The shift in leadership we discussed yesterday seems to be playing out.  USDJPY got a nice bounce where we expected, while CL reversed at our upside target and is back below its SMA200.  VIX, of course, continues to smooth things over while the algos recalibrate.

continued for members…

USDJPY’s backtest of the broken white channel was textbook.

CL experienced a slight overshoot, but is behaving itself now.  The only caveat is that it got a good bounce off its SMA10.  As we discussed on Monday, cautious types might want to either use tight stops or wait until the drop through the SMA10 to confirm the coming move.

Will we get a nice drop to set up a more modest YoY comparison for CPI purposes?  I think so.   I’ll update the RBOB charts asap.Futures are currently up a couple of points, but I suspect the backtest is still a possibility — depending on whether VIX breaks out of its falling white channel.  Yesterday, the SMA20 aligned almost perfectly with a nice little A=C corrective wave at 2454.

We don’t have that any more, and SPX hates dipping below its SMA20, so this latest development takes a little wind out of the 2454 sails.  Maybe this morning’s open will reestablish Point C at the new SMA20 of 2456.47…

I’ve had a lot of nice chats with quite a few smart money managers over the past week or so.  I’ve yet to find anyone who’s comfortable with current valuations.  The majority seem to agree that we’re in meltup mode.  Though, there are a variety of explanations being offered.

I’m partial to the one which has guided us for the past couple of years: heavy tampering with USDJPY, CL and VIX in order to, in importance:

(1)  drive stocks higher
(2)  keep interest rates low, but avoid an inversion
(3)  keep inflation as close to 2% as possible
(4)  keep DXY in a trading range of 92-104

Inflation backed off strongly from February’s highs, largely because of falling oil prices.  Since oil bottomed out in June, we can expect July’s YoY impact to bring us closer to 2% again.GLTA.