ES reached new highs yesterday, but SPX reversed at its .886 Fib retracement.  Which should we believe?  Since VIX is plunging in the minutes before the open, indications are that this morning’s selloff will be just enough for SPX to flesh out its latest rising channel — also on the way to new highs.

What could go wrong?  Plenty.  For one, 10Y yields are threatening to break out of a channel dating back to Jan 2000.  This seems to me to be a very dangerous game the Fed is playing.

The Fed clearly wants more headroom in rates on hand for the next economic disaster.  And, the 2Y continues pushing higher, perhaps to buoy the dollar and keep inflation from running away.

As the 2Y rises, the 10Y must at least keep pace in order to prevent a yield curve inversion.  But, yield breakouts have been unhealthy for stocks over since 2015.  With debt accumulating quickly, why would this one be any different?

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Maybe it’s just enough of a nudge to fine tune SPX’s drop to 2900ish.

It could then join SPX in making new highs.

USDJPY seems to be taking a pause, consistent with NKD reaching its .886.

UPDATE:  9:36 AM

VIX just officially tagged the yellow channel line at 11.66.  So, we can officially play a bounce — with tight stops, of course.  I suspect it’ll be limited to just enough of a bounce for SPX to solidify its support.

If SPX is due to break 2916.50, we should expect to see VIX dip below 11.66.  But, given the events going on in the world and the possibility — however slight — that carbon-based investors wake up and panic enough to overcome the algos, I’ll keep an open mind.To the extent it does bounce, we can look for SPX to dip to 2900.  Lower targets start with the SMA10/20 at 2887-2889.

Obviously, if VIX drops through 11.66, look for SPX to push up to and through 2916.50.  This would mean shorting VIX for whatever target it has in mind — probably 10.93ish.

A reminder…EIA crude data will be released at 10:30 this morning.  API reported a large build yesterday afternoon — not that you could tell from the charts. The idea of a significant sell-off in CL and RB dovetails nicely with the most obvious higher target in VIX.  But, again, I’m not holding my breath.

This SPX channel is lame — just ripe for a breakdown.UPDATE:  10:30 AM

WTI and RBOB both came in with moderate draws.  CL and RB are popping a bit.  Remember, however, that spikes from previous reports didn’t last.  Both have nearby overhead resistance – RB’s triangle and CL’s channel top.