Futures are flat after tumbling to and holding our backtest target yesterday morning. But, pay no attention to stocks just yet. They should continue to be under pressure, with the real action in oil and gas.

continued for members…Stocks are biding their time with the protection of the 1.618 “breakout”, still waiting for a breakdown which could come anywhere between on the open or a week from now. I continue to like the idea of a May 12 plunge on alarmingly high April CPI.

SPX is forming a nice clear H&S Pattern……which will continue to hinge on whether VIX’s rising channel can be maintained – likely to the SMA200. A reversal there could stop stocks’ retreat, particularly if USDJPY breaks out. BTC has stalled here at the top of its cloud, with a bearish RSI chart to boot.The failure of oil and gas to break out and hold new highs after yesterday’s bullish inventory data supports our thesis that they’re still due for a sharp decline. The charts continue to support this thesis.

CL finally tagged its .886 on a very bullish inventory draw – then promptly reversed back below the TL it had broken above.

This, as the SMA200 is about to reach the bottom of its target price range which is coincidentally its white .618 Fib. RB did the same – but in its case it slightly exceeded its previous highs. Note that the red target represents both the SMA200 and the IH&S backtest target while the white target would mean a retracement to the red .618. Both are legit targets.

While I remain bearish across the board, I must acknowledge the possibility that stocks are spared a significant downturn by USDJPY zooming higher or VIX being crushed. The goal could be to get DJIA close enough to its 3.618 that such a maneuver would allow it to leapfrog the resistance and go on about its merry way.

But, that’s not my expectation. I believe it is becoming more and more apparent to more and more investors that the Fed is way out over its skis on the liquidity and inflation front (consider lumber’s moonshot!)……and that a reckoning, or at least a reversion to the mean, is overdue. I don’t know that we really need a catalyst, but the COVID situation in India certainly has the potential to dblossom into a regional or global outbreak of more virulent variants.

I have back to back meetings today, so will sign off for now. I hope to be able to slip in an update later in the day, but I’m not sure when.

GLTA.

UPDATE:  4:00 PM

One day, a scorpion looked around at the mountain where he lived and decided that he wanted a change. So he set out on a journey through the forests and hills. He climbed over rocks and under vines and kept going until he reached a river.

The river was wide and swift, and the scorpion stopped to reconsider the situation. He couldn’t see any way across. So he ran upriver and then checked downriver, all the while thinking that he might have to turn back.

Suddenly, he saw a frog sitting in the rushes by the bank of the stream on the other side of the river. He decided to ask the frog for help getting across the stream.

“Hellooo Mr. Frog!” called the scorpion across the water, “Would you be so kind as to give me a ride on your back across the river?”

“Well now, Mr. Scorpion! How do I know that if I try to help you, you wont try to kill me?” asked the frog hesitantly.

“Because,” the scorpion replied, “If I try to kill you, then I would die too, for you see I cannot swim!”

Now this seemed to make sense to the frog. But he asked. “What about when I get close to the bank? You could still try to kill me and get back to the shore!”

“This is true,” agreed the scorpion, “But then I wouldn’t be able to get to the other side of the river!”

“Alright then…how do I know you wont just wait till we get to the other side and THEN kill me?” said the frog.

“Ahh…,” crooned the scorpion, “Because you see, once you’ve taken me to the other side of this river, I will be so grateful for your help, that it would hardly be fair to reward you with death, now would it?!”

So the frog agreed to take the scorpion across the river. He swam over to the bank and settled himself near the mud to pick up his passenger. The scorpion crawled onto the frog’s back, his sharp claws prickling into the frog’s soft hide, and the frog slid into the river. The muddy water swirled around them, but the frog stayed near the surface so the scorpion would not drown. He kicked strongly through the first half of the stream, his flippers paddling wildly against the current.

Halfway across the river, the frog suddenly felt a sharp sting in his back and, out of the corner of his eye, saw the scorpion remove his stinger from the frog’s back. A deadening numbness began to creep into his limbs.

“You fool!” croaked the frog, “Now we shall both die! Why on earth did you do that?”

The scorpion shrugged, and did a little jig on the drownings frog’s back.

“I could not help myself. It is my nature.”

Then they both sank into the muddy waters of the swiftly flowing river.

 *  *  *