As our analog suggested, the bounce continues as expected despite a spate of mixed signals and general bad vibes from the politicians and persistently inverted yield curve.

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Lots to cover this morning, as SPX slightly overshot our latest downside target on Friday.  Recall that we added the 2838 target on Aug 19 [see: Fine Tuning our Analog] when it became apparent that SPX’s downturn would be delayed.As it turned out, 2838 was a better downside target than the 2857 target originally forecast by the analog.

Thanks to a timely bounce by USDJPY at our 104.74 target last night [see: Update on USDJPY]… …and Trump’s predictable make-it-up-as-we-go trade announcement this morning, SPX will open about 20 points to the good this morning — still on track with our analog which has been roughly 98% accurate since inception.

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As we await Jay Powell’s comments at Jackson Hole, the futures are slightly positive – backing off slightly from the 34-pt V-shaped recovery after yesterday’s run-in with hawkish Fed presidents and another brief 2s10s inversion.This morning, we’ll hear from Jim Bullard (a perennial dove) and Jay Powell himself. So, we should expect another very volatile day.

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Actually, it’s the 5th test in the past 10 sessions of this internal trend line that, by all rights, shouldn’t be very important.  If the market weren’t so fragile, I’m sure we would have seen new highs somewhere along the way.

Even with VIX hammered by 35% since the Aug 5 lows, however, ES has continued to struggle with this trend line — which makes it a very important test.

Our analog suggests is will hold one last time before Jackson Hole silliness grips the market over the next few days.  Stay tuned.

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Futures weren’t able to push through resistance yesterday despite several algo-goosing efforts by the administration.  This leaves an opportunity for one more downturn before Jackson Hole gets rolling.

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Our analog remains on track, with the two session bounce currently testing the same trend line resistance that shut down the two previous bounces.The next session or two should help fine tune our timing.

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While stocks are causing whiplash for investors everywhere, bonds continue their predictable ways — begrudgingly getting the respect they deserve.

Yesterday, the 10Y tagged our 15.54 target set late last year [see: Dec 26 Update on Bonds.] It now sits at critical support, seemingly holding the fate of equities in its hands.

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SPX plunged 86 points yesterday to 2839.64, 4 points below the Day 13 optimized price target indicated by our analog [see: Analog Watch July 15] when last updated on Aug 5.

The dilemma that target posed is that SPX already tagged it on Aug 5.  It was unclear, therefore, whether we’d get a slightly lower low or closing low on August 14 before the strong bounce ensued.  I posted a slightly lower secondary target at 2816.47 that would accommodate the analog and another at the SMA200, now at 2795.73.

The other dilemma is that SPX peaked two sessions early.  I adjusted each turning point forward by two days but, as we discussed at the time, an adjustment wasn’t necessarily appropriate.  We’ll only know for sure when the next bounce commences.

Several hours ago, it looked as though the 2816 target would get tagged.  Futures reached 2817.75 around 3:30 ET (yes, I was watching…I lead a very exciting life.)

It didn’t last, however.  So, anyone holding short for the idealized target in the cash market could face the same dilemma as on Aug 5 when futures tagged an important downside target (the SMA200) after hours and bounced before SPX had a chance to follow suit.

Regardless of whether or not SPX makes it down to 2816.47 (probably) or 2795.73 (possibly) yesterday’s collapse was an excellent test for our analog.  It is very clearly on track.

Speaking of things going as planned, DB just tested its Jun 3 lows. It has a long tradition (thanks to a very generous Uncle Mario) of bouncing at horizontal support — sometimes for years.  So, I’d take profits here and only re-short on a drop through 6.49. The charts indicate lower prices ahead — though it’s always possible the ECB will come up with a better solution than lowering rates and increasing QE.

While we’re on the topic of easing…anyone happen to catch this morning’s economic data?  Retail sales and labor costs hardly support a rate cut, let along multiple rate cuts.  From Briefing.com:

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