December 24 was a pivotal day. As we noted at the time, most of our downside targets, some from several months prior, were tagged [see: Throwing the Game.]

ES reached our H&S target.  So far, it has bounced 13.3%.Oil reached our 43.50 target and has bounced 25.8%.RBOB reached our 1.2603 target and has bounced 16.2%.AAPL has bounced 9.6% since reaching our 144.48 target.And, COMP reached our 6227 target and bounced 14.3%.VIX, which had broken out of a falling channel, spiked up to our 34.97 target on the 24th.Though, if you look closely, you can see that it was threatening another breakout — having slightly overshot its upside target just like CL, RB, AAPL and COMP had slightly overshot their downside targets.

More alarming, USDJPY and TNX had broken down below important support.  As we noted at the time: “this [was] no way to run a rescue operation.”

It was no surprise that Mnuchin chose that day to convene the President’s Working Group on Financial Markets – aka the Plunge Protection Team.

The PPT presumably can’t buy stocks directly.  But, they can direct the Fed’s trading arm to trade in futures, options, etc. which, in turn, trigger algos to purchase stocks. It’s a well-worn transmission mechanism that rarely fails.  Their primary objective was to magically transform VIX’s breakout into a breakdown. In the process of being crushed by 51%, VIX has engineered a record-breaking rebound.  SPX has rebounded 11.4% and is slated to reach its H&S neckline on the open this morning.

Algos, which were greatly disparaged for driving the market lower in December, have – to my knowledge – received no criticism whatsoever for the rebound.

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The rising wedge we’ve been watching develop has made no further progress, but has merely extended as we approach OPEX Friday.With so much riding on whether it breaks down or breaks out, we’ll take a look at the big picture.  One thing’s for sure: the next move will be measured in hundreds of points.

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S&P futures came to within 20 points of the neckline of the H&S which nicely forecast December’s 300-pt plunge before finally taking a rest last night.

Yet, as the charts indicate, the latest drop has (so far) merely tested the bottom of a rising wedge. Should ES bounce from these levels, the upside case remains intact. Even a drop to the SMA10 would merely establish a less aggressive rising channel.It’s only when ES drops through its SMA10 that real trouble arises.

With CL and RB rolling over as expected and VIX backtesting the TL it just broke below, stocks are once again in a precarious position.

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As expected, CPI came in below 2% this morning. At 1.9%, it has clearly reached the level at which the Fed would have a tougher time justifying additional rate hikes.Futures, which were already off a few points, are settling lower.

The question now shifts to whether inflation is too low – especially given the much touted strong wage growth and tight employment conditions.

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We’ve had a nice bounce in most of our charts since reaching downside targets. AAPL has risen a decent 7% since reaching our 144.48 target on Jan 3. COMP has spiked a more impressive 12.2% since slightly overshooting our 6222.48 target.   RB has recovered 14.7% since reaching 1.2603 and CL has spiked an impressive 22.2% since reaching our 43.46 target.

But, the most impressive of all is VIX, which at yesterday’s lows had moved 46% since reaching our 34.97 target on Dec 24.  Yesterday, VIX reached our 19.64 target, which places it squarely in the driver’s seat in terms of the overall market which, by all counts, is nearing an important inflection point.continued for members… (more…)

On December 24, the President’s Working Group on Financial Markets met “to discuss coordination efforts to assure normal market operations.”  Most people call the PWG the Plunge Protection Team.  Can you blame them?

ES rebounded 10.4% since then, and “all” it took was a carefully constructed 45% collapse in VIX.  As we approach our next upside target, we’ll take a look at the likely next steps.

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The algo-driven meltup continues, with ES currently showing a 24-pt gain primarily on the back of CL’s bounce off its SMA20 and VIX’s gradual asphyxiation.As ES approaches the neckline of the H&S Pattern it completed and paid off so handsomely, we’re left to wonder whether SPX will ever pay its off. continued for members.… (more…)

Following Friday’s algo-inspired spike, futures have been settling gradually lower. Over the past several hours, though, ES has rallied back into the green.  VIX continues to drive much of the action, ramping overnight just to have a place from which to dive the following morning. With CL and RB consolidating and the dollar under pressure, will it be enough to keep the rally going?

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…and, the market soars!  Just because.

There’s another old economics joke:

Q: How many central bankers does it take to change a light bulb?
A: None.  It’s getting brighter, see?  It’s definitely getting brighter!

The brain trust which has overseen the Fed since 2006 assembles today at the American Economic Association’s annual meeting. We’ve all seen the data: expansion of the Fed’s balance sheet from $800 billion to $4.4 trillion; a stock market which rallied 340%; 10Y notes which fell from 5.3% to as low as 1.3%; fed funds rate which fell from 5.25% to as low as 0.04%.

Bernake and Yellen obviously oversaw some sizeable market declines – Bernanke’s 57% 2007-2009 freefall obviously dwarfed Yellen’s carefully managed 15% swoon in 2015-2016.

But, it’s Powell’s 20% (so far) 2018-2019 correction that is attracting all the attention, as it is viewed by many as the result of a policy mistake. During his short tenure, Powell has already presided over two breakouts in rates (the solid red trend line, followed by the dashed purple trend line) and, in the past couple of weeks, a breakdown in rates (the dashed red TL.)

The breakouts alarmed many as they had a significant and immediate impact on industries which rely on low rates for prosperity: housing, autos, etc. They also refocused attention on the US’ disastrous debt imbroglio.  The increase in rates (the black line) will be enough to help turn a 5% increase in federal debt into a 13% increase in interest expense.The problem is that thanks to the algo-inspiring spike in oil and gas prices last year, inflation was becoming a problem and justified higher rates.  Since October, oil and gas prices have tumbled. December CPI will likely come in near 2% or even less.  Both extremes were manipulated, as even Trump has now admitted.So, what metric should the Fed pay attention to in deciding the course of future hikes? Slumping real estate sales and ISM surveys?  Strengthening employment figures? It seems Powell is damned if he does and damned if he doesn’t.

I suspect we’ll see smiles of relief from Bernanke and Yellen who got out while the getting was good.

Last night we got a pretty typical pre-Fed ramp job. When you see the futures do this……there’s usually a reason, such as the corresponding ramp job in oil. The momentary hiccup when the 312K jobs number was announced was easily offset by hammering VIX from where it was when I began this post two hours ago… …to here.

And, suddenly, everything is getting brighter! If you’re wondering why the ramp job stopped after 37 points, it’s pretty simple.  That’s all that was needed to get SPX up to and over its SMA5 200 at which point the algos will have free rein.  If Powell’s comments aren’t dovish enough, stocks will have a nice cushion.

I wonder if all those people who were complaining about algorithms deflating the stock market will be upset when they produce a rally?

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Following last night’s plunge in AAPL shares to our 144.48 target [see: Jan 2 Update on AAPL] the S&P futures plummeted as much as 58 points from Wednesday’s highs. There, the tightly correlated pair went their separate ways.

ES is off only 25 points (1.1%) while AAPL is indicating an 8% loss. Blame the majority of the divergence on VIX, which is undergoing the same kind of operation that rescued stocks yesterday.The other dramatic rescue was in USDJPY, which plunged to levels not seen since the night of the 2016 presidential elections (the yellow arrow.)  As occurred then, and in Brexit before it (the other yellow arrow) USDJPY has recovered most of its losses as the opening bell approaches.Can the market shake off this latest crack as it did both of those times?  A critical test lies ahead.

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