While the media will ascribe this morning’s exuberance to a rebound in the UK’s “remain” polling, it’s actually oil futures-driven algos that are driving the action.  I suppose it doesn’t matter much, as one is designed to reinforce the narrative of the other.

If last week was a return to “normal” for CL, consider today a refutation of all things normal.  After tagging our downside target on Thursday, CL has rebounded by a stunning 8.4%, and:

1. broken out of the falling purple channel — again
2. broken out of the falling white channel — again
3. rejoined the rising white channel — again
4. broken above its 10 and 20-day moving averages — again

The algos are happy, with ES having gapped up to a 24-pt gain at present.continued for members…

As bullish as things seem at the moment, note that CL has also reached the purple .618 and ES has reached not only the SMA10 and 20, but a full backtest of the broken purple channel from 2009.  In other words, the party should be over for CL and, if so, likely for ES too.It should be enough for SPX to backtest the recently broken purple channel at 2094ish.

UPDATE:  9:34 AM

SPX has backtested the purple and white channel bottoms, as well as the top of the falling purple channel from 2134 in May 2015.  It should at least pause here, if not actually reverse.  I’d close any long from the opening, but consider shorting when CL breaks back below its SMA10/20 at 49ish.UPDATE:  9:42 AM

SPX has leaked slightly higher as ES apparently wanted to tag its .618, too.  Traders could try shorting here, but don’t be shocked if they pin it to these price levels (until the SMA5 10 arrives) with NKD, VIX, whatever it takes.  If you do short, use very tight stops. Note that ES has completed a little IH&S Pattern that targets 2109.50 — we’ll call it the red .886 at 2110.52.  A backtest of the neckline would take it all the way back to 2074.  But, SPX would likely run into support at its SMA10 at 2092.73 or SMA20 at 2089.21.

CL has support at its SMA10 and 20, even though the red acceleration channel looks to have broken down. There’s no reason it couldn’t bounce around, going sideways for a few days.  But, I suspect we’ll see a backtest of the falling white channel (47.80) fairly soon, followed by one of the SMA200 (40.90.) I haven’t mentioned USDJPY this morning, only because it’s also playing games.  After going absolutely sideways for 17 hours on Friday, it popped up to a slightly higher high on Sunday, to support the futures’ rally, and is trending lower again.  At this point, I’d not trust much of anything out of this pair.UPDATE: 10:05 AM

SPX is being driven higher again by CL…probably just to tag the 2100 mark (and run some stops, of course.)  The SMA5 10 is approaching the daily SMA10, so ideally it’ll back off in a few minutes. UPDATE:  11:25 AM

Coming up on the euro close in a few minutes.  ES appears ready to dip to the SMA10 at 2083.70, but only if CL backs off its rally back into the broken red channel.  Even then, it probably won’t happen until the SMA5 200 has reached the SMA10.  This would be roughly the equivalent of SPX’s SMA10 at 2092.73. UPDATE:  11:56 AM

ES and SPX just tagged their SMA10s.  I’d cover the short here and revert to long with very tight stops.  A bounce beyond the (now) resistance at the SMA5 10/20 will require new highs for CL and/or a recovery by USDJPY — which has broken trend. UPDATE:  12:04 PM

Even though CL is still bouncing higher, USDJPY is dropping even more.  I’m curious as to whether they’re planning to validate the rising white channel with a gentle drop over to it’s bottom — near the close or on a gap lower in the morning.  Back to cash here.  I’d go back to short, but don’t see any point until CL is done rallying.  I think they’ll probably try to keep it going sideways until the SMA5 50 reaches the yellow neckline at 2091ish — probably around 12:45.

Update on CL…UPDATE:  12:50 PM

To be clear, the chart patterns are extremely bearish at this point.  If TPTB hadn’t proven the CL-driven algos to be so powerful, I’d put every dime I had into out of the money puts.  But, this morning’s ramp job shows just how powerful they can be.  If we have another morning like this tomorrow, then many of the extremely bearish patterns would be broken.Consider that ES is backtesting the broken purple channel bottom from 2009 and the broken white channel bottom from Feb 11, as well as a host of Fib reversal points. But, today’s ramp also puts it back above the top of the falling white channel from 2015’s highs.It got above the channel top in late May when CL broke out, and is back above it again on the same price action.  And no one seems to care one bit that it’s being manipulated.  And, why should they?  If your next fill-up at the gas station costs you an extra $3-4, you’re not going to shake your fist in rage because the extra cost was a result of propping up the stock market.  Only a very tiny number of people even understand the connection.

I dare say the same situation exists with the Brexit.  I don’t believe there’s anything TPTB wouldn’t say or do to avoid upsetting the ECB’s apple cart.   I will place a small, out of the money bet on a downside move after Jun 23.  But, I’ll be surprised if it comes to anything.

UPDATE:  1:17 PM

SPX just tumbled to the yellow neckline on a USDJPY plunge of .25.  I’ll take a short position here, but dump it if SPX pops back above its SMA10 or ES above its white TL. UPDATE:  1:46 PM

There’s a risk of it popping back above the MAs here.  Caution is warranted with our short position….  At this point, I’d say the SMA20 is looking good for a backtest.  But, note that the SMA20 is increasing at the rate of about 2 pts/day.  So, it’ll likely be up over 2091 by tomorrow — not much below current prices.

UPDATE:  2:02 PM

Close to pulling the plug on the short.  Too much action from CL, and USDJPY itself is starting to look wishy-washy.

UPDATE:  2:02 PM

A lot of action from CL, and USDJPY itself is starting to look wishy-washy.  SPX needs to make up its mind… UPDATE:  2:24 PM

CL is starting to panic a bit, as USDJPY and NKD continue to slump lower, dragging ES and SPX with them.   FWIW, ES has completed a little H&S that targets this morning’s IH&S neckline at 2074.  The equivalent for SPX is about 2085.46 — the red .500 and a line of horizontal resistance.  Holding short. UPDATE:  3:34 PM

SPX is testing the bottom of the rising white channel I sketched in this morning.  It already dipped below the SMA5 100, which is mildly bearish.  But, USDJPY is poised to bounce.  So, there’s a decent chance that the white TL is as far as it’ll go today.    Watch your stops.  If you don’t intend to hold short into the close and/or overnight, this is probably the place to cover this morning’s short. If USDJPY can make it down to the .886 at 103.7ish, then we could potentially get more than 2085 on SPX.

UPDATE:  3:55 PM

ES has reached its SMA50, though SPX’s is still lower at 2078.02.  Still, ES has also reached the H&S neckline backtest, so we’re likely to get a bounce here.  I think we’ll get more follow through on this sell-off, so it might be worth holding short overnight if you can hedge or keep a close watch on it overnight.Just know that it’s the perfect setup for a big pop up to the ES 2110 level we discussed this morning.

I’ve seen it blamed on everything from a potential delay in the Brexit vote to Bullard’s resumed dovish tilt.  But, yesterday’s stick save was simply the result of our old friend — the USDJPY ramp.

After one of the most devastating dives yet (thank you, FOMC) the pair went on a non-stop melt up which, along with CL bouncing just below our 46.34 target, saw SPX/ES make one of its most vicious V-shaped recoveries this year.

ES has seen many like Wednesday’s — the steady drip, drip, drip of the algos working prices higher.  Yesterday’s 35-pt rebound was so steep as to be laughable.

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The FOMC punted on raising rates yesterday.  As expected, the US dollar tumbled and the USDJPY plunged.  Only very aggressive dollar buying that started around 3am ET halted the pair’s decline.  Note that this is likely the last gasp for the USDJPY and the yen carry trade.  If it can’t rebound here at the .886 Fib retracement of the rise from 100 to 126, then it’s a long way down.

The last time USDJPY traded at 100, SPX was nearing 1823 — the 1.272 extension of its 2007-2010 drop from 1576 to 666.  By all rights, SPX should have reversed there.  But, USDJPY broke out – up 26% over the next 21 months.  It dragged SPX 311 points (17%) higher.

But, much to central bankers’ chagrin, stocks topped out when USDJPY did.  Had oil not stepped up as the new market manipulation tool of choice on Feb 11, stocks would be back down to those Dec 2013 lows.SPX remains on track for our primary downside target, though there are a few potential interim stops along the way.

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As we all wait to see what magical solution the FOMC can come up with to attack both growing inflation and stagnation, the futures are up modestly on the usual USDJPY/NKD ramp.continued for members… (more…)

With lots of central bank and political turmoil likely ahead, I thought it would be a good idea to review the big picture and identify the most likely outcomes for equities.

We’ll start with the weekly chart for SPX.  This is the pure, unadulterated version — showing just how insanely steep the slope is on the channels — both rising and falling.Note that the rising red channel from 2009 is contained within the .236 – .500 quarter of the rising white channel.  It’s no accident that it started below the .236 line.  And, it’s quite significant that SPX arrived back at the white channel midline and the yellow 1.618 Fib at the same time [see: The Last Big Butterfly.]

The index’s difficulty at busting out of the rising purple channel is evident in the mass of channels, Fib grids and assorted other chart features packed in the most recent peak.

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SPX lost key ground yesterday as it dropped back below the top of the channel dating back to May 2015.  CL and USDJPY did their best to stem the losses, but SPX dropped straight to our downside target, then tagged on a little more for good measure.continued for members… (more…)

If you’re a chartist, there are two distinct markets to deal with.  Both are predictable, but only one is enjoyable.   Friday, when SPX nailed our 2090 downside target, closely following the path we laid hours earlier, was fun.

Then…there’s the market’s evil twin.  It’s driven by algorithms that respond to manipulation in CL and USDJPY prices — a clear case of the tail wagging the dog.  Consider the night of June 5, when CL futures, after having struggled to push past a key Fibonacci level for several weeks, departed from a falling channel to push up and out of a rising channel.Never mind that CL is back below the rising white channel top and is even contemplating reentering the falling purple channel.  Never mind that it burned bears by driving ES 22 points higher over the next three sessions.  And, never mind that it’s back below the white .618 Fib level at 48.63.

The point is, it established new highs for ES and SPX — meaning that all those nifty bearish harmonic patterns that reinforced the bearish chart patterns got busted.  It’s a common occurrence, and one that makes charting a lot tougher than it was a few years ago.

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It looks like we’re going to get that yellow neckline backtest after all.  That poor white dot has been hanging out down there at 2086 for a week, looking less and less likely to ever get tagged.  Now, not so much.continued for members... (more…)

Last month was challenging, to say the least.  After a deep retracement of the drop from 2134 to 1810, SPX began a well-formed, falling channel that lasted from Apr 20 to May 19, at which point SPX had completed two large Head & Shoulders patterns. Beginning on May 24, though, things got very “interesting.”  SPX broke back above the H&S necklines and out of the falling channel on a series of algo-driving rallies in oil futures (CL.)

After three straight days of nearly 1% gap openings (yellow arrows above) with very little retracements, the downtrend was broken.  Ironically, CL advanced very little during this period.  The gains came almost exclusively during market hours, after which CL reset for the following day.Most sessions during the month were gap openings, and most of the rebounds featured meltups — my least favorite “market” to chart or trade.  Nevertheless, we managed to generate decent results for the month at 9.49%.

This was a little lower than earlier in the year when we saw more volatility.   But, Isuspected as much when we entered the dangerous period between the previous all-time high of 2134 and the .886 retracement of the drop from it to 1810.

FWIW, June is shaping up to be every bit as “interesting.”

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Yesterday, CL and USDJPY ran into significant resistance.  But, of course, they weren’t permitted to decline until after the market had closed for the day.  So, we’re left with yet another gap down overnight.

CL is finally backtesting the rising channel it broke out of yesterday.

And, USDJPY very nearly nailed our downside target overnight.

Our downside target for SPX remains unchanged — but, again, we had to hold short overnight to enjoy it.

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