As expected, CPI came in below 2% this morning. At 1.9%, it has clearly reached the level at which the Fed would have a tougher time justifying additional rate hikes.Futures, which were already off a few points, are settling lower.

The question now shifts to whether inflation is too low – especially given the much touted strong wage growth and tight employment conditions.

continued for members…

The Fed obviously knows what we know: that CPI was driven to nearly 3% and back below 2% on the sharp changes in the oil and gas prices.  As we pointed out yesterday, RB is backtesting its broken yellow channel.Interest rates have clued in, as well.  TNX topped at the same time as CL and RB and, if our forecast is correct, has further to go.

Since VIX hasn’t broken down, at least yet… …and USDJPY hasn’t broken out yet……we should finally get that backtest in SPX and ES. EURUSD inches higher as the SMA200 continues its approach.And, DXY continues its very gradual sell off. COMP made good headway yesterday… …but, AAPL reached the top of its falling white channel and is hinting at a rollover. Bottom line, the market has been up 9 of the past 11 sessions and needs to catch its breath.  The SMA10s, which are rising about 10-pts per day lately, could get a backtest as early as today or Monday.  If they hold, then the H&S neckline is the next order of business for the bulls.  If they don’t, then our downside targets come into view.

Alternatively, the market gods could pop SPX/ES up through their necklines with a sharp breakdown in VIX or breakout in USDJPY today or over the weekend.  Granted, it would be easier to do it from 2580 than 2530. But, as we’ve seen countless times before, establishing stronger technical support before such a move is usually a good idea.

As we come up on 10AM, SPX is clinging to its SMA5 200, from which it has bounced twice yesterday.  VIX is pushing up against its SMA5 200.

This is as good a point to take a stand as any.  A drop has potential to 2532-2540.  A bounce indicates 2620. UPDATE:  3:20 PM

More algo nonsense, with VIX’s breakdown keeping SPX/ES within striking distance of their necklines.  Yes, this is a backtest of VIX’s falling white channel, suggesting the next move could be higher.

But, that was the signal yesterday and it turned out to be a head fake. The next support for VIX is the SMA200, currently at 16.66.  . Every little dip by equities was met with a little more of a drop in VIX.  VIX’s reversal at its SMA5 200 produced a 20-pt rally in ES. USDJPY helped.  Even though it is still below the gray channel top and backtesting the broken white channel, it technically broke out past the purple TL. CL is mostly holding steady as RB breaks down. Speaking of breakdowns…EURUSD is pulling back again.  The goal continues to appear to be keeping DXY from breaking down too quickly.