Higher interest rates and inflation, but falling retail sales?  Not a great combination for equities.  In fact, it feeds right into our base case of stagflation.Not even the venerable VIX gimmick was able to paper over the implications.Back on May 3 [see: Decision Time] we identified the 15-16th as a potential new low.  The next day, of course, the massive VIX dump sent stocks scurrying higher.  Though we had a nice bounce, ES and SPX reversed course, yesterday, at the lines in the sand we had drawn for them — meaning, the downside case is still in play.

The key, of course, will be whether the damage can be limited to SPX 2703.62.  A bounce there at the 2.24 Fib extension would suit bulls just fine.  A drop through it would expose stocks to new lows.

continued for members…

The COMP SMA200 scenario currently spells 2534 for SPX.  The C=A case remains 2461ish.

A drop through SPX 2703.62 would open up stocks to a backtest of ES 2662 — the equivalent of SPX 2663. Nothing terribly important there, so it would point instead to the SMA200 at 2631.  And, it that fails, then we’d have the possibility of a lower low — as DJIA was able to accomplish on Apr 2.

COMP’s SMA200 is obviously still in play if things progress that far.

TNX is back over 3%.  It’s nice for the DXY and USDJPY, but not so great for GC and pretty much everything else.  DXY looks likely to make it up to the channel top, the .786 at 93.674.  A rise above it would constitute a breakout.

In falling through its SMA200, our long position in GC is stopped out.  It could be an overshoot like Feb 8 or Mar 1, however, so I’d want to be long on any bump back above the SMA200.

TSLA and DB continue to look weak……and, to that list, I’d add Disney — a stock I’ve been studying lately.The rising white channel broke down in Aug 2016, but then proceeded to make a deep backtest of the all-time highs.  The initial (falling) flag pattern was (temporarily, at least) co-opted by the small, rising white channel.

But, the stock’s rejection at the SMA200 yesterday is a warning.  If the stock can’t push past the SMA200, there is much more downside in store.Last, RB is pushing higher this morning, but CL is falling slightly.  This is in keeping with CL’s RSI chart, which shows downward pressure ahead.I’m going to focus for the next couple of hours on RUT.

UPDATE:  3:55 PM

Do you suppose 2703.62 was important?