been since Feb 2007 and a scant 0.59 from its all-time lows set on Dec 22, 1993.To be clear, VIX did not fall to 9.9 because investors looked at the investing landscape and decided that downside protection was unnecessary.  It was driven to new lows specifically to support stocks when they were in danger of losing momentum.

The two critical moments were at the open, when SPX was in danger of repeating its pop and drop from last Friday — and, around 1pm — when SPX was losing momentum and had dropped back into a falling channel.

They are marked with yellow arrows on the 5-min SPX chart below.

Note that VIX had already dropped 37% in the past week in order to help SPX break out.  It sat near its Feb lows five sessions in a row, dancing about the .886 retracement of its rise from those lows.

Yesterday, as ES began to break down from its overnight momentum (purple arrow), VIX suddenly plunged .45 within seconds.  I call this a “shot across the bow.”  It’s designed to scare off bears, and it usually works.

SPX was in danger of dropping back through the neckline of a nice little H&S Pattern that targeted 2376.  And, VIX’s action held it above the neckline for about 30 minutes.

At 10AM, however, SPX began to fall below the neckline again.  So, VIX began dropping again, eventually falling below the dotted red TL (which connected last week’s lows) when SPX suddenly plunged all of 5-points at 12:50PM.

Instead of falling to flesh out the white, or even red channels, SPX broke out again and even topped its .886 Fib for two hours before closing unchanged on the day.

Is it a problem that central banks and their allies can manipulate stocks lower at will by shorting VIX?  Should it bother us that rallies can be ordered up like a burger and fries at a fast food joint?

I could make a pretty good argument for the importance of market integrity.  But, that ship has already sailed, as detailed last week in How Broken is the Market?  Instead, I’ll remind investors and traders alike that every previous effort to prop up stocks long after the underlying economic reality argued for a correction has failed.  Every.  Single.  One.

I see no reason why this one should be any different.

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In our last update on the US dollar [see: Mar 27 Update] I noted that it had reached our previous target at an important Fib level and two important trend lines.  The only thing it hadn’t tagged was the 200-day moving average, which would have meant dropping through all that other important support.

DX reached the yellow TL and the .618 Fib lines — arguably our most important downside targets.  The one mystery is the SMA200, currently at 98.447.  Note that DX reached it back on Nov 9 (aftermath of election day) and got a very sharp bounce.  I wouldn’t be surprised to see another such sharp plunge and recovery sometime in the next few days.  Though, the bulls would probably rather it wait until the SMA200 has reached 98.901 so there aren’t any Fib-related mishaps.  If so, that might not be for another few weeks.

It will come as no surprise to regular readers that the bulls got their way.  DX bottomed that day, then bounced for several weeks until the SMA200 had finished climbing to that key Fib at 98.901.  It tagged it on Apr 24 and has been going sideways ever since. We’ve talked in the past about how the Fed has a love-hate relationship with the dollar.  As a net importer, the US needs a strong dollar in order to avoid inflation.  And, a strong dollar usually supports strong stock prices.

By offering yields that are much higher than Japan and the eurozone, it hasn’t been all that difficult to attract capital.  And, that’s where the “hate” side of the equation comes in.  The US needs higher interest rates like a fish needs a bicycle.  If it can’t balance its budget with the 10-yr at 2%, how in the world will it manage at 3-6%?

It must have unnerved the FOMC when the dollar slipped lower following the Mar 15 rate increase.  Plenty of jawboning later, they got their bounce on Mar 27.  But, we’re right back at those lows — meaning investors don’t especially believe the FOMC’s narrative regarding additional hikes this year.

We’ll take a look at what the charts say.  For the past several years, they’ve been much more accurate than all those Fed press conferences put together.

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Remember, when it comes to the dollar (and, just about everything else) it’s all about keeping stocks on the rise.  Since the yen carry trade took off in 2011, a rising dollar has been instrumental to higher stocks prices.  The only exception was when rising oil prices took over from Feb-Jul 2016.

Looking at the daily chart, we can see several periods where DX floundered, and stocks suffered as a result.Here’s a closeup, with the bulk of CL’s rally (from 26 to 52) marked with the red arrow.Note that DXY has clearly broken the purple TL — though it has been able to hold the SMA200 (more or less.)  With CL having reached TL support on Apr 27, it seemed like it might be taking over for DX and USDJPY again — especially since it rebounded above its SMA200 over the next two days.

But, CL is currently trading below its SMA200, which casts considerable doubt on DXY’s plans.  As we’ve discussed many times, higher oil prices have real consequences: higher inflation, which leads to rate increases (or, at least expectations of them) and thus an even more unbalanced budget.

For the past few months, CL has bounced back and forth in an effort to prop up stocks without generating too-high inflation.  Then, there’s the corollary: too low inflation, which would knock DXY back.When DXY broke below the rising purple TL, stocks were propped up by VIX — which just today dipped into single digits at 9.9.  It hasn’t been lower since 2007 when it reached 9.39.  The all-time low is 9.31 from 1993.

So, it would seem that VIX is running out of room to the downside, unless TPTB are going to try to convince investors that risks have never been lower — perhaps a tough sell with valuations near all-time highs.

This brings us back to DXY.  It should continue sideways for quite a while, bouncing just enough to keep stocks level while CL deflates as necessary, and dropping back down to the yellow TL whenever CL is bouncing.  VIX would be the equalizer and fill in the gaps when the algos are too confused to buy — just like today.Of course, if DXY drops through the SMA200 and the yellow TL, then we have some very obvious Fib targets including the .786 at 97.583, the .886 at 96.789 and the purple .618 where it intersects the purple channel midline at 96.465 in July or August.

If the purple midline breaks down, the next major support isn’t until 91 in early September and 87-88 as early as the end of the year.

Regardless of which way it goes, the upcoming Fed presidents’ speeches, in the wake of this week’s meeting, should make for very interesting exercises in obfuscation.

Stay tuned.

Lots of charts to get to today.  I spent the weekend looking at currencies, and will be posting updates on each over the next few hours.

Futures are currently up 5 points, which is largely a function of a continuing increase in USDJPY and the 32nd instance of VIX dipping or, in this case, simply remaining below its long-term channel bottom since December.continued for members… (more…)