ES tagged our 50-DMA target late yesterday.

It was one of the least surprising outcomes one could imagine. In fact, SPX and ES have tagged or come close tagging their SMA50 (the purple line below) eight times over the past eight months.

Central banks have practically guaranteed this outcome ever since they enabled the market to become untethered from the real economy.

Could this time be any different?

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August CPI came in slightly below expectations, with the monthly headline figure at 0.3% versus last month’s 0.5% and the annual figure at 5.3% versus July’s 5.4%. To be clear, these are still problematic numbers and remain completely out of sync with artificially low interest rates.

Only two categories in Schedule A came in at or below the Fed’s stated objective of 2% annually, reinforcing the fact that inflation is widespread and, aside from the YoY effect in oil/gas prices, is anything but transitory.

Futures reacted by racing toward the top of the falling channel as VIX predictably gapped lower.continued for members… (more…)

On March 18, 2020, VIX topped out at 85.47, the highest level since the GFC.  It didn’t stay there long, as central bankers around the world swung into action to save their respective stock markets.

But, its peak was to become the start of a well-defined falling channel (below in white) which has consistently marked turning points for each subsequent rally in the “fear index.”

Given that VIX is perhaps the most important element in signaling buy/sell decisions for algorithmic trading – and all the passive strategies which follow algos’ lead – these reversals have become relatively foolproof all-clear signs to buy the dip. It is no surprise, then, that futures are up over 30 points after VIX reversed at our latest upside target on Friday.Could VIX’s latest reversal be any different from all the rest?

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The ECB will reduce its purchases of bonds under its $2 trillion Pandemic Emergency Purchase Programme (PEPP) enacted last year. There’s no word on exactly how much it will reduce its purchases, nor any word on whether the slowdown will continue past the initial stage.

But, it was very entertaining listening to CNBC’s Steve Liesman trip all over his tongue while trying to avoid the word “taper,” delving into semantics when Joe Kernen pointedly asked how this wasn’t a taper.

The euro barely rallied on the “news.” ES, which had already bounced off its 20-DMA hours earlier, essentially yawned.

Given that they’re one of the most important elements of central banks’ algo signaling, this seems like a good time to do a deep dive on currency pairs.

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Futures are flat going into this morning’s open – a marked departure from the usual holiday weekend ramp jobs we’ve seen over the years. Even so, the care with which the futures have been managed is just as laughable.

We’ll pick up this morning where we left off Friday on the topic of how the Fed changed the rules regarding interest rates, inflation and market risk.

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Stocks are off slightly on the huge jobs miss (+235K versus +800K consensus, +1,053 prior), raising the question of whether even this much bad news can be good news for stocks.In this “heads bulls win, tails bears lose” market, the Fed remains the ultimate arbiter of market direction – based not only on the massive infusions of liquidity and interest rate suppression, but the deliberate and calculated trampling of volatility at critical levels of support/resistance.

Every few months, we roll out this chart which clearly shows the relationship between key breakouts in SPX versus breakdowns in VIX.  Despite many sharp spikes higher, VIX has been threatening to break below the dashed purple trend line for the past three years.

It seems like a good time to take a look at the big picture.

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Another overnight meltup into the open after a minor breakdown…with new highs only a tiny VIX decline away.

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