Baffled by soaring futures in the wake of an election which ushered in gridlock?  Don’t be.  As we witnessed after Brexit and the US election in 2016, algos were easily driven higher by VIX and USDJPY.  Last night was no exception.

USDJPY, which had dropped below its latest straw man TL, suddenly reversed and spiked higher exactly at the same time that ES dropped through its yellow channel midline.  Only after ES pushed through its SMA200 did USDJPY settle back down.Likewise, VIX dumped below its horizontal resistance just in time to ensure a big, green opening. Oil futures even got in on the action, just for good measure.  Following a very bearish API inventory report, CL spiked higher anyways.  The net result: ES is not only higher but is accelerating higher and will easily allow SPX to gap above its SMA200 on the open. With ES’ and SPX’s 2.24s and SMA200’s behind them, is the coast clear for equities?  Hardly.

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Futures are off modestly on an important election day which will hopefully resolve plenty of unknowns.On the bullish side of the aisle: both ES and SPX are safely above and have backtested their 2.24 Fib extensions; oil and gas have fallen sharply to decent support levels; VIX is at a modest level with a clear path lower if necessary; USDJPY has a clear path higher – at least temporarily.

On the bearish side of the aisle: inflation should be much lower in Oct as a result of oil and gas declines; interest rates are still pushing against important resistance; VIX experienced a golden cross on Friday; FAANGs are providing bearish leadership; and, many fundamental analysts have pronounced a democratic surge as bearish.

Both sides have played to their bases in this midterm.  In several cases, this has resulted in excellent results for our forecasts.  Consider, for instance, how much gas prices have dropped — mitigating the damage done by Trump’s Iran sanctions and helping our oil/gas forecasts working out quite nicely.The assistance provided by currency moves has played nicely into our USDJPY forecast.As we learned after the 2016 election, the market moves the way the algos dictate.  The only question is whether the algos will receive enough “guidance” to keep stocks on the rise. It should be an interesting next couple of days.

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Three months after AAPL’s “breakout,” it faces its first real test.  As we discussed in August [see: Engineering AAPL’s Breakout] the stock burst out of a long-term rising channel with the aid of several well-timed increases in its stock repurchase program.

Now, it’s time to backtest that mediocre 12%-per-year channel it’s been in since 2010 and embrace its new and improved 36%-per-year channel.A drop to 200 or so wouldn’t do much to dent bulls’ enthusiasm.  Even a likely drop to the SMA200, currently at 192.17, could be passed off as a base-building exercise. One key number in the middle is the open gap remaining at 195.96, a gap which would obviously be closed with a tag on the SMA200 and red channel bottom.All of these scenarios presuppose that, like many of its FAANG cohorts, AAPL will disappoint at least a little. Clearly, the company could turn out some great numbers. But, with the market’s ongoing rally depending on AAPL’s results, anything more than a minor disappointment could do some real damage.

Bears probably shouldn’t get too worked up.  Even if there were a disappointing number of people willing to shell out $1,500 for a fancier way of posting on Instagram or playing Fortnite, the company could always expand their buyback program by another $100-200 billion.

If the SMA200 doesn’t hold, AAPL will have some important decisions to make re buybacks.  The next significant support is way down at 144.48.

Stay tuned.

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The death cross is one of those tried and true technical indicators that often portends big drops.  When a stock’s 50-DMA drops below its 200-DMA, it tends to drop like a rock (unless it’s FB, which uses such crosses to time its buyback announcements.)

I thought it’d be interesting to look at VIX, which has had such an important impact on stocks — especially over the last two years. Previous death crosses (when it’s 50-DMA rises above its 200-DMA) are marked with a yellow arrow, and it’s pretty clear that they have predictably indicated big spikes in VIX — and, big drops in SPX.It’s interesting, then, that as of yesterday’s close the 50-DMA and 200-DMA were both at 15.97.  This morning, the 50-DMA ticked slightly higher — making this the most bearish chart I know of.continued for members… (more…)

VIX’s rising TL has been a solid guide to lower stock prices.  This morning it is indicating another, more serious breakdown than the head fake we saw on Monday.Along with USDJPY’s “breakout” it has been enough for the algos to bid futures up to the top of their falling channel for the 10th time this month.

There are two ways to look at this.  One is very bullish, while the other is quite bearish.  It’s decision time for stocks.

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You know the market is in trouble when USDJPY ramps in the hours before the open and futures tumble into the red anyways.If you’re wondering why the BoJ picked this particular moment for USDJPY to break out, look no further than the NKD.  After guiding NKD higher for over 10 years, it doesn’t seem likely they’ll just roll over at this point.This on the heels of a pretty wild ride, yesterday.  SPX spiked up to slightly above our upside target and then got whacked, plunging 103 points from its highs before bouncing into the close.

In the process, SPX formed the right shoulder we were expecting — which opens the door to a much bigger drop than was originally the case.The algo backdrop is negative this morning, with VIX still above its key trend line and RB and CL dropping toward our next downside targets.  Stocks could be in for another rough day.  What if this is the day?

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SPX bounced right in between the two .786 retracements we had identified Friday – leaving it either on the road to recovery or in the midst of forming a right shoulder in a Head & Shoulder pattern.

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Futures have bounced 17 points off their lows, but are still indicating a 26-pt drop — giving up all of yesterday’s goal-seeking meltup and then some.

SPX was desperate to retake its 2.24 extension at 2703.62…and it did.  Unfortunately, for those who weren’t watching VIX……it was a headfake.  The flimsy little TL off the recent highs proved to be plenty enough resistance for a reversal, and we should have no trouble exploring our downside targets today (as long as VIX remains above its purple TL.)As expected, RB has continued to sell off and CL continues to go sideways.  And, USDJPY gave up a half-hearted attempt to break out past another one of those flimsy TLs of resistance.Never say never, but these are not the characteristics of a market which is going to be rescued any time soon.

Suddenly, our COMP forecast from Oct 10 isn’t looking so far-fetched.

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Some of you might have seen this GOOGL chart yesterday.  It’s striking in a number of ways.Obviously, GOOGL has broken a very long trend line of support.It is also threatening to break down through the last horizontal support it has.  Recall that back on April 23, when all of the FAANGs were in danger of breaking down [see: Is the Market About to be de-FAANGed?], GOOGL came to the rescue.

It spiked to within 6 1/2 points of our 1298 target [see: Alphabet’s Big Day]……which was enough to help the broader market (including the rest of the FAANGs), but then proceeded to tumble to every one of our downside targets in succession.  From Focus on the FAANGs in July:

If [GOOGL] stumbles further here, it has decent support at the previous high and red channel bottom at 1178.16 around Aug 6 — 4.8% below current levels and 8.8% from its recent highs. If 1178 doesn’t hold, the next support is its SMA200 (currently 1093 but rising fast), followed by the white TL where it intersects with the .618 at 1103.99.

Note that it closed at 1103 yesterday, but is positioned to drop back below it this morning.Facebook is another stock which has surprised with its compliance with our bearish outlook.  As we discussed in Focus on the FAANGs, it had plenty of downside if its H&S neckline didn’t hold. 

The neckline held for another month, then didn’t.  The death crosses which had always served as reminders to increase the size of its buyback plan finally played out, and FB came within a point of our 144 target.

A better target is 141.40, which would finally allow the backtest of the falling purple channel.  Note that had the backtest been allowed to occur in August as we originally anticipated, it would have reversed at 156 and FB wouldn’t be flirting with the support of the important white channel midline.

We could walk through each of the FAANGs, but the story is pretty much the same with each.

This time really is different.  Important support is either broken or in danger of being broken. The usual tricks aren’t being deployed.  And, investors are rightfully nervous.  Things are going to get worse before they get better.

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