It was amusing, yesterday, listening to various on-air personalities try to explain why the market made such a “historic” reversal. The one I heard more than any other is that it was deeply oversold – which is just not true. It was somewhat oversold on Sep 27, but RSI made a higher low yesterday as stocks reversed and shot higher.

No, the historical rebound was all about COMP reaching support and VIX collapsing on cue – same as countless other times – with a healthy dose of short covering. Unless I miss my guess, it was only a historical headfake.

continued for members…

We can see this morning that ES pushed above its SMA10 but is just backtesting its broken white channel.  It could keep this up for another week as we approach OPEX, but it could also fall apart at any moment.

The two charts I’m most focused on are VIX, which is back into will she or won’t she mode with the red TL, but is likely to reach the white neckline before we get a real bounce (or collapse if it rises above it)…

…and XLU – which is admittedly a weird indicator.

For the new folks, XLU is the SPDR ETF covering the utility sector. So, it’s interest rate and economic conditions sensitive and has some general exposure to equity flows.

It has followed the low interest rate playbook for years, establishing a nice, clean rising channel – shown below in white.

It has just broken above a little trend line (from the 2018 correction) in early 2020 when the pandemic broke, sending it to the bottom of the white channel. It dutifully rebounded and held the channel’s .236 line for a couple of years, making a series of higher highs and higher lows that almost always fell about 87 days apart. And, it was real, real serious about those higher highs and lows, sometimes topping the previous mark by only a few pennies. Guess what it did last week?

Actually, you don’t have to since I’m showing you. But the breakdown was very significant. And, it was followed by a backtest today that shows every sign of being a headfake just a few days in advance of the cycle low.It’s hard to say what will happen. But, the door is open to a drop to 50.88 in the next few days. That would be a 18.8% plunge and would almost certainly mean that something broke in a big, big way in the bond/stock markets.

Like all chart patterns, this is pure conjecture until we get some price movement going. But, it’s off to a good start at the same time that the economic storm clouds are gathering and the Fed swears they’re not going to stop hiking rates any time soon.