The wait continues, as we’re getting enough push from VIX, USDJPY and CL during the after-hours to keep SPX/ES aloft, but not quite enough to register a breakout. With VIX dropping toward Fib support, push has come to shove.
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It was one of those nutty days, again. In their attempt to rescue the Dow from BA (which bounced after closing the gap as expected, perhaps dipping into its $20 billion buyback kitty)…
…the algos left some ridiculous patterns on our charts. Witness the Dow, which was setting up for a perfectly logical backtest of its 200-DMA based on BA’s pre-market crash.
Though I get tired of saying it, the primary culprit was VIX — which has cratered over 27% in the past 48 hours.
The broad indices were only too happy to follow VIX’s lead — putting stocks right back at the same resistance they faced in mid-February.
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While January’s retail sales saw a modest rebound (+0.2% MoM), December’s were revised downward from -1.2% to -1.6%.
Futures bumped slightly higher, presumably because a slowing economy protects the market from Fed tightening. In reality, it was driven by continuing VIX algo-signalling.
With key DJIA component Boeing off sharply in the pre-market, today could be a tumultuous day.
Obviously, BA is reacting to the second crash of its key 737 Max 8. But, its chart already argued for a downturn before the latest tragedy.
First order of business will be to close the gap at 369ish. If it can’t hold at 369, look for it to test the SMA200, the .618, or potentially the .786 Fib well ahead of schedule.
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An extremely disappointing payrolls report put February new hires at 20K. I had to look twice, certain that a digit had been left out.
To make matters worse, hourly earnings spiked 3.4% YoY, far in excess of what all the Goldilocks models suggested. 
It should be entertaining to see how Kudlow et al. spin this one.
Meanwhile, our targets are being hit left and right. ES came within 1.21 (so far) of our next downside target.
On the currency front, EURUSD nailed our next downside target…
…USDJPY plunged right through its nearest support and is closing in on our secondary target…
…and DXY is again approaching our upside target.
CL and RBOB’s selloffs are accelerating after tagging our upside targets.
S&P futures are currently off about 20 points. But, our models suggest SPX should tumble a minimum of 35 points before all is said and done. If that support doesn’t hold, there are potentially very large declines ahead.
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Let’s talk about debt. In 2018, the federal government spent $523,017,301,446.12 in interest (a 14% increase over 2017) on what is now over $22 trillion (a 7.5% increase over 2017) in debt. The divergence between those two rates of increase is important.
The interest expense is growing faster than the amount of outstanding debt because interest rates have risen. When I produced this chart in September, the average interest rate on government debt over the previous year was 2.378%. In February 2019, it was 2.581%.
Although 10Y yields topped out last October as expected [see: Suddenly Interest Rates Matter], the average interest rate on outstanding debt has continued to increase. Combined with the fact that outstanding debt is accruing at over $1 trillion per year, this presents a very serious problem.
It also offers some very important clues as to what the Fed and other central banks will do over the coming year.
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It’s been a year since Trump tweeted those fateful words: “…trade wars are good, and easy to win.”
The S&P 500 closed at 2691 that day. While stocks have rallied marginally (0.3%) since then, not everything has gone according to plan. In fact, just this morning we learned that our trade deficit has reached levels not seen since 2008. It has grown by $119 billion since self-proclaimed Tariff Man took office.
Bloomberg reports that the Trump administration is pinning its hopes for the market on an announcement of an agreement with China — leading some to fear that whatever deal is struck will be one of political convenience rather than one that leads to real progress.
Trump’s economic team has told him an agreement will unleash a market rally, the people said. Advocates of a compromise with China have also told Trump it is crucial to cut a deal soon to reap the full boost ahead of the election because benefits such as more Chinese purchases of U.S. soybeans and other products will have a delayed impact and take time to reverberate through the economy, they said.
Stocks seem content to wait around, with the 10-DMA serving as a touchstone for the daily gyrations. But, at some point, even algos can grow impatient.
Today could be that day, as COMP’s 20-DMA is due to reach its 200-DMA — clearing the way for long-overdue backtests for multiple indices.
The bigger question, of course, is whether those backtests will hold.
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Just when I was about to lose faith in the ability of investors to recognize bad news when they saw it, something very rare happened yesterday.
VIX, which has been beaten down most every day since Mnuchin convened the Plunge Protection Team in December, suddenly popped up above its 200-DMA.
The futures executed a 51-pt reversal before someone realized how ugly things were getting and pushed the EMERGENCY button. ES climbed back above the SMA10 just before the close, and is back above it now. But, it’s still well below our sell signal — the .786 Fib at 2812.13.
Incidents such as this accentuate the cracks in the technical picture which are becoming more and more apparent — even to the bulls.
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For those who enjoy chasing the market higher on rumors of an imminent breakthrough on the China trade deal (coincidentally released shortly before futures open every Sunday) today is your kind of day.
After retracing 78.6% of its late 2018 plunge last Monday, ES showed signs of a retreat. But the latest news — this one planted with the WSJ — has put an end to that. At what point will the algos ignore this ruse and pay attention to deteriorating data?
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The latest dismal economic news — which the market is ignoring in favor of unsubstantiated rumors of an imminent trade deal with China — is real personal spending which dropped 0.6% in December to a 10-year low. So much for Mr. Kudlow’s retail sales “glitch.”
Futures, of course, are much more interested in the latest VIX decline and USDJPY rally. 
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As if yesterday’s Cohen and Powell testimony weren’t scintillating enough, the talks with North Korea broke down and a bevy of important economic data is due out this morning. Will we finally see stocks take notice, or will VIX continue to keep the fireworks to a minimum?
Advanced 4th quarter GDP is due out at 8:30 this morning. Following disappointing retail sales and core capital goods data, few are expecting an improvement over Q3’s 3.4%. Consensus seems to be around 2.3%, though I’ve seen credible estimates at 2.1-2.2%.
A miss could compound things for equities, which are already struggling after news that Trump packed his bags and walked out on Kim Jong Un.
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