In yet another reminder of their sway over the markets, the algos have brought stocks to the brink of a breakout by putting VIX at the brink of another breakdown.

continued for members…

The equity picture hasn’t changed one iota since we noted that VIX’s breakout had reversed [see: It Wasn’t Oversold.]  There was no question that stocks would respond. The only question was how low VIX would be driven.

Note that the top of this little rising wedge runs right through the top of the falling purple channel around Nov 10, the next CPI report and a few days before OPEX. If VIX breaks down below 25.25, we can expect the current rally to end up there. If VIX rebounds sharply, then the downside targets are still in play – possibly very quickly.We won’t know the answer until about VIX 25.25 – the point at which the index would tag the yellow TL from Oct 2021. The last two times it dropped below the TL, ES made higher highs.

It’s hard to believe it won’t happen again unless, of course, the Fed sees what’s happening in the markets and decides it’s not helping their battle against inflation. It’s not, but will they care?  I think so. But, we’ll find out tomorrow. At the moment, everything is going bulls’ way. Higher USDJPY and EURUSD, lower DXY, a gap down below 4% in TNX.