If the past couple of days seem somewhat familiar, it’s because we saw a similar pattern in March.  After backtesting the 2.24 Fib extension (2728.79) on March 8, ES rebounded sharply — closing barely in the red for the day and roaring 50 points higher the following day.  It didn’t stop until it had piled on 233 points — about 8.5%.Repeated bounces off a horizontal line of support can be great for stocks – indicating that it’s safe to buy. The only hitch is if the third bounce only extends as far as the initial one. In such a case, we have the potential for a Head & Shoulders Pattern — which is quite bearish.

We’ve seen it happen twice already: the neckline between Apr 3 and May 8 which targeted 2806 (ES reached 2799) and on a larger scale between Mar 12 and May 28 which targets 2638 (a 10.9% from the April highs.)

This one is a little suspect, however, as ES bounced back above the neckline (for now) at 2806. In so doing, it also broke out of the falling purple channel,

The bulls have the reins as long as they can keep ES above 2806 — broken above the neckline and broken out of the falling purple channel.  But, if it should fall back below 2806, then the H&S targeting 2638 will be back in business and we’ll set up a much bigger H&S (with the 2.24 Fib as the neckline) targeting 2495.  This would be a 15.7% drop from the all-time highs.

Bottom line — if this break out turns out to be a head fake, watch out below.

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It’s been a great time to be a chartist, lately.  ES reached our 2.24 Fib target yesterday, reaching 2728.75 around noon and bouncing 40+ points to nearly the SMA200.  At the same time, AAPL came within .27 of its next downside target……and TNX came within 0.15 of its next downside target.But, it’s the factors which haven’t reached their targets which suggest there’s more fun ahead for the bears — that the current bounce is probably a nifty bit of misdirection.

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About a month ago SPX/ES pushed to new all-time highs, suggesting stocks were off to the races.  I wasn’t convinced.  From our April 29 post:

A move above the Sep highs is technically bullish. So, trend followers will be compelled to go/stay long with the former highs as their stop.  Personally, I would be extremely cautious in chasing it, keeping an eye out for rejection and shorting it if/when it drops back through 2940.

We labeled the downside targets and waited to see if the rising wedge would break down.  Spoilers…it did.

Now, 7.7% later, we’re presented with a new challenge. ES came within a few points of our 2728 target overnight.  Will it get a bounce here or is it susceptible to additional downside?According to our bond charts, there’s more pain to come.

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For a guy who has so often touted the stock market’s performance as a measure of his own prowess, Trump has been the bears’ best friend lately.  We’re certainly not complaining, as our downside targets are being tagged one after another.

The 10Y has gained a spectacular 7.7% in the nine months since our bottom call last September. Futures are now off about 6.5% since our April 30 top call and are closing in on our next downside target.USDJPY is closing in on our 108.50 target.RBOB is closing in on our 1.76 target.COMP, having already reached our SMA200 target, appears likely to tag our 7391 target. Even AAPL has compliantly continued to sink toward our next lower target.The big win would be VIX…but the other factors have been so effective in driving stocks lower that VIX is still languishing in the teens.  Perhaps not for long…continued for members… (more…)

TNX nailed our 22.94 target last week, completing the move we forecast in December when the red trend line shown below broke down [see: Dec 26 Update on Bonds.]It has taken considerably longer than originally anticipated because the more violent downdrafts in 10Y rates prompted violent equity sell offs.  Some cooling-off periods — long, drawn-out bounces — were necessary.

While the rising purple channel has now been fleshed out, our price charts indicate the move might not be complete — a view shared by our yield curve model.  We’ll take a fresh look at the big picture, and the dramatic move it implies for stocks.

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SPX and ES got within a point of our neckline targets yesterday before the algos panicked.

It’s not that the necklines or SMA200s won’t get tagged – keep an eye on the close — it’s just that not enough wildebeest had gathered at the watering hole.  With VIX safely back down below its SMA200, this shouldn’t be a problem for long.

Targets that were tagged yesterday included CL, RBOB and TNX.  Targets yet to be tagged include USDJPY, COMP and ZN.

Should be an interesting day ahead!

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It seems like it’s been forever, but most of our targets are now being tagged or are on their way to being tagged. So, if I hear one more talking head on CNBC say “no one saw this coming,” I’m going to lose it.

After two weeks, WTI’s flag pattern finally broke; it’s off another 3% this morning and likely to reach 57.93 later today — completing a sweet 13% short from Apr 23.  If 57.93 doesn’t hold, look for 55.55.

USDJPY also finally broke down and is headed south fast.  If/when it breaks 109.88, look out below.As soon as VIX pops back above its SMA200 on its way to a 20 handle, we’ll know SPX/ES are finally going to be cut loose.

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