Futures are back to flat, having bounced a bit on the Iran sanction news as it provided a modest (so far) bounce for oil and gas prices.The market has a wait and see feel to it this morning, with AAPL breaking down further……but, the algos all but ignoring it, focusing instead on dollar strength (TNX is higher again) and oil’s potential recovery.  AAPL is now off almost 14% and is nearing our channel target [see: All Eyes on AAPL] with the gap close target of 195.96 and SMA200 target (currently 192.44) looking better all the time.

Members might wish to revisit last week’s post on VIX [see: VIX’s Warning] in which we discussed the bearish implications of the impending 50/200 cross.  This morning, it’s alive and well.continued for members…

The equity picture: we’re still waiting to see whether the right shoulders of the latest H&S Patterns complete or not.  ES is testing its 2.24 (an important long/short line in the sand), bouncing at its SMA5 200 after reversing at its SMA200 and backtesting the broken white channel……while, SPX saw its as resistance following the missed channel backtest and SMA10 bounce.  No SMA200 test yet.  It really has an indecisive feel — so, for traders, a break out above the SMA5 200 should be a sign to be long and a drop through it is a good short signal. VIX still shows potential for nice upside, but is playing its cards close to the vest right now.  Previous spikes have come almost with warning.  As we discussed the other day, the SMA50 has crossed above the SMA200 — a bullish sign for VIX and bearish sign for stocks.  Friday, the SMA50 registered 16.09 versus the SMA200’s 16.00.  This morning, the spread has expanded to about .22.

USDJPY is threatening to break out again — it’s MO ever since the latest equity swoon.This is supporting DXY even in the face of EURUSD’s bounce.

A closeup on USDJPY.Our thesis has been that the White House would push oil and gas prices lower, at least until the election.  So, this morning’s announcement on Iran must be a calculation that prices are low enough for political purposes and that a diplomatic/military/economic show of strength would yield positive results in the election.

Personally, I think this is a miscalculation. Pocketbook issues are likely more important to most voters than exerting more pressure on Iran.  But,  it might not matter, as a 1% increase in CL is unlikely to drive up prices at the pump between now and tomorrow.  We’ll see.

I remain of the feeling that once the election is over oil and gas will likely recover and the USDJPY will get a rest.  Ideally, this would follow a simultaneous spike up to USDJPY 114.51/115.59 and DXY 97.873 and plunge to CL 59ish — better resistance/support all around.

October’s inflation numbers are in the can, and Nov 2017 saw a nice bounce in RB (see the transposed range in the purple rectangle above) but a modest bounce in EIA regular gas prices (1.8% from Oct 2017.)  At current prices, we could see a very modest CPI print for Nov 2018.

For this reason, it’s quite possible that CL and RB have already bottomed.  The White House doesn’t need it to drop any further for election purposes or for Fed optics purposes.  Having said that, the charts clearly indicate a potential drop to 59ish.  So, how to play it?

There are probably more investors who believe in the Trump rally than, like me, who believe that the Trump Rally was engineered by algorithms motivated by manipulation in VIX, USDJPY and CL/RB.  If Democrats were to take the House and Senate, these investors might reasonably become more bearish under the expectation that Trump’s economic agenda is endangered.

So, a swoon remains a good possibility. Trump could obviously blame it on the Democrats’ success in the election and Fed rate hikes (which would look even more suspect if CPI prints near 2%) and, in a sense, not suffer too much in his supporters’ eyes.

At one point, I had pondered whether the Fed, in an effort to remain free from interference, would facilitate a market decline that would damage the Republicans’ chances.  With only a day to go, this seems less likely.  And Trump’s ability to shift blame away from his policies which have been tough on equities (trade, the Iran embargo, etc.) has made such a move less potentially effective.

It’s probably enough that he can’t brag about a market reaching new highs.  And, if you believe the latest polls, the Democrats might do well enough without any more “disasters” to lay at Trump’s feet.

UPDATE:  1:00 PM

The market seems to have locked in on ES’s 2.24 and SMA5 200, meaning the algos are happy enough without needing extraordinary help from CL, USDJPY and VIX — which all remain in fairly neutral territory.

The AMZN, AAPL and COMP charts leave me feeling bearish overall.  Yet, I know that the markets could easily be held aloft by a sudden spike in CL/RB and USDJPY.  So, color me cautiously bearish.

I’m going to take the rest of the afternoon off and do some charting.  I’ll post after the close if anything important happens chart-wise.