One of life’s certainties over the past decade or so has been that the BOJ would always find a way to keep the Nikkei rallying.  When QE_n ran out of steam, there was always direct purchases of stocks via ETFs.  So, it was surprising to see NKD’s rising channel, in place since Fukushima, break down in December.

True to form, it has since made a strong comeback.  But, it has paled in comparison to the S&P 500 (the thin purple line.)  While SPX is approaching its all-time highs, NKD is approaching a .618 retracement and a backtest of the broken channel.A possible warning sign?

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As we discussed last week, VIX is at the threshold of what would be a major break in trend.  Every such past setup in which VIX broke down resulted in stocks breaking out above important overhead resistance.S&P futures are up 10 points and are now only about 27 points from all-time highs — the result of VIX being hammered to new lows after rallying nearly 10% yesterday. ES’s rising channel from December, kicked off by a meeting of the Plunge Protection Team, broke down two weeks ago.  But, it hasn’t mattered.  ES continues to melt up, guided by an overhead trend line which will intersect 2947 around Apr 26. Only if VIX bounces strongly will stocks avoid new highs.As for earnings and economic data, the algos could care less lately.

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Time flies when you’re having fun.  It’s hard to believe it’s been almost three years since Brexit first broke.

I initially looked at EURGBP as an interesting trade opportunity.  With the EURGBP at .7622, it looked like there was a good chance it would end up at .86 or so.  This was our daily chart from June 22, 2016 [see: The Eve of Destruction.]

It reached our initial targets of .8262 and .8411 by June 30, and reached .8599 on July 6 — a nice 13% return in two weeks.  It might have stopped there, as it represented the .886 Fib retracement as well as the channel midline.

As we had discussed in The Eve of Destruction, sharp rallies and pushes above resistance were bearish for stocks. So, I expected heroic central bankers to swoop in and save the world at that point.  To be sure, it needed saving.  Futures crashed 6.5% overnight.  Additional carnage-depicting charts are available at It’s a Brexit! posted live that evening.

In any case, TPTB didn’t save the world by putting a lid on EURGBP — which popped above the former highs. Instead, USDJPY made a heroic reversal and VIX collapsed to some of the lowest levels seen in over a decade… …all because EURGBP couldn’t be contained. It’s important to note that even though SPX didn’t completely collapse, it tested important lows and took almost a year to regain its 2015 highs (the shaded area below.)There were other things going on.  But, GBP’s weakness was certainly a drag on stocks as had been the pattern in previous years.

As it turned out, EURGBP’s ascent wasn’t without a target in mind.  It had passed up the purple .886 to focus on a different one. On Oct 7, 2016, it came within .0039 of its white .886 Fib based on its all-time high and its post-GFC lows.Since then, it has been consolidating.  The highs have been very well aligned — preserving the narrative of a downward trend.  Does this mean we can count on the GBP to steadily increase in value?  Maybe.

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The grind higher continues, driven by an earnings beat by JPM and Chevron’s $33 billion offer for Anadarko.  It hasn’t hurt that USDJPY has (again) spiked above its SMA200……and VIX is (again) testing trend line support dating back to its 8.56 lows on November 24, 2017.As an aside, that 2017 low was a bit of a travesty.  SPX was rolling over in the final hours of the last trading day before Thanksgiving [details HERE.]  Out of nowhere and on zero news, VIX plunged 11.7% in a matter of seconds.But, hey, all’s fair in love and algo-driven rallies.  SPX melted up another 271 points (10.4%) over the next two months before giving it all back over the subsequent 9 sessions. Not to be too dramatic about it…but, whether or not VIX breaks down now will determine whether stocks remain in a holding pattern or go on to test their all-time highs.

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Oil and gas prices are up strongly since December.  While it has been extremely beneficial to algo-driven portfolios, the inflation chickens are coming home to roost.  MoM CPI rose to 0.4%, driving the YoY rate back up to 1.9%.

While a single month pop isn’t all that alarming, there’s a very good chance that these data will temper expectations of Fed dovishness.

Meanwhile, across the pond, Mario Draghi just issued another “whatever it takes” declaration.  Could this finally be the start of the currency realignment that has been so long in the making?

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Things got off to a nice start for bears yesterday…until our old friend the V-shaped recovery showed up.  Even when it looked like it would falter, it just kept melting up.

So, instead of a clean, simple channel to 2875.15, ES has this ridiculous path to follow — all for the sake of delaying the inevitable for a day.As usual, blame the algos.  USDJPY was in on the action, pushing up through its SMA200 every time stocks started to falter.  As we expected, it was a head fake.

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This is an important week for economic data, leading off with Durable Goods this morning at 10am.  Following later in the week, we’ll get CPI, PPI, import/export prices, continuing claims and consumer sentiment — not to mention FOMC minutes.

This morning, we’ll take a look at durable goods new orders – a pretty good indicator at times for what to expect from the stock market. The chart below shows YoY percentage change on a monthly basis.

Note that the last time orders broke trend we saw a one-month bounce followed by a much bigger drop which, in turn, corresponded with an interim top and the 2015-2016 correction.  Since it has recently broken trend again, it could have much to say about the state of the economy.

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Despite the bounceback from last month’s dismal employment data, all of our targets remain the same. The only deviations at this time are USDJPY, which has broken out of a falling channel… …and VIX, which put a shot across the algos’ bows this morning in order to ensure the proper response from equities.  It has since bounced back to channel bottom support — putting the knee-jerk reaction in doubt.I’m going to spend the day focused on the big picture.  In the meantime, some food for thought…

Corporate debt to GDP just broke out to new highs.  Note that this ratio correlates well with both recessions and market tops.

Another measure of equity valuations and debt is the multiple of corporate equities to total corporate credit market debt. It just reached levels not seen since 3Q 2000.

The ratio peaked in 1Q 2000 and 2Q 2007, just prior to SPX’s peaks (FRED doesn’t offer SPX data prior to 1990.)

Last May we questioned whether TSLA could avoid a crash.  The answer came quickly, as TSLA bounced back above horizontal resistance a month later.  Since then, however, it’s been a constant battle — marked by multiple breakdowns and rescues (most of which landed Musk in hot water.)

The latest bounce, however, pits the stock against the horizontal resistance, the .382 Fib retracement and a falling wedge top — triple resistance. Then, came the latest disastrous forecast miss.Now, TSLA looks likely to test 250 again.  If it fails, it could fail in a very big way. continued for members… (more…)