VIXploitation continues, as the “fear index” continues to drive stocks higher.  Yesterday’s collapse in the last 30 minutes… …was enough to shave 10 points off of SPX’s losses. Nothing new here.

Note that ES’ previous pushes above its 2.24 Fib (dashed purple line) required that VIX dip to the yellow horizontal support at 16 (b, c and d.)  The latest, however, required a drop below that support.  In other words, it’s requiring more effort to effect the same result.Are investors finally catching on?  Maybe, just maybe, there’s more selling pressure from the carbon-based crowd than usual.

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In our December 26 Update, we noted that gold had broken out of a rising channel and was headed for several upside targets including 1292.10, 1346.30 and 1369.40.  Yesterday, it reached the 1346.30 target — a nice 14.7% rally since our Aug 15 bottom call at 1173.60.Interestingly, its latest spike has coincided with continued strength in DXY — an unusual but not illogical occurrence.We’ll take a look at why this is happening, and what’s ahead for gold.  Is it’s strength a warning, as some have suggested?

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We had a lovely snowfall Sunday night. The Monday morning landscape was exquisite, with a beautiful frosting adorning the pines lining our street. There was just enough snow underfoot to look charming, but not enough to require shoveling.

Unfortunately, there was also just enough to hide the dangerous black ice lurking below.  As I lay on the couch later that day, trying to recover from the inglorious splat I executed on our driveway, I realized I had happened upon a pretty good analogy for the current state of the markets.

Everything is indeed gorgeous on the surface.  Just this morning, we are reminded that some retailers such as WMT are doing wonderfully (even if they’re just stealing market share from the multitude of retailers that are closing up shop.)  But, what about the dangerous undercurrents that no one notices until it’s too late?

One of my favorite chart patterns is the consolidating triangle, seen this morning in the 10-year note futures (ZN.)  In a way, it’s like black ice — lulling investors into a false sense of security that everything is contained.

Readers will remember that ZN came up just short of our 123’100 target on Jan 3.  It would have capped off a lovely 5% rally since our bottom call (top call on rates) in October.

As rates plunged toward our 24.98 target on Jan 3, stocks took notice.  The Dec 24 rally began to falter.  The DXY began to falter.  Our yield curve model woke up.  Clearly, something had to be done.  The charts show the resulting triangles which formed in the aftermath of a bounce in yields, droop in prices.  The targets are still there.  But, now they’re waiting for the triangle to break out or break down and — more importantly — for stocks to build a little more cushion before playing out.

With SPX and DJIA well above their 200-DMAs, they’re in the clear.  COMP, however, has struggled to reach its 200-DMA, let alone push above it.  Recall that it faced similar problems in November, when a push above its 200-DMA faltered, and again in December when it failed to reach it at all — producing a 17% plummet.With the 10Y triangles about to break out or down, CL and RB at or near our upside targets and VIX having reached our next downside target, is the market about to go splat?

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After pushing above its 200-DMA and key 2.24 Fib levels, SPX seemingly had it made in the shade.  This morning’s huge retail sales miss (-1.2% versus +0.1% expected) might complicate things.  Perhaps Bloomberg put it best in the title of the following chart.

The control group came in at an even more dismal -1.7%, the worst since the 9/11 terrorist attacks. The latest data is clearly at odds with the growth narrative being pushed by the White House, and adds to the headwinds posed by numerous high-profile earnings misses and falling inflation.

January CPI came in at 1.55%, the smallest increase since Sep 2016.

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SPX is back above its SMA200.  All it took was convening the Plunge Protection Team which was — purely by coincidence — followed by VIX collapsing from 36 to 15, WTI spiking from 42 to 55, and USDJPY ramping from 104.60 to 110.90.

The algos are very well versed in how to respond to such activities.  They didn’t disappoint. The only question, now, is whether SPX can hold this important level of support.  The last three times it was here, things didn’t go well for the bulls.continued for members… (more…)

A week ago today, SPX tagged an important Fib target that would have been a perfect turning point were it not short of the 200-DMA.  As we noted at the time [see: The Red Zone] a reversal without tagging the 200-DMA would have been highly unusual.

There have been no instances of SPX approaching but failing to tag its 200-DMA since January 2003. It would also be easy to prevent.

First, SPX’s SMA200 is just above at 2741.55. It seems unlikely that SPX would come all this way just to whiff at such an important target.

Second, SPX has obviously pushed back above major support at the 2.24 and the H&S neckline.

Last, if VIX spikes higher, won’t USDJPY or CL/RB just come to the rescue?

As things turned out, SPX backed off just enough to tease bears: a 57-pt drop over the next three sessions.  At that point, SPX had dropped enough to flesh out a sharply rising channel from its Dec 24 lows.

More importantly, DJIA had tested and was in danger of dropping through its own 200-DMA.  Clearly, it was time to prop up equities.  And, that’s exactly what happened.USDJPY, CL and RB came to the rescue, ensuring that SPX regained its 2.24 at 2703.  And, VIX — which did initially spike higher — was hammered (-58% so far) after Mnuchin convened the Plunge Protection Team, giving stocks all the support they needed to come back and test the Feb 5 highs.Once SPX tags its 200-DMA, is it safe to assume it will be able to maintain its momentum?

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It was a close call but, in the end, bulls prevailed.  As we are reminded by those lovable Legos (yes, they’re back) everything is awesome!

VIX is back below support and SPX’s rising channel is intact.  The Dow, the market’s best barometer of bullish interference, is back above its SMA200.  See if you can spot the turning point.With futures currently up 10 points, will the market mind when oil and gas continue plunging this morning?  We’ll see.

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