Crunch Time

December 24 was a pivotal day. As we noted at the time, most of our downside targets, some from several months prior, were tagged [see: Throwing the Game.]

ES reached our H&S target.  So far, it has bounced 13.3%.Oil reached our 43.50 target and has bounced 25.8%.RBOB reached our 1.2603 target and has bounced 16.2%.AAPL has bounced 9.6% since reaching our 144.48 target.And, COMP reached our 6227 target and bounced 14.3%.VIX, which had broken out of a falling channel, spiked up to our 34.97 target on the 24th.Though, if you look closely, you can see that it was threatening another breakout — having slightly overshot its upside target just like CL, RB, AAPL and COMP had slightly overshot their downside targets.

More alarming, USDJPY and TNX had broken down below important support.  As we noted at the time: “this [was] no way to run a rescue operation.”

It was no surprise that Mnuchin chose that day to convene the President’s Working Group on Financial Markets – aka the Plunge Protection Team.

The PPT presumably can’t buy stocks directly.  But, they can direct the Fed’s trading arm to trade in futures, options, etc. which, in turn, trigger algos to purchase stocks. It’s a well-worn transmission mechanism that rarely fails.  Their primary objective was to magically transform VIX’s breakout into a breakdown. In the process of being crushed by 51%, VIX has engineered a record-breaking rebound.  SPX has rebounded 11.4% and is slated to reach its H&S neckline on the open this morning.

Algos, which were greatly disparaged for driving the market lower in December, have – to my knowledge – received no criticism whatsoever for the rebound.

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