The FOMC is officially in the short-squeeze business. After futures came within 19 points (trading was halted there) of our next downside target – ES’ 1.618 Fib extension at 2155 – the Fed unleashed QEinfinity. In other words, they’re prepared to spend whatever it takes to keep stocks from melting down any further.
With the Dow set to test the Nov 8, 2016 (election day) lows, we can assume the White House is vigorously egging the Fed on (if not threatening them with bodily harm.)
Consider VIX (hammered by 20%) and the 10Y (cratered from Friday’s high of 1.265% to a low of 0.711%, crushing the 2s10s as low as 41 bps.) This is an all-hands-on-deck emergency, and they’re throwing everything they’ve got at it.
After all that, ES spiked 212 points, and is knocking on the door of a breakout above the falling TL from Feb 19. Will it be enough? And, if “everything they’ve got” isn’t enough, what then? Full-on BoJ-style equity/ETF purchases? With very desperate doves clearly in control, I wouldn’t be surprised.
continued for members…
The big picture for ES and SPX:
Remember, ES and SPX’s 1.618 Fibs are very different. While ES is at 2155, SPX is way down at 2138 – 7.2% below Friday’s close and 6.8% below its low.
If ES can’t top this little red TL, the Fed’s efforts are for naught.
It’s moving fast, but the 2s10s is still not back below breakout status. Both the 10Y and the 2Y are trying to find some equilibrium – with more volatility than I can remember.
The white TL is at about 48 bps.
Though VIX has been knocked below its SMA10, it is bouncing off its lows. This is concerning, because CL and RB still aren’t bouncing much at all…
…and, USDJPY’s response has been lackluster: no new highs yet.
UPDATE: 9:47 AM
That certainly fell apart quickly. Important line in the sand here for ES…
…while DJIA is dipping below the important 1.618 Fib at 18974 and – more importantly – is testing its post-2016 election lows. Anyone questioning the administration’s determination to preserve and protect its post-election gains hasn’t been paying attention.
It will be important to keep VIX below its SMA10.
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I had a request for a Bitcoin chart which I will take a stab at. First, some disclaimers: I don’t follow BTC; I suspect BTC is heavily manipulated; and, I wouldn’t put more than a small, speculative percentage of my investments in BTC. With that said, I’m sure some of you would be interested in what the charts indicate.
Two major chart patterns jump out at me: first, the obvious triangle pattern on the weekly arithmetic chart (it isn’t there on the log chart) suggests BTC should bounce from here and return to the top trend line (which failed, BTW, to hold a recent tiny breakout.) It currently stands around 9,925.
Second, the daily log chart shows a TL was broken last week but BTC has since rebounded back above it. For those wondering, the retracement of the rise from the Dec 2018 lows to the Jun 2019 highs reached about 81%. Had the TL held, we’d be looking at a Fibonacci 78%.
If you believe that BTC will necessarily rise (as gold will) as QE explodes, the charts support a continuing bounce. If you believe the FOMC will do whatever it takes to support the USD and crush surrogates such as BTC and GC, then keep an eye on that TL (5,000ish) as a fairly clear stop level.
UPDATE: 4:00 PM
Probably not the outcome the Fed was hoping for… SPX closed down nearly 3% (4.4% above 2138) and ES is struggling to close above a 4% loss.
USDJPY actually lost a little ground…
…while CL held its red TL… 
…and RB gave up a stunning 15% on the day.
DJIA is closing below its 1.618 but, not surprisingly, the 2016 election price level has held… 
…and, no surprise, VIX is actually off for the day.
While the lack of a congressional deal no doubt played a role in today’s weakness, what does the 3-4% drop say about the Fed’s action? What might they roll out 30 minutes before the open tomorrow that would prevent a drop below 2138? Direct stock purchases by the FOMC?
Having seen this many times before, we know the drill. Get SPX back above its SMA10 (currently 2559) and hold it there until the SMA20 catches down, then gap it up over both of them in conjunction with the 10/20 cross. Next thing you know, new highs!
Stay tuned.
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