Another V-shaped recovery on a Friday.  Not very original, but it certainly staved off another ugly day for the bulls.  The SMA200 remains stalwart support for all the broad indices except COMP — which is now 4.95% above its.

VIX remains a primary factor in equities’ direction, constructing rallies overnight that place it in a position to decline during market hours.It will be in the clear within another day or two, meaning bears have no time to waste if they hope to make any progress.The US dollar is another big factor — rallying on continued euro and yen weakness.The biggest wild card, however, remains oil and gas.

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With futures off 12 points a little while ago……VIX suddenly plunged 33%, tagging our downside target for all of 3 seconds.  Futures rallied 10 quick points, but then dumped even lower.Bottom line, the bears called BS on the whole exercise.  While not completely out of the woods, they’re looking to have a pretty good day — if VIX doesn’t pull any more shenanigans.

Regular members recognize this maneuver which I’ve dubbed a “shot across the bow” – a naval warfare term referencing a warning shot intended to halt one’s enemy in their tracks. Sometimes it works remarkably well.

This one is interesting in that it backtests (and, potentially dispenses with) a downside target that has been hanging out there for weeks: the long-term yellow channel bottom.  We’ll find out soon enough whether this shot across the bow dispenses with VIX’s downside potential or (as it was probably intended) clears a path, as if to say “look what I can do.”

Our downside targets remain unchanged.  May the fourth be with you!

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Will the 11th time be the charm?  SPX and DJIA should test their 200-day moving averages again, but we’re still waiting for COMP.  At 6844, its SMA200 is still 3.6% away.  This leaves us with multiple downside targets: the safe picks, where support holds — or the more interesting ones (my preference) that would correspond with COMP’s 3.6% slide [see: The Coast is Clear – For a Drop.]

Then, there are the drops which would result from a true hands-off approach by central bankers — a good 6.8 – 18.8% below current levels.  The FOMC punted on yesterday’s rate decision, meaning their “hawkishness” isn’t exactly unbounded.

Bonds and currencies responded as expected [see: Apr 27 Update on Bonds.] But, the dollar and TNX have further to go before erasing their recent exuberance.

In a perfect world, today would put a good scare into the markets, and tomorrow or early next week would be truly alarming.

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While we wait to see if the COMP scenario plays out, we have a new wrinkle to consider. AAPL reported decent enough numbers, but added $100 billion to its already ballooning stock buyback plan. If this sounds familiar, it’s because stock buybacks have become the new go-to method of propping up faltering tech stocks enhancing shareholder value.  FB did the same thing last week [see: More Than One Way to Skin a Cat.]

AAPL rallied sharply in the 5 minutes following the announcement, but interestingly has seen no follow-through since then.Meanwhile, COMP’s SMA200 has risen 4 points since yesterday.

I’ve always had a warm spot in my heart for May 2.  The first post I ever put up was on May 2, 2011.  It seemed at the time, based on Fibonacci retracements and a rising wedge, that SPX was near a top.

As it turned out, May 2 was the top.  To add to the fun, an analog soon appeared which pinpointed, to the day and the dollar, an impending 22% swoon.  It was a great shorting opportunity (which I and many readers were able to capitalize on.)

It’s hard to overstate the differences between 2011 and 2018.  Back then, QE was driving stocks higher.  A pause in the Fed’s purchases, coupled with the rating agencies being willing to tell the truth about America’s finances, was enough to allow the analog to play out.

Today, in the throws of “quantitative tightening,” markets have come to rely on the ease with which algorithmic trading can move prices.  We see it nearly every day.  And, it’s only in the past few months that the algos have failed to maintain the daily drip of higher prices.  The question is “why?”

If the bulls get their way, COMP will tag its SMA200 and we’ll be off to the races again.  If investors focus on the receding central bank punch bowl, stagnating economy, rising inflation and interest rates, and the gimmickry which has propped up so many stocks, then we have at least another 3-4% to go, and potentially as much as 20% to real support at 2138.

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Gold has fallen 4.7% since our last top call [see: Apr 11 Update on Gold], coming close enough (as far as I’m concerned) to our 1300 target to take profits.

I’d pull the plug or at least enter stops here at 1367…The most obvious support is at the rising white channel bottom and SMA100, currently around 1315.2-1318. If the channel breaks down again, the SMA200 will reach the purple channel line later this month, probably around 1300.

Although this is getting monotonous, I’ll settle for a fairly predictable 4-5% move every few weeks. This brings our total for the year up to about 19.4%, not shabby considering that GC is essentially flat on the year.

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Feb 8: Analog Details  “[Gold] has dropped 4.1% since reversing where expected in late Jan, and just reached fanline and double channel support [1321.] Could it finally be ready to tag 1377-1380?”  Bottomed that day, rallied to 1364 over the following week (+2.51%.)

Feb 15: Where to, Next?  “GC might have run out of steam here [1360.] Cautious types might want to take profits, while the daredevils out there remain focused on 1380.” Topped out the following day at 1364 (+2.95%.)

Feb 27: Powell’s French Toast   “Gold is getting clobbered…our analog suggests a Mar 1 turning point. The SMA100 should be around 1303 by then and would be a better bounce spot.”  Bottomed on Mar 1 at 1303.60 (+4.15%.)

Mar 27: Algos to Markets – All Better  “GC, which tagged its 1362 resistance yet again, has retreated once more.  It still has a good shot at 1380, but only if/when DXY finally breaks down.” Reached 1369.40 today (+5.05%.)

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When something’s range bound like GC has been, it raises the obvious question: when will it break out/down, and what will it take?

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Almost three months ago, we saw most major indices and quite a few stocks backtest their 200-day moving averages.  One notable exception was the NASDAQ Composite.

COMP came with 1.1%.  But, it ran out of time when, as expected, SPX, DJIA, RUT, etc. all bounced off their SMA200s.  It had another chance on Apr 2, but that opportunity was scuttled by Jim Bullard and Larry Kudlow’s dovish comments.  This time, it missed by 0.8%.

Our thesis all along has been: (a) the broader indices wouldn’t advance until COMP had a chance to tag its SMA200; and (b) said dip would wait until the SMA200 reached recent lows.  The SM200 is now up to 6836.19, about 3.25% below yesterday’s close.

With April out of the way, it seems the coast is finally clear for a backtest.  The only complication is that a 3.25% drop would put SPX way down at 2562 — a good 50 points below its SMA200.  So, either things are about to get pretty crazy in the broader indices or we’ll have to wait a little longer for a milder dip.

There is a third alternative. With AAPL due to report after the bell, we could get a divergence between the two that allows a backtest that doesn’t clobber SPX quite so badly.  That would take some pretty fancy footwork.  But, there’s a logic to it, given that several of COMP’s leaders are trading below their SMA200s.

Of course, the other event the market is worrying about is the outcome of the FOMC’s meeting.  They say Jay Powell is in the hawkish camp these days.  I guess we’ll find out.I’m sticking with our bearish outlook for now.

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