Riding a bounce in oil and gas and the latest breakdown in VIX, S&P futures are up 2.25 this morning.  Nice blurb from Bill Blain on ZH this morning, echoing pretty closely what we’ve been saying for the past year or two.  Combine a market increasingly playing follow the leader (indexers, ETFs, algos, etc.) and central banks with all the tools necessary to keep the algos going, and you have to wonder: can anything stop the meltup?

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CPI came in at 2.2%, the lower end of our range.  At we showed last week, this was accomplished at least, in part, by deliberately understating the actual increase in gasoline prices for the month of September.  It was further depressed with the magical “seasonal adjustment” applied by the BLS.

Core CPI came in at 1.7% (vs 1.8% expected) which has dollar bulls understandably unnerved.  Note that the rising white channel dating back to Sep 7 has finally broken down.

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As expected, PPI shot up for September, coming in at 2.6%.  Also as expected, the spike is being blamed on energy prices which are, in turn, being blamed on Hurricane Harvey.

While the logic is legit, it remains to be seen whether oil and gas prices will remain in their ramped-up states once investors do the CPI math.  I remain bearish on both, but especially RB.

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USDJPY tagged our next downside target yesterday at the same time that VIX came within .05 of our next upside target.  Given all that, you’d think SPX might have finished in the red rather than 6 points in the green.  And, it would have, had CL not spiked higher on a leak of OPEC’s latest goal-seeked supply-demand “data.”While SPX closed positive for the day, the pattern is looking positively moribund — desperately in need of a growth story that rings true.  If it’s going to backtest anything at all, the algos certainly haven’t gotten the word.

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One way or another, algos keep on finding a way to spark a rally in the hours leading up to the open.  Yesterday, it was a VIX dump (that didn’t last.) Today, it’s a rally in oil and gas futures.

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Today’s a bank holiday, but most markets are open — albeit with very low volume.  Thus, it’s a great day to slip in a little ramp job through resistance while no one’s watching.   VIX’s 8% plunge off Friday’s highs got things off to a good start.  But, has since bounced back and is approaching our upside targets.  continued for members… (more…)

Everyone expected the hurricanes to affect job growth, but I didn’t see many forecasts of an actual contraction. 

It remains to be seen what happens beyond the initial knee-jerk data.  But, for now, the currency markets are going crazy — with the dollar and USDJPY spiking higher in an attempt to offset the plunge (well…the 2017 version at least) in equity futures.

The positive side of this development is that gold, oil and gas are following our playbook nicely.

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Another day of melting up through resistance.  Even the bulls are starting to wonder what’s going on.

There is a little excitement going on in the dollar as it pops up through channel resistance.  Will it hold, or is this a head fake?

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I don’t like charting the Dow.  Of all the manipulated indices in a manipulated market, it’s the “manipulatedest.”   Nevertheless, I received a query from a member today and thought it’d be interesting to take a fresh look.

This comes as a shock, but it continues to be manipulated higher.  A year ago, I noted it had reached significant resistance at the 1.618 Fib extension of its drop between 2007-2009.  It had struggled to reach this level, requiring a breakout from the rising channel dating back to the age of dinosaurs.But, as luck would have it, Trump was elected and stocks tanked…for several hours.  The resulting panic prompted a response by USDJPY, CL and VIX that was so dramatic that DJIA broke out past the 1.618 extension and the rising red channel. 

Not even bothering with a backtest, it has since soared nearly 20%.  Is there anything that can stop it?

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Way back in February [see: Feb 13 Update on RUT] we noted that RUT had reached the top of a very long-term channel and was having trouble punching through.

The next few days are very important, as RUT has an opportunity to break above the yellow channel that dates back over 20 years.  If it can…it will leave the rising yellow channel in the rear view and won’t face overhead resistance until the purple 2.24 at 1493 and the 1.618 at 1514.09.

As it happened, RUT couldn’t break out.  It gained a few more points over the next two weeks, then reversed by 5.6%.  It tried again in May.  That attempt failed, too, resulting in a 5.2% drop.  But, it still wasn’t done trying.  In July it pushed through both the 1.272 Fib and the top of the yellow channel — only to tumble 7.1%.

This time was more serious, as the white channel dating back to its Feb 2016 lows broke down and RUT dropped through its 200-day moving average.   But, it wasn’t quite done.

In our September 19 Update, I pointed out that — due largely to a series of strong collapses in VIX — RUT was knocking on the door yet again. Would it be able to punch through this time?

I think it’s going to come down to what the USD does tomorrow. If DXY finds support between here and 88.68, then stocks could get a nice boost and maybe RUT can break out this time.  If not, and if oil/gas tumble further as we’re expecting, then a drop to the SMA200 around 1385-1392 would make a lot of sense, with 1296 next in line.

As it turned out, DXY found strong support the very next day — spiking higher and not looking back.But, oil and gas decided to spike higher, too.  CL suddenly popped above a long-term trend line (on bearish news) and RB aborted the plunge from its dramatic Aug 31 peak.  Oh, and VIX spent the next several sessions making new lows.  In other words, RUT had plenty of algo firepower this time, and popped through the yellow channel top where it just tagged our upside target of 1514.09.

So, it’s a good time to ask what’s next for the index — especially as SPX and ES have also reached overhead resistance.

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