A week ago today, SPX tagged an important Fib target that would have been a perfect turning point were it not short of the 200-DMA.  As we noted at the time [see: The Red Zone] a reversal without tagging the 200-DMA would have been highly unusual.

There have been no instances of SPX approaching but failing to tag its 200-DMA since January 2003. It would also be easy to prevent.

First, SPX’s SMA200 is just above at 2741.55. It seems unlikely that SPX would come all this way just to whiff at such an important target.

Second, SPX has obviously pushed back above major support at the 2.24 and the H&S neckline.

Last, if VIX spikes higher, won’t USDJPY or CL/RB just come to the rescue?

As things turned out, SPX backed off just enough to tease bears: a 57-pt drop over the next three sessions.  At that point, SPX had dropped enough to flesh out a sharply rising channel from its Dec 24 lows.

More importantly, DJIA had tested and was in danger of dropping through its own 200-DMA.  Clearly, it was time to prop up equities.  And, that’s exactly what happened.USDJPY, CL and RB came to the rescue, ensuring that SPX regained its 2.24 at 2703.  And, VIX — which did initially spike higher — was hammered (-58% so far) after Mnuchin convened the Plunge Protection Team, giving stocks all the support they needed to come back and test the Feb 5 highs.Once SPX tags its 200-DMA, is it safe to assume it will be able to maintain its momentum?

continued for members…

As a result of the overnight ramp, SPX will easily break out of its falling white channel today – covering at least half the distance to its SMA200.

And, ES has joined it in surpassing its 2.24 Fib extension.   Note that ES’ biggest retracement on the way to its purple .886 Fib (2731.25) was at its .707 — suggesting that the .886 won’t constitute very tough resistance.

Instead, it suggests a push through to the 1.272 or 1.618 Fibs at 2753.25 or 2772.98 — assuming ES can get past its SMA200 at 2744.70.CL, which broke down yesterday, is on the rise again — taking RB along with.The only hitch is that RB has threatened to break out above its H&S neckline five previous times, only to fall back below it.  The 1.692 target is inside the Feb 2018 range, meaning a move that high would zap the sharply negative YoY drop which features so prominently in the inflation forecast which justifies a rate cut (or, at least no further hikes any time soon.)

UPDATE:  11:05 AM

SPX has almost reached its SMA200 at 2742.98 and ES its at 2744.77.  Note that the three previous tags (October, November and December) all produced overshoots and gaps above the SMA200 the day after initially backing off.

In the first instance, SPX initially gapped above but dipped back below the following session, only to gap back above the following session for three days.  The next one (18-pt gap), the overshoot lasted three days before breaking down. The last, SPX plummeted the very next day and produced the Death Cross which barely played out.I think the lesson here is not to get too excited about a reversal based on an initial tag or a near miss.  Odds are it’ll be a head fake which results in a gap higher the following session.  The corollary: that gap higher could well be a head fake, too.

As long as we’re drawing comparisons, let’s not forget the biggest contrast.  During Oct-Dec 2018, the Fed was supposedly committed to several additional rate hikes in 2019.  Lately, not so much.  Powell has proven himself to be nothing but a dove in hawk’s clothing – more focused on preserving stock prices than anything else.

One thing for sure: SPX gapping above its SMA200 would almost certainly involve VIX breaking down below its channel bottom.And, RB/CL, which have completely backed off their earlier highs, would likely break out all over again. UPDATE:  1:30 PM

ES has officially joined SPX in tagging its SMA200. They can keep the party going with a push by CL above its SMA10… …and, a bounce by RB off this little TL.Which was will it go?  If the past is any indication, we’ll get a pullback here and a gap higher tomorrow. But, keep a very close eye on VIX.  I put the channel bottom support at about 14.56.UPDATE:  3:48 PM

Coming back down…quite a gap from this morning.  Might it be closed either in the next 10 minutes or tomorrow’s open? Depends, I suppose, on whether we get a close above 2742.98.