Headline CPI fell 0.8% MoM – the biggest drop since 2008…

…thanks primarily to plunging energy prices.

Core CPI fell 0.4% MoM, the biggest drop since it began being tracked in 1961.

The details show strong upticks in food and medical care but weakness almost everywhere else.Like almost all economic data lately, the algos have chosen to ignore inflation, as VIX dropped another 7.7% from its overnight highs. For the moment, nothing else seems to matter much.

VIX has fallen from 47.77 to 26.37, a 45% decline, since ES backtested its 2.24 Fib extension on April 21. SPX has climbed a total of 8% during that time – with the great majority of its gains on overnight ramp jobs driven by plunges in VIX.

Today, the algos are also watching the bond market quite closely, as the Fed is slated to dip its toe into corporate bonds – including junk bonds – for the first time.What could go wrong?

continued for members…

While futures have spiked higher, ES has yet to top the .886 retracement of the rally since it reached its .618 retracement on Apr 29.  Until it tops 2942.88 and 2965, this remains a deep retracement and the bearish case remains intact.

SPX is in the same boat, with its .886 at 2936.96 the dividing line. Note that VIX dropped through its yellow .786, with the purple .786 at 25.02 and the SMA200 at 23.64.But, there’s also a potentially important white channel midline at 26.It can be seen more easily on the monthly chart. It’s not as expansive as the huge purple channel which includes the 172 high, but it has done a reasonably good job of warning of turning points since its 2008 highs at 89.53.

Note that the March 85.47 highs, in addition to being a .886 retracement of the drop between 2008 and 2017, tagged the top of this white channel — adding credence to its validity.Elsewhere, oil and gas continue to be well supported by the Saudis press releases – if not fundamentals. While it’s enough to make shorts nervous, it still hasn’t resulted in a breakout above the white channel bottom and 2016 lows at 26.05. RB continues inching slightly higher – officially broken out on the potential bump in demand related to the country’s reopening – but not in a very convincing manner. Likewise, currencies are doing very little to help stocks at the moment. The USDJPY has backed off its breakout towards its SMA200 – but the day is young.

EURUSD is enjoying another bounce, backtesting the SMA10/20 yet again.

This has allowed DXY to (at least) backtest its fan line from its Mar 23 highs.

On the bond front, the 2Y and 10Y yields have both risen but the 2s10s spread has remained fixed at 53 bps. Dr. Fauci testifies to the Senate at 10AM. It can been seen/heard on C-SPAN or PBS.  A preview per CNBC and the NY Times:

Dr. Anthony Fauci, the nation’s leading infectious disease specialist and a key member of President Donald Trump’s White House coronavirus task force, reportedly plans to publicly warn states Tuesday that prematurely reopening their economies will cause “needless suffering and death.”

On Monday night, The New York Times’ Sheryl Gay Stolberg reported that Fauci had sent her an email ahead of his public testimony the following day at a hearing of the Senate’s Health, Education, Labor and Pensions Committee.

“The major message that I wish to convey to the Senate HLP committee tomorrow is the danger of trying to open the country prematurely,” Fauci wrote in the email, which Stolberg posted on Twitter.

“If we skip over the checkpoints in the guidelines to: ‘Open America Again,’ then we risk the danger of multiple outbreaks throughout the country. This will not only result in needless suffering and death, but would actually set us back on our quest to return to normal,” wrote Fauci, the director of the National Institute of Allergy and Infectious Diseases.

It doesn’t exactly jibe with White House messaging…

UPDATE:  3:42 PM

It took almost all day, but ES just tagged its SMA10 . Since SPX still has a ways to go, there’s an excellent chance of an overshoot to ES 2874-2877.

UPDATE: 3:46 PM

That’s more like it.  This is nice SMA and channel support.

There’s obvious channel support for ES here, too…  …yet it’s hard to call this an important top for VIX.  Odds are there’s more to come.  SPX 2851-2857?And, hate to mention it, but DJIA is approaching its 2.24 again. And, isn’t it fascinating that the worst close in the past week occurs on the first day of corporate bond buying by the Fed?

If ES and SPX can get down through their SMA20s, then our 2728/2703 targets finally have a chance.