SPX was locked in a nice, neat falling channel last week until Friday morning when, after backtesting the top of our yellow channel for the eleventy billionth time, two fairly common things happened:  a rising channel for VIX suddenly broke down… …and, USDJPY “broke out” of the falling channel it’s been in since Dec 8. The result: SPX broke out of its falling channel (the yellow arrow):It doesn’t matter that VIX might not establish new all-time lows, or that USDJPY’s breakout might very well be another head fake.

The only thing that matters is that SPX will have broken out of a falling channel and successfully backtested a rising channel — in other words, its “breakout” is intact.

Thus, the divergence between real economic activity and stock prices will widen just a little bit more this morning. Bottom line: fundamentals continue to take a back seat to algos which — together with passive investing and other machine trading approaches — now account for 90% of all trading volume.

As long as central banks control the primary inputs to the most powerful algos, fundamentals will matter less and less.

continued for members…

Oil continues to slowly recover.  Again, I don’t see it spiking higher, but taking its time — especially until June is over.  It would be nice to get a bit of a drop, if only to help establish the proper channel bottom.The combination should get SPX up to our upside target from last week.  Although, I wouldn’t be surprised if it stopped short of the .886 (2451.19) and waited for the short-term SMAs to catch up.UPDATE:  9:48 AM

That’s probably close enough.  I’d revert to short here, or at least tighten up stops.  The most obvious targets are the purple midline at 2442.40 or the gap close just below it at 2441.40.  But, we’ll get a better idea once the SMA5 10 and 20 start to catch up.CL might need to let a little more air out. And, USDJPY just backtested the breakout.For those watching the currencies, I continue to expect a tumble in the USD in the very near future.  If DXY does break down in a meaningful way, look for SPX to test 2430.13.

UPDATE:  10:43 AM

SPX just closed its gap as DX is testing its SMA20 and USDJPY is dropping again.  You could cover here, but it has further to go if USDJPY doesn’t hold at 111.39ish.  I don’t think it will — but, it might be able to hold these levels until after the close.Note that VIX retraced .886 of its rise from 9.37, and has since bounced back above its SMA5 200.UPDATE:  10:08 AM

There’s the SMA10 — last real support above the .618 at 2453.13.  VIX just backtested the broken white channel, so there’s a good chance the SMA10 holds.  I’d cover here, but be ready to re-short if it drops through the SMA10 — especially if VIX tops 10.44.

Any way you slice it, that was a hell of a reaction to a relatively small move in DX and USDJPY.  Imagine if it fell several times that far during market hours… UPDATE:  11:33 AM

Moment of truth for SPX.  If it can hold the SMA5 200, we should get a nice bounce here.  If it can’t then 2430 is looking good.  I’d short here with tight stops if SPX drops through its SMA5 200. In order to that to happen, though, CL is going to have to run out of juice.UPDATE:  12:08 PM

That should about do it.  DX has probably maxed out, VIX made its play, CL dare not rise much more….  I see 2430 in the near future.  I’d short here with tight stops.I think NDX might be a factor as well.  Note that it has yet to backtest, and is clinging a rising TL, looking very weary. I need to get on the road, so will sign off for now.  I hope to be able to post later in the session.

GLTA.

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BTW, I’ll be traveling this week starting around 12 PM ET today.  This means I’ll be able to post first thing in the morning and sporadically during the day.  And, for those who plan far ahead, I’ll be taking a week off, with no posting at all (no internet connection) the week of July 17-21.