So…the coronavirus isn’t tapering off after all. Not to worry, though, says WHO adviser Ira Longini. It should only infect about 5 billion people.

If you’re surprised by the degree to which governments and the mainstream media have been downplaying the severity of the outbreak, you haven’t been paying attention for at least the past 10 years.

Having said that, don’t expect that the folks whose job it is to advance the never-ending rally to give up now. Consider how well the market muddled through during the Spanish Flu. And, that was before central banks assumed control of markets. Meanwhile, annual CPI came in right at our expected number of 2.5%, thanks to the YoY oil/gas price boom as we’ve been discussing for the past several months.

For those looking for a big bounce from oil/gas, don’t get too excited just yet. The delta in gas prices for Feb is shaping up as a 5% YoY gain – not as extreme as in Jan but still a factor. For a Fed which is looking for excuses to keep rates low, a big rally in oil/gas right now would be quite inconvenient.

With services inflation up 3.1% YoY, the interesting question is what will happen to goods inflation. Slowing global trade could reduce overall demand, but interrupting supply chains could also be expected to create shortages in certain areas such as electronics. Fortunately, the BLS has models which will smooth these things away.

Futures are none to happy with the spike in coronavirus infections/deaths – with ES off over 30 points overnight……before being buoyed by a timely smackdown of VIX which dared to broach its SMA200.

 

continued for members…

VIX will remain the key to keeping the rally going.

SPX’s best bet is to take a stand at its SMA10 or 1.618.Though, if it can hold 3357 (not terribly likely) it will remain “broken out” above the white channel midline.

As discussed yesterday, CL has backtested an important level of resistance – the white channel bottom.Though RB has a little more latitude. All it needs to do is settle gradually lower for the rest of the month unless — and this is a big caveat – a dollop of higher inflation is needed to make up for the lack of it elsewhere. On the currency front, USDJPY has reacted as expected at the red channel top/.886. Although I would be short here, I’d set tight stops. We all know that a USDJPY breakout is a very effective and oft-used technique to prop up stocks. Meanwhile, EURUSD is headed for our next downside target: the .786 at 1.0813.This makes DXY that much more likely to reach its own .886 at 99.259.On the bond front, I’m still looking for TNX 14.91 or even 14.5. ZN should reach new cycle highs, with the channel top now at 133’035.The 2Y is back above 1.4% and the 2s10s is sitting at 18 bps.

I must apologize for posting later than usual this morning.  My knee recuperation is going very well. But, in my enthusiasm, I walked (well, shuffled) almost 2 miles yesterday. This morning, I paid the price with a huge amount of swelling and fairly intense pain. This means lots of ice, elevation and drugs – which slow me down considerably. I’m also having to spend several hours each day with my leg elevated above my heart, which makes it impossible to work at my workstation. Hopefully, things will continue to improve. Thanks for your understanding!

More later.

UPDATE: 3:50 PM

Another pretty silly day, with SPX recovering and flirting with gains much of the day.  A clear breakdown of the purple TL, followed by higher highs and, for now at least, holding the SMA5 200.   It was almost all VIX……with a smattering of help from USDJPY…

…and a rebound of the overnight losses for CL.Note that CL is back above the white channel bottom on the weekly chart. My expectation is that it will eventually break down and yield to the less steep purple channel, but not until such a breakdown is even less of a drop. The purple channel bottom, currently at 45.91, is rising about 3.10 per year.

FWIW, AAPL’s RSI is still broken down, though you’d need a magnifying glass to see it. You’d think a lengthy shutdown of many of the manufacturers in its supply chain would impact its price, but it’s only 3 points off its highs.  Last, for those watching EURUSD, it is closing in on its .786 at 1.0813.  If this breaks down, then the next target is way down at 1.0592. But, this would represent a breakdown of the rising white channel bottom – fairly significant in its own right……and a big deal for the rising DXY which contributes to the goods CPI decline.

I think the plan, assuming there is one, is to allow a backtest of the ES 1.618 at 3336.49 when the SMA10 (currently 3324.85) reaches it in a day or two.  SPX’s SMA10 is already above its 1.618, so it’ll just be backtesting its SMA10, currently at 3324.34 and climbing about 9 pts/day.