After 2 1/2 weeks of a steady, orderly decline, stocks are poised to break out this morning. Is it another head fake, or does it represent an actual shift in direction?Fortunately, the algo factors offer some important clues. The critical price level to watch is ES 2844.

continued for members…

Note that ES is in the process of constructing a pretty well defined H&S Pattern. At current levels, its prospective right shoulder is equal to its left.SPX has overhead resistance at 2875, where it will backtest the broken white channel.  The SMA10 is at 2880.86. VIX dipped below its SMA200, which got the algos all excited.But, a look at the daily chart shows it’s backtesting its white channel midline.We see something similar happening with USDJPY, which is backtesting the purple channel .236 line. CL and RB are both bouncing — even though yesterday’s EIA data was bearish. CL is backtesting its SMA20……while RB is backtesting its white channel .786 line. AAPL also appears to have reached a backtest reversal point, with BA right behind it.

The 10Y came close to breaking out/down yesterday, but couldn’t quite close the deal. UPDATE:  4:14 PM

It’s a pretty solid bounce and has slightly exceeded the May 10 highs for both ES and SPX.  Both are now above their SMA10s and have adopted defensive postures.  But, so far, I don’t see anything that would rule out this being a headfake.

Note that the SMA200 is essentially flat these days.  If TPTB wish to, they could delay the tag until as late as May 23 and let it be a backtest of the (currently) broken falling white channel from Apr 29.

The first order of business for the bears, though, is to get SPX back below the SMA10, then the SMA50 and ultimately back into the falling white channel – now at 2838ish. The most convincing chart remains VIX, which has barely budged from earlier this morning.  Note that many of the drops through that very same white midline between last October and December were definitely headfakes.I have to shove off early today to deal with some family business.  I’ll try to post later tonight, but it will probably have to wait until the morning.

GLTA