After a week-long ramp job, equities are off roughly 40 points.  Is this the end of the rally, or merely a pause before another leg up in a Happy New Year? When ES is sitting just below important moving average support (the SMA10 at 2470.28) I’m always a little circumspect.continued for members…

SPX should easily reach our SMA10 backtest target – about 28 points below Monday’s close.  A bounce here would keep the rising white channel alive.  A drop down to 2450 or so would backtest the yellow channel it recently broke back into.

The same phenomenon can be seen clearly with ES. As is often the case, the answer lies with VIX. This was the previous version of its chart.I’ve redrawn the falling white channel to reflect Wednesday’s bounce. Like ES, VIX is sitting just below its SMA10 and has yet to break out in any sense.  Before the bears get excited, we would want to see VIX top 28.78.

Another chart to watch closely is USDJPY.  It jumped the gun on its channel backtest. Yes, it was a backtest; but no, it didn’t reach the .618 Fib. This allows DXY to avoid the breakdown that was in the works. Ditto for EURUSD, which is still refusing to break out even though the SMA200 has reached the backtest TL.

DXY’s “recovery”… …in the face of tumbling interest rates.As has been the case for the last couple of weeks, CL and RB should continue to go sideways – rallying a little when necessary to support stocks but otherwise remaining low enough to support the notion of a halt to additional hikes.

Bottom line, if ES can hold 2470.28 and pull SPX back above 2478.33, then the bulls are safe.  If not, if SPX merely backtests the white channel bottom on a temporary bounce by USDJPY dip below 27 by VIX, then SPX should get down to 2450.

We usually find out around 10am ET, so we’ll take another look then.

UPDATE:  10:30 AM

Oil and gas just shot higher, RB to its channel top… …and, CL to its .786 channel line.  Its channel top is up around the SMA20 at 48.63. That would be a 6.15% rally from the 12/31 close and an 8.7% rally from the 12/31 lows.I haven’t found any headlines yet. Perhaps not so coincidentally, this occurred as SPX was testing the channel it has rejoined. ES is testing its SMA15 200, often a turning point as we saw on the 21st.

VIX is potentially at support, but nothing to hang your hat on.   

UPDATE:  11:23 AM

ES is coming up on a backtest of its broken white channel (2523ish) as CL continues ramping to its SMA20 and VIX dumping to its channel bottom.

Now that SPX and ES are back above their SMA10s and SPX has turned green on the day, what are the upside targets? The ultimate target has to be the 2.24 Fib at 2703. The falling white channel intersects it on Jan 11 – next Friday.  If Powell comes across as dovish when he speaks this Friday, I wouldn’t rule it out.

There is plenty of resistance between here and there — starting with the channel midline at 2540, the SMA20 at 2577, the H&S neckline at 2618, and the intersection of the purple midline and SMA50 at 2661.

Note, I am not endorsing that path – merely pointing out where SPX could go if it keeps being supported. One important tell would be VIX breaking back into the channel top from which it broke out in mid-December. It’s currently at around 24.80-25.08. Recall that this was the trigger for SPX’s tumble, so it makes sense that VIX could fix what it broke by reversing the breakout.CL and RB could always break out without really going anywhere substantial.  A lasting rally would put the Fed back into the same hole as before – how to support stocks without raising inflation to a problematic level. So, there are bounds that would matter.

USDJPY is a little tricky.  Inflation just broke below a trend line last month. After years of supposedly caring, BoJ says this is no big deal. If USDJPY rallied higher (yen weaker) then it would potentially pump up inflation, which would presumably be acceptable – to a point.  When JGB’s start topping 0.10%, the BoJ tends to get very nervous.

Stay tuned.

UPDATE: 3:55 PM

Pretty muddled picture all around.  No definitive changes to the path forward.  VIX has done most of the heavy lifting today – trying to keep SPX in the green. If it closes below 24.40 it’s bullish, but don’t put too much stock into it as this represents pretty obvious manipulation. Half the time, this sort of crap simply means the insiders are lining up their hedges before they allow the big downdraft.

 

Though, AAPL still argues for lower prices.