Our analog seems to remain on track, with the next gut check coming up on Monday. Oil has stalled, USDJPY has backed off, VIX has broken out, and futures are showing a modest loss.
Even NKD has obliged, breaking down after tagging our upside target.
If you haven’t taken the time to wade through yesterday’s forecast update, I encourage you to do so. There’s a lot of information there, and specific targets for the remainder of the year and into February. For more, see: The Nikkei, Yen and Oil: Joined at the Hip.
Interestingly, I’m seeing more and more mainstream analysts (Gundlach, Gross, Kolanovic) begin to concur with our forecast, though there’s a divergence as to what happens around FOMC day.
continued for members…
SPX should find support at the purple midline or, if that breaks, 2134ish — but, probably on Monday.
CL is still showing strength, and might exceed 52.22 before backing off — just to establish a new high.
VIX has been all over the map. But, the major developments yesterday were breaking back into the rising red channel and nearly tagging the SMA200. Note the presence of the falling white channel midline, which was tagged yesterday. I wouldn’t be surprised to see a dip to the white TL to backtest the SMA100 at 13.88 before we get any more rallies (declines in SPX.)
UPDATE: 9:43 AM
VIX just tagged its SMA100. For those who didn’t hold short overnight this is probably a good entry point here at 2194.63.
UPDATE: 10:13 AM
Quick progress report…the red channel is holding so far. If it doesn’t, then there’s a possibility we’d get a rally up to the SMA10 at 2198.45 as the SMA5 200 crosses late today. VIX has been a bit lethargic, and the bounce off the SMA100 wasn’t all that impressive.
All the above is to be expected, though, if we’re to get a big drop on Monday. In fact, it would be unusual for SPX to drop straightaway today, and again on Monday — no headfake.
The poor channel formation has bothered me over the past two days. The white channel, of course, was busted. And, the red was unfulfilled on the downside yesterday. It could be we’re going to see something more like the purple channel shown below. I’ll be watching closely to see what happens when the SMA5 20 comes along in a few minutes.
ES shows no clear path to the downside — just a breakdown of its rising purple channel that was quickly repaired.
UPDATE: 10:38 AM
Our short position isn’t looking good at the moment. VIX continues to settle, meaning the alternative scenario discussed above is more likely. I’d revert to cash here at 2194.21, and return to short if/when we get a clear reversal — likely when VIX pops back above 13.92.
UPDATE: 11:45 AM
SPX will test the SMA5 20 in a few minutes. If it drops through 2195.11, I’d be happy to short for 2186ish with tight trailing stops, as ES has already tagged its SMA10. Though I suspect SPX will find support at 2193-2195 and stay alive until it reaches 2198.45 late in the session — when the SMA5 200 arrives. I’m going to take a break for 30 minutes, will catch up then.
UPDATE: 1:23 PM
Getting close to the purple midline. I’m hoping to cover the short at 2186ish, and re-shorting if it moves lower — which I expect it to. There’s still a chance it’ll pop up and tag the SMA10 in a few minutes, delaying this tag. But, it’s looking less and less likely since SPX rejoined the falling red channel.
Note that ES has dropped below its SMA5 200, and VIX is back inside the red channel — though at a midline that could produce resistance.
UPDATE: 3:31 PM
Just when it seemed SPX was in suspended animation, we get a little pop higher. If you don’t intend to hold short, this is your signal to cover before VIX drives it back up to 2195+ to tag the SMA5 200. Of course, if it does, understand that it could easily dump back below 2188. I’d let the SMA5 100 at 2192 be your guide, with a strong preference for holding to 2186.10ish by the close and potentially lower by Monday.
And, though you probably get tired of my saying it, only hold short over the weekend if you can hedge or deal with the possibility of a sizable gap higher. I think we’ll be significantly lower on Monday, but it’s hardly a sure thing.
UPDATE: 3:48 PM
Back below the SMA5 100, so there’s still a shot at 2186.10 in the next 12 minutes. I’d be more confident of much lower prices if it didn’t tag the purple midline today. BTW, it could easily get to 2186 without ES making new lows, simply returning to near last night’s lows.
