It’s a repeat of the reaction to Brexit and the US election. Italy’s referendum has triggered all the usual stock propping mechanisms: CL, USDJPY and VIX.  CL officially busted its H&S pattern, USDJPY has rallied over 1% off its lows, and VIX broke down below its rising red channel bottom…again.  The result: the eminis have spiked 27 points higher off Sunday’s lows.

The most startling reaction was the EURUSD, which is improbably higher than before the referendum (but, importantly, has merely backtested the falling white channel it broke down from.)

As the talking heads ruminate over Greenspan’s irrational exuberance comments of 20 years ago, there seems to be little concern about the even more irrational (but, predictable) reaction to fundamentally disturbing events.

A popular website posted the comment this morning “[we] wonder if the ECB has its own plunge protection team.”  I would take that a step further.  What is the ECB, if not a plunge protection mechanism?

continued for members…

A few of the charts I’m watching this morning…

VIX has broken down……but, has SMA10 support at 13.03.

While CL might have busted the H&S Pattern, my outlook for it remains unchanged.  This morning’s move should provide a selling opportunity.

ES has broken back into its rising channel and, importantly, above its SMA10. SPX closed at 8 points below its SMA10 on Friday, so with futures currently up 8.50 points, we should get at least a backtest.  Whether or not they’ll ramp it up over 2193.90 remains to be seen.

UPDATE:  9:39 AM

This is a good entry point for any downside we might get.  I’d short here at 2200.96.  Recall that today is Day 104 of our analog, and as such is supposed to be a low point.  Of course, the Italy referendum might well have altered the course of the analog in much the same way as the US election.  

Specifically, there’s an opportunity to break out of the not-so-well-formed falling white channel.  And, if so, we’ll call last week’s 2187.44 close enough and play the upside.  In other words, tight stops make sense here.

As on Friday, VIX is supporting the notion of a breakout.  A quick drop through the SMA10 would be the signal.

UPDATE:  9:52 AM

SPX is pushing up past its purple .618 on a VIX breakdown (-9% so far) and USDJPY “breakout.”   This is the breakout discussed above, though there’s a lot of resistance overhead.  Play along, but be aware that this advance is built entirely on sand and could reverse if/when VIX reaches the purple channel bottom around 12.81.  Swing traders should be fine holding short. 

Note that, for all its ramping……USDJPY is coming up on an important Fib level: the .618 of the drop from 125 to 98.

UPDATE:  10:08 AM

This should probably do it for this morning’s ramp.  VIX has tested the purple channel bottom and SPX has reached the .786 and red channel .786 line.  I’d look for it to settle back from here.  Our initial objective is a backtest of the broken white channel at 2200ish (note the SMA10 at 2198.93 and nearby gap close at 2197.95.)   The SMA5 100 should reach this level around 1:30 ET.

If it can fall back below, then our purple midline target is still intact.  Frankly, it seems unlikely at this point.  But, we’ve had more than a few analog-inspired surprises over the past few months.

The solid white line rising through 2207ish is the top of the white channel seen in the daily chart.  Technically, it should provide strong resistance.  However, I question whether anyone has even noticed it, nor whether TPTB will treat it as anything other than justification for more aggressive manipulation.

UPDATE:  10:59 AM

USDJPY is running out of real estate.Another tap on the head, and VIX is dipping again……just enough to get SPX back on top of its SMA5 10 as the SMA5 20 is arriving on the scene for additional support.  Note that NKD, the most bullishly oriented index on the planet, is doing a backtest on the .618 — not exactly a harbinger of higher stock prices.

And, DX has backtested the rising white channel it broke out of last week.

It’s not looking good for a reversal from here unless they’re simply trying to keep it alive until the euro close.  As we discussed a few weeks ago after the election, TPTB don’t like to let a good crisis go to waste.  And, this ramp has the potential to cause a lot more short covering.

CL has likely topped out now that the H&S has been busted.  And, USDJPY is running into potentially important resistance.  But, is there a limit to the VIX manipulation?

Last week’s bounce off the .886 was helpful for the bears, but SPX only slid 27 points (1.2%) on VIX’s 2.48 (20%) rally.  The OPEC deal kept CL on the rise the whole time, which greatly moderated the downside.

SPX didn’t get all the way to the purple channel midline last week, which — along with the Italy referendum — is why the analog’s signal of lower prices made sense.  But, the purple channel hasn’t been terribly precise.  

So, TPTB might feel like it was close enough, especially given the repercussions of letting SPX extend its losses on the referendum results.  It’s important to maintain the illusion that investors have weighed the evidence and found it bullish.

UPDATE:  12:17 PM

I have to step away for a conference call and should be back around 12:45.  2198 is looking good.  It will be an important test for SPX.  Be prepared to revert to long there, with the distinct possibility that it’ll go beyond a backtest.

VIX, always a potential spoiler, continues to be hammered lower.  It’s currently off a  whopping 12.6%.

UPDATE:  1:50 PM

Looking good, so far.

But, who’s going to step up to the plate and make SPX lose a few more points?  CL and USDJPY are close to a breakdown…   …or, maybe time for VIX to backtest the rising purple channel?

UPDATE:  2:44 PM

After helping ramp SPX this morning, CL is now practically begging it to decline.  I’ve redrawn the falling white channel as generously as possible.  We could get 2198.93 right at the close…

UPDATE:  4:00 PM

VIX was asserting itself right up until the close, after which it ticked down below 12.23.  CL sold off pretty steadily, closing on a low note with plenty of room to the downside IF stocks are going to be allowed to decline any more.  Either last Thursday’s lows were as good as the bears are going to get, or our analog continues to be a day off — in which case we’d get a nice sell-off tomorrow.

I’ll be posting a gold update shortly.