Calm Before the Storm: Apr 26, 2017

After a furious VIX-inspired rally the past two days, futures are dead flat. VIX’s continuing slump (-1.4%), USDJPY’s continuing ramp (+0.32%) and WTI’s continuing threat to break its SMA200 (-1.0%) seem to have perfectly balanced one another out.Depending on whom you ask, Trump’s tax plan due out later today will either provide a nice spark for a continuing rally or lead to massive disappointment.

continued for members…

The key levels for SPX:

VIX has been largely flat overnight, with most of the decline occurring just after the close. I don’t believe they’ll waste the impact of new lows just to boost SPX to new highs. Rather, I expect they’ll save it for the next catastrophe that requires propping up.USDJPY continues to scream higher, pushing through the white midline and testing the SMA50 at 111.827. Note that, unlike SPX, ES has not yet reached its .886. This mismatch between the two is usually resolved in favor of the bulls, but we’ll see.There’s a clear path to 2391.50 should they choose to pursue it. And, ES has clearly worked to hold the .786.UPDATE: 9:57 AM

SPX is up 1.68. If we’re in for any downside, here’s the potential path. The gentlest dip would be to the .786 at 2384 as the white midline passes through later today. The most damaging would be straight to the .707 (the red dot) as the SMA5 200 arrives after 10AM.

As long as SPX continues to respect the red channel top, I’d continue to hold short. But, again, there could be pressure from ES to tag its .886. This would be the equivalent of 2395 on SPX, suggesting that you be generous with stops. My fear, however, is that surpassing SPX 2391.94 might make a decline tougher.UPDATE: 10:12 AM

I think we’re going to get that push for ES’ .886. The safe play is to go to cash here, though swing traders might want to give it a little leeway. If you do duck out, there should be ample opportunities to reenter if the move later reverses. Note that the SMA5 200 is now only 2 points away from the .707. If that’s too sharp a move — which it might be at 13 points — then it might make a more attractive target at the .786 (the smaller white dot) around 2PM.UPDATE: 11:26 AM

ES just reached the .886 and decided to punch through vigorously. SPX has responded in kind, meaning we might get close to new highs without any tax news.ES white channel runs out of room around 2395.50 — about 2399 in SPX. In other words, the meltup should continue unless the tax plan disappoints.UPDATE: 11:45 AM

ES just dropped through its .886, so I’d take a chance on shorting here. If SPX can drop through its .886 as well, we should get a shot at 2384. The SMA5 200 looks like it will arrive there around 1:45 – 2PM. Two other levels of support to be aware of: ES’ SMA5 200 at 2385.25 and its white channel bottom currently at 2382.42.UPDATE: 12:12 PM

All it’s taking is a little dip by VIX through the SMAs to undo this SPX dip. I’d go back to cash on any sustained push through the SMA5 10 and only remain short if SPX can stay below it. UPDATE: 12:50 PM

Going nowhere fast, as SPX is responding to every little blip in VIX in advance of the tax plan announcement. It could obviously break either way, though I continue to lean towards a mild retracement. UPDATE: 12:58 PM

I’d cut loose the short position here, as VIX is pushing below the SMA5 200 over and over again. If it drops back through the SMA5 10, by all means short it. But, otherwise, it seems like they’re trying to keep it within striking distance of 2400 so they can pop it up to new highs regardless of how well received the tax plan is.

UPDATE: 1:27 PM

If the SMA5 200 tag at the .786 were to happen, it would need to happen in the next 5 minutes. I’d take a shot at it here, given that VIX is (very slightly) hinting at a breakout. I’ve included the CL chart, as we’d need CL to break down as well. The tax plan is due to be released in a few minutes. UPDATE: 1:44 PM

VIX is threatening to drop to new lows of the day. Watch your stops, but definitely want to be short below the SMA5 10.

UPDATE: 2:42 PM

This is painful… VIX dipping a little bit and USDJPY rallying a little bit every time SPX threatens to break trend. The tax plan info was sketchy, at best. There is no doubt some disappointment for those who care about fundamentals. But, the algos seem firmly in charge and are ensuring (so far) no downside. All things considered, I’d lean towards being in cash right now, but prepared to short on any move back through the SMA5 10.

One issue which could tilt things in the bears’ favor is if CL breaks below the red TL shown below. But, I suspect it would simply drive VIX lower. And, there’s a good chance of a bounce at 49.40. Likewise, USDJPY has backtested the broken red channel midline. A reversal here would favor the bears. UPDATE: 2:59 PM

So, another chance at some downside here as CL and USDJPY are both reversing at 3:00, often a pivotal time of day. Tight stops are recommended, however, as the past two sessions saw SPX spurt up through the SMA5 10/20 at this very same time. I’d give it relatively low odds of working out and fairly high odds of being a head fake.Note that a drop to the SMA5 200 this morning would have earned shorts 17 points. Now, it would register barely 7. Sigh…

UPDATE: 3:22 PM

Last chance. Again, there’s no reason to expect it to work out this time. The bulls gain a great deal more from having it close above the .886 or even breaking out and closing above 2400. But, if it’s going to happen, it’s either in the next 30 minutes or first thing in the morning. UPDATE: 3:38 PM

SPX is reaching TL support as ES reaches SMA5 200 support. This could be all we get today. However, USDJPY is dropping fairly quickly and VIX looks headed for its SMA5 200. So, we’ll see… SPX’s SMA5 200 would put ES at its white channel bottom — a good fit all around. UPDATE: 3:55 PM