Despite an impressive meltup over the past two sessions, bonds continue to warn of another plunge in equity prices.  Which is correct?

continued for members…

The bigger picture… breakdowns in the 2Y aren’t the only thing that cause stocks to correct.  But, it has been working for decades. There are two primary types of breakdowns – a rising trend line or horizontal support.  Both the 2000-2003 and 2007-2009 crashes had both kinds of breakdowns in succession.

The Feb 2018 – Jun 2019 breakout (above the red TL from 2000) put off the inevitable.  But, that breakout failed and the 2Y, after breaking below its rising TL has broken below a succession of horizontal support points.  This latest one should see it drop to at least 1.15ish.At the same time as this breakdown in the 2Y…

…we’ve had a breakout in 2s10s.

The only thing we don’t have yet is a breakdown in stocks. …though, as we discussed Friday, there is resistance at this level.The question remains whether the prop job due primarily due to CL, RB, USDJPY and VIX can hold. As we have seen, there are very strong powers dedicated to keeping stocks near their all-time highs.  Yet, these same powers have not made an effort to drive SPX to new highs even though it would have been fairly easy to do.

IMO, this supports the general idea of the analog though it hasn’t helped with the analog’s accuracy.  The algos complicate things in that the declines haven’t been able to reach their full potential and the rallies are all overdone.  At least that’s the way it seems.

What I think it really means is that SPX is being positioned at a certain level in advance of events which are likely to result in a downturn.  The end of Q3 was a good example, as was the rally leading into the last FOMC meeting.  It could also be economic news like crappy PMI, jobs, CPI…or the outcome of the trade talks.

If SPX were to max out right here at 2955.80, within spitting distance of the SMA10, an A-B-C corrective wave where C=A would put SPX at 2819.21, almost exactly where our downside target has been.  It would even be slightly lower than the August lows, which was one stipulation of the analog.  Putting the 2819 target back in here…The alternative is to believe that the momentum which took SPX back to even on the day magically disappeared once SPX turned green…and, that VIX couldn’t manage even a few ticks lower.I think this is another bull trap and that SPX will be 136 points lower in the next couple of sessions.

More later.