In yesterday’s A Failure to Capitulate we chided the market for its failure to make good on the downturn signaled by our numerous bearish charts. For once, the market gods were listening. Futures are off 85 points from recent highs and teasing us with the notion of a — brace yourself — drop below the 10-day moving average. While we await the next breathless vaccine announcement or congressional handout, note that VIX popped up to our first upside target……and USDJPY is finally breaking down.Don’t look now, but AAPL is even making nice progress following its Fib tag. Is there more where that came from?

continued for members…

VIX has plenty of room to the upside if it can break above the yellow TL and logjam of SMAs.This would allow SPX/ES to plumb some of the more obvious downside targets by finally dropping through their channel midlines.

To be clear, ES and SPX have spent about three weeks backtesting their yellow channel midlines. For both, this is about where the .786 is, so a drop from the .886 to the .786 and channel midline would be the least we’d expect to unfold in a normal market (which this ain’t.)

Anything lower would represent the official start of a more meaningful pullback – with the rising white channel bottoms around the .618 Fib at ES 2930/SPX 2935. But, getting there would mean dropping back through the SMA200s – which the bulls will obviously try to guard and which would probably require VIX to break out of its falling yellow channel at around 32.50.

One step at a time.

The euro continues to threaten more upside, though DXY is holding its channel bottom – for now.Meanwhile, gold is getting awfully close to new all-time highs. Will the Fed finally jump in and put a stop to gold’s rise and DXY’s demise?  I’ll be watching this very closely.The potential lottery ticket for bears continues to be oil and gas, which are still clinging to TL support. The bond market is very quiet today, with the TNX still flatlining… …and the 2s10s still settling lower in a slow-motion breakdown.I need to jump on a conference call. More later…

UPDATE:  3:10 PM

ES/SPX have held their earlier lows, but aren’t bouncing much. Although VIX has been hammered back to a (1.23%) loss on the day……USDJPY continues to break down. Pay no attention to the timing of the downside targets. If SPX/ES drop through the channel midlines, the subsequent plunge could be very swift. Don’t be surprised, though, if it waits until Monday. We have a lot of economic data coming out next week, with durable goods an hour before Monday’s open. In other words, gobs of headline risk going into the weekend. My gut tells me we’ll get more downside between now and then, with ES 3135 or 3166 the two most likely next legs down.

GLTA.