If bad news is good news, the economic data this morning was terrific.  Retail sales and PPI both came in well below expectations, bolstering the argument for fewer rate hikes in the months ahead.

Of course, this policy ignores the reality of rising oil, housing and food prices.  That’s fair, as those price increases only affect folks who sleep, eat or drive (and the growing number of people living in their cars.)

From briefing.com:

What the data doesn’t explain, of course, is why DX ramped so much overnight.  With rate hikes presumably more firmly on the back burner, it should be plunging rather than strengthening.

The answer, which won’t come as a surprise to any of our members: central bankers got out ahead of the news, ramping USDJPY much higher in advance of the data.  The NKD gained as much as 3% overnight on rather suckish news out of Japan.The USDJPY ramp explains why ES notched all of its 10+ point gains overnight, before the good/bad news even hit the wire.  And, don’t forget, Friday is OPEX.

continued for members…

Since futures are holding their gains going into the final minutes before the open, we can expect SPX to try and notch new highs.  The initial goal: top 2075.06 and blow up the downside Fib patterns.  After that, we have to start looking at the white .886 at 2081.55.

But, I’ll be keeping a close eye on CL.  Despite the rumors of a freeze going nowhere and ugly inventory numbers yesterday, CL has remained above its SMA200.  If it maintains these levels, whatever rally occurs this morning should hold.  If it doesn’t, then we’ll likely get a pop and drop.Likewise, USDJPY will likely play a role.  If the breakout holds, then all is good in equity land.  If it drops back into the rising red channel, then the rally should fizzle.  Look for the test to occur only after SPX and ES make new highs.

This being OPEX, I seriously doubt whether the effort that went into the overnight ramp job was just to top 2075.07.  Odds are they have 2081.55 and the yellow .886 at 2097.71 in sight.  The argument will be the same old bad news is good news one – perhaps even bolstered by a Fed president reinforcing how disastrous higher rates would be for “the economy.”

UPDATE:  9:38 AM

SPX just reached our initial target, while ES is still a few points away from new highs (2071.5.)  I’d close a long position here and step to the sidelines.  This is the push and shove phase, which can sometimes take hours (or, at least feel like it.) UPDATE:  10:20 AM

USDJPY is ramping again, so I assume they’ll try to top ES 2071.50 before the crude inventory report comes out in 10 minutes.

Once it’s topped, then SPX can drop back down to 2070 where it can help establish the rising gray channel to 2097.

CPI, initial claims and Michigan sentiment all come out in the next two days. Revised SPX charts, showing new IH&S to replace the busted H&S pattern.UPDATE:  8:50 AM

SPX has reached the top of the purple channel I drew this morning (to expand the existing channel) to show a path to 2081.55.  If the channel is legit, we should get a pullback to at least the .786 line — currently around 2072ish.

Not exactly a huge short opportunity…but, for anyone who’s stuck with the rally this long, just recognize that there could be some short-term weakness immediately ahead.  If the purple channel .786 doesn’t hold, our red target at 2070.37 gets SPX down to the gray channel midline — my preferred target.  So, a more interesting 8-pt shorting opportunity.

UPDATE:  2:49 PM

Another quick reminder…I will be traveling for the next several days.  I should be able to provide a quick blurb first thing in the morning, but won’t be able to update things during the day.  I also won’t be able to return messages or emails during the day.  I expect to post a comment this evening, based on today’s close and the likely road ahead.

If SPX sells off at all, 2070.37 remains the most likely target.  I’d short here, with 2070.50 as my target, and plan on closing it by the close.  A stop at 2082ish makes sense. 

If it pops up beyond 2081.55, I’d chase it only if you are comfortable holding it overnight (can hedge or watch it) and with the expectation that we’ll get at least a modest sell-off early next week.

I’ll sign off for now, and catch up with everyone later tonight.