It happened 9 sessions before our charts indicated, but ES and SPX both tested their SMA200s yesterday. As expected, we’re getting a nice bounce – primarily on the back of a 15% drop in VIX from yesterday’s highs (and the breakdown to come of the dashed, red trend line.)ES looks likely to backtest its 2.618 extension at 3076.93. The complication, for bears, is that this will put SPX well above its lower 2.618 extension. In other words, it will gap back above overhead resistance as soon as the opening bell rings. What else is new?

It’s tough to see on the chart above, but VIX’s SMA10 was just about to cross above its SMA20 – a bullish sign for VIX and bearish one for stocks. If VIX is hammered today, the bullish cross can be avoided.If stocks’ meltup is to resume, we could still see VIX backtest its broken white channel or the yellow trend line off the 2018 lows which is nearing the SMA200 currently at 24.89.

continued for members…

The bullish case, as we discussed earlier this week, is that stocks grind higher into OPEX and the Q2 close.

The less bullish scenario is that stocks bounce around between SPX 3047 but below ES 3076 through OPEX and June 30. Until SPX breaks down again or ES breaks out, that’s what we’re left with.

The SPX gap to come…

How could this happen? The coronavirus situation hasn’t changed since yesterday and, last time I checked, the economy is still in the toilet. The usual. VIX is already starting to break below the dashed red TL, which is music to the algos’ ears.If ES stops at or below 3076.93, then the white midline at 2940ish has a great shot. If not, then the odds of the grind higher scenario go way up.  Given the circumstances, I suspect it won’t stop.  But, I would love to be pleasantly surprised.

Note that COMP, whose rising white channel finally broke down, dropped through its SMA10 and is just now backtesting it. And, DJIA is back below its SMA200 with a long way to go if it wants to close the gap just left yesterday. Note also that some of the bellweather stocks such as AAPL and AMZN didn’t drop yesterday below the resistance they recently broke above. Others, such as LLY and BA, are still behind the eight ball.  BA is up sharply off its recently lows and will gap still higher today. But, it has a long way to go before it backtests the broken white channel and SMA200. Lilly, which has been in the news lately with positive COVID-19 developments, couldn’t break out of its rising purple channel or above its 2.618. Even though its rising white channel broke down yesterday, USDJPY is soldiering on anyway. The EURUSD is faltering, but not enough to make any difference just yet.  While the DXY faces a backtest of its plunging SMA10.Oil has slumped nicely off Sunday’s highs……but as we discussed yesterday, we could see another leg up to the gap at 41.05.RB is working out nicely so far. Any kind of pause in the reopening narrative should cause it to break down through all those moving averages.

The 10Y, which had dropped below its 1.272 last week, is back to it. And, the 2s10s, which was clearly breaking down yesterday, is backing off that breakdown – at least for the time being.

UPDATE: 9:48 AM

ES just reached 3076.75 to test the 2.618. VIX has broken down, but is threatening a bounce here at its SMA100.

Now that it’s back above its 2.618, SPX has strong support. Its next serious overhead resistance is the yellow TL and channel midline at 3124-3127.

UPDATE: 11:02 AM

Don’t look now, but ES just dropped through its SMA200 and is about to turn red on the day.  SPX’s SMA200 is up next.  UPDATE:  3:53 PM

All over the map today, but it appears as though SPX and ES will close in the green with a 1% or higher gain as CL and USDJPY pump and VIX dumps.  Wouldn’t it be nice to go into a weekend, just once, without multiple headfakes? I’ll be watching to see if SPX closes at or above 3047.34 – but, as yesterday’s close below the SMA200 shows, it wouldn’t necessarily mean anything.