All Together Now

From a charting standpoint, the tide turned yesterday when COMP reached an intersection of three channel lines.

COMP has reached its own crossroads, meaning it should at least take a breather or has reached a turning point. Note that VIX is nudging back above the little red TL. I believe this is a good time to try a short position, with a 4-6% drop across the board for equities by Wednesday or Thursday. As always, reasonable stops are strongly recommended.

COMP accommodated by promptly turning tail and plunging back below 7000. Unfortunately, for the bears, the closing bell rung before it had a chance to follow through to its SMA200. It’s one of the few major indices which has yet to tag the important moving average.

The closing bell always ushers in a “crap shoot” period where fluctuations in USDJPY, CL, VIX, etc. can ramp up equity futures with little effort. Such was the case, last night, when the three combined to erase the previous day’s losses.

USDJPY, which was heading for a backtest of its broken channel, tagged it and reversed higher at 5pm EST. CL bottomed out at the exact same time and proceeded to break out (shocking news: the Saudis want oil prices to go higher in advance of the Aramco IPO.)Naturally, VIX plunged back below its SMA10 overnight — an 8% body slam from 22.02 at the close to 20.24 at 1am. Put it all together and ES, which was 60 points away from completing an IH&S at the open, was suddenly only 12 points away. Is it in the clear, though?

Note that it has already backtested the falling white channel twice — with one backtest dipping back into the channel body and below the SMA200 for the 7th time.Are the bulls getting nervous? Clearly, they are determined to see stocks break out again. But, the obstacles are stacking up — with the latest being this morning’s PPI report coming in hot at 0.3% monthly and 3.0% YoY.Higher PPI, of course, argues against accommodative Fed policy. It argues for higher interest rates. We were recently remimnded that the market doesn’t like that idea one bit. Despite USDJPY’s ramp job, DXY is falling again.Overheated PPI also argues for a lid on oil and gas prices. The Saudis might hope for $80 oil, but a 25% rally from current prices would produce inflation that would be highly problematic from an interest rate standpoint.

We’ve seen these sorts of ramp jobs on a regular basis for years. But, they’ve taken on a more desperate tone over the past couple of months. This one might, indeed, stick. But, ~~traders~~ algos seem more skeptical and less inclined to pile on. That, in itself, is noteworthy.

Not too long ago, such skepticism translated into corrections and bear markets. But, since 2011, in particular, it has simply led to more nonsensical plunges in VIX and ramps in USDJPY and CL. Stay tuned.

Now, on to today’s forecast.

continuing…

SPX remains focused on its IH&S neckline at 2672ish.

It’s closer to 2671 for ES.

COMP should break back out of the falling white channel on the open.That will be DJIA’s goal as well.UPDATE: 11:00 AM

Here’s another, more bullish way to look at COMP.

UPDATE: 11:44 AM

In many instances in the past, IH&S Patterns have failed at about 10 points below the neckline. The first I can recall happened in 2011 [see: Ten Lousy Points.] That’s where SPX is, now. If the plan is still to afford COMP an opportunity to tag its SMA200 (which is now heading lower) then this would be the time for SPX to run out of steam.In any event, the existence of a natural stop (the neckline) a mere 0.3% away makes shorting a fairly safe bet.

For confirmation, we’ll watch to see if VIX pops back above the red TL and SMA10 below.UPDATE: 3:02 PM

Cat and mouse, today. VIX, however, has continued to rally up past the SMA10, only to be smacked down. USDJPY is running out of steam. Look how far CL and RB have rallied, just to keep SPX/ES close to their necklines. The vast majority of the pop was before the open. Since then, it’s taken a lot to keep them even on the day. COMP is creeping higher — but, has yet to exceed the last three breakouts that were, in reality, headfakes.