The great thing about analogs is that they tell you when a move will occur and which direction it will be in.  But, there are two not so great things about analogs: the moves aren’t always the same size as in the prior period; and, they don’t always make sense.

The most frustrating part about forecasting is seeing moves play out that are completely divorced from the economic fundamentals.  Such is the case, now, as the talking heads are coming up with all kinds of reasons for the ongoing rally except the ones that matter: oil and USDJPY are being ramped higher, and VIX forced lower when necessary, which has kept the algos in an unrelenting meltup.

Note that CL, for instance, has “broken out” of a series of falling channels as fast as it can construct them.  Having reached last night’s target right on time, it’s breaking out again.We’ll take a look at our current analog, and adjust a few price targets as needed.

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In our last update on RUT [see: Nov 11 Update] we noted that RUT was likely to break through to new highs.

…given that it’s Friday, and RUT is now only 14 points short of new all-time highs — we have another good argument for a gap to new highs on Monday.

RUT did, in fact, gap up to new highs on the following Monday, and has since gained another 6.3% in less than a month.  Can it maintain its momentum, or has it moved too far, too fast?

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Yes, VIX broke out of the falling channel it’s been in for the past week after coming within .10 of a likely bottom.  Yes, the ECB is tapering its QE.  Yes, the EURUSD is off over 1% so far.  And, yes, the USDJPY broke below SMA10 support. So, why, exactly, are futures still positive?

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Deutsche Bank has rallied 59% since our bottom call on Sep 27 [see: Deutsche Bank: Will it Survive?]  It’s all the more impressive since it has occurred against a backdrop of the troubled European banking industry.

Several weeks ago [see: Deutsche Bank – All Better?] we called for a 7% correction following a Butterfly Pattern completion and were promptly rewarded with a 7.6% drop.

We’re now at another one of those nifty inflection points here at 18.78 where DB should at least put in a meaningful pause, and possibly much more.

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Note that DB has left a trail of gaps in its ascent, with the most recent at 16.68 — an 11.1% drop from 18.77.  I would, therefore, set an interim downside target of 16.68-16.90 on or about Dec 15-16.  If the fallout from the FOMC decision isn’t too bad, DB should continue on up to 20.43 in mid-Jan.

If DB makes a meaningful reversal here, the rising white channel I’ve sketched in should take form – opening the door to a deeper backtest and fleshing out the rising white channel. It emerges from the falling red channel around Jan 13 at 14.30ish.  But, the more conservative target would be the midline at 16.90.

GLTA.

Few things were as terrifying to the Star Ship Enterprise’s crew as being caught in an enemy’s tractor beam.  That unrelenting pull towards certain doom was a frequent plot device that tested, but never bested, the ingenuity of Kirk, Spock and Scott.

So it is with the “market’s” behavior when it comes to central bank announcements.  The bankers have discovered that it’s better to repair the damage before it’s done by fostering a sizable ramp prior to an unfavorable announcement.  It happened before Brexit, the election, and lately with the Italian referendum.  Why should the upcoming ECB and FOMC meetings be any different?

We remain long from 2208.79 yesterday afternoon.

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VIX has been particularly active in pushing stocks higher, lately [see: VIX, Just Another Tool.]  So, as it approaches the channel bottom that has connected three previous lows, we’ll take a look at those previous instances to see what they suggest going forward.

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In our last update [see: Update on Gold, Aug 26, 2016] I noted that GC had come within 2.50 of our 1380 target (from Apr 8) in early July.  After seven weeks of chop, it still hadn’t committed by either tagging the target or breaking down.

The way I saw it, its fate was tied to equities, the US dollar and oil.  If CL rallied, DX could drop and GC was in a position to run up and officially tag 1380.  If, on the other hand, our SPX analog from Aug 3 played out, GC was heading lower.

If our analog plays out, and stocks spike higher over the next few sessions, look for DX to lead the way and GC to tumble — if it’s led by currencies… And, I’d be remiss if I didn’t mention the huge IH&S Pattern, the neckline of which is the former high at 1307ish.  If TPTB are serious about discrediting GC anytime soon, it’ll involve getting it back below that support.

As it turned out, DX was putting in an important bottom that day that would see it rally 8.4% in the next three months.  GC bounced several times at 1307 before finally plunging below on Oct 4, shedding 14% as of today’s lows.DX recently tagged our upside target at 102.098, leaving many readers to wonder whether this is the right time at which to cover short positions.

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Today should be helpful in understanding where, exactly, we are with our analog.  So far, it’s shaping up as a battle between VIX, which continues to be hammered, and CL, which is off another 2.65% so far this morning.

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It’s a repeat of the reaction to Brexit and the US election. Italy’s referendum has triggered all the usual stock propping mechanisms: CL, USDJPY and VIX.  CL officially busted its H&S pattern, USDJPY has rallied over 1% off its lows, and VIX broke down below its rising red channel bottom…again.  The result: the eminis have spiked 27 points higher off Sunday’s lows.

The most startling reaction was the EURUSD, which is improbably higher than before the referendum (but, importantly, has merely backtested the falling white channel it broke down from.)

As the talking heads ruminate over Greenspan’s irrational exuberance comments of 20 years ago, there seems to be little concern about the even more irrational (but, predictable) reaction to fundamentally disturbing events.

A popular website posted the comment this morning “[we] wonder if the ECB has its own plunge protection team.”  I would take that a step further.  What is the ECB, if not a plunge protection mechanism?

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Every once in a while, we get a nice little reminder that VIX, traditionally a reflection of risk in the markets, has become just another tool by which central bankers and their lackeys drive markets.

Early this morning, the S&P 500 eminis were breaking down from a channel established over the past several post-election weeks.  The channel, shown below in purple, was silly enough to begin with.

Had the breakdown been allowed to occur, ES might have dropped all the way to (and, I shudder to think) the SMA20 at 2175 — a 0.4% plunge that surely would have sent investors screaming into the streets.

At precisely the moment that ES was backtesting its broken channel (the yellow arrow)……VIX decided to plummet 13% — dropping through multiple levels of support.  ES, of course, responded by rejoining the (no-longer) broken purple channel and continues to modestly rally, comfortably in the green.

I have a term I use for such instances as this morning’s: a shot across the bow.  It’s a stark reminder to bears that unauthorized declines can and will be harshly dealt with.

It’s no secret that markets are constantly manipulated.  And, it’s never a surprise when VIX is enlisted to nudge prices in one direction or another.  It’s frequently hammered in the closing minutes of a session to allow stocks to close on a positive note.

But, this was a particularly clumsy effort that should make even the most die-hard believer in market purity and efficiency at least a little more skeptical.