With the July highs taken out yesterday, all that remains is the January highs.  Thanks to a return to the Dec 2016-Jan 2018 regime of VIX bashing (lowest since Jan 16 this morning), there appears little doubt.

continued for members…

If we’re to get new highs, which seems fairly certain at this point, how will we get there and what happens next?

ES current path gets us there fairly quickly, slightly faster than SPX’s rising white channel suggests (Friday, the 10th.)  So, we might get some backtests, perhaps a widening of ES’ channel.Once the Jan highs are taken out, the next major Fib is the 2.618 at 3047.34.  The top of the yellow channel arrives there around Aug 23.  That would mean an impressive 6.5% move in about two weeks — doable absent any horrid headlines.

But, if we look at the daily chart closeup, it seems likely to take longer – perhaps much longer.  The purple channel top only arrives at the 1.272 (a Butterfly Pattern based on the .786 tag on Mar 13) in October.  While I can’t rule out a breakout of the purple and small rising white channels, it doesn’t seem likely.Regardless of timing, SPX would theoretically face heavy resistance at 3047.  Would TPTB allow a reversal (which would in turn allow a major dip for RB and CL?)   Something to think about.Or, will we get a repeat of Dec-Jan, when the 2.24 Fib was leapfrogged and then defended (unsuccessfully for quite a while.)  Remember, in May 2015 SPX came up 4 points shy of the 1.618 and proceeded to drop quite a bit.

At the moment, RB and CL are getting a boost from the reimposition of US sanctions on Iran — less than I would have expected. The petroyuan is apparently taking the brunt of it.Will DXY ever get a rest?  The fundamental argument against it is that US rates are so much higher than almost every other developed nation.  But, this has been the case for years – regardless of whether the 10Y was increasing or decreasing.

Compared to the 2Y, we see an even less logical pattern.  The bulk of the drop in DXY occurred when 2Y yields slowed down in early 2017.  Note the biggest drop in the 2Y occurred in May, when DXY broke out of its falling white channel.

But, if falling rates are good for the dollar, why has it continued to angle higher even as the 2Y recovered and is increasing?

It’s only when we compare DXY to EURUSD and USDJPY that its pattern makes any sense.  We know that stocks’ performance is tied to USDJPY’s.  So, if TPTB want higher equity prices they have to make sure USDJPY continues to rally or at least appears to continue its rally.

Lately, of course, it’s doing so as a backtest to the broken rising white channel – implying that it will eventually fall.  But, in the meantime, it broke out of the falling white channel — which the algos see as bullish. USDJPY continues to go sideways, and should until its help is needed for a breakout.EURUSD should also continue to go sideways.  Note that the last time one of its rising white channels broke down it took about 4 months — from June to October 2016.  At that point, DXY soared.  Given that we have (presumably) two more rate hikes ahead of us, it’s hard to imagine a drop in DXY and rally in EURUSD. 

But, EURUSD’s Feb top didn’t quite reach the red channel top, just like DXY’s drop didn’t quite reach the purple channel bottom.  Will we finally get to see it play out?  What if the Fed didn’t hike in Sep or Dec?

UPDATE:  11:40 AM

One more big picture thing to think about.  SPX’s January breakout past the 2.24……was facilitated by oil’s breakout from the rising purple channel shown below (red arrow.)CL remains above the purple channel and is probably following the white channel now.  But, at some point, TPTB are going to want rates to drop in order to goose the economy.  The White House is also very keen on dropping gas prices before the November elections.

Dropping rates and gas prices go together nicely.  They’re both cruising along above trend in keeping with higher inflation.  If Kudlow/Mnuchin are smart about it, they’ll engineer a takedown in the weeks before the election.

TNX could continue to form a triangle that remains above the red midline and/or the rising red trend line, while RB falls to its SMA200 (currently 1.9429 and rising.)This should give CL a chance to backtest the purple channel top or the SMA200 (currently 63.88.)  The ideal time would have been on July 3, when they intersected along with the red .786 at 61.75.  But, someone panicked when SPX fell to the 2.24 at 2703.  They didn’t want to take the chance of losing that important Fib support.

Again, something to think about…

Since we’re somewhat on autopilot lately, I’m going to take the rest of the week and post only first thing in the morning — spending the rest of the day focusing on big picture stuff.

I know there’s an optimal combination of USDJPY, CL, RB, 10Y, 2Y, SPX moves that will produce (or, at least accommodate) the necessary GDP and CPI data going forward.  Though I have a general idea, I need to do some heavy duty charting and economic modeling — which means pulling back from the day to day.

I also need to get some work done on my computer (video card issues, as it turns out) so this would be the optimal time to drop it by the Apple store.  As always, please feel free to contact me with any questions, suggestions or special requests.