This morning, VIX’s 50-DMA passed below its 200-DMA — a death cross.  If it holds, this marks the end of the period following the golden cross on Nov 1.  For the uninitiated, a death cross is typically bearish for VIX, bullish for stocks.

We must use a qualifier because death and golden crosses in VIX are notoriously susceptible to head fakes.  Of all the times the 50-DMA (blue line) dropped below the 200-DMA (red line) in the chart below, every single one resulted in a continuation of the bullish trend. But, not all resulted in immediate spikes higher.

Contrast that with golden crosses, where the 50-DMA rose up through the 200-DMA.  Every one was followed by a sharp and rather immediate drop in stocks, usually resulting in an important bottom within a few days.The head fakes are labeled with white arrows — with the most notable being the period following the US presidential election in Nov 2016 when (among other actions) VIX was hammered in the midst of a 4.5% selloff in futures in order to prevent a correction.  The ruse resulted in a class melt-up that lasted until Feb 2018.

There was one notable head fake which resulted in stocks dropping. In December 2015, the spread narrowed to as little as 0.12 over the last several weeks of the year.  When the two finally diverged again, SPX plunged 271 points (13%.)  Interestingly, the plunge occurred after SPX experienced its own golden cross head fake beginning Dec 24.

Investors have been looking for a sign as to whether or not the bounce which began with the PPT’s latest maneuver on Dec 24 can continue. VIX’s death cross is as good a signal as we’ll find — certainly more important than BA.

Although it represents about 11% of the Dow, all it’s doing right now is signalling the algos to try harder to prop up the rest of the market. continued for members… (more…)

VIX has been crushed by 64% since Mnuchin convened the Plunge Protection Team.  Despite its rising channel and rising wedge breaking down, ES made higher highs yesterday.  In other words, the VIX games continue. But, with OPEX and quad-witching soon in the rear-view, buyback blackouts approaching, the BREXIT deadline just ahead, and bonds indicating equity trouble ahead — for how long?continued for members… (more…)

The wait continues, as we’re getting enough push from VIX, USDJPY and CL during the after-hours to keep SPX/ES aloft, but not quite enough to register a breakout.  With VIX dropping toward Fib support, push has come to shove.

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It was one of those nutty days, again.  In their attempt to rescue the Dow from BA (which bounced after closing the gap as expected, perhaps dipping into its $20 billion buyback kitty)……the algos left some ridiculous patterns on our charts.  Witness the Dow, which was setting up for a perfectly logical backtest of its 200-DMA based on BA’s pre-market crash.Though I get tired of saying it, the primary culprit was VIX — which has cratered over 27% in the past 48 hours.The broad indices were only too happy to follow VIX’s lead — putting stocks right back at the same resistance they faced in mid-February.

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Let’s talk about debt.  In 2018, the federal government spent $523,017,301,446.12 in interest (a 14% increase over 2017) on what is now over $22 trillion (a 7.5% increase over 2017) in debt.  The divergence between those two rates of increase is important.

The interest expense is growing faster than the amount of outstanding debt because interest rates have risen.  When I produced this chart in September, the average interest rate on government debt over the previous year was 2.378%.  In February 2019, it was 2.581%.

Although 10Y yields topped out last October as expected [see: Suddenly Interest Rates Matter], the average interest rate on outstanding debt has continued to increase. Combined with the fact that outstanding debt is accruing at over $1 trillion per year, this presents a very serious problem.

It also offers some very important clues as to what the Fed and other central banks will do over the coming year.

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It’s been a year since Trump tweeted those fateful words: “…trade wars are good, and easy to win.”The S&P 500 closed at 2691 that day.  While stocks have rallied marginally (0.3%) since then, not everything has gone according to plan.  In fact, just this morning we learned that our trade deficit has reached levels not seen since 2008.  It has grown by $119 billion since self-proclaimed Tariff Man took office.

Bloomberg reports that the Trump administration is pinning its hopes for the market on an announcement of an agreement with China — leading some to fear that whatever deal is struck will be one of political convenience rather than one that leads to real progress.

Trump’s economic team has told him an agreement will unleash a market rally, the people said. Advocates of a compromise with China have also told Trump it is crucial to cut a deal soon to reap the full boost ahead of the election because benefits such as more Chinese purchases of U.S. soybeans and other products will have a delayed impact and take time to reverberate through the economy, they said.

Stocks seem content to wait around, with the 10-DMA serving as a touchstone for the daily gyrations.  But, at some point, even algos can grow impatient.

Today could be that day, as COMP’s 20-DMA is due to reach its 200-DMA — clearing the way for long-overdue backtests for multiple indices.The bigger question, of course, is whether those backtests will hold.

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Just when I was about to lose faith in the ability of investors to recognize bad news when they saw it, something very rare happened yesterday.

VIX, which has been beaten down most every day since Mnuchin convened the Plunge Protection Team in December, suddenly popped up above its 200-DMA.The futures executed a 51-pt reversal before someone realized how ugly things were getting and pushed the EMERGENCY button.  ES climbed back above the SMA10 just before the close, and is back above it now.  But, it’s still well below our sell signal — the .786 Fib at 2812.13.

Incidents such as this accentuate the cracks in the technical picture which are becoming more and more apparent — even to the bulls.

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