Today we get the benefit of both Jerome Powell and Janet Yellen telling us that, despite how incredible the outlook is, things are so horrible that they need to keep pumping billions of dollars into the markets every day.  For the little people. You know – unemployed folks who can really benefit from rapidly rising food, energy, and housing costs.

It’s now been a year since SPX bottomed out, 9 months since a test of its 200-DMA, and five months since a test of its 100-DMA. The algos have been working overtime. Corrections have been short and sweet, quickly extinguished by rallies in oil and USDJPY and sharp collapses in VIX.

From this point forward, expect them to come as a surprise to many investors.

continued for members…

In our most recent big picture post, I noted that the rotation under way will be one of oil/gas prices dropping sharply and USDJPY and VIX picking up the slack in terms of propping up stocks. It’s certainly looking that way so far.

We have plenty of juicy downside targets available for SPX and ES… …but they won’t get a chance to be tested as long as VIX is able to keep angling lower. Consider the size of some of these daily collapses and the succession of lower lows – and, it hasn’t even needed to close the most glaring gaps yet.Meanwhile, USDJPY is waiting in the wings, ready to break out at any time as needed to support stocks – provided things start to get really ugly. It’s not necessarily the sort of thing they’d do to fix a 1% decline.And, EURUSD is positioned to moderate the effects on the USD.  Today could be the day it finally tags the SMA200.  The key for DXY will be whether or not it bounces. The Fed’s goal has obviously been to prevent the market(s) from contributing to any weakness in the economy caused by the pandemic. But, it has gone way beyond that exercise and created a rally that tells a false narrative – that things are actually better than they were before COVID came along.

We’ve talked about the downside of this: overpriced houses, cars, food, etc. And, it’s hit hardest those whom the Fed claims to be most concerned about – those who have no wiggle room in their budgets to withstand rapidly rising prices – despite the latest BS from the PCE department.

The pandemic has also disproportionately drained wealth from non-public small companies such as restaurants, small retailers, etc. and filled the coffers of larger big box, tech and online powerhouses which constitute the entities behind the equity averages.

This has been the case since 2009 when the Fed turned to the purported wealth effect from a rising stock market as the solution to some very deep financial problems which, to be sure, did have a lot to do with depressed valuations in the wake of the GFC.

At this point, however, it has turned into a caricature of a healthy economy, based on adherence to a rising channel from 2009 that, along with periodic backtests of vanquished overhead resistance, is testament not to the economy’s health but to the Fed’s ability to push stocks to where they want them.As things stand now, the Fed can lower the boom on VIX to the rising purple TL – now at 13.88ish – and ensure that stocks don’t drop back through the nearest support. If that’s not enough, then USDJPY breaks out. And, if that’s not enough, oil/gas’s base effect will pass in a few months and they’ll be able to prod algos with the idea of “reflation” again. Note that silver is nearing its SMA200 and could tag it later today. And, TNX is still backing away from its recent highs, based largely on the decline in CL/RB.UPDATE: 3:35 PM

CL/RB continue tumbling… …and VIX broke out of its falling white channel again.This has been enough to drive ES toward our backtest target. Silver is also closing in on our SMA200 target. SPX, with some of the backtest targets laid out. As it stands right now, the bears need the white channel midline to give way. Even a drop to the Feb 2020 highs (the red TL, bottom of the rising white channel) would be only a 14.8% decline from the recent highs. A 20% drop would take it to the yellow channel midline.