Yesterday’s 1.2% spurt higher was driven not only by the usual push in USDJPY and plunge in VIX, but a healthy dose of hopium regarding the debt ceiling crisis. Congressional and White House reps were nearly unanimous in declaring that a deal is as good as done.

Whether they’re speaking the truth or simply trying to avoid a market meltdown a la 2011 remains to be seen. Both SPX and ES saw a bullish 10/20 cross, but it could unwind if ES closes back below the former resistance at 4166. Keep on eye on the ever proficuous VIX, which usually triggers algos to buy any significant dips by breaking below support such as the purple channel bottom below.

continued for members…

Note that COMP and DJIA have both reached significant resistance. And, so far at least, VIX has bounced off of good support at 16.71. Don’t be surprised if the OPEX gods try to push it lower.

While USDJPY is working its yen carry trade magic, it’s only serving to help DXY break out – bearish for stocks these days. On the other hand, EURUSD has reached the bottom of the rising white channel. A bounce here would support stocks while a breakdown would spell trouble.

Needless to say, GC and SI are tumbling. But GC has potential support at 1934 and SI at 23.54. They’re simply waiting for cues from the DXY.  Again, if DXY keeps breaking out they’re in trouble and our lower targets come into play. Likewise, CL and RB are backing down from yesterday’s rally. Although CL is back above its SMA10, it has failed to retake its SMA20 which remains above the SMA10 for a bearish alignment. This is potentially very significant, as XLE has yet to regain the neckline of an H&S that targets a 35% plunge to 51.55.

A closeup for XLE…Yields continue to rise, with both the 2Y and 10Y pushing the April highs… …but the 2s10s is edging lower – in support of stocks.We’ve seen no shortage of OPEX rallies over the years, and this one has played out like most of them. Just remember that OPEX rallies are frequently followed by collapses. Conventional wisdom is that a resolution of the debt ceiling crisis would enable higher equity prices. But, there are bearish implications as well.

Check out this Bloomberg article:  https://www.bloomberg.com/news/articles/2023-05-18/a-1-trillion-t-bill-deluge-is-painful-risk-of-a-debt-limit-deal?srnd=premium

And, there’s the fact that a recession is already happening – or will quite soon. The Atlanta GDP Now forecast for Q2 growth sits at 2.9%. If it’s at all close, why would the Fed pivot/pause/lower rates?

GLTA