If only the news cycle would cooperate, the technical picture is pretty clear: a breakout and a backtest.  But, Wall Street has sold investors on the narrative that the new administration’s policies are responsible for the huge run up in prices since Nov 9.  And, now, stocks are burdened by the fact that those policies seem stuck in the bog.

The only real solution, of course, is to change the narrative.  As Bush II liked to say, sometimes you have to catapult the propaganda in order for “the truth to sink in.”  In this case, I suspect that means going back to the Trumpflation argument.

continued for members…

Here’s the basic picture.  Having dug itself out of the below purple midline hold a few times over the past year, SPX established and then broke out of the parallel yellow channel.  The smaller purple channel took it up and out of the yellow channel, then broke down only after SPX had topped the 1.618 Fib.

It backtested that Fib (well, within a point) on Wednesday, and is now taking off to see how much of a bounce it can get.

The only complications are: (1) the afore-mentioned news cycle, (2) the USDJPY is stuck, and (3) oil and the larger inflation picture.

I’ll come back to those in a minute.  But, I suspect they’re the reason traders are still undecided about whether SPX will dip down to tag that 1.618 more precisely.  At 2352, it would be a substantial enough dip to allow USDJPY and/or CL to make the moves we’ve suspected they would.

SPX is currently backtesting the little white channel it started on Wednesday.  It would be worth taking a short position here to see if the other leg plays out.  I would use very tight stops on this position, as SPX is obviously a few cents away from a breakout that VIX, alone, could engineer.

What we’re really betting on is CL dipping to 45.36 and/or USDJPY to 108.197.  But, USDJPY’s would have to be lightning quick to offset CL’s need to stay down there at 45ish in order to change the CPI equation for March.

And, I continue to think USDJPY can accomplish it.  Note that DX broke out of a falling wedge yesterday only to, then, break down below the TL that guided it. It has, since, backtested that TL and is now free to fall to the obvious support at the purple TL, the yellow neckline, or the white .618.

UPDATE:  10:52 AM

SPX is slipping higher on a strong backtest by CL and the mere threat of a VIX dump below TL support.  I’d ditch the short position here, but be prepared to re-short on any drop through the white channel bottom — currently at 2352.40ish.

UPDATE:  11:22 AM

Coming up on the euro close…  While VIX is still problematic, USDJPY offers bears some hope.  I’d take a shot at shorting here on the drop through the SMA5 10 — still with tight stops.  This trade is low probability until SPX drops through the channel bottom at 2353ish, feel free to ignore it.

The key will be getting VIX back above the white TL and USDJPY down through the neckline of a little H&S Pattern — around 110.97.

UPDATE:  11:53 AM

Not happening thus far.  USDJPY bounced on its neckline; and, I suspect VIX will continue to hang around wherever it needs to be in order to keep SPX from dropping — currently below the white TL at 12.38.  This could go on all day.  I’d ditch the short and sit on the sidelines until there’s an actual drop from the channel.

UPDATE:  12:10 PM

USDJPY breaking down, time to short.  Target is the SMA5 200.

UPDATE:  12:13 PM

That didn’t take long — pretty typical of this “market.”  I suspect this is all we’ll get for now.   Back to cash, but will gladly short again if it drops through the SMA5 200.

UPDATE:  12:20 PM

Here we go…

UPDATE:  12:29 PM

Well, USDJPY is spiking, CL is back above the red TL, and VIX ran into a new TL of overhead resistance.  I suspect SPX will pop back above the red TL and SMA5 200, perhaps continuing higher.  Back to cash until it reverses back below the SMA5 200.  We should get another backtest of the red TL as the SMA5 200 passes through it in the next 30 minutes or so.

I’d keep a close eye on CL, which is backtesting that purple TL which was support for the past 24 hours.

UPDATE:  1:04 PM

Probably going nowhere, but VIX is breaking out and USDJPY is breaking lower.  Not knowing whether or not the SMA5 200 will hold, This is potentially a good place to take a stab at another short position…50:50 at best until it clears the SMA5 200.  

Eventually, VIX is going to spurt up and tag the SMA200.  I’ve been waiting for weeks.  There’s a good possibility it’ll happen today.  The question: “will CL and USDJPY behave themselves and allow stocks to react?”

UPDATE:  1:23 PM

VIX sitting at its last real overhead resistance before tagging the SMA200.  Last time it tagged it was Dec 30, when it reached 14.68 on a dip by SPX from 2277 to 2233 — the biggest drop between election night and the Mar 1 highs.

With SPX sitting 120 points higher, even after the decline from 2400 to 2336, TPTB have an opportunity to justify crushing VIX as has occurred after each prior SMA200 tag.  This might or might not be enough to keep SPX in breakout status.  But, it should be enough to get a bounce out of wherever it drops later today or Monday.

Of course, we’re not promised a reversal at VIX’s SMA200.  On Oct 28, 2016, VIX shot up through the SMA200 at 15.28 and didn’t stop until it had reached 22.99.  SPX fell from 2133 to 2083 — a 50-pt drop.

UPDATE:  2:00 PM

It’s pathetic, but as SPX was nearing a TL off the recent bottom and VIX the SMA200, CL suddenly decided it should spike higher.  I’ll revert to cash here, and would only revert to short if SPX drops through the purple TL — currently 2344.69ish.

This doesn’t mean 2335 is necessarily off the table, only that a drop to 2344 or 2335 would come courtesy of a backtest by CL rather than new lows.

This is the most carefully controlled decline I can remember ever seeing — with each dip arrested by either a plunge in VIX or a pop in USDJPY or CL.  I doubt anyone has been able to make much money trading today.  But, it’s instructive as a reminder that shorting these days requires you to (literally) have a finger on the buy button at all times.

UPDATE:  2:40 PM

SPX coming up on purple channel bottom, but VIX is within 0.16 of the SMA200.  SPX is therefore unlikely to drop through the channel bottom unless VIX shoots up to and possibly through 13.54.  Note that CL and USDJPY are still in ramp mode.  So, again, we’re unlikely to see much happen here, but I’m obliged to take a shot at a short position just in case.

UPDATE:  1:50 PM

So, this is interesting.  VIX reached 13.54 and is pushing through just a bit, reaching 13.62 just a moment ago.  This suggests the 2335 target is in play (or, just a clever head fake.)  Keeping a very close eye on this move….

CL is still in propping mode… …but, USDJPY is supporting the idea of a further drop.  Just heard Spicey say in his press conference that a vote on ACHA is still expected around 3:30 — a half hour before the market closes.  This is likely spurring some of the selling, as the “market” would be exposed without the weekend to intervene.

UPDATE:  3:07 PM

VIX just tagged its .886, which is the last bit of obvious overhead resistance.  If it reverses here, this is all the downside we’re going to get.  If it pushes slightly above 14.14, SPX should dip to 2335.34.

Of course, USDJPY could always get in the act…  It’s been quietly supportive of bears for the past 30 minutes or so and is inching slowly lower.

UPDATE:  3:34 PM

The vote was just postponed, so no risk during market hours.  I’d go ahead and cover here and revert to long, only shorting if it drops back through this level in the remaining 26 minutes.  The way VIX is plunging, I’m not the only one to feel this way.  

UPDATE:  3:41 PM

I’d go to cash here at the SMA5 200. There’s definitely more potential downside (they didn’t postpone the vote because it’s in the bag!), but the weekend makes it easier to prop things up.  Looking at VIX’s flop, I’d believe anything at this point.

UPDATE:  3:47 PM

Despite VIX and USDJPY action, SPX is plunging again.  I’d try a short position here just for grins and see if we can’t reach 2335.34 exactly.  Very tight stops.

UPDATE: 3:50 PM

Nothing ventured, nothing gained.  Back to cash for the weekend.  Could we get a dive down to 2335 in the last few minutes.  Sure.  But, I’m pretty exhausted from all the back and forth today.  And, giving TPTB the weekend to work the algos isn’t my idea of fun.

Update: EOD

For what it’s worth, SPX closed exactly on the yellow channel top.  To the penny.  And, now they have a lower low — which makes this a potential impulsive wave rather than a corrective A-B-C wave.  Obviously, today’s ACHA outcome changes the Trump Rally narrative.  The jury is out as to whether the break out can hold.

The 60-min view:

 

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