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.

continued for members…

Will it push right through the neckline, reverse, or play cat and mouse?  I show SPX’s at 2620 and ES’ at 2620.50.

If SPX can push above the neckline, the rising purple midline, the yellow 2.24, the SMA200, the falling purple channel top and the Oct 3 highs, then the yellow 2.618 awaits at 3047.34.  Obviously, that’s a lot of overhead resistance. UPDATE:  10:45 AM

EIA’s inventory showed a smaller than expected draw in oil and a larger than expected build in RBOB.  Both are off a bit.VIX, which initially pushed above its SMA100, is settling back down. A moment ago, it even gapped lower.  Nice touch. USDJPY is holding above its gray channel top.ES initially sold off on the news, but is trying to stage a comeback. UPDATE: 3:50 PM

Coming up on the close and ES/SPX are still lingering at their necklines, thanks primarily to VIX, RB/CL and USDJPY.  Nothing new. Couple of questions today regarding NFLX. It’s a great allegory for the overall market.  After reaching its .786 (on the 26th instead of the 24th) it has been on a tear, finally reaching its midline yesterday – which involved a breakout above the red TL from July.Here are the charts from July 17.  The timing was unclear, so the .786 target was just off the chart to the right, where the channel bottom intersected it in December.

Here’s the original chart I drew on July 17 — but with the price action since then.  At the time, it seemed that NFLX could make it down to the .886 if it hurried and the falling white channel broke down.  As it turned out, NFLX broke out of the channel and, by delaying its decline, managed to tag the big white channel bottom at the .786 instead.BTW, its breakout of the falling white channel happened on Aug 21, the day that SPX made a new high (by 0.36) and spent the next five weeks in a false breakout.

Is it in the clear now?  Maybe. A channel midline theoretically provides more resistance than a fan line. But, this is a very, very manipulated market with plenty of surprises ahead. The desperation is starting to show. But, it might not matter.  Once the short covering begins, it can get carried away.

Consider COMP itself.  It is obviously back above its neckline and its 10. 20 and 50-day moving averages, but hasn’t yet broken out of the megaphone — sometimes a meaningful pattern.