pebblewriter

Month: March 2020

  • The Big Bang Theory

    One of the more compelling relationships I recognized over the years is what I have dubbed our Yield Curve Model. Simply stated, it pointed out that every time the 2s10s broke down below significant support, stocks would suffer. But, the bigger disasters – think 2000-2003 and 2007-2009 – occurred when the 2s10s broke out after inverting.

    We got our latest inversion last August after a series of breakdowns and minor breakouts, each of which visited downturns on the major averages.  The biggest breakout, however, occurred yesterday, when 2s10s soared as high as 73 bps. It has since settled lower, but remains broken out — a signal that we might very well be headed for a GFC style crash.

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  • Saved by the Bell

    Futures have been all over the map since yesterday’s meltdown with a 198-pt swing in ES since it tagged our .382 Fib target.

    As we’ve discussed, this was important support and allowed SPX/ES to bounce prior to dipping below Dec 2018’s lows.

    Overnight, we’ve seen minor bounces in oil and USDJPY, which has encouraged the algos.  The CB efforts continue to focus on supporting DXY and suppressing VIX, which came within a breath of its 2008 highs after slightly topping our 80.30 target.The big picture log and arith charts for SPX and ES all agree: any lower would trash the trends which have been in place since 2009.

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  • What’s Next?

    The futures are lock limit down again this morning, with ETFs trading in the after-hours indicating losses on the (eventual) open of up to 10%. This is probably not what the Fed had in mind when they unleashed the massive, emergency rate cut and $700 billion in new QE an hour before the futures opened on Sunday.

    As before, the factors are all aligned bearishly, with the bond market failing to swing back to a bullish alignment yet despite the Fed’s desperation move. There are, however, some glimmers of hope.

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  • Just Two Charts

    Two charts best define the day we had yesterday.

    First, VIX tagged our next highest target: the intersection of the .786 Fibonacci retracement and the trend line connecting two previous highs.

    The other one was the SPX arithmetic (as opposed to log) chart, which stopped on a dime at the channel bottom.The bleeding continued well past the Fed’s ineffectual $1.5 trillion injection and had to wait until the low-volume aftermarket to be staunched. At that point, central bankers went to work – pumping oil and gas, the dollar, interest rates and currencies in order to restore confidence whip up the algos. It worked…at least so far.

    I’ll have a separate post up later regarding COVID-19, including my latest projections for the US.

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  • Sell the R.I.P.

    SPX 2703 was the last line of defense for the seemingly endless rally from the 2009 lows – the yellow channel below.The futures were all set for SPX to open there in the morning…until Trump’s address, the NBA’s cancellation and Tom Hanks announced that he and his wife have the coronavirus — all moments which suddenly made the virus very real to many people who were willing to pass it off as just like the flu.

    Unless stocks climb back to flat by the close, the yellow channel is no more……and things are likely to get very ugly.

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  • Update on RUT: Mar 11, 2020

    Two short weeks ago I pointed out that, like many indices, RUT was at a critical level of support [see: Bonds New All-Time Lows.]  Though we had already turned bearish, there was still the possibility that RUT would pull off one of its trademarked rebounds.

    This time it didn’t. In fact, just today it reached another interesting level of support – this time, the .618 Fibonacci retracement of the rise from 943.10 in Feb 2016 to 1742.09 in Sep 2018.  Unlike SPX and DJIA, this was the high for RUT (an anomaly which has confounded many who still believe in efficient markets.)

    What’s more, this (near) tag is occurring at virtually the same instant that SPX has (nearly) tagged its 2.24 extension – our primary downside target since late last year.

    Meaningful, you ask?

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  • What About SPX?

    ES’ original recovery channel officially bit the dust yesterday. This morning, we have a new, less ambitious one offering to take its place.

    However: the SPX problem persists: What to do about SPX 2703.62?  ES’ new channel will also need to break down if we’re ever to reach the strongest support possible.

    Spoiler alert: nothing I’ve heard out of D.C. thus far suggests otherwise, while the growth of the Fed’s QEnot continues to speak volumes.

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  • Update on VIX: Mar 10, 2020

    It’s been a while since we took a big picture look at VIX. Since it reached levels not seen since the GFC yesterday, this seemed like as good a time as any.

    VIX is an interesting instrument. Once a reliable measure of volatility in the market, it was used by many to hedge risk.  As equity corrections became an endangered species, however, fewer investors bothered.

    Eventually, VIX became a source of income for those willing to take a chance on selling vol. It might have seemed risky at times, but every one of the six times VIX exceeded 46 since 2010 was followed by a collapse to below 15.  Actually, make that 5 out of six times.On Feb 28, VIX shot up to 49.48, but it only dropped as low as 24.93 before bouncing up to yesterday’s high of 62.12. The price to which it rallied was significant.

    Eagle-eyed members will note it’s been one of the higher targets on our charts for years – but, one we seldom mention as VIX is always smacked down upon reaching a lesser Fib level and a price between 46 and 54.  From the post Market Timing, a Bad Thing? last October.

    The 25.50ish target represents the intersection of the .382 Fib, two red TLs and the midline of the white channel seen below. If 25.50 should ever be broken, things could get very interesting very quickly.

    The 62.12 high was very close to the .618 retracement (58.6) of the drop from 89.53 in 2008 to 8.56 in 2017.

    Now, it was no surprise that VIX stopped rising once ES had dropped to our 2728 target. But, the breakout begs the question: What do the charts say about the even higher targets?

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  • The Day After the Storm

    Big storms are always scary. But, it’s usually the day after when we get the chance to assess the damage and count the casualties. So, here we are.

    I’ve been yacking about ES 2728 so often and for so long, I’m sure a few of you were starting to tune me out.

    Yet, the logic of this target was too compelling to ignore, as we’ve shown on every daily chart for the past several months.

    Take this one, for example, from Feb 14 [see: A New Day] when ES came within 9 points of its eventual high a few sessions later. The red channel, which had broken down once already, was trying to get to 3600.  If it failed, the white channel would then offer doubters a clear warning.

    The final line of defense was the yellow 2.618 extension at 3076. If you ignored all those warning signs, then you probably had a pretty miserable day yesterday.I think we can safely put the ES 2728 argument to rest now.But, what about SPX 2703?

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  • The Storm Finally Arrives

    After weeks of gathering clouds, the storm we’ve been watching has finally arrived. S&P futures are lock limit down just a few points above our next downside target.

    Not surprisingly, all of our other targets across currencies, commodities and fixed income have either tagged or exceeded our next downside targets, with more to go once the cash market opens.

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