October felt like more than a 2.2% month for SPX.  Maybe it was the fact that we had so many gap openings.  Or, that the backtests couldn’t quite backtest.   Maybe, it was just the channel that so convincingly broke down was suddenly resurrected the very next day — as though nothing had ever happened.

In the end, the month was characterized by a continuation of the VIX-driven algo-dominated meltup: 38 straight sessions (beginning 9/11) of VIX lurking below the bottom of a long-term channel, the bottom of which it used to tag once per year.

Even the talking heads are starting to question the quality of the rally.  But, it’s still a rally.  And, as long as the algorithms take their marching orders from a VIX that manages to make new lows, the rally will continue.

Last night, VIX dropped an additional 3.5%, sending futures up about 12 points to tag resistance yet again.

continued for members… This should be enough to get SPX up to the 1.272 at 2587.55 – a whisper from 2600 where the 1.618 awaits.RB and CL are threatening new highs.  But, we have EIA inventory coming out at 10:30 ET. I suspect DXY will punch though the .786 channel line and take a stab at the channel top (95.86-96) as GC drops down to tag its SMA200.  This will leave USDJPY with an opportunity to continue higher in its rising channel.UPDATE: 9:50 AM

1.272…UPDATE:  10:40 AM

EIA draws came in at roughly half of API’s.  Still, these draws drive a nail into the bears’ coffin.  We should see both break out today.RB dropped .02 immediately afterward, and almost as quickly made up the losses with a breakout.  No joy for the bears.  Switching back to long.CL dropped as well, but has been a little less enthusiastic about rebounding.  If it can close below 54, shorts might get some follow-through. A push through 55.24, on the other hand, would be cause to revert to long.UPDATE:  1:08 PM

Important interim support for SPX – the SMA5 200 and the little TL off Monday’s lows.  A drop through here opens up the SMA10 at 2567.94, the .618 at 2565.18 and, ultimately, our 2536.31 backtest. I think it will drop through, as ES looks likely to backtest its SMA10 at 2568.55 – also the bottom of a large channel.