Futures are off slightly as we approach the open, recovering 25 points from the overnight lows as the algos resume control.VIX continues to call the shots, as it has dropped through both the red neckline and the SMA20. Yet, it continues to bounce every time SPX/ES approach a breakout point, indicating that the bounce might indeed be petering out.continued for members… For its part, SPX is still below the purple trend line from 2016 and, like ES, avoided making a higher high yesterday.As expected, USDJPY has edged back above its SMA200, providing an extra nudge for stocks……and putting a little bounce in DXY’s step. EURUSD is contributing by continuing its decline after failing to retake its own SMA200.The 10Y has remained below the 1.272 support……squeezing the 2s10s back to a neutral 47 bps……with the 2Y still hanging on for dear life. A reminder, this is one of the last substantive support levels for the 2Y. The coming breakdown will likely widen the 2s10s, making any further equity gains difficult. Gold continues to be a model of restraint, backtesting its red channel again as it plans another assault on 1708-1735. Trump and Putin reportedly put their heads together yesterday to plan a rescue for oil prices. But, CL has yet to exhibit much of a bounce and remains mired at the lower end of our 20-26 range. Perhaps it has something to do with all that surplus oil sloshing around, searching for any storage facility with extra capacity. While higher oil prices would certainly help stocks – an important goal for many but none more so than Trump himself – they would be a tax on the many unemployed and beleaguered consumers who are wondering how to make ends meet while they await their government checks. For many of those in high-priced areas such as major coastal towns, of course, those checks can’t come fast enough and likely won’t cover rent/mortgage payments – a topic for a future post. Gas prices continue to loiter at the bottom of that falling channel, though the bounce off recent lows is looking rather tired. In the absence of any miraculous medical breakthroughs, it still looks like yesterday’s highs will continue to hold and ES/SPX’s trajectory will be lower, perhaps to the bottom of the rising purple channels around 2350 as early as tomorrow. That should be the next line in the sand, with ES 2155 and SPX 2138 still our preferred downside targets. While we’re in forecasting mode, I’m told that this site should be working normally sometime later today. If you’re reading this on pebblewriter.com, you’ve already figured that out. I’ll repost on pebblewriter.blogspot.com …just in case. I’m going to take some time and update our COVID-19 forecast which, sadly, continues to be on target. More later.   UPDATE: 3:25 PM As we wander into the final hour, things aren’t looking very bullish. Never underestimate the power of a last-minute VIX smackdown, but there are quite a few warning signs flashing red. First and foremost, the 2Y just dipped down to .191, the lowest it’s been since the US lost its AAA in 2011. It quickly snapped back to the .22 support, but this is a pretty big deal according to our 2Y model. The other pretty big deal continues to be the oil market collapse. Sure, it clawed its way back to the channel bottom, but for how long? The next lowest support is the Nov 2001 lows at 17.12. Then there’s DXY which, thanks to USDJPY and EURUSD, is having a hard time staying aloft. Although the USDJPY could still go either way, the BoJ apparently hasn’t signed off on a wholesale devaluation of the yen. This leaves poor little VIX with a lot of lifting to do. As the month- and quarter-end rebalancing winds down, can it continue to offset a very grim economic outlook which, according to Goldman, includes a -34% Q2 GPD read. The worst of the economic data has yet to roll in, but in the days ahead we’ll get ISM, EIA inventories, factory orders and payrolls. It won’t be pretty. ES and SPX might be able to hold support at the close, but I wouldn’t trust them overnight regardless of where they close – not on a bet. GLTA.

Yes, pebblewriter.com is still being worked on.  At least, that’s the last communication I got from Hostgator.  Apparently, their level 2 techs are all working from home and are not permitted to speak on the phone with customers — meaning all communication is being done by email.  It’s hardly ideal, but it’s what we have. With any luck, tomorrow’s post will be back on a properly working website.

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Futures have been all over the map overnight, ramping from 2445 on yesterday’s open to as high as 2567.50 a few hours ago.

Perhaps significantly, ES failed to retake the yellow neckline at 2568ish despite the usual smackdowns in VIX and 2s10s.  The 2s10s dropped back through the white TL support which has been the last line of defense for bulls…

…and, VIX is threatening another breakdown – this time marked by the SMA5 200 and a TL from last week’s lows.

We might assume that our 80.30 target — reached two weeks early — continues to be the line in the sand for another leg down.

It makes sense since: (1) the economic picture continues to worsen; and, (2) neither SPX nor ES ever quite reached important Fib support – our 1.618 targets at ES 2155 and SPX 2138.

If ES’ and SPX’s white channels are yielding in favor of the slightly less aggressive purple channels (channel tilting) then we can look for a .618 or .786 retracement of last week’s lows.

Once the neckline is topped, however, both would have room to run.

For now, the algos continue to follow VIX’s lead. A drop through the SMA5 200 would point to a test of the SMA20 and red neckline at 58.60. A drop through it would unleash the bulls for another leg up.

Working against that outcome: CL continues to falter, dipping below 20 several times overnight.

Remember, the white line at the bottom of the chart is critical support — reached, in this case, several years ahead of the what our cycle model charts indicated.  A slowdown shutdown of global economic activity will do that to you.

RB, which saw a nonsensical bounce last Wednesday, is coming to its senses this morning.  Like CL, it is walking on eggshells in terms of support.

Getting back to the bond market… The Fed appears to have finally figured out what our yield curve model has been saying for the past year or two: a breakout above critical support in the 2s10s would decimate stocks just like it did in 2000-2003 and 2007-2009.

While the 2Y has dropped through support again…

…the 10Y is more than keeping pace…

…allowing the 2s10s to decline sharply.

Of course, a drop back below the 1.272 Fib at 8.16 should also be expected to spook algos. So, this is a move that cannot really help the bulls longer term unless the 2Y were to spike higher – unlikely in the current central bank cash-for-trash environment.

On the currency front, USDJPY found its footing overnight at its SMA20 and bottom of its formerly broken white channel and backtested its SMA200 – now at 108.306…

…which, along with EURUSD’s temporary push above its SMA200…

…enabled DXY to bounce before even reaching its SMA200.

The algos might be forgiven for being slightly confused. There have been so many supportive actions on the part of bonds, currencies and VIX – but, not yet enough to force a breakout.  The implication is that they are being tasked with delaying the next leg down rather than engineering another leg up. This jibes with our belief that month- and quarter-end rebalancing is driving much of the upside.

As always, I’m open to being proven wrong. But, at this point, the bulls are behind the eight ball – with a handful of gimmicks tasked with offsetting some compellingly bearish economic reality.  Trump acknowledged that things won’t be better by Easter, though he falsely maintains the virus will “peak” by then.

Unless one of the treatment protocols being experimented with proves successful in the next week or so, the virus will be much worse by then.  Our model has been right on track and continues to indicate deaths (2,484 as of yesterday) will reach 10,000 by Friday or Saturday and 100,000 by Easter.

On a positive note, Italy has seen a slowdown in the daily rate of growth in cases and deaths.  Over the past few days, cases have grown at 7% per day and deaths at about 10% per day. Unfortunately, deaths have topped 10,000 and the mortality rate (deaths as a percentage of total cases) now stands at 11%.

It would be nice if the US could look forward to such a slowdown. But, in the absence of widespread lock-downs and given the continuing shortage of testing kits, this is hardly likely. Studies show that up to 50% of infections are from those who have few or no symptoms. Without widespread testing, we will see the lag between Italy and the US – originally 11 days and now down to 7 – continue to quickly erode until the US takes the lead in deaths.

UPDATE:  3:00 PM

ES has pushed above the neckline and is testing the SMA20, though SPX has yet to register a new high.

VIX has broken below its SMA20 and neckline, but not yet the typical cratering that we often see in the final hour.

CL and RB are rebounding somewhat, but lower lows and lower highs for both so far.

This leaves USDJPY, which failed to retake its SMA200, and DXY, which has yet to backtest its SMA200.  Bottom line, this still looks like a stall and not a breakout to new highs, especially when you take the near breakdown in 2Y and breakout in 2s10s into account.

 

 

For traders with a strong constitution and the ability to hedge overnight, this is another selling opportunity.

UPDATE:  EOD

SPX studiously avoided a higher high, thanks largely to USDJPY’s last second breakdown which offset the VIX dip at the close.  In other words, TPTB are working to keep the bounce contained (for a change.)  This doesn’t mean it won’t ramp higher overnight, but it’s a good sign (or a great head fake.)

 

 

FWIW, ES even backed off its SMA20 and made a lower high…

…while VIX found a little TL to backtest.

GLTA.

While I’m waiting for Hostgator to undo the damage they did when they “upgraded” pebblewriter.com, here are the relevant charts for the day. I hope to be back on the main site by the end of the day.

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The IH&S that ES completed yesterday failed overnight, but we’re still waiting to see whether the rising white channel bottom – currently 2487 – will hold.
With ES and SPX back above their SMA10s, the momentum has been with the bulls.
However, VIX has broken above the red TL from a week ago, offering the green light for lower prices.
CL is also probing lower, with the same effect.And, as expected, USDJPY is backtesting its SMA200.Bottom line, everything that VIX, USDJPY and CL have done so far have been bearish, but ES has not yet broken trend.  If/when the rising white channel breaks down, we can say the trend has shifted. A drop back through the SMA10 (ES 2418 and SPX 2452) would be confirmation.

The good news is that the Senate passed a bill that will presumably help big and small businesses stay alive for the next month or so. Along with the Fed’s trillions, this has the potential to keep stocks on the rise.

The bad news is that COVID-19 cases and deaths continue to rise unabated, with deaths reaching 1,000 yesterday as per our forecast. Market pundits seem to believe the curve will be flattened and the crisis limited to a few more weeks. But, the numbers don’t support that – not unless a vaccine or treatment is unveiled in the next week or two and the entire country is placed on lockdown.The 10-day moving average for the daily growth rate in deaths has ticked higher to 31.4%. At that rate, we will see 10,000 deaths by April 3 and 100,000 by April 11.  In Italy, the mortality rate has topped 10% of total cases – the result of hospitals being overwhelmed, which is currently the case in NY and increasingly the case in other rising hot spots in the US.

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Futures are following the algos’ lead again this morning, with ES ignoring the 3.3 million unemployment claims and recovering 77 points off their lows…

…following another timely VIX beat down from overnight highs.

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 President Trump says he wants the country “opened up and just raring to go by Easter” — about 2 1/2 weeks from now.  Some business leaders and titans of finance are publicly agreeing.

Hopefully, this is nothing more than the latest ploy to goose the markets higher. The alternative is that he really plans on doing it, which would subject the country to scores of additional, needless deaths.

And, it’s not only the elderly or those with serious underlying conditions. Read this account of a 26-year old currently in the hospital or this one by a woman taking care of her critically ill 56-year old previously healthy husband.  Think of the people you know who are immuno-compromised due to heart disease, lupus, cancer or diabetes. Imagine being pregnant, facing the prospect of delivering in a hospital already swamped by COVID-19 patients.

We have seen so many government missteps over the past several months. But, this would be one of the worst. Even leaving parts of the country not under lockdown has been a colossal mistake, as those with the means simply leave the locked-down hot zones and head for those areas less affected.

We saw this in Italy, when the northern part of the country was shuttered. Within a matter of days, many people made their way to Southern Italy, Switzerland, France, etc.  The same thing has happened and will continue to happen in the US. Locking down New York was smart, but many had already headed to states not locked down – seeding spikes in cases in those states as well.

The number of cases in the US is increasing sharply. But, since test kits are still widely unavailable, that number continues to be meaningless. Look, instead at deaths – which increased 41% between Mar 23 and Mar 24 and have averaged a 30.2% daily growth rate over the past 10 days.   At 30% per day, the number of deaths reached yesterday (780) will reach 1,000 today. It would reach 10,000 by April 3, 100,000 by April 12 (the day Trump wants the country to be open again) and 1 million by April 21.  At 41%, we would reach 1 million dead by April 14.

This is not about politics. This is about human lives. It’s time for our leaders to start recognizing it as such and make responsible decisions. A week ago, the President said, “Nobody knew there would be a pandemic or epidemic of this proportion.” He has made countless such comments that are equally ridiculous.

I’m a guy doing his own research, with no medical training or insider knowledge, and I started writing about this months ago. By simply paying attention to publicly available data, I knew enough to sound the alarm on Feb 24….

Even though the US has relatively few cases, it’s only a matter of time before the coronavirus affects every single person in the US. My projections indicate we’ll see over 500 deaths within the next month. How many businesses will remain open?

…even as President Trump was actively playing down the threat – seemingly prioritizing market gains.

Why are we just now ramping up PPE and ventilator manufacturing and imposing lockdowns – a neat euphemism for quarantines?  What could possibly justify the delay? How many must die before our elected officials take this seriously?

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Futures have been all over the map following yesterday’s algo-driven short-covering extravaganza. But, the initial objective was achieved: SPX and ES both broke above the trend line in place since the February highs. As has been the case after each of these Tuesday spikes, the big question is whether the gains can hold.

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First, let me address the comments in the news this morning that Italy has turned the corner on COVID-19. The number of new cases and deaths has fallen the last two days, which is to be expected with the tightening of quarantining standards.

While this is encouraging, it’s important to note that we’ve seen daily dips before – both in total cases and deaths.  From our COVID-19 post, pinned at the front page of this website.

It’s also important to note that Italy is far ahead of the US in terms of outcomes – with closed cases representing 21% of the totals and deaths 44% of closed cases.

In the US, closed cases are only 2% of the total, and 3/4 of those resulted in death.

And, Italy’s mortality rate continues to tick higher. It recently topped 9% of total cases and should reach 10% by the end of today.Even if Italy has turned the corner, it remains at least 10-14 days ahead of the US – possibly much more. It it way too early to talk about the US doing the same, especially since still have no ability to test those who should be tested. It is therefore much to early to talk about ending social isolation. Things are going to continue to get much worse.

The daily rate of growth in deaths fell from 39% on Sunday to 32% on Monday. But, this is one single data point — not a trend. The 10-day moving average is nearly 28% and rising – up from 18% a week ago.

At 39%, we’d reach 1,000 deaths tomorrow, 10,000 on April 1, and 100,000 on April 8.  At 32%, we’d reach 1,000 deaths on Thursday, 10,000 on April 3, and 100,000 on April 11. Neither is exactly good news and neither argues for removing the quarantining which is our best chance for flattening the curve.

Meanwhile, we’ve had another algo-driven overnight ramp to the same trend line which has marked previous bounce tops for the past several weeks.This one was aided by the Italy comments as well as a well-timed hammering of VIX as futures backed off their limit.

The primary goal remains to get DJIA back above 18,974 – the 1.618 Fib the Dow broke through post the 2016 election. As we discussed last week, this remains the score card that matters the most.

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The FOMC is officially in the short-squeeze business. After futures came within 19 points (trading was halted there) of our next downside target – ES’ 1.618 Fib extension at 2155 – the Fed unleashed QE_infinity.  In other words, they’re prepared to spend whatever it takes to keep stocks from melting down any further.

With the Dow set to test the Nov 8, 2016 (election day) lows, we can assume the White House is vigorously egging the Fed on (if not threatening them with bodily harm.)

Consider VIX (hammered by 20%) and the 10Y (cratered from Friday’s high of 1.265% to a low of 0.711%, crushing the 2s10s as low as 41 bps.) This is an all-hands-on-deck emergency, and they’re throwing everything they’ve got at it.

After all that, ES spiked 212 points, and is knocking on the door of a breakout above the falling TL from Feb 19.  Will it be enough?  And, if “everything they’ve got” isn’t enough, what then?  Full-on BoJ-style equity/ETF purchases? With very desperate doves clearly in control, I wouldn’t be surprised.continued for members…

The big picture for ES and SPX:

Remember, ES and SPX’s 1.618 Fibs are very different. While ES is at 2155, SPX is way down at 2138 – 7.2% below Friday’s close and 6.8% below its low.

If ES can’t top this little red TL, the Fed’s efforts are for naught. It’s moving fast, but the 2s10s is still not back below breakout status. Both the 10Y and the 2Y are trying to find some equilibrium – with more volatility than I can remember.The white TL is at about 48 bps.

Though VIX has been knocked below its SMA10, it is bouncing off its lows. This is concerning, because CL and RB still aren’t bouncing much at all… …and, USDJPY’s response has been lackluster: no new highs yet. UPDATE:  9:47 AM

That certainly fell apart quickly. Important line in the sand here for ES… …while DJIA is dipping below the important 1.618 Fib at 18974 and – more importantly – is testing its post-2016 election lows. Anyone questioning the administration’s determination to preserve and protect its post-election gains hasn’t been paying attention.It will be important to keep VIX below its SMA10.

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I had a request for a Bitcoin chart which I will take a stab at. First, some disclaimers: I don’t follow BTC; I suspect BTC is heavily manipulated; and, I wouldn’t put more than a small, speculative percentage of my investments in BTC. With that said, I’m sure some of you would be interested in what the charts indicate.

Two major chart patterns jump out at me: first, the obvious triangle pattern on the weekly arithmetic chart (it isn’t there on the log chart) suggests BTC should bounce from here and return to the top trend line (which failed, BTW, to hold a recent tiny breakout.) It currently stands around 9,925.Second, the daily log chart shows a TL was broken last week but BTC has since rebounded back above it.  For those wondering, the retracement of the rise from the Dec 2018 lows to the Jun 2019 highs reached about 81%. Had the TL held, we’d be looking at a Fibonacci 78%.

If you believe that BTC will necessarily rise (as gold will) as QE explodes, the charts support a continuing bounce. If you believe the FOMC will do whatever it takes to support the USD and crush surrogates such as BTC and GC, then keep an eye on that TL (5,000ish) as a fairly clear stop level.

UPDATE:  4:00 PM

Probably not the outcome the Fed was hoping for…  SPX closed down nearly 3% (4.4% above 2138) and ES is struggling to close above a 4% loss.

USDJPY actually lost a little ground……while CL held its red TL… …and RB gave up a stunning 15% on the day.DJIA is closing below its 1.618 but, not surprisingly, the 2016 election price level has held… …and, no surprise, VIX is actually off for the day.While the lack of a congressional deal no doubt played a role in today’s weakness, what does the 3-4% drop say about the Fed’s action? What might they roll out 30 minutes before the open tomorrow that would prevent a drop below 2138?  Direct stock purchases by the FOMC?

Having seen this many times before, we know the drill.  Get SPX back above its SMA10 (currently 2559) and hold it there until the SMA20 catches down, then gap it up over both of them in conjunction with the 10/20 cross.  Next thing you know, new highs!

Stay tuned.

 

 

 

 

 

 

 

 

 

 

 

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The Dow serves as a pretty good barometer of the seriousness with which our political leaders have treated the COVID-19 crisis.  As it has approached the 2016 election levels, there has been a discernible shift in the tone of comments and measures undertaken by the president, congress and the Fed.  Here are just a few comments/actions which have come out of the White House and Fed over the past month.As DJI tagged our 18974 target, we started looking for a bounce. We’ve seen the early stages of one forming, especially in ES. We’ve even seen some managers brazenly declare that this is a real buying opportunity. But, we’ve been down this road before.  Can the bounce last?

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In response to increased demand, we are renewing our membership promotion through the end of the week: the first month of an auto-renew Monthly Subscription at only $99 and the first quarterly of an auto-renew Quarterly Subscription at only $299. To sign up, CLICK HERE. Note that we no longer offer Annual Subscriptions unless you are a returning annual subscriber. In that case, please contact us for details on how to resume your subscription.

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Yesterday’s meltdown was partially mitigated by oil and gas bouncing at our downside targets……but primarily by the strong moves in USDJPY and EURUSD which allowed an 8% spike in DXY.Now that USDJPY is back to an important overhead resistance, EURUSD is testing a channel bottom from 2000 and SPX/ES are weighing whether to maintain the channel from 2009, what can we expect from currency pairs?

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