When we last took a look at RUT [see: May 30, 2016 Update] it was pushing higher within a steep channel, but was going to run into resistance very soon.  I closed my eyes and threw a few darts, and this is what stuck: upside targets at 1200 and 1255.77, and a downside target at 1070 (just in case the channel broke down.)

Little did I know at the time that all three targets would end up coming into play.  Here’s the same chart, updated with the price action for the three months since then.

RUT reversed at 1190.17, 10 points shy of the purple target, then plunged 9% to 1085, 15 points shy of the yellow target.  It then spiked over 12% to come within 5 points of the white 1255.77 target — where it now sits.

Aside from the ugliness of the channel breakdown (Brexit) that magically healed itself a few sessions later (price manipulation) it makes for a pretty nifty Bat Pattern.

Is this the end of the road, or is RUT destined for new highs?

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Futures shot up 10 points after this morning’s disappointing jobs report, meaning the bounce off our 2157.47 target, yesterday, is for real.  So, is the “market” out of the woods?  Not necessarily.  CL plunged through channel support yesterday, and has further to go if the longer term channels mean anything.

The upshot is that while SPX will most certainly pop on algo response to the jobs report, it’ll just as surely drop if CL can’t break out.

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Oil reached our next downside target yesterday, then did something funny.  Instead of supporting the “market” as it’s done countless times before with a bounce at support, it kept going. Likewise, DX and EURUSD ignored opportunities to tag their nearby SMA200s, which would easily have allowed SPX to close in the green.

Whenever TPTB ignore opportunities to have the “market” rebound, it can mean only one thing.  They don’t want it to.  At least, not yet.

We remain short from 2171.22 just before the close yesterday.

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USDJPY is the only market mover doing its job this morning, but it’s almost to our upside target.

Which was enough to get NKD through its SMA200.  It was as much a function of the falling SMA200 as it was the rising BoJ supported index.

Everything else is intentionally whiffing the ball.

Futures are flat, with that 2152 still looking rather juicy.Which still lines up with SPX 2157.  If it gets there, or even breaks 2161, then we’ll reevaluate the prospect of 2138.

As yesterday, keep an eye on VIX and the purple TL from last Friday.

For those who watch gold, note that it reached the yellow TL from December overnight.  It could leak a little lower to tag the SMA100 at 1298.40, but this is its moment of truth.

UPDATE  10:35 AM

SPX just reached the bottom of the falling red channel, so will likely get a bounce here.  It should fall a little further to tag the .786 Fib, which would allow ES to tag its yellow TL and .786 at 2152.20.

Note, however, that ES has almost reached its 1.618 from the 2007-2009 drop, at least on an unadjusted basis.  So, ES traders might think this is quite enough.  However, SPX’s 1.618 is clear at 2138, the equivalent of 2136 in ES.

Note that the yellow TL we’ve been tracking (I’ve sometimes erroneously referred to it as a channel midline) was drawn to emphasize the bottom of the rising purple channel. ES dropped through the bottom of it for the first time in January, which began the frenetic doubling of CL in order to get stocks back on track.   But, CL is still slumping towards 43.07, and VIX looks like it wants to tag 14.68, so I’m inclined to think we have more coming.

UPDATE:  11:05 AM

SPX just tagged its .786 at 2157.47.  I’d say we’re due for a reversal, though ES didn’t quite reach its, nor the red TL connecting the two previous lows.  And, VIX looks unfinished.  I might regret it, but I’m not quite ready to pull the plug.  We’ll see what happens when the SMA5 10 catches down in a few minutes.

UPDATE:  11:19 AM

Looks like an extended bounce is coming, as VIX just dropped through the red TL.  Back to cash here, though I’ll be ready to go short again on any sign of a reversal — probably when the SMA5 20 catches down.

Swing traders, I believe you’re safe staying short for another 5 points, but it’s too close to call.  Sometimes ES needs to tag its targets, and sometimes it’s enough that SPX did.

UPDATE:  11:37 AM

Probably close enough, especially with the euro close.  I’d revert to short here with tight stops.  We’ll make the target ES 2152.20, which is about SPX 2154.  Since SPX’s .886 is just below at 2152.85, I’ll use that as my SPX target.

UPDATE:  12:02 PM

SPX seems to be looking for support here at the SMA20.  It’s not unusual for it to climb on top for a little bump, only to finish a move later in the day or the next.  And, this drop does look like it got a little ahead of itself.

Technically, the H&S has completed.  And, I doubt they want traders to start shorting it like crazy with the expectation that it won’t be propped up as usual.

I don’t see any effort on the part of CL, USDJPY or VIX to reverse it here.  But, you never know.  Watch your stops.  We’re coming up on 12:09, which often marks the end of a bump higher.

UPDATE:  12:15 PM

VIX is dropping a little lower, so I’m assuming this is going to be drawn out for a while.  Back to cash, here.  The SMA5 50/100 are up ahead at 2165ish, and the rising red channel bottom is around 2164ish.  We might see either of those as another reversal point.  But, I think the issue is more timing than anything else.  They don’t want the channel to break down too badly.  CL hasn’t budged yet, so I’m leery of going long.

UPDATE:  12:50 PM

Well, that escalated quickly.  Looks like one more spurt up to the SMA5 200 or white TL before we get another chance at lower.  Note that VIX didn’t quite reach the purple TL, which will intersect with the yellow TL and the SMA5 200 at 13.58ish.

UPDATE:  2:07 PM

Well, that was tricky.  SPX reversed without having tagged the SMA5 200 or TL.  CL started dropping and VIX started popping (without having tagged its SMA5 200), and that’s all it needed.  I’ll try a short position here, but there’s a 50:50 chance that this is a head fake — as those catalysts are most often involved in an upside reversal.Note that CL has almost reached 43.07, our next downside target from last week.  We’ll look for a bounce there up to the cluster of SMAs and white channel line, say 46.24.

UPDATE:  2:13 PM

Yep, looking very much like a head fake that got away from them a bit.  Back to cash here on any sustained push through the SMA5 100 at 2165.77.  A rally to the white TL by the close (ideally 2:50) looks fairly likely at this point.  My hesitation is that CL continues to settle lower.  It just tagged the .618 at 43.07, but is showing no signs of rebounding yet.

CL is approaching the rising white channel bottom.  Will it run all the way down there or respect the .618?  TPTB love to gap down on the opening for these things almost as much as they do a close at a bearish low.  Either way, I’d be prepared to short at 2167-2170.

UPDATE:  2:49 PM

There’s the SMA5 200.  Might be a little early, as VIX still hasn’t reached its SMA5 200, but I’d short here for another leg down.  The risk here is that CL runs down and tags 42 after the close and then spikes up to 46-47.  This would leave folks short overnight facing a big gap higher in the morning.  Dirty pool, but hardly unusual these days.

But, we’ll cross that bridge when we come to it.  At this time, there’s still a chance that CL will spike lower before the close, leaving a big dragonfly candle on the day and giving us a chance to cash in on SPX’s drop to 2150-2152.

There’s one theme that’s characterized this “market” for the past six weeks since Brexit: push a little here, pull a little there — always just enough to keep it on an upward trajectory.

Yesterday, it was a USD breakout [see: Manufacturing a Breakout] that kept prices high enough into the end of the month. Nicely done, Fed jawboners. But, what’s next, now that the dollar is up against strong resistance?

Did it surprise anyone that the Fed jawboner du jour (Evans, non-voter) walked back all that hawkish bravado, promising low rates forever?  Like Fischer yesterday, he made it clear that the only data upon which the Fed is dependent are stock indices.

“If necessary, we could normalize policy much faster than currently envisioned and still keep the pace gradual enough to avoid a disorderly change in financial conditions.”

For those who missed it, Stanley Fischer’s comments on Bloomberg yesterday:

“Well, clearly there are different responses to negative rates.  If you’re a saver, they’re very difficult to deal with and to accept, although typically they go along with quite decent equity prices.  But, we consider all that and we have to make trade-offs in economics all the time and the idea is the lower the interest rate, the better it is for investors.”

There you have it savers, insurance companies, pension plans, banks, and pensioners.  Sorry you can’t earn anything on bonds — the bedrock of your portfolio. At least you’re not paying interest like Japanese and European investors — not yet, anyway.  Take comfort in the fact that stock investors are reaping the rewards of your sacrifice — a fair trade-off, no?

Note to our new members…remember to follow @pebbletrades for notices of intraday position updates.  It’s a private Twitter feed for members only, so you’ll need to be approved.  If your Twitter handle is wildly different from the name under which you subscribed to pebblewriter.com, message me so I can put the two together.

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Last week [see: Oil Takes a Breather] we identified key support for CL at 45.34.  At the time, that represented a nifty intersection of the SMA100 and the top of the broken white falling channel. 

It looked likely to happen within a few days.  And, CL was kind enough to trace out a well-formed falling channel pointed right at it (seen below in red.)

The following day, however, someone pulled the plug on the falling channel.  CL spiked out of the channel (on reports of much higher inventories, at that!) then spent the next five sessions going sideways.

Until today.  Moments ago, API reported a smaller than expected inventory build (which should have sent prices higher.)  CL, which spent all day going nowhere, suddenly spiked lower, reaching 45.75 and finally tagging the (now higher) SMA100.

The move wasn’t terribly difficult to see coming, and it provided a nice guide to stock prices.  Again, from Aug 22:

The big question now, is whether it can properly flesh out something resembling a channel, and backtest the large white channel it left behind on the 16th.  If it doesn’t spike higher, SPX should have no trouble reaching 2165 or even 2161.

SPX tagged 2160.39 four days later, the low over the past 3 1/2 weeks — yet again, validating oil’s value as a great tool for influencing stock prices.

My son, a bright and successful financial planner in Austin, asked me today what I thought were the three biggest drivers of global oil prices.  Without hesitation, I answered “BoJ, ECB and FOMC.”

The bigger questions remain: will CL bounce here, and what are the repercussions if it doesn’t?

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Another day, another Fed official jawboning the dollar higher.  Gee, you’d think they’re trying to get it to break out or something…

The US dollar has been heavily manipulated over the past year.  We’ve covered the “why.” As an importing nation, the US needs the things it buys to remain relatively cheap or the “we need higher inflation” meme falls flat on its face.

Without it, there’d be no excuse for the continuation/expansion of easy money policy that’s propping up the “markets.”

As to how…well, when you have unlimited funds at your disposal and can legally play the currency game any time you like, it’s not exactly rocket science.

And, they’ve long since given up on the pretense of an investor-driven market.  You don’t get chart patterns like these — with frequent breakouts from well-established channels — just because.

You get them when investors panic, choking off the prospect of continued new highs, forcing central bankers to do what they do best — propping up prices.

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For now, it appears as though the Fed won the battle without having to fire a single shot.  Expectations of a September hike have doubled, the US dollar has pulled out of its nosedive and futures are back in the green (by 1 point, but green.)

To the casual observer, it would appear that they must have all the right answers.  Of course, the real culprit for all things bright and beautiful is the yen, which was monkey hammered on more Kuroda gobbledygook about massive QQE expansion.

Whether he will or won’t — who knows?  But, the USDJPY spiked higher and NKD is back above the ominous TL below which it broke last week.

This, of course, is even more an illusion than the dollar’s strength, as the buying was done by the BoJ itself — not “market” confidence in the wisdom of its policies — which are piling ruin upon Japan’s already bleak future.

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When we looked at gold last April, we saw upside potential to 1380 [see: Update on GC: Apr 8, 2016.]

If it breaks above 1246, then the purple .618 at 1257 is a gimme.  From there, we have potential resistance at 1270, which is also about where the purple midline currently resides.If it breaks above the purple midline, then 1379-1380 is the next logical target, perhaps in Sep/Oct.

Gold got to 1377.50 last month, and hasn’t been able to push higher since.  Here’s the same chart as last April, with the chart patterns and price action extended to today.

It’s trading right now at 1325, about 4% shy of our target.  Does it still have the potential to move higher, or were July’s highs it?  And, the Federales‘ comments from Jackson Hole — do they give us any clues as to what to expect?

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Will they, or won’t they?  Even under tenacious grilling by the MSM, the Federales haven’t given much guidance as to whether they’ll hold the line in September.  We have our own thoughts on the matter, which informs our analog [see: A New Analog: Aug 3, 2016.]  It’s still (drumroll, please) on track.  But, today marks one of those inflection points that will make it or break it.

SPX came within a few points of our next downside target yesterday, held at bay by USDJPY, which kept threatening to break out beyond this totally meaningless TL — a charting straw man if ever there was one.

And, of course, CL got in on the action — ramping just a little higher every time SPX ticked down a little.  Its former falling red channel is now a distant memory.  And, it’s back to playing cat and mouse with its SMA10.

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We’ve seen a lot of interpretations of the bad news/good news story over the past five years.  We’ve become inured to the idea that bad news is good, because it ensures continued central bank easing — which is supposedly good for the “markets.”

So, with ever louder cries for rate and policy normalization, and all eyes on the Jackson Hole confab, it’s not too surprising that the futures aren’t loving this morning’s strong durable goods beat.  There was a lot under the hood on this report, namely:

• Durable goods new orders +4.4% vs 3.3% exp.
• New orders ex-transportation +1.5 vs 0.5% exp.
• Non-defense cap goods ex-aircraft +1.6% vs 0.3% exp.

While it was a nice month-over-month beat, the year-over-year comparisons were atrocious:

• Durable good orders -6.4% (2nd big annual drop in a row)
• Capex shipments non-def, ex-aircraft -9.5% (unadjusted)

The futures are off across the board, with CL notably well on its way to our downside target and stocks likely to follow.  Our downside targets from last week and our Aug 3 analog remain in place.

Note: This is the last day of our current membership promotion.  $299 gets you three months of full access as well as technical analysis on the security or index of your choice.  This offer is limited to new members and former members whose subscription has lapsed.  For more details and to sign up now, CLICK HERE.

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