The Dow isn’t a great index to follow or to chart, except for the fact that it’s a great “tell” when it comes to the narrative being promoted.

Yesterday, when faced with the option of reversing at the trend line (below, in red) which has touched off four previous downturns, it broke out instead — “telling” us that there is nothing but upside ahead.Note that this breakout follows November’s push above the neckline (dashed white line) — also on the fifth try.

Neither of these would be possible, of course, without the President’s Working Group (Plunge Protection Team) which met on December 23, 2018 and, unfettered by public scrutiny or minutes, unleashed hell on VIX.

Since then, VIX has been hammered at every obvious potential breakout point and many which fell short of obvious resistance.And, USDJPY continues to be very cooperative, rallying whenever needed. Will it matter that it has reached 5-year overhead resistance?As we always do when looking at breakouts, we’ll look at whether this one will hold.

continued for members…

One chart I like to watch is RSI, which in the case of DJI has now broken out.  It was already elevated for SPX — though there is very obvious negative divergence in this latest leg up.  Note that initial breakout above the red TL occurred when SPX popped through the 2.618 Fib at 3047.34 (the yellow arrow.)SPX’s RSI action isn’t too surprising given that SPX has pushed through several Fib resistance levels, broke out of its rising purple channel and completed an IH&S. It’s worth noting that the 1.618 extension which SPX just broke through yesterday…

…has not yet been reached by ES.  This is due to ES’ having dropped so much further in December 2018. So, technically, we do still have a shot at a meaningful reversal at ES 3336.49.We should be extra wary, given that we have a three day weekend ahead of us. But, currently, the algos have plenty to like in VIX… …and CL.

This could change in a hurry if CL drops back through the SMA200.The biggest mystery remains gasoline. We saw it hold the line in December, producing a strong boost to CPI which came in at 2.3%.  Nevertheless, the Fed has cut rates three times since July and pumped $400 billion into the markets since September.Even though CPI has turned up… …the much more heavily manipulated PCE remains muted.And, the Fed is sticking to their story that this is the one that matters. If no one is worried about inflation any more, than a 2.4% or 2.5% CPI reading for January might not matter.  The YoY February change will be negligible unless RB rallies a lot next month.

Bonds are acting as though they expect higher inflation. But, the lack of a boost from RB (unless it rallies strongly) could gum up a lot of forecasts.

Although we always have to keep an eye on VIX and CL, the biggest potential disruptor is USDJPY.  If it breaks out, even a little bit, the algos will be over the moon ecstatic. If not, we could struggle to reach our upside targets.GLTA.