Futures are all over the map this morning, with the overnight losses largely erased at one point.
The key, though, is that SPX bounced back above a key Fib level after tagging its 20% target last week. Although it’s still early stages, our analog is in play.
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Friday the 13th – an inauspicious day to break a new analog! With SPX nailing our downside target and futures breaking out of the falling wedge pattern yesterday, we’re off to the races.
These things don’t always work out. But, when they do, it can be a career-making trading opportunity. The one which worked out absurdly well was back in 2011. The 22% correction played out almost exactly as forecast, with the vicious 11-day, 18% plunge starting on the very day and within 1 point of what the analog promised. You can read all about it HERE.
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SPX closed below important support yesterday, suggesting that the current leg down isn’t yet over. Indeed, things could get worse.
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BTC reached our next downside target at 28,600 last night, then dropped as low as 25,401 before bouncing back to current levels.
It’s not unusual for BTC to overshoot important support. And, this .618 Fib level is theoretically important support. But, it’s also important to remember that a bounce is sometimes just a backtest of newly formed resistance before another leg down.
We’ve been bearish on BTC since 66,432 in October 2021. We were a little early, but maintained our posture ever since with with the exception of the Dec 2021 and Jan 2022 bounces – a stance which has produced exceptional gains.
We’ll take a fresh look at BTC and whether it’s worth trying to catch this falling knife.
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Headline CPI dipped from 8.5% to 8.3% for April. While a very modest decline, at least it wasn’t an increase. As it was, futures immediately sold off nearly 100 points.
The benefit of such a drop from a charting standpoint it that it might enable SPX to reach our 3956.64 target on the open (it came within 1.53 at yesterday’s lows.) It might even allow the 20%-off mark to come into view.
It also enabled several other targets to be tagged. Gold finally dropped to our 200-day moving average target…
…and BTC is within 411 (so far) of our 28,600 target.
The big question, of course, is whether the support (which almost everything we chart has reached) will hold or not.
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ES spent 11 hours hanging around our next downside target yesterday. While the session had many characteristics of capitulation, the fact that SPX didn’t quite reach significant support (3956) suggests that the overnight ramp is a head fake.
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Bitcoin, the inflation hedge which has fallen 56% in the midst of the sharpest rise in inflation in over 40 years, is plunging again. Recall that we turned momentarily bullish after it broke out of a falling channel back on Feb 6.
We expected a backtest of the 200-day moving average – which BTC dutifully delivered on March 28.
Turning bearish again, we settled in and began waiting for a breakdown. Bitcoin didn’t disappoint. Today, it reached the bottom of the rising yellow channel.
Strange behavior, indeed, for a so-called store of value.
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COMP just tagged our 11,643.40 target. Recall that it was added to our charts in January [see: Jan 10, 2022 Update] after we turned bearish on November 19.
It was a fairly precise forecast. Then…
…and, now.
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The financial press usually starts to take things seriously about this point in a correction. The permabulls aren’t calling bottoms any more, while the bears are licking their chops. It never fails, someone on TV says something like “no one saw this coming.”
It’s silly, of course. What they mean is that they didn’t see it coming. Plenty of others did. Some, like us, saw it months ago. This was our Jan 3, 2022 ES chart, illustrating the downside case.
We reiterated the target, called the bounce over, and nailed down the timeline in late March.
Now, as we finally approach ES 3997, it seems that more and more mainstream bulls and trend followers are getting bearish (better late than never.)
The risk, of course, is that excessively bearish sentiment would stoke another bounce and postpone the 3997 tag. VIX has some thoughts about that.
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Remember how excited the bulls were about the reflation trade? Higher interest rates meant the economy was reopening at a good clip. What could be better than that?
Things look a little different from the perspective of 3%+, don’t they?
Nothing alarming here…
Remember, it’s not the inversions that bite, but the spikes higher which come after.
Futures are off again this morning following a strong jobs report, but we’ve yet to punch through Monday’s lows.
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