Amidst growing speculation (soon to be evidence?) that the coronavirus outbreak is much worse than the Chinese have admitted, the market is having a hard time whistling past this particular graveyard.
Futures have climbed back from an ugly Sunday, but are hardly out of the woods. If this gently falling, carefully managed channel breaks down, watch out.
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The ES trend line we were expecting to break down yesterday did, in fact, break down. But, it has been a very meek, carefully controlled breakdown so far. 
Most factors are still bearishly aligned except for DXY, which has broken out of a little falling channel on continued weakness in the euro.
As for the “haves,” it pretty much boils down to SPX, which made a new high on the open, backtesting the channel which recently broke down. Its breakdown should show up on the opening bell.
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Thanks to the many well-wishers for your messages of support over the past few days. My knee surgery went very well Tuesday and I’ve already graduated from the walker to crutches and am determined to replace them with a cane by the end of the day. I’ll probably skip the Boston Marathon this year, but there’s always next year. The downside of a knee replacement is that it’s somewhat painful. So, please excuse the drug-induced typos that are bound to crop up over the next few days!
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On to the markets. This one is easy. SPX will make new highs on the open this morning. But the 10-DMA is still below the 20-day, ES’s rising red TL is hanging by a thread…
…and VIX has passed on the opportunity to ramp things even higher – remaining above its SMA200 and the red TL from Aug 5. There are many other warning signs flashing from TNX to AAPL. In other words, caution is warranted. Despite the recent rally, the downside risk is far from over.
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Not the website…but your humble editor-in-chief. Hope to be up and around by Thursday Feb 6.
ES precisely tagged its SMA50 at 3212.75 on Friday. 
Recall that the SMA50 has been our preferred downside target since ES tagged our preferred upside target on Jan 22 – representing the intersection of the rising white channel .236 line and the top of the rising purple channel it broke out of on Dec 12.
Because the tag was delayed (think Trading Places, but managed by computers) ES only managed to backtest the SMA50 — not the purple channel top, now at 3202. SPX didn’t even tag its SMA50. This might ordinarily imply that further downside is in store.
But, the SMA50 has since moved up to 3215.10, which would require a drop below the SMA50. It would also mean the SMA10 dropping below the SMA20 for the first time since Oct 1. This would send a quite bearish signal to investors the machines.
Recall that it was the bearish 10/20 cross on that day that led to a 131-pt drop and the hurried announcement of Phase 1 of the US-China trade deal. The Phase 1 announcement, in turn, led to a bullish 10/20 cross a few days later and completion of the inverted H&S Pattern on Nov 1.
Futures are up about 15 points this morning, begging the question: “Is it safe?”
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In a stunning demonstration of the extent to which algos control the market, ES soared 56.50 points after the World Health Organization declared the Wuhan coronavirus a public health emergency of international concern.
While it’s true the press conference felt more like a China tourism promo, the declaration in no way reduced the risk the virus poses. Nor did it reduce the potential economic risk or stock market downside.
ES came to its senses after the close, reversing at its SMA10 and dropping back through its SMA20. If today weren’t the last day in January, a month clinging to a positive return for posterity’s sake, we would have seen the next leg down already.
Meanwhile, we have scads of economic data coming out at 8:30 and earnings galore to digest.
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The downside scenario triggered when S&P futures reached our upside target on Jan 22…
$ES_F just reached our next upside target.https://t.co/zTy3q8WSBd pic.twitter.com/CoRSemmDOk
— pebblewriter (@pebblewriter) January 22, 2020
…is playing out very nicely indeed.
Credit VIX, which uncharacteristically didn’t collapse last night…
…and CL which, having come close to our 51.62 target on Sunday, is taking another gander.
Needless to say, our downside targets remain unchanged.
BTW, Boston folks, I’ll be downtown today and Friday. Drop me a line if you’d like to meet up.
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Ignore the sales projections and the hype. Keep an eye on the channel top and 2.24 Fib extension at 653. If it reverses here, the nearest support is at the 10-day moving average at 550, with 521 being the nearest strong support and the previous high of 389.61 the next most likely.
Futures are higher this morning on what is expected to be a non-event FOMC announcement and press conference. 
I suspect attention will again return to currencies, as the US dollar’s surge over the past month, combined with the big drop we had anticipated in oil and gas, will serve to tamp down inflation fears. Of course, there’s a fine line between falling inflation fears and growing deflation fears.
The bond market continues to reinforce the bearish case for stocks.
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You can fake a lot of things in the stock market. The bond market, not so much. Eventually, reality catches up with the narrative. If the two are as divergent as they’ve been over the past three months, the reconciliation can be ugly.
The euphoric breakout we saw following the sharp reversal on Nov 1 was driven by algos, and now it’s failing thanks to algos. The appearance now, however, is that it’s a backtest of instead of a continuation of the falling channel from Sep 2018.
Business investment fell more than expected in December, dropping 0.9% and ending 2019 with a meager 0.8% unadjusted gain. It’s not the sort of numbers you would expect if this were “the best economy ever.”
Futures are doing what they do best after a horrid day yesterday, putting in a algo-driven bounce.
If the charts are correct, though, this is merely a pause with additional downside to come.
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