Some say that it makes sense the market is off only 16% from its highs in the middle of the biggest economic meltdown since the GFC because it’s forward-looking.  Things will be better 2-3 quarters from now, so it’s anticipating the return to normalcy. So, how do we explain its ongoing failure to anticipate the impact the COVID-19 pandemic would have on the global economy?

A better explanation is that central banks have directly and indirectly crushed volatility.  VIX is off 28% since Apr 21 and 60% since Mar 18.Stocks have responded accordingly, with this weekend’s ramp job just the latest “breakout” from a bearish chart pattern and the sixth time in a row when an initial downturn during the after-hours reversed to a strong rally going into the open.

continued for members…

VIX has reached a potential turning point – the 1.272 extension at 34.46 – but this is a smaller scale Fib that probably doesn’t mean much with the SMA100 target looming at 29.83 and larger scale Fibs waiting in the wings.

Meanwhile, ES is testing the .500 Fib of its downturn and a TL (red, dashed) which has limited previous bounces.So, there’s always the potential for a reversal here if VIX can drop through 34.46.  If so, could SPX still backtest its 2.24 at 2703? It’s looking doubtful, since it would now require a drop through its channel midline.

It’s more likely that it will pop on the open and then backtest the little white channel/flag pattern that it traced out last week.  It’s SMA10 will be up to the top of the pattern by tomorrow – and that would also allow a backtest of the rising white channel midline.

Cheering on the bears – CL’s latest breakdown – aiming for at least the white 1.272 at 12.22……and, if it doesn’t hold, the 10.65 lows… …and USDJPY’s continuing slump — all the more interesting as it has now officially experienced a death cross……with much more potential downside should horizontal support at 106.92 give way. DXY’s rising wedge finally broke down, but it’s devolved into a rising channel. …which suggests that EURUSD will continue to be limited by its SMA10.The bond market continues in a fed-induced coma – with the 2s10s in the sweet spot we discussed – neither breaking out nor down. Lots of economic data and, of course, the FOMC meeting coming up this week. It’s quite common to get a ramp higher leading up to the FOMC meeting, especially if there’s a possibility of disappointing news or decision.

Nothing surprising, but the BoJ followed through on its threat to buy anything and everything that’s not nailed down.

https://www.japantimes.co.jp/news/2020/04/27/business/economy-business/bank-of-japan-easing-steps-policy-meeting/

 

UPDATE: 10:10 AM

ES was slumping a bit much and needed a bounce at its SMA5 200…

…so VIX just dropped below its 1.272……and USDJPY got a nice bounce at its .886.CL is holding at its 1.272, at least for the moment. Not a bad place to take profits, though it clearly could go lower.

UPDATE:  11:55 AM

At 2879.22, the H&S Pattern officially bites the dust. Count on it.Having said that, this is a pretty good place for VIX to bounce.

BTW, I have a conference call scheduled from 2:30 – 3:30 this afternoon and will be out of the office between 10-12:30 on Tuesday.

UPDATE:  3:39 PM

SPX made its new high, so the H&S is officially kaput and a potential backtest is now safe.  The .618 is also easy pickings and we still have the Fed meeting to melt up to, so I’d call it 50:50 at best.USDJPY has some backtesting of its own to do…

…as does VIX. Nice little rebound by CL……with RB still managing to hang on to support. As long as the red TL and SMA10 hold, it continues to have upside potential.GLTA.