ES is up 13.7% since the last bearish (bullish for stocks) cross in VIX’s 10- and 20-day moving averages on Nov 11. Since its recent highs, VIX has dropped from 41.16 to Friday’s lows of 19.51 – a plunge of 52.6%. Just as importantly, it broke below several trend lines of support along the way, with each breakdown triggering algos to push stocks to new highs.

As we’ve discussed many times over the past few months, 19.86 is a key price level for VIX – the 88.6% Fibonacci retracement of its rise from 11.42 on Nov 26, 2019 to 85.47 on Mar 18, 2020.After testing 19.86 in Friday’s pre-market, VIX bounced up to backtest its hapless 10-DMA – where it was unceremoniously slammed 12.6% lower – thus ramping ES 72 points higher.

This is a game VIX plays very, very well. Sitting just above this key level of support, it is once again firmly in control. It’s VIX’s party now.

continued for members…

There is very little support below 19.86 until one reaches the 11.42 lows.There’s a TL off the Nov 24, 2017 lows, but that’s about it.By crashing below 19.86, VIX can easily keep stocks’ rally going in the absence of a bearish black swan event. Like what, you ask? Given that the strengthening pandemic hasn’t been enough to knock algos off their game, it would need to be something much worse such as widespread lockdowns, war or a stalemate in Congress that prevented them from passing any more stimulus which is absolutely necessary in order to stave off a foreclosure/eviction crisis.

If VIX is unable to drop and remain below 19.86 due to actual buying pressure, it will be up to USDJPY to keep stocks going.

As we discussed yesterday, DXY is very close to a potential bounce point at 91.358. If it bounces here it will be because EURUSD fizzles out (which it should)… …and/or because USDJPY gets a bid (which it shouldn’t, but that’s never stopped it before.) Note that USDJPY’s bounces – even though they never amounted to much upside – have been very positive for stocks.We’re at the point now where USDJPY is paying lots of attention to TLs of support and no attention whatsoever to TLs of resistance. Just this morning, it pushed past and backtested its SMA10.

If it can remain above the TL from its Nov 6 lows, it can go all the way to Dec 25 without even having to break out from the falling purple channel. It won’t necessarily drive stocks higher (except for NKD) but it would certainly help prevent a correction.CL and RB were extremely beneficial this past month. And, they could maintain their breakout status as long as OPEC+ doesn’t screw the pooch on Thursday.

All they really need to do is for CL to remain above its red channel top at 42.71 and for RB to remain above its IH&S neckline (which it’s backtesting right now) at 1.2278 or, failing that, the top of the falling white channel it broke out of on Nov 24. This leaves the bond market – specifically the 10Y, which is threatening another breakout right now.

Remember, a breakout in TNX would mean a breakdown in ZN. As we discussed yesterday, this could mean a further breakdown in GC. It could also mean a breakout in 2s10s, which would be a big negative for stocks.

Stay tuned…

UPDATE:  3:00 PM

So…maybe there’s a stimulus bill.  And, maybe it’ll get passed.This has helped get DXY down to our channel midline target at 91.358.

USDJPY is pulling back a little… …while EURUSD still looks like it’s shooting for the moon. The 2s10s continues to widen, tagging 77 bps before settling back to 75……primarily on the rise in 10Y yields. While it makes sense for the 10Y to rally on a potential deal, I don’t believe TPTB will allow it to continue. Time for a correlation shift?Gold and silver are responding as they should, though we have to be wary as a bounce in DXY could work against them.  GC has overhead resistance at its SMA10 and the purple midline to worry about.And, SI needs to overtake its SMA100 and channel top in order to make serious headway. ES achieved its objective – new all-time highs – before slipping lower on “the reality setting in?” Yes, VIX helped. But, it didn’t make new lows and is currently slipping modestly higher.

Should be an interesting next few days.