GDP Beats, But…

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After the government “put $5 trillion into a $3 trillion hole,” as Ares Management’s Michael Arougheti so eloquently put it, GDP bounced back sharply last quarter. Unfortunately, it’s still down 2.9% for the year.Keep in mind that this is also the advance read for the third quarter, days before an important presidential election, and that all indications are that the pandemic which powered the initial plunge is gathering steam.

ES is undecided on the import of the data, giving up a nice overnight bounce after slightly overshooting our next downside target yesterday.

continued for members…The bigger picture:

Remember, DJIA’s SMA200 is at 26,226.34 and its C=A target is 26,295.56.

VIX suggests that the next plunge will wait until next week, probably on Nov 2-3, as that’s when the top of the rising white channel reaches the .382 retrace at 34.18. Note that CL has reached our 35.45 target and is contemplating a drop to the 1.272 at 35.06 and/or the channel bottom at 34.36. I suspect we’ll see a bounce at 35.06 and another wave down to 34.36 next week. Either way, watch your stops.

RB has reached its channel bottom and is eyeing our .9949 target, possibly ahead of schedule. Again, be prepared for a bounce here and another leg down next week.Europe’s shutdown is weighing on the euro……which, in turn, is powering DXY higher. It hasn’t helped that USDJPY has (barely) managed to remain above its Sep 21 lows… …in order to postpone NKD’s SMA200 tag a little longer……or that TNX is getting a premature, equity-boosting stick save.This is obviously weighing on GC and SI – as is the lack of any hope for a stimulus deal any time soon. The big picture is still bearish, though SPX and ES both reached potential support yesterday.

SPX reached the midline of the rising yellow channel from 2009.It’s marked below with yellow arrows. I’ve been tardy in removing the falling white channel which made so much sense until SPX broke out to new highs in July.

Trying to incorporate the Sep highs into the channel is difficult – whether using the Feb and Dec 2018 lows (white channel below) or the Dec 2018 and Mar 2020 lows (red channel) – results in a legit looking channel.We ran into the same problem in 2015-16 when SPX 1823 was backtested repeatedly. Although we knew we had reached a top in late May as SPX came within a few points of its 1.618, and surmised that the retracement could result in another 1823 tag, all efforts to construct a falling channel were dashed by repeated ramp jobs to retest the May 20 high.

in the end, we backtested 1823 four times (nearly six) and only the bottom of the falling white channel shown below made any sense. The potential top was violated repeatedly once SPX made it back above the SMA200 in Oct 2015.As I recall, it wasn’t much fun at all, watching SPX criss-cross its SMA200 – dozens of head fakes including a golden cross (the yellow arrow) on Dec 23 a few days before SPX plunged 13% in 14 sessions.If the same sort of pattern is currently playing out, it would suggest backtesting an important Fib extension. The most important one which was never backtested was the 1.618 at 2138.04.

That would mean a breakdown of the rising yellow channel, so relatively unlikely given the current FOMC’s activism.The 2.24 at 2703 and the 2.618 at 3047 were both backtested, but SPX fell through them in a big way. So, I wouldn’t call them a successful backtest.

Given that the white .382 is aligned nicely with the yellow 2.618, and the white .618 and blue 2.24 with the yellow 2.24, I’ll consider both attractive targets in the event the yellow midline breaks down. Note also that a H&S Pattern has completed, this one targeting 2875 – about the level of the white .500 and the yellow channel .236 line.More later…