ES assiduously followed a well-defined falling channel ever since the top in March – with the exception of last week’s breakout. As we pointed out, that breakout was a head fake. ES not only reentered the channel in Friday’s meltdown, but came very close to breaking down below it in the after-hours.
If it can remain in the channel, our next downside target is looking very good. If not, we’ll get there a lot faster than expected.
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Stocks were rejected at the 200-day moving average following an aggressively hawkish comment by Fed Chair Powell that a 50 bps rate increase was “on the table” at the Fed’s May 3-4 meeting. The Fed watches charts too, folks, so this was hardly a coincidence.
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Futures are keying off the exact same factors as yesterday. USDJPY is creeping higher and VIX is threatening a breakdown.
Traders continue to face an array of headfakes and misdirection as ES backtests its 200-DMA yet again.
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Forget the fundamentals. Between USDJPY’s breakout and VIX’s smackdown (19% over the past two sessions), the bears are getting pummeled by algos.
As a result, ES’ falling white channel has been busted – meaning at least a delay in any additional downside.
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We published USDJPY’s next highest target months ago with the caveat that it would mean completing a large IH&S that targeted much higher levels and was, thus, far from certain. With inflation already rising sharply, would the BoJ willingly inflict even higher prices on Japanese citizens and businesses just to keep the yen carry trade going? 
Wonder no more. In the past month, USDJPY has completed three separate IH&S Patterns. Unlike other central banks which are acting to reduce inflation, the BoJ is guaranteeing even more. It will certainly mitigate stocks’ downside potential to some extent, but at what cost?
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Futures are off modestly this morning on bearish rumblings in the currency space.
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Retail sales came in at 0.3%, lighter than expected and lower than last month’s 0.5%. Combined with soaring CPI and PPI, the stagflation assessment is gathering momentum. Futures are off modestly on the news and ahead of the market holiday.
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Mar PPI soared 11.2% YoY and 1.4% MoM – both an acceleration of gains in the past several months.
No rally this morning, as futures experienced a bearish 10/20 crosses overnight…
…and VIX is about to. 
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March CPI rose at a new 41 year high: 8.5% YoY (8.4% expected) and 1.2% MoM (highest since 2005.)
Algos spiked higher on the news…
…as VIX was crushed.
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In last month’s update on currencies [see: Mar 7 Update] we noted that DXY was closing in on our upside targets but would require some consolidation first, USDJPY was due to breakout and rally to its next H&S target, and EURUSD’s bounce would not persist.
A month later, each of these has unfolded almost exactly as expected, with DXY tagging its 100.042 target on Friday after spending the past year in an exceptionally well-formed channel.
We expect the trend to continue for a number of reasons.
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