ES precisely tagged its SMA50 at 3212.75 on Friday. Recall that the SMA50 has been our preferred downside target since ES tagged our preferred upside target on Jan 22  – representing the intersection of the rising white channel .236 line and the top of the rising purple channel it broke out of on Dec 12.

Because the tag was delayed (think Trading Places, but managed by computers) ES only managed to backtest the SMA50 — not the purple channel top, now at 3202.  SPX didn’t even tag its SMA50. This might ordinarily imply that further downside is in store.

But, the SMA50 has since moved up to 3215.10, which would require a drop below the SMA50. It would also mean the SMA10 dropping below the SMA20 for the first time since Oct 1.  This would send a quite bearish signal to investors the machines.

Recall that it was the bearish 10/20 cross on that day that led to a 131-pt drop and the hurried announcement of Phase 1 of the US-China trade deal. The Phase 1 announcement, in turn, led to a bullish 10/20 cross a few days later and completion of the inverted H&S Pattern on Nov 1.

Futures are up about 15 points this morning, begging the question: “Is it safe?”

continued for members…That’s certainly the message currencies are sending this morning.  DXY is making up a good deal of its Friday losses, largely on the back of euro’s reversal.  The USDJPY is getting a decent bounce…

…but, it’s the EURUSD’s expected reversal……which should drive DXY back through its SMA200 and potentially much higher. At 97.8, it would rejoin the purple channel from which it broke down (for the third time) on Friday.

Note that GC, despite all its recent strength, has yet to break out of the rising purple channel.

This should offset the continuing weakness in CL and RB.Remember, this is a very critical test for CL.  Both it and RB should resist any big bounces for the rest of the month due to inflation complications. But, a drop through 50.68 in CL……or 1.41 in RB (the red TL) could spell serious trouble for stocks.As we discussed last week, VIX tagged a legit reversal point, our red .618 target at 19.7. This doesn’t mean it’s finished, but it strongly implies at least a pause.

It’s the same signal being sent by TNX, which is getting a nice bounce off a level which fell short of a stronger target.This bounce, however, doesn’t do anything to negate the bearish signals being sent by the 2s10s…

…or the 2Y, which is still below 1.4%.

These are obviously not good short-term trading indicators, but merely represent a bearish backdrop. The rising DXY and plunging VIX could by themselves, in the absence of further dips in CL/RB, stave off the impending bearish 10/20 cross.

We have two important economic data points coming up at 10am: the ISM Manufacturing Index and Construction Spending. ISM has been below 50 for five months in a row. So, a print back above 50 would be very bullish.

UPDATE:  10:05AM

ISM is back above 50, and the machines are happy. ISM surveys are sent out early in the month, and the majority are received back toward the end of the month. It’s probably safe to say that concerns over the coronavirus outbreak are not reflected much in the January results.

The spread between the 10 and 20-day SMAs is not only holding positive, but is widening.  It remains to be seen whether a bearish cross can be avoided altogether. If SPX/ES go beyond a backtest, our downside targets remain the same. More later.

UPDATE:  EOD

SPX closed up 23 points – just enough to keep the SMA10 above the SMA20 by 1.57 points. The margin for ES was 1.30 points.

Moments after the cash close, ES started breaking below its SMA5 200 and white channel bottom – perhaps an ominous sign.

Oil and gas both had another tough day.  Oil made new lows, dropping through the white channel bottom and heading for the purple channel bottom seen in the weekly chart below.  RB seems very likely to test the red TL. This gives SPX/ES the permission they need to at least tag their backtest targets outlined above.

The bond market is still stock-bearish, with TNX 14.91 or lower looking likely. DXY didn’t break out again… …and VIX has done nothing to convince me that a big rebound for stocks is in the works.Bottom line, we are not out of the woods. Should the coronavirus problem continue to worsen and, unless the Fed or PPT steps up, stocks are likely going to explore some of our downside target.

BTW, I updated the Current Forecast page today. This has taken an embarrassingly long time. I will do my best to update it more frequently. Next step is to update the individual pages for various indices, currency pairs, etc. Maybe while I’m rehabbing.

Speaking of which, remember I will be out of the office for the next couple of days while having knee surgery. I’ll post as soon as I’m able, but it will depend on how things go and how drugged up I am. Best of luck to everyone.