SPX has been threatening to break back above its 200-day moving average ever since Jan 23. Despite numerous vigorous attempts, it remains below it, signalling more downside ahead.
It’s time for the bears to put up or shut up.
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Futures have been all over the map, but ES’ flag pattern is still intact. All of our targets remain unchanged. Look out below.
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EURUSD finally broke down, meaning DXY finally broke out. 
We set the 1.0999 target over two months ago, reasoning that a breakdown in equities would send the dollar higher and the EURUSD lower. 
The DXY broke out two days later – even though the equity correction was delayed by year-end equity-propping silliness that saw DXY stuck in a holding pattern for over two months.
Since the US is a net importer, the value of the USD is an important tool in the Fed’s inflation fighting toolkit. All evidence to the contrary, the Fed insists they actually care about inflation. We’ll take a fresh look at the currencies this morning to see what they suggest about inflation and the overall markets.
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After Monday’s tumble, will Powell have the guts to stick to his inflation-fighting guns? Futures are up about 1.5%, but are still just shy of the 200-day moving average.
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Less than a week ago, we penned an update on COMP that was aptly entitled COMP Signals More Pain Ahead accompanied by the following chart.
COMP complied yesterday, racing past our initial downside target to tag the next one at 13,213.50 before a massive bounce back to the .618 Fib.
Is it safe to wade back in?
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Yesterday was one of the wildest rides we’ve seen in quite some time. It won’t be the last.
ES nailed our next downside target, then did a swan dive through the bottom of the channel from 3 weeks ago, nearly tagging our 4153 target in the process before closing in the black.
With the futures off 1.5% this morning, the bumpy ride is far from over.
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ES tagged our next downside target this morning…
…tagging the 4319 target we posted back on Jan 3 [see: De Facto Shutdown.]
The only question now is whether stocks will get the big bounce they usually do after a 10% correction or whether they’ve come undone. In other words, I have this 1969 Guess Who classic on a loop this morning. The lyrics seemed especially apt for today’s equities market.
She’s come undone
She found a mountain that was far too high
And when she found out she couldn’t fly
It was too late
From the ain’t it cool department…Burton Cummings rocks a pretty convincing Seattle grunge look 50 years ahead of the crowd, plays a mean jazz flute (inspiring the future Ron Burgundy?) and scats in a frickin’ rock song.
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Quick note: BTC has reached our next downside target, the red .886 Fib at 33,205. As we detailed in our last update [see: Jan 18 Update]:
BTC will have two opportunities to rebound at the red .786 Fib (37,245) and the .886 (33,205.) Should these fail, then only one last level of support remains in the way of a complete breakdown.
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A substantial correction seemed a little farfetched two weeks ago.
Now, not so much…
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In our last update on NKD [see: Nov 30 Update], I somewhat snarkily disparaged the index’s legitimacy.
The Nikkei 225 is less a securities index than it is a measure of how much intervention the Bank of Japan feels like throwing its way. It’s what the Dow aspires to be when it grows up.
At the time, NKD was approaching a trend line connecting five recent lows, none of which had quite backtested the obvious Fibonacci support at 26,463. It was also backtesting a TL connecting recent highs.
As the chart above shows, NKD is backtesting a TL off the Feb 16, 2021 highs. This could be all we get, as the BoJ dislikes anything smelling like a correction.
As it turned out, the low that day was all we got. NKD rallied into year end, putting in a respectable +5.1% return for 2021 versus the 1.2% losses which would otherwise have occurred. Japanese “investment” managers no doubt cheered the rally, just in time for bonus calculations.
The rally left a bad taste, though, and I left the 27,156 target where it was – partly for spite and partly because the BoJ’s pathetic manipulation has become laughably predictable. Guess where NKD just tagged?
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