Yesterday was all about fine tuning, positioning SPX/ES for a breakout — which arrived at 2am courtesy of the breakdown in VIX we were expecting.

Is the start of another prolonged period of VIX bashing?  And why now?  Has it anything to do with DXY finally breaking down?

continued for members…

This morning’s decline takes VIX back below the yellow channel bottom for the first time since Aug 3.  Recall that it was the series of tags and drops through the yellow channel that got SPX above its neckline (and, safely backtested it.)

And, it was the Aug 24 tag which helped get SPX back above its Jan highs.  Those feats, of course, pale in comparison to the breakout and rally post the 2016 election…

…accomplished by a nearly constant monkey hammering of the “fear index” below the channel bottom.  It went from an annual occurrence to nearly every day.

VIX could easily fall to the 886 at 10.93.  But, it’s important to recognize an intriguing upside target: the intersection of channel lines with the SMA200 up at 14.80ish around Oct 2.

Now, SPX can safely put the backtest of the Jan highs behind it and work on some of our upside targets, beginning with the 1.272 at 2930.75.RB and CL have also helped, with CL pushing (at least temporarily) above the red channel top and backtesting it……and, RB pushing above its triangle and backtesting it.  I don’t suspect they’ll back off until ES reaches its 1.272 at 2932.63 or SPX reaches its at 2930.75.

Interestingly, Trump was in the news again today, ragging on OPEC for its scandalous profit-seeking behavior.  

If VIX does, in fact, cooperate, CL and RB could be relieved of their propping duty and decline plenty.  As we’ve discussed, it would give the Fed cover to pause its rate hikes after September’s.

In terms of the USD, its weakness is coming primarily at the hands of the euro — which just reached the 1.1734 target we came within .0001 of last month.  If EURUSD reverses here instead of continuing up to the SMA200, DXY’s correction is pretty much done.

…despite continuing strength in the 10Y.

UPDATE:  3:55 PM

SPX is now backtesting the 1.272 after tagging the gray channel midline – one of several which are still vying for top honors.

VIX is back above the yellow channel bottom, suggesting a downturn for stocks tomorrow.  But, it’s given to false signals.  So, it’s hardly a guarantee.RB and CL are both back inside their recent resistance lines – opening the door for a move in the next few days.

One issue we’ve yet to touch on yet is the coming 3Q numbers.  SPX is up about 7.8% QoQ — not a bad number for the bulls to tout.  And, in the present political climate, we’ll be hearing a lot about how well the market has performed under this administration.

In general reversals at the 1.272 tend to revert to the .618, which would be 2896.  But, this would mean busting the red TL and gray channel bottom which provided the 9/11 and 9/17 bottoms.

The slightly more bullish reversion would be to the purple .886 at 2910.53 on FOMC day.

Let’s pick apart the various channel options.  First, the red trend lines.  Since 7/2, the bottoms started rising at a steeper clip — hence, the dotted line.

If we used the dotted line as the bottom of a rising channel, it looks something like this.

The white channel was looking great until Aug 29, when SPX closed slightly above the channel top.  If it’s the guiding channel, then we’re looking at a pullback here.

The red channel fits pretty well, and leaves the door open for more immediate upside.

Which one fits best?  Let’s pull back and look at the larger channels.  The yellow one below fits very nicely since 2012……but not prior to that time.

The purple channel looks really great except for the fact that the January downturn didn’t start at any significant channel line.

However, the purple channel has the added benefit of fitting in nicely with the longer-term channels.  The chart below is of SPY, but you get the idea.