SPX tagged our second downside target on Wednesday, and promptly reversed to tag our bounce target on Thursday.This would have been a logical spot to digest some of those gains — maybe a .618 or .786 retracement.  But, CL had already reached our downside target the day before.

And, though USDJPY is reversing when we expected it to, it slipped up past 120.11 in the meantime — which was enough in combination with the jobs report and CL to ignite those wonderful momentum algos in ES (currently up 18 points.)

Continued for members…

That would put SPX up to the SMA10 if it holds after the cash open — a .618 rebound of the decline since the 2125 highs.  Let’s call it 2104. From there, it looks like USDJPY and CL aren’t planning on supporting any more at the moment.  But, that’s okay.  Treasury futures have got it from there.

The talking heads are praising the “Goldilocks” jobs report — strong enough to keep the economy on the mend but not so strong as to require a rate rise in June.  From CNBC:

Investors cheered the renewed strength in the economy, pushing S&P 500 futures higher by about 1 percent. The report was seen as a so-called Goldilocks scenario, showing a rebound, but not strong enough to rush the Federal Reserve to raise interest rates. Government bond yields, which had been rising, fell after the number was released.

The reality is that since late April, lower interest rates (higher prices) have become equated with higher stock prices.  This is a dramatic shift from the past year, when — as the above chart shows — stock and bond prices were inversely related.

And, the strong jump in the first 30 minutes of trading has much more to do with momentum ignition algos than an improving economy.  Unemployment drops have been almost entirely due to workers dropping out of the workforce — not net gains in jobs.

UPDATE:  9:50 AM

SPX stopped at the .786 rather than the .618.  As the chart below shows, this is more in keeping with the “recoveries” we’ve seen after sharp sell-offs lately.  The white arrows show several similar moves in the first hour of trading over the past several weeks.

I’m tempted to short here, but the past several weeks have also shown the bulls to be quite stingy.  That is, once these algo gains are in the books, it’s very rare to get any meaningful retracements. Use prudent stops just in case.

The one exception was this past Monday’s spurt, which preceded a 54-pt drop.  But, that drop bounced exactly where expected off an important channel’s midline. So, the three waves from 2125 to 2067 will be billed as corrective.  As such, it’s likely that any decline we get from these levels will be slow to develop and play out.

Is this the top?  Our analog says more like a top.  Remember, the whole point of the months between Mar – July is to tread water until the USDJPY SMA200 catches up.  The first tag is due on July 29 — so, another 10 weeks of this crap.

Ideally, it’ll be preceded by a sharp downturn which is just scary enough to convince all TPTB that another expansion of Japanese QQE is vital to the global economy.

With SPX’s own SMA200 approaching, we’re left to wonder whether or not the purple channel midline will be broken in order to tag it at a reasonable Fib retracement, or whether SPX can simply hang on and wait for it to catch up in late July.

I suspect it will be the purple midline which gives way.  The SMA200 is gaining about 1/2 point per day now, and should flatten out (as SMA100 has almost done) by late July.  In fact, Jul 29 lines up as about 200 trading days (cash markets) post the mid-Oct plunge.  Ceteris paribus, this would imply a bottoming (aka the beginning of an upswing) of SPX’s SMA200 on about that date.

I’ll look more at the various scenarios that could play out over the next few days.  It’s probably a good time to update the analog as well.  Anyone holding short over the weekend, hedging or protection is highly recommended.

Have a great weekend, everyone.