pebblewriter

Author: pebblewriter

  • Black Ice

    We had a lovely snowfall Sunday night. The Monday morning landscape was exquisite, with a beautiful frosting adorning the pines lining our street. There was just enough snow underfoot to look charming, but not enough to require shoveling.

    Unfortunately, there was also just enough to hide the dangerous black ice lurking below.  As I lay on the couch later that day, trying to recover from the inglorious splat I executed on our driveway, I realized I had happened upon a pretty good analogy for the current state of the markets.

    Everything is indeed gorgeous on the surface.  Just this morning, we are reminded that some retailers such as WMT are doing wonderfully (even if they’re just stealing market share from the multitude of retailers that are closing up shop.)  But, what about the dangerous undercurrents that no one notices until it’s too late?

    One of my favorite chart patterns is the consolidating triangle, seen this morning in the 10-year note futures (ZN.)  In a way, it’s like black ice — lulling investors into a false sense of security that everything is contained.

    Readers will remember that ZN came up just short of our 123’100 target on Jan 3.  It would have capped off a lovely 5% rally since our bottom call (top call on rates) in October.

    As rates plunged toward our 24.98 target on Jan 3, stocks took notice.  The Dec 24 rally began to falter.  The DXY began to falter.  Our yield curve model woke up.  Clearly, something had to be done.  The charts show the resulting triangles which formed in the aftermath of a bounce in yields, droop in prices.  The targets are still there.  But, now they’re waiting for the triangle to break out or break down and — more importantly — for stocks to build a little more cushion before playing out.

    With SPX and DJIA well above their 200-DMAs, they’re in the clear.  COMP, however, has struggled to reach its 200-DMA, let alone push above it.  Recall that it faced similar problems in November, when a push above its 200-DMA faltered, and again in December when it failed to reach it at all — producing a 17% plummet.With the 10Y triangles about to break out or down, CL and RB at or near our upside targets and VIX having reached our next downside target, is the market about to go splat?

    continued for members… (more…)

  • If at First You Don’t Succeed…

    Yesterday’s setup for the e-minis looked pretty straightforward: a drop through the 200-day moving average and backtest of the 2.24 Fibonacci extension at 2729. Futures had already dropped through the 200-DMA and were heading south when the dismal retail sales data dropped.

    I hedged my bet, redrawing our daily downside target to include the 10-DMA — just a few points below the Fib extension.Fifteen minutes into the session, as ES reached 2730.25, the headlines started dribbling in.  Fed Governor Lael Brainard publicly commented that QT should end this year, ahead of schedule. Larry Kudlow commented that there was a glitch in the retail sales data.  Mnuchin felt all warm and fuzzy about the trade talks.

    Faster than you could say “Plunge Protection Team” ES reversed course and SPX closed the day with a gain.  But, the move didn’t feel finished. As I wrote at the end of the day:

    ES looks likely to test its SMA200 all over again. But, will it make it on down to the 2.24? Its SMA10 will probably be up to 2728 by tomorrow morning, adding additional support.

    I guess the market fairies were listening, because that’s exactly what happened overnight. ES dipped to 2729 right as the SMA10 was arriving on the scene, then spurted 27 points higher — breaking out of the falling white channel in the process.The algos are in full support mode at present, though a few charts suggest a pop and drop is in the cards if VIX doesn’t pull off a game changing plunge.

    continued for members… (more…)

  • Retail Sales Worst Since 2009

    After pushing above its 200-DMA and key 2.24 Fib levels, SPX seemingly had it made in the shade.  This morning’s huge retail sales miss (-1.2% versus +0.1% expected) might complicate things.  Perhaps Bloomberg put it best in the title of the following chart.

    The control group came in at an even more dismal -1.7%, the worst since the 9/11 terrorist attacks. The latest data is clearly at odds with the growth narrative being pushed by the White House, and adds to the headwinds posed by numerous high-profile earnings misses and falling inflation.

    January CPI came in at 1.55%, the smallest increase since Sep 2016.

    continued for members… (more…)

  • Fourth Time a Charm?

    SPX is back above its SMA200.  All it took was convening the Plunge Protection Team which was — purely by coincidence — followed by VIX collapsing from 36 to 15, WTI spiking from 42 to 55, and USDJPY ramping from 104.60 to 110.90.

    The algos are very well versed in how to respond to such activities.  They didn’t disappoint. The only question, now, is whether SPX can hold this important level of support.  The last three times it was here, things didn’t go well for the bulls.continued for members… (more…)

  • Bulls: Not so Fast!

    A week ago today, SPX tagged an important Fib target that would have been a perfect turning point were it not short of the 200-DMA.  As we noted at the time [see: The Red Zone] a reversal without tagging the 200-DMA would have been highly unusual.

    There have been no instances of SPX approaching but failing to tag its 200-DMA since January 2003. It would also be easy to prevent.

    First, SPX’s SMA200 is just above at 2741.55. It seems unlikely that SPX would come all this way just to whiff at such an important target.

    Second, SPX has obviously pushed back above major support at the 2.24 and the H&S neckline.

    Last, if VIX spikes higher, won’t USDJPY or CL/RB just come to the rescue?

    As things turned out, SPX backed off just enough to tease bears: a 57-pt drop over the next three sessions.  At that point, SPX had dropped enough to flesh out a sharply rising channel from its Dec 24 lows.

    More importantly, DJIA had tested and was in danger of dropping through its own 200-DMA.  Clearly, it was time to prop up equities.  And, that’s exactly what happened.USDJPY, CL and RB came to the rescue, ensuring that SPX regained its 2.24 at 2703.  And, VIX — which did initially spike higher — was hammered (-58% so far) after Mnuchin convened the Plunge Protection Team, giving stocks all the support they needed to come back and test the Feb 5 highs.Once SPX tags its 200-DMA, is it safe to assume it will be able to maintain its momentum?

    continued for members…
     (more…)

  • Everything is Awesome!

    It was a close call but, in the end, bulls prevailed.  As we are reminded by those lovable Legos (yes, they’re back) everything is awesome!

    VIX is back below support and SPX’s rising channel is intact.  The Dow, the market’s best barometer of bullish interference, is back above its SMA200.  See if you can spot the turning point.With futures currently up 10 points, will the market mind when oil and gas continue plunging this morning?  We’ll see.

    continued for members… (more…)

  • Goal-Line Stand

    SUBSCRIBERS:  Just updated our forecast page, including RB, CL, DXY, USDJPY, EURUSD, SPX/ES, Gold, VIX, COMP, DJIA, AAPL and bonds.  Check it out HERE.

     *  *  *

    Rumbling toward the end zone, the bears ran into the bulls’ best defender: VIX.  As ES tagged our channel-line target a day ahead of schedule (and, therefore at a lower price)… …VIX took the opportunity to plunge back below its 200-DMA. Fortunately, we saw it coming a mile away courtesy of DJIA, which signaled the end of the decline with a precisely executed (random walk, my ass) tag of its 200-DMA.  As usual, the refs pretend not to notice when the bulls are caught cheating…This sent SPX back above its 2.24 Fib at 2703 just in time for the close.  All things considered, it was a successful goal-line stand.

    Unfortunately for the bulls, however, VIX couldn’t hold its stance overnight and is back above the 200-DMA as ES tests yesterday’s lows. And, rates are itching to tag our next downside target — a headwind for stocks.

    The algos will have their work cut out for them today.

    continued for members… (more…)

  • Trick Play

    With the overconfident bulls emboldened by the 200-day moving average looming just above, the bears have run a trick play and have the goal line in sight.To be sure, there are half a dozen defenders in between here and a score – starting with 380-lb All-Pro VIX.  Its 200-DMA at 16.54 is now resistance, and it has a reputation for cheap shots.Thanks to exhaustive scouting, though, our yield curve model suggests there’s a weakness in the defense that offers bears a clear path to the end zone — if they don’t fumble the ball.

    continued for members… (more…)

  • Delay of Game

    Nothing much has changed since yesterday.  SPX bounced around in our target zone, coming within a few points of its SMA200 as VIX went nowhere.

    The one notable exception was AAPL, which after tagging our downside target on Jan 3 $from last November [see: AAPL Discovers Gravity] reached our upside target yesterday. We originally charted this upside target on Jan 3 [see: Update on AAPL, Jan 3] and the IH&S pattern reinforced it three weeks later.  Had AAPL not reversed, the additional downside potential was substantial.

    continued for members… (more…)

  • The Red Zone

    The past two weeks in the market have been a lot like the Superbowl game: not much excitement as things crept toward a seemingly inevitable conclusion.  Now that SPX has reached the red zone, are the bulls about to score?

    ES came within .54 of our primary upside target this morning……meaning that SPX is quite likely to tag our favorite upside target of 2732.47 at or near the open.VIX has cooperated, dipping below the SMA200 to tag both our targets: the yellow channel bottom yesterday and the gray channel bottom overnight.  If the bears can get a turnover, this should be an excellent entry point for vol.continued for members… (more…)