The algos are very happy with the way VIX is melting down.
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Posts
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Algos to Stocks: “We Got This”
It’s a light volume day leading up to a holiday weekend – the market’s favorite time to take a shot at important resistance. Though SPX tagged its 3.618 Fibonacci extension several weeks ago, ES has fallen short time after time.
The disappointing employment data due out at 8:30 wasn’t going to help, so VIX jumped in with a 7.4% decline at 8:03, falling through the gap close at 18.21 from Feb 21, 2020. It wasn’t quite enough to get ES up to 3998 (those pesky unemployment data.)
But, then, the game’s not over yet…is it?continued for members… (more…)
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Stocks to Algos: “Don’t Let Me Down”
On top of the world, with an adoring crowd gathered below and indifferent law enforcement milling about…there is a bit of a parallel between a famous rooftop concert and the current market.
As stocks slink into the end of Q1 amidst a bevy of perils, there’s a sense of calm before the storm. Then again, SPX closed yesterday above its 3.618 Fibonacci extension – though just barely this time. Can the algos keep the music playing?
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USDJPY’s Turn
Members will recall that one critical component of our oil/gas decline scenario is USDJPY’s breakout from the falling channel from 2017 shown below. Guess what?
The yen carry trade is a tried and true method of goading the algos into buying equities – even overpriced ones. It works especially well as a counterweight to falling oil/gas prices as we first observed in 2015 [see: Did TPTB Crash Oil?]
So, it’s absolutely no surprise to see central banks pull it out of the playbook at a time when folks are suddenly curious about hidden, systemic risks and oil/gas prices are in the midst of a healthy reset.
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What Were They Thinking?
The massive Ever Given container ship has been freed from the Suez Canal’s mud just in time for the market’s open. While positive for global trade, stocks are arguably more focused on the ambit of the latest Wall Street scandal – this one involving the Reddit-style goings-on of Archegos Capital and the banks which apparently neglected to check on their collateral from time to time.
The failure of some of the biggest and most sophisticated banks in the world to recognize the Long-Term Capital Management doppelgänger on their books is emblematic of the frenzy with which institutions and individuals alike regard the equity market. Why bother analyzing exposure when central banks will never allow a significant decline anyway?
Futures are off about 20 points – just enough to put SPX’s 3.618 Fibonacci extension at 3956.64 to the test on the open.
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The Usual Suspects
There’s a well-known scene at the end of the classic film Casablanca where Captain Renault (Claude Reins), having seen Rick (Humphrey Bogart) shoot a Nazi in order to enable Ilsa and Lazlo to escape, tells his men to “round up the usual suspects.” It saves Rick, Ilsa and Lazlo’s collective bacon (though I suspect it sucks for the usual suspects.)
click to play So it is with the algos driving equities lately. With oil/gas prices on their back heels and VIX being bid up every day by nervous carbon-based investors, it falls to the the usual suspects in the currency markets to provide algos with the proper “motivation.”
Think of USDJPY’s breakout not so much as a bug, but a feature of the modern market — one of the many quiddities which allows futures to ramp higher on, say, disappointing economic news.
While it is sometimes difficult to know when stocks will get much-needed support, these tools have been fairly predictable and have provided excellent trading opportunities.continued for members… (more…)
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Update on Gold and Silver: Mar 25, 2021
We have multiple targets being reached this morning, and several more in the works. We’ll start with ES, which just tagged our SMA50 target in a backtest of the falling white channel from which it broke out two weeks ago.
The one we’ve been waiting on for what feels like forever, though, is silver. SI broke out of the falling white channel twice before it managed to tag our 30.35 target in January. But, as we discussed at the time [see: Hi Ho Silver]:With the SMA200 crawling along toward current prices, we can’t discount the potential for a long overdue backtest.
We’re finally getting that backtest. But, given DXY’s breakout, we have to wonder whether SI’s backtest will hold.
We’ll update the prognosis for silver and gold and also sneak in a discussion of EURUSD, which officially reached our next downside target yesterday.continued for members… (more…)
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Don’t Fight the BoJ
I know what you’re thinking: it’s “don’t fight the Fed.” While that’s generally true, too, the Bank of Japan is the central bank which most conspicuously wears its balance sheet on its sleeve. When my charts are a farrago of bearish indicators, but the Nikkei pushes up through resistance? I’ve learned to ignore the indicators and become bullish.
Conversely, when the narrative is incredibly bullish but the NKD slips below important support, it’s time to short. For those who haven’t been paying attention, that’s where we are right now.
We’ve had a few hints over the past week or so, but the NKD suggests there’s more to come.
US stocks just haven’t gotten the message yet.
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Fedsplaining
Today we get the benefit of both Jerome Powell and Janet Yellen telling us that, despite how incredible the outlook is, things are so horrible that they need to keep pumping billions of dollars into the markets every day. For the little people. You know – unemployed folks who can really benefit from rapidly rising food, energy, and housing costs.
It’s now been a year since SPX bottomed out, 9 months since a test of its 200-DMA, and five months since a test of its 100-DMA. The algos have been working overtime. Corrections have been short and sweet, quickly extinguished by rallies in oil and USDJPY and sharp collapses in VIX.
From this point forward, expect them to come as a surprise to many investors.
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Are Central Bankers Blinking?
Oil and gas suffered their worst day in months, yields have backed off their highs, and the Nikkei has even broken down ever so slightly.
Will central bankers back off their insistence that rising inflation and interest rates are of no concern? Maybe they’ve finally tired of yields being the cynosure of the financial press.continued for members… (more…)
