SUBSCRIBERS:  Just updated our forecast page, including RB, CL, DXY, USDJPY, EURUSD, SPX/ES, Gold, VIX, COMP, DJIA, AAPL and bonds.  Check it out HERE.

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Rumbling toward the end zone, the bears ran into the bulls’ best defender: VIX.  As ES tagged our channel-line target a day ahead of schedule (and, therefore at a lower price)… …VIX took the opportunity to plunge back below its 200-DMA. Fortunately, we saw it coming a mile away courtesy of DJIA, which signaled the end of the decline with a precisely executed (random walk, my ass) tag of its 200-DMA.  As usual, the refs pretend not to notice when the bulls are caught cheating…This sent SPX back above its 2.24 Fib at 2703 just in time for the close.  All things considered, it was a successful goal-line stand.

Unfortunately for the bulls, however, VIX couldn’t hold its stance overnight and is back above the 200-DMA as ES tests yesterday’s lows. And, rates are itching to tag our next downside target — a headwind for stocks.

The algos will have their work cut out for them today.

continued for members…

DXY seemingly broke out of its falling white channel.  But, we’ve been here many times before.

The issue remains the euro, which can’t get out of its own way. But, the TNX will not be denied much longer. The breakout/breakdown is imminent. And, unless the algos are very powerful (never rule them out) we could see VIX double or triple in the next couple of months. It would be unusual for SPX to break down on a Friday, but never say never.  Both it and ES need to flesh out their rising channels, so a test looks likely — either today or Monday. The key will be whether VIX can be contained at its SMA5 200 and RB and CL can maintain their bounce.  CL is holding on after reaching our downside target yesterday.  A drop through 51.75 would open up the possibility of a new, less steep channel. RB, which bounced out of respect for CL’s bounce, would run into resistance at the neckline and purple channel midline around 1.443.  It’s tried to break out a few times and has failed, likely the result of its need to remain well below the Feb 2018 range for inflation purposes. Perhaps the most encouraging sign for the bulls is COMP, which not only dipped below its SMA100 yesterday, but looks like it has backtested it.  All we need, now, is for DJIA to give up 25000.If/when SPX’s purple channel breaks down, the next support comes in at the SMA20, which would also be a backtest of the megaphone pattern, at 2658.15.  After that, we have the big H&S neckline at 2630ish.  The SMA50 is currently around 2615 and gradually rising.Once the neckline yields, it’s off to the races for the bears.

More later.

UPDATE:  12:19 PM

VIX just tested its SMA5 200 – also the red TL.  A drop back below it will make ES/SPX bounce, so watch your stops.  The safe bet is to cover shorts here and re-short on any subsequent drop.

SPX has fleshed out its channel bottom, so could get a nice bounce.  A breakdown, on the other hand, would be yuuuuge. ES has further to go, but did just test its phoney baloney yellow channel bottom. With DJIA approaching (backtesting?) its SMA200, we’re at a very obvious line in the sand.I’m going to step out for a meeting, will be back before 3pm.

UPDATE:  3:05 PM

Back to almost even on the day, mostly thanks to VIX — which was down to 16 from yesterday’s high of 17.89 — a 10.6% drop.  Also in favor of the bulls, DJIA is back above its SMA200… …and SPX has fleshed out its rising purple channel.So, I’d be cautious about trying to hold a trading position over the weekend.  The next big Fed balance sheet action isn’t due till Feb 20, a $23.3 billion QT.  That would give SPX/Es plenty of time to make another high up at their SMA200s. And, with SPX just below its 2.24, it wouldn’t take much to close up for the day and above good support.

For those who aren’t easily intimidated, the downside case remains strong.

ES looks like it could dip down to 2667ish in order to flesh out its channel.  And, our yield curve model remains bearish. DXY and TNX are still due for a drop… …and RB looks like it wants to dive down to 1.366.  I’d be comfortable shorting it here at 1.45 with the understanding that it could gap away from us.If CL’s channel breaks down, it could tumble quite a bit.If stocks are to tumble more, today’s rebound would qualify as a high quality headfake.  My gut tells me that’s exactly what’s happening.