Futures are higher this morning on what is expected to be a non-event FOMC announcement and press conference. I suspect attention will again return to currencies, as the US dollar’s surge over the past month, combined with the big drop we had anticipated in oil and gas, will serve to tamp down inflation fears.  Of course, there’s a fine line between falling inflation fears and growing deflation fears.The bond market continues to reinforce the bearish case for stocks.

continued for members…

The 10Y looks likely to resume its decline.

While, the 2Y is still at risk of a breakdown. The 2s10s got a little bounce yesterday, but has still broken down – a net negative for stocks.

I’m still looking for a test of ES/SPX 3200ish. But, as usual, much will depend on VIX – which dipped below the TL it broke above on Monday and has now backtested its SMA200.  A prolonged drop through the SMA200 would scuttle any bearish action for stocks.On the algo front, most of the dollar’s strength is coming courtesy of the euro which is extending its breakdown and might just reach the .786 this time.

The USDJPY contructed a little flag pattern (like practically everything else) which, remember, is a continuation pattern. Wuhan flu concerns should continue to strengthen the yen – a drag on stocks. A pop above the SMA50 at 109.18 could trip a lot of stops.Oil and gas continue to be quite important at this juncture.  The YoY January gas delta came in at 14.6%, still quite high. Even after the BLS makes their “adjustments”, this will serve to keep January’s CPI elevated.

Feb 2019’s average price per the EIA was 2.223. Two days ago, the EIA reported prices at 2.412 – still an 8.5% increase YoY if prices remain stable. While it will take some pressure off, it isn’t a great argument for a big bounce in RB – at least not yet. 1.4262 still looks good. CL’s bounce looks to be playing out already, and I’m still looking for 51.62. Don’t forget the very strong relationship between oil prices and interest rates — especially now that the budget deficit is officially over $1 trillion. Not only does the cycle argue for much lower oil prices over the next several years, but the rapidly growing debt demands them.He have plenty of economic data on tap today, with the Fed statement and press conference being the most important. Note that EIA will release the weekly inventory report at 10:30AM.  UPDATE:  3:50 PM

The market has given up all its gains and is signaling a breakdown. ES and SPX have fallen through their SMA20s. The 10Y is made lower lows.At this point, just waiting for VIX to break out again.

Bottom line, there’s no guarantee. But, I see no developments that indicate the correction is over. Nothing that Powell said convinced me, either.

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A reminder, I am going in for knee surgery (lucky #6!) next Tuesday and will likely be out of commission for a couple of days. I should get a chance to post Tuesday morning, but anything I charted/wrote on Wednesday and Thursday probably wouldn’t be worth a damn. I’ll keep you posted.