SPX slightly overshot (1.38 pts) our initial downside target yesterday before VIX was reigned back in, prompting an halting recovery for the remainder of the session.
With futures currently off 12 points, yesterday’s lows are going to be tested again — with an excellent chance of tagging our next downside target unless USDJPY bounces strongly off our target at 109.457.
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What a difference a day makes. Yesterday started off with the usual VIX ramp that turned into yet another breakdown below support, sending SPX to new all-time highs. Our Blusterer-in-Chief turned that around in a jiffy.
Moments after we adopted a short position at 2490.10, he raised the rhetorical stakes with North Korea, promising fire and fury (oh, and power) if they dare threaten the US again (which they promptly did…again.)
Part of equities’ problem this morning is VIX, which (live by the sword…) is back at our yellow channel bottom yet again. Moving above it would leave a mark.
The other problem is yen strength, which sent USDJPY to within 0.10 of our downside target before it was called on to help stabilize things.
Assuming nuclear holocaust doesn’t envelop the markets in the next few hours, we have some interesting targets to consider. The most obvious is the purple .886 at 2463.46. Beyond that, things would get really interesting.
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Did you hear it? Even on a day like yesterday, with ridiculously low volume, VIX was still whispering in algos’ ears, “look how much I’ve fallen….in fact, I just broke down…time to buy.”
Never mind the fact that its regular overnight ramp job (when futures are easily propped up) was the only reason it had room to fall. And, never mind the fact that the “breakdown” was manufactured for the algos benefit. They love this stuff all the same.
It was enough to levitate SPX out of its falling channel (the purple arrow) and, then, above trend line resistance (the yellow.)
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Can anything derail the daily drip, drip, drip of higher prices? Just last week, we had a whiff — just a hint of a tiny pause. But, this morning, SPX is knocking at the door again – threatening a small breakout that will dash that scenario. I can hardly wait (sarc.)
Instead, we’ll turn our attention to the supporting cast in this drama: DXY, CL, USDJPY and, of course, VIX. I wonder (not really) if it’ll break trend to the downside again…
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If you’ve enjoyed the past few days, you’ll probably enjoy today as well. The market seems to be in maintenance mode, with just enough algo-juicing to prevent anything really nasty, but not quite enough to make any meaningful headway.
Yes, VIX, I’m looking at you.
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Boarding a flight home this morning, but essentially nothing new to report except that VIX broke out of its latest falling channel. Yesterday’s forecast remains unchanged.
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The shift in leadership we discussed yesterday seems to be playing out. USDJPY got a nice bounce where we expected, while CL reversed at our upside target and is back below its SMA200. VIX, of course, continues to smooth things over while the algos recalibrate.
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It’s always makes me a little nervous to call inflection points. Despite how many you get right, there’s always the fear that you’ll get one horribly wrong. Of course, when something fails to reverse, that’s valuable information as well.
So, we’ll take a quick look at the USD, which sliced right through our latest downside target and is hurtling towards our next.
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With oil having reached our upside target and DXY our downside, we can expect today to represent an inflection point. Will it spill over into equities?
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With oil almost to our upside target from last month, and DXY having reached our next downside target, today should shed some light on the direction over the next few weeks.
On June 20 [see: Jun 20 Update on Oil] we anticipated WTI would bounce off the bottom of the rising purple channel to the resulting .886 at 50.96. 
A week later, we slightly adjusted the timing to Aug 8 and price target to 49.82. This morning, CL reached 49.39, meaning there are some important decisions to be made about oil prices, currencies and inflation. It’s a great segue to Part II of yesterday’s post on central bank options.
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