Over the past few years, the “market” has developed a knack for rising in spite of disappointing economic news.  Before CPI reached 2.5%, we usually characterized it as “bad news is good news.”  In other words, a moribund economy increased the odds of maintaining or even expanding the most accommodative monetary policy of all time.

But, inflation changes things by laying bare the negative implications of easy money and easy credit.  It might be acceptable if hard economic data were keeping pace.  But, it’s not.

Trump will speak to the nation tonight and, given that he’s smarter than the rest of us (except, perhaps, when it comes to healthcare), will explain how the laws of mathematics can be suspended for the next four years.  The “market” might even respond favorably — which would simply mean that USDJPY, CL or VIX-driven algos have kicked into high gear.  But, at the end of the day, it simply doesn’t add up.

If he gets his way, we’re heading into deeper deficit spending — but, this time, with $20 trillion in debt and rising interest rates.  What could go wrong?

continued for members…

USDJPY pulled another fast one yesterday, ramping during trading hours and sliding back down for a big backtest after the close.  The SMA100 is up to 111.891, and intersects with channel lines at the end of the day.  In other words, if futures sell off as Trump speaks there’s good support for a bounce.

VIX repeated its favorite trick of ramping overnight, then spending the rest of the session plunging — again, to support.  It’s hard to get excited about a breakout, as we’ve had so many false alarms.

But, if it can get past the white TL at 12.48-12.53, there’s a nice upside target in that the SMA200 is approaching the white .786 at 13.9 — also the purple 1.618.  This might be the breakout that finally breaks out.  Interesting, though, that the last time VIX was that high, ES was 140 points (6%) lower.

CL’s rising purple channel has broken down.  If it can drop through the moving averages, the bottom of the red channel is down around 52.1.

As we discussed yesterday, RBOB continues to perform worse than CL.  It’s currently off 2.5% compared to CL’s 1%.

UPDATE:  9:41 AM

Another moment of truth for SPX here at the red channel bottom.  VIX hasn’t quite reached the white TL, but USDJPY is bouncing on the backtest and CL on the SMA20.  Will they make a stand here, or will the red channel finally break down?  Watch, also, the SMA5 200 at 2363.42 — especially if VIX approaches the white TL, now at 12.49.

UPDATE:  10:09 AM

VIX continues to slide lower, boosting SPX up to and slightly above its SMA5 10.  I suspect it’ll go up to close the gap at the very least.  Makes sense to cover here and short on the way back down — if/when.

UPDATE:  10:23 AM

FWIW, USDJPY just dropped down to tag our target. This is important support.  A sustained drop through 111.80 or so signals larger losses ahead as discussed yesterday.  SPX is clinging by its fingernails to the SMA5 10, and looks likely to drop back to at least the SMA5 200 — which could be a headfake.  Either way, I’d rather be short here on any drop through the SMA5 10.

Keep in mind, SPX has developed a habit, lately, of waiting for the SMA5 10 and 20 to be in close proximity, then popping above both with a quick surge in CL/USDJPY or a quick dump in VIX.  It’s happened time and time again.  And, if TPTB fear a drop after Trump’s speech tonight, they might decide SPX needs to be ramped higher in advance.

UPDATE:  10:47 AM

SPX just dropped through the SMA5 10 at 2366.45, prompting USDJPY to spike higher and VIX to edge lower.  CL has dipped below the SMA20, so there’s no guarantee how this will turn out.  I suspect, however, that SPX’s dip will be contained and that this latest exercise will get SPX back on top of its SMA5 10/20 and potentially close this morning’s gap.

The wild card, as always, is VIX.  It is testing mild support here, but probably has designs on the SMA5 200 around 12.02.

UPDATE:  11:34 AM

SPX is inching higher along the red channel bottom — with occasional nudges from VIX and USDJPY.  CL just dropped through the SMA20, but is bouncing at the .236 red channel line — enough to keep stocks on the rise.  Keep an eye on ES and the little TL it has constructed.  If it breaks down, we’re likely back to short.  I’d put stops around 2366.70ish — and, remember the SMA200 is just a few points below.  Don’t get too excited unless SPX drops through it at 2363.82.

UPDATE:  12:15 PM

VIX just popped though the white TL and is closing in on a channel top I’ve sketched in — this, in an effort to get SPX to actually tag the SMA5 200.  We’ll probably get a bounce here, so either cover or and re-short on a drop through or be prepared to ride out a potential bounce.  If VIX breaks out of the rising white channel, there’s more downside.

UPDATE:  12:20 PM

So far, so good.  VIX popped out of the rising white channel, which — along with CL’s continued drop (RBOB down 3.5%) and USDJPY’s renewed plunge — was enough to avert a bounce at the SMA5 200.  The misshapen H&S Pattern indicated 2356.87, which is where we had our next downside target.  But, it all depends on when it happens.

UPDATE:  12:28 PM

Nearing the next potential bounce spot, given the timing of this plunge.  Note the near miss on a backtest.  This is probably good enough, given that ES’s backtest completed at the white .618.  Playing the bounce with tight stops, as the SMA5 10 is crossing the SMA5 200 at 2363ish — only a few points above.  Whether or not it bounces (to the falling SMA5 10 or back to the neckline?) I think we’ll see 2356.87 either at the end of the day or tomorrow.

UPDATE:  1:10 PM

Potential turning point here at the neckline, SMA5 200 and SMA5 20 backtest.  Note that VIX has also reached potential support – the rising white channel midline, with the white TL just below at 12.47ish.  Back to short with tight stops.  A push through 2364 would be problematic.

UPDATE:  1:37 PM

CL just spiked higher, the goal being to get SPX up through its neckline.  Back to long here, though it will need to break above the purple TL in order for the breakout to be anything other than a head fake.

UPDATE:  2:07 PM

Here we go again.  Back to short on the drop through the neckline.  Potential support at the SMA5 20, but after that it’s clear sailing to 2356.87 or the SMA10 at 2354.26.

UPDATE:  2:47 PM

It’s happening again — this time with USDJPY tacking on another wave higher.  Back to cash until  SPX drops back through the SMA5 10.  Note that USDJPY has potential overhead resistance at the SMA5 200 at 112.24.

A reversal there could mean a reversal at SPX 2364.36, SPX’s SMA5 200.  So, we might be right back to short unless CL and USDJPY can maintain their breakouts and VIX can be suppressed until after the close.

If SPX can push up through the SMA5 200, then we’d likely get a spike higher into the close, potentially backtesting the broken red channel bottom.  But, that’s not my expectation.

UPDATE:  3:02 PM

USDJPY reversed off its SMA5 200, which meant SPX dropped back through its neckline after tagging its own SMA5 200.    There’s clearly some selling pressure building here, as SPX would otherwise be popping up past the neckline and VIX would be plunging.  But, with CL and USDJPY in “whatever it takes” mode, it’s hard to get excited about shorting.  Any drop through the rising SMA5 10 (2363ish) and I’d be more than happy to give it a try.

UPDATE:  3:24 PM

My gut tells me we’ll get another leg down, but USDJPY is suddenly spiking much higher in order to prevent it.  I’d try a short position here with tight stops, as the selling pressure into the close might overcome the algos.

If SPX drops through the purple TL, it raises the question of whether or not there will be follow through.  Given the level of manipulation we’re seen overnight in the past, I can’t recommend shorting overnight unless you’re able to hedge or can deal with the risk.  If TPTB don’t stand in the way, however, the downside could be very substantial — particularly if SPX drops past a backtest of the falling red channel at 2357ish.

RBOB has regained a great deal of this morning’s losses, back to only a 0 .88% loss on the day.

UPDATE:  3:47 PM

Full court press, here, as USDJPY and CL are both spiking again and VIX is being hammered.  It’ll probably be enough to get SPX back above the gray TL, so I’d cover here unless you plan on holding overnight (see caveats above.)

 

 

 

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