You may wake up and see futures down 60 points only to find they’re bouncing off the bottom of a rising channel and backtesting the (now) support of the 200-DMA.

You may find that VIX remains very much under control even though a global pandemic that central banks can’t “fix” is ramping up.

You may even find bond yields at all-time lows, but the “talking heads” insisting it’s “different this time.”You may ask yourself, how does this keep happening? You may ask yourself, what would it take to break the cycle? You may ask yourself, will the crash ever arrive?  Glad you asked.  Please read on, as this is probably the most important post I’ve written in a while.

continued for members… (more…)

We called the top for 10Y yields on October 10, 2018 [see: Plan B] with rates at 3.24% and ZN at 117’230. Since then, prices have rallied about 15%.

…I’ve always been inclined to believe more in the yellow channel — which says that 10Y yields have now topped and ZN has bottomed.

The price chart has been clear ever since December 2018 [see: December 26 Update on Bonds] with a critical target of 130’200 – 130’230……updated to 133’025 in August 2019 [see: Aug 7 Update]… …and adjusted to 132’100-135’155 in January 2020 [see: Bonds: More Turmoil Ahead.]

Yesterday, it reached and pushed past our 135’155 target – the highs last seen in July 2012.With both the 10Y and 30Y tumbling to all-time lows, what might lie ahead for bonds? Is this an important alarm? And, what does it mean for stocks?

continued for members… (more…)

The rescue operation we detailed on Monday [see: Rescue Operation Underway] is taking another stab at the 200-DMA this morning after the Fed’s ill-advised emergency rate cut nearly unraveled the progress the algos had already made.

Again, it’s a battle between the algos and fundamentals with numerous factors lining up to nudge stocks past important overhead resistance as though there’s really nothing to worry about.

continued for members… (more…)

My daughter is enjoying a semester abroad in Rome, a metropolitan area of 4.3 million people with virtually no coronavirus cases and a sponsoring college which has urged but not required students to leave.

Only 350 miles away, in the area around Milan, cases have increased 10X in the past week – with 2,036 cases, 52 deaths (2.6%) and 149 recoveries (7.3%) as of last night. The markets have decided the coronavirus isn’t that big a deal.  But, think about it.

That 2.6% mortality rate is important. But, what about the fact that one person has died for every three who recovered? Shouldn’t we be concerned? I sure as hell would be.

If 2-3 of the students at your kid’s high school died, would you shrug it off? If one died for every three who recovered, would you feel any better about it? Would you send your kid to school tomorrow?  What if 2-3 coworkers died? Would you be eager to return to the office, hold meetings there, frequent the local sandwich shop or pub?

Over 20,000 people ride the train every day from Milan to Rome. What are the chances that no one who was infected traveled back to Rome, not realizing they were infected and contagious? Remember, you can be infected and contagious for weeks without even showing symptoms.

I think about these things as more and more cases are being discovered and schools shut down in the US, even though testing has been laughably inadequate. The latest occurred in metro New York, where 21 million people are suddenly very nervous.

The market has totally missed the boat on the seriousness of the coronavirus, egged on by politicians who think their primary duty is to keep optimism and stock prices elevated. It is not. Their primary duty is to do everything in their power to help protect those whom they represent. Period. Full stop.

The market has not grasped the reality that neither the Fed nor its counterparts can cut interest rates low enough to make the coronavirus go away.  This won’t necessarily stop them from trying, which means the algos could continue to rally enthusiastically – even as doubts increase among carbon-based investors.

continued for members… (more…)

You can tell, because it almost always starts with these little rising channels which accommodate the wild swings between gains and losses and, more importantly, steer them higher. In the charting world, this rising channel is also known as a flag pattern. It’s a continuation pattern which merely interrupts the downturn until it resumes.

It’s helpful in that it provides clear parameters as to whether or not the rescue is working.  If ES remains in the rising channel and recovers some of the broken Fib levels, we’ll know it’s working. If ES drops through the bottom of the rising channel, we’ll know it’s not.

This one brought ES back above the important support level we discussed on Friday, our 2947 target – which ES has tagged and/or crisscrossed about 11 times since Friday afternoon.

The usual tools are being employed to try and support futures here. The question, of course, is whether the rescue will be successful.

continued for members… (more…)

The great thing about studying how algos dominate the equity markets is that, if you look very carefully, you can see the gears and levers working in the background. In this morning’s pre-market, we can see a number of factors sliding into place which are designed to stop the market’s bleeding.

First, VIX reached our topmost price target of 45.73 overnight. This represents very significant overhead resistance and should be met with heavy selling pressure. It’s a very logical place for central bankers to take a stand if they hope to support stocks.

Next, USDJPY has almost reached our SMA200 target. After its failed breakout, this would be a logical place for the BoJ to attempt to take a stand……which, combined with EURUSD reaching our next upside target……should allow DXY to get a nice bounce here at our downside target.CL has also reached our downside target, transitioning from one channel to another less steep channel and beginning an extended bounce which will ultimately result in a tremendous downturn. But, for now, it’s an important place for OPEC et al to take a strong stand.And, last, the 10Y is bumping up against our highest targets (for this cycle.) A move above 135’155 would unleash another torrent of selling.  It’s a very good place to take a stand……especially as 2Y yields have reached our 0.95% target.There are countless other “tells” I could detail – none of which guarantee that the current decline is over – only that a concerted effort is being made to prevent SPX from falling below important support levels to our favorite target at 2703.62.

ES fell below its September 2018 highs (2947) overnight, but is bouncing. The logical implication is that SPX’s Sep 2018 high of 2939.86 will be defended. If it fails, then the 13.3% correction will almost certainly turn into a 20% correction.

This correction seems to have many investors flummoxed. It shouldn’t. By simply paying attention to the charts, these moves can be anticipated. As we noted on the 18th, two sessions before the top:

…be very careful in chasing this breakout. It is built on a very weak algo-driven foundation which, given the coming moves in CL, DXY, USDJPY and TNX, cannot stand. When it cracks, it could be quite violent.

And, on Buckle Up posted on the 20th:

The coronavirus is the wild card, of course. It has the potential to blow all of the above provisions out of the water – starting with the currency and bond picture. A flight to safety which sends ES back below 3336.49 is a clear sell signal.

And, from Just When You Thought it Was Safe on the 21st when we got sell signals from DXY, CL, the 10Y, the 2Y, 2s10s, EURUSD and gold:

ES just tagged 3336.25 – time to bounce if it’s going to. Remember, if it doesn’t bounce, SPX’s 1.618 is way down at 3306.51. And, if these 1.618 extensions don’t hold, it could be game over for stocks.

This is the daily chart posted that day…

…and where we are as of yesterday’s close.The problem with taking a stand, of course, is that markets are now dominated by algos and an assortment of trend-following robo-investors. These are the very dynamics which made the never-ending rally possible. They now make it very difficult for stocks to find support.

Sunday is the last day of our membership promotion – an opportunity to get a a handle on what to expect before it happens and save a few bucks at the same time. For details and to sign up now, CLICK HERE.

continued for members… (more…)

A reminder: There are still 2 days left on our membership promotion: a $100 discount on the first quarter of a Quarterly Subscription and an $80 discount on the first month of a Monthly Subscription. Former Annual Subscriber? Contact us to to inquire about renewing at your previous rate. For details and to sign up: CLICK HERE.

 * * *

Everything’s falling into place now, with ES almost to its SMA200 and SPX sure to follow.

This is a much better bounce spot (if there’s going to be a bounce) because, as we discussed several weeks ago, it also represents SPX’s 2.618 Fib extension.

Meanwhile, the 10Y and 30Y are threatening breakdowns.  ZN, having reached our 113’180 target yesterday, is hinting at a test of its former highs. And, TYX appears to be dropping through the bottom of a channel from 2011. And, CL has just about reached our most consequential downside target from many months ago.Bottom line, this is critical support for both bonds and equities.

continued for members… (more…)

A reminder: There are still 3 days left on our membership promotion: a $100 discount on the first quarter of a Quarterly Subscription and an $80 discount on the first month of a Monthly Subscription. Former Annual Subscriber? Contact us to to inquire about renewing at your previous rate. For details and to sign up: CLICK HERE.

 * * *

Six weeks ago we looked at the unsustainable relationship between interest rates, inflation, oil and gas prices and stock prices. A few of the charts from Bonds: More Turmoil Ahead turned out to be quite prescient.

We expected the 10Y, then at 1.85%, to reach and drop below its all-time lows at 1.34%. It did so yesterday.We also forecast oil and gas, then at 59 and 1.65 respectively, to drop to at least 51.62 and 1.42. CL is currently at 49.66 and RB reached as low as 1.43.We suggested that VIX, then at 12.8, was due for a nice bounce with targets ranging from 16.97 to 34.97. Yesterday, it reached 30.25. We looked for the Dow, then at 28823, to drop back and test its SMA200, then at 26833.  Yesterday, it slipped slightly below its (now higher) SMA200 and reached 26997.And, we looked for S&P futures, then at 3272, to test 3336 before reversing to 3190 and, if the absence of a bounce, to drop to 3076.  They climbed to 3397 before finally reversing and reached 3091 yesterday.The key to the accuracy of all these forecasts and others was the observation that oil and gas prices were not compatible with the then-current interest rates and would need to fall sharply in order to maintain an accommodative monetary policy.

CPI came in on target the following morning, and the divergences are in the process of being “ironed out.”  Our long-term forecast and cycle study for TNX has more than proved its worth.  What is it saying now that rates have dropped to all-time lows?

continued for members… (more…)