Everybody’s wondering whether Brexit will matter. With futures flat and currencies seemingly in the spotlight, we’ll spend the day revisiting our forecast for various currency pairs.

We’ll also take a look at oil and gas.  These are the last few days of the month. And, given that gas prices are up about 28% YoY, we’ll examine the implications for March CPI due to be released in two weeks time.

First, a quick look at the markets, which are seemingly back under central banker control.  In fact, there’s a VIX plunge waiting in the wings (the red arrow) for any bears who have thoughts to the contrary.continued for members…

We left off yesterday with a backtest of ES’ neckline and the SMA10s of both SPX and ES.

This followed CL’s tag of its SMA200 — a feat which was repeated again overnight.

Stocks might have reacted more negatively, but they were buoyed by the above-mentioned VIX massacre and USDJPY’s sudden left turn on the way to its SMA200 — a turn that was unmotivated by any chart patterns that I can see.

This is all fairly typical quarter-end BS, of course.  But, the complicating factor is that gas prices are doing a number on CPI — an issue we’ve discussed ad nauseum.

With EIA data due out this morning, today is probably the last day anything might be done to affect the March print.   Things were going well until last week when, like USDJPY, CL got cold feet about continuing southward in its recent falling channel.

It bounced three separate times at 47 — an aimless wandering, seemingly designed to postpone the inevitable (or, at least confound those who believe in fundamentals.)

After all this maneuvering, CL now sits directly above our 45.36 – 45.47 target — and, this is key — which is now on the edge of the falling white channel.  In other words, a quick dip to 45.36 would constitute a backtest rather than a continuation of the ugliness that started a month ago.

Would they take a chance on letting it dip that far?  What would it do to stocks?  Thanks to the ramping of the past two days, SPX is now a good 25 points away from a purple channel backtest — so there’s plenty of room for a dip without damaging the upward trend.

And, VIX is in the perfect position to help prop things up.  USDJPY already is, but has its SMA200 down at 108.26 if, as we discussed yesterday, it decides to seek firmer support.

To summarize, the stage is set.  I don’t know if it’ll come to fruition, but the conditions are certainly as right as they could be under the circumstances.

UPDATE:  9:50 AM

SPX has reached the bottom of the rising purple channel.  We could get a bounce here, so it’s not a bad place to take profits on yesterday’s short.

VIX is pushing below its red TL just enough to make algos nervous.  And, don’t forget about the yellow channel bottom (11.2ish) — dips below which are almost guaranteed to send stocks higher.

UPDATE:  10:03 AM

SPX reached the SMA5 20, which could put a damper on things for now.  I’d revert to short here with tight stops.

UPDATE:  10:22 AM

VIX broke down below the red TL and is testing the yellow channel bottom — right as SPX tests the SMA5 20 and ES a TL connecting recent tops.  Could be a breakout, or just keeping everybody on their toes.  Watch your stops.

UPDATE:  10:34 AM

Stopped out on the EIA report — which was bullish. CL shot up past its SMA200 and RB to its SMA200.

If RB reverses off its SMA200 (1.668) and CL back below its, then I’d want to ride this out and/or reshort.  As of yet, SPX hasn’t risen past its purple midline…

…though, ES broke out past the red TL, supporting the validity of the rising purple channel.

USDJPY yawned (but, in a bullish way)……and, VIX still has its finger on the trigger.

If SPX breaks beyond 2362, it’ll probably reach the red .618 at 2368.09 without trouble.  If not, then there’s still a chance of a backtest — just not much of one unless USDJPY or CL/RBOB reverse right away.

UPDATE:  10:57 AM

Curiously, SPX didn’t break out — perhaps because CL is backing off it’s initial spurt and RB is still sitting at its SMA200.  I’d reshort here as SPX is about to drop through its SMA10 (2360.09) and SMA5 10.  Now, if RB can reverse below 1.668 and CL can make its way back below 49 — we might get some follow through.  Otherwise, we’re probably in a holding pattern or going higher.

We’ll see what happens after London closes in a little while.  It’s possible things are in a holding pattern just to make sure it gets through the day without mishap.

Now, the fact that TPTB — which controls the government agency EIA — didn’t produce an inventory report that would send prices lower suggests that they are okay with inflation where it is.   Unless a Fed president comes out and say otherwise…

UPDATE:  11:40 AM

Just watching Boston Fed President Rosengren’s comments that his base case is four rate hikes this year.  SPX is hanging on to channel support here.

RB is showing a little weakness, but CL is still ramping higher.

UPDATE:  12:17 PM

RB is backtesting the SMA200, but USDJPY has pushed past its SMA5 200.  It’s been enough to take SPX back to its SMA10.  I would cover on any move past the SMA10 and only re-open it if RB breaks down.

UPDATE:  12:57 PM

SPX’s latest dip — this on a .0005 dip by RBOB below its SMA200.  Again, I’d stay short below the SMA10, and long with tight stops above it.  If the purple channel actually breaks down, the first stop should be the SMA5 200 currently around 2348, with potential down to the .786 at 2331 or the .886 at 2326.98.  Although I don’t see it hitting those downside targets unless USDJPY and/or RB break down.

As long as it’s going sideways, I’m going to move on to some currency charts I wanted to get posted today.  I’ll check back afterwards.

And, BTW, I will be out of the office on Friday.  I might have time to post early in the morning, but that would be the extent of it.

UPDATE:  3:45 PM

SPX has inched higher, coming close but not exceeding yesterday’s highs.  ES has re-tested its neckline.  SPX is now in the process of backtesting the busted SMA10.  We’re pretty much where we were at yesterday’s close: lots of selling pressure, but being very capably propped up by VIX, USDJPY and oil.  And, the support might grow even stronger as we approach the quarter-end.

My inclination is to stay short.  But, as always, don’t even think about it unless you can hedge or deal with the possible gap risk.  I’d not be surprised if the downside, if any, waits until after Q1 is in the record books.

 

 

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