Once upon a time, a few boys whose families owned the biggest lemon groves in town got together and opened up a lemonade stand. It was a very hot summer, so they sold an enormous amount of ice-cold lemonade. Since they controlled the supply of lemons, they were able to quickly raise prices from 10 cents per glass to as much as $1.50. Their customers didn’t mind as they could afford 1.50, it was excellent lemonade, and there were no alternatives. They like it so much, in fact, they invested $2 trillion in shares of the stand.

One day a freak storm hit town, and the temperature dropped from 95 to 25 degrees in a matter of hours. The weatherman said it could last for months. Not many people were interested in ice-cold lemonade, even though the boys frantically dropped their prices. They even tried cutting back on the amount of lemonade they made. For some reason, this had no effect on sales, and prices continued to drop. A few boys split away from the group and tried selling cheaper lemonade on their own, but this further depressed prices. Soon, the lemonade stand went out of business. The end.

And that, boys and girls, is how OPEC came to be in their current predicament.

continued for members…The two previous cycles have seen CL angle higher for years before breaking down. Guess what it isn’t doing right now? Now that the white channel has broken down, the purple channel is all that stands in the way of CL 40, 36.93, 31.85, 26.05 and ultimately 17.12.As one of the more important factors in persuading algos to buy stocks, oil’s demise is a big problem for the market.  ES is testing that critical 2947 level all over again, the 280-pt ramp job a bit of a cruel joke (for cynics, an opportunity for insiders to get their ducks in a row.) As we discussed a week ago [see: Stocks Taking a Stand], breaking down below ES 2947 (SPX 2940) opens the door to some ugly downside including our favorite next downside targets of ES 2728/SPX 2703.

BTW, I don’t suspect TPTB are any less concerned about the market falling apart at these levels. Watch for those head fakes like we had last Friday.The SPX version: VIX is testing the same levels as last week. It can go slightly higher – say 50.3-51.76 – without a major eruption. But, anything higher than that and we’re going to see some fireworks. Just because OPEC failed to seal a deal in Vienna, we can’t assume central bankers et al won’t jump in and support prices. It has happened many times before. CL is currently bouncing at roughly the same level as it did Monday.RB is in the same boat. Our 1.4262 target represents important support.Let price be your guide.

There are plenty of other depressing developments in markets as we go to press.  Bond yields continue to fall…..with the 10Y plunging right through our 8.16 target……and the 2Y doing the same to our .57 target.

This, of course, means the rising white channel has broken down. If you read yesterday’s post, you know how serious a development this is.

The 2s10s, which reached as high as 37.4 bps late Wednesday night, fell as low as .22.2 this morning. Amazing volatility. The 30Y is just plain sad.Oh, and the dollar is in cardiac arrest.  EURUSD decided to punch right through overhead resistance.Combined with continuing yen strength (almost to our 104.74 target)……this has DXY on the defibrillator, testing 95.86 yet again. Gold, however, is lovin’ it.  GC is closing in on our 1708 target from last June. I’ll try to get a full update posted later.For those watching the Nikkei, not that after the failed breakout, it has broken back in and is approaching multiple backtests.  My favorite remains 17657.

Coronavirus watchers… Note that yesterday’s tally from Italy fell slightly short of my model’s forecast: 3,848 cases and 148 fatalities versus 4,467/161 predicted. This is obviously good news, though one day doesn’t necessarily change a trend.  I’ll continue to track it and make any necessary adjustments.

Remember, the model currently assumes there are at least 700 active US cases (at 2% mortality rate) or 411 cases at the often cited 3.4% rate.  This is assuming that the number of fatalities (14) cited yesterday is accurate.

UPDATE:  12:20 PM

The initial bounce is waning as VIX is coming back and CL has slipped to new lows.

More later.

UPDATE:  3:45 PM

Not a lot to go on here, but ES and SPX are bouncing after nearly reaching their .886’s.  Don’t be surprised if they make it back to 2947 and 2940. VIX is starting to tumble, meaning holding short over the weekend is full of risk. As if we didn’t know that already…FWIW, CL and DXY are at potential support – the white midline and horizontal resistance respectively.

GLTA.