Another day, another VIX plunge in the minutes before the open – and futures, which were off 35 points overnight, are suddenly back in the green. continued for members…

The bigger picture shows the VIX breakdown and the potential still for a drop to the .886 or lower. The .886s remain in play, though with OPEX in the rear view they are theoretically less likely to play out.  We obviously have triangles in both SPX and ES, with the channel midlines being the lower bound and the previous highs serving as the upper bound – with the .886s as secondary overhead resistance.

Oil continues to levitate……though RB is selling off again.On the currency front, USDJPY is still negatively aligned but has yet to break down again.EURUSD continues to nudge higher and pull back, waiting for news on the EU rescue package. So, DXY continues to hold above its recent lows.The bond market is hinting at equity weakness this morning.  10Y yields continue to slide lower……and 2Y yields are back below support.

This is putting pressure on the 2s10s – which is still in breakdown status unless it pops back up to .49-.52.So, where are we?

Keeping ES/SPX so close to the .886 suggests a gap up through resistance might be in the works. If a strong vaccine were to be announced one of these mornings, it might be enough to provide that rally.  Yet, the reality is that even a perfect vaccine would not be widely available for months – probably early 2021.  What happens in the meantime?

We have rapidly rising outbreaks in Florida, Texas and California – not to mention many less populated states across the South. It turns out air conditioning does just as good a job as heating systems in spreading virus around inside enclosed spaces. It doesn’t seem like people are getting any less stupid in how they react to the very real threat.

My expectation is that with most schools reopening in a few weeks, many of those who have been extremely cautious will be infected by their own children, and another surge in cases is all but certain. The vaccine will come too late to prevent it.  At some point, cities and states will have no choice but to shut down again.

Will it be enough to overwhelm the daily manipulation in the markets? It’s hard to say. Oil prices seem likely to plunge again. And, our interest rate model says rates will drop sharply in the upcoming months. It’s extremely unlikely that, having come this far, the Fed will suddenly decide to tighten. VIX has dropped 21.4% in the past week. In return, we got a 1.9% increase in ES. So, there are two ways to look at the overall situation. Either: (a) SPX is being kept aloft in the expectation that the coming shutdown (or whatever it ends up being) will be less damaging from these heights that it would be if it weren’t being propped up; or, (b) SPX is being kept aloft in the hopes of breaking out to new highs in the event that bullish vaccine news is announced.

Either way, the risk of a severe downturn is very real – particularly when one considers that many infections and deaths lie between here and 2021.

More later…

UPDATE: 3:45 PM

SPX has reached its .886 – though ES still has a bit to go.  Decision time for the stock market. I would get short on stocks, oil, gas and USDJPY (and long on VIX) here, but understand it’s not for everybody. Shorting in this “market” entails plenty of risk – especially if the Fed and the pols get nervous.

GLTA.