Yesterday, the API released quite bullish inventory data which showed a large draw in crude (-6.4MM vs -2.2MM exp.) — the biggest draw since August.  WTI futures rallied sharply on the news, while RBOB bumped a little higher before settling back down.

This might be discouraging to those shorting oil and gas.  But, the EIA will be releasing its own data shortly.  And, the two sources often disagree.

The other factor worth considering is that the last time we had an API-reported draw this big (mid-August) CL proceeded to sell off about 10%.  And, speculative net longs are at an all-time high.  It should be an interesting day.

USDJPY is about to tag its SMA100/200.  If our thesis is correct, the reaction will give CL/RBOB all the cover it needs to nosedive.

An additional fly in the inflation ointment:  is this the sort of Capital Goods new order backdrop that we should see right before a rate hike?continued for members… (more…)

We had yet another head fake last night, as SPX closed below the latest rising trend line, the channel top and the SMA10.  Traditionally, these are all short-term negative indicators from a technical standpoint.But, of course, short-term indicators can’t compare with the impact of a paradigmatic VIX beat down.  It’s now off 30% since tagging our upside target last week.We should get that changing of the guards we’ve been discussing for the past few days — either today or tomorrow.  Keep an eye on USDJPY and CL/RBOB.  The algos sure will be.

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In our last Big Picture update on Oct 24, I downplayed the likelihood of the big downturn that more and more analysts were predicting.  And, in fact, the drop which began the day before was limited to 34 points – about 1.3%.  From there, SPX moved on to new highs, reaching 2597 on Nov 7.

Here, again, it attracted plenty of naysayers.  The subsequent drop was a whopping 1.5% — even though the index was overbought, breadth deteriorated and a H&S Pattern completed.  The day after the pattern completed, SPX gapped back above the neckline and came close to the previous all-time high.

As we discussed in October, and pretty much every other post since then, VIX continues to play an outsized role in the daily market fluctuations.  Each new high has been facilitated by significant drops to below potential support in VIX.

This situation faces us again, today.  And, it’s important to understand why.

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VIX was crushed by 21.5% from Wednesday’s highs, sending stocks soaring.  Nine times out of 10, the fact that it’s is poised on support would suggest they’ll continue to gain.But, oil and gas sunk some more, and the dollar is still struggling. This morning’s bounce aside, they’re not done.

Is it time for bears to throw in the towel?

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Stocks had a nice move yesterday, making new lows before VIX and USDJPY prompted a 20-pt bounce (many hours before WMT’s earnings were announced.)

In the process, we scored a nice win with VIX — which slightly exceeded our target (14.51 vs 14) before crashing back down — as well as with our short on RB.

The big question remains whether or not the H&S Pattern in ES/SPX will be allowed to play out. Is this just a bounce on the way lower, or yet another dashed correction?

SPX closed below its neckline, a bearish move. But, last night’s futures action took ES back above its neckline, a bullish development. Yet more proof that trading the drivers of the algos has become much easier than trading the equities themselves.

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I have to be out for a couple of hours this morning.  But, with S&P futures off 10 points, VIX up 10%, oil and gas down big again, and USDJPY continuing to break down, things are on track to reach our forecast price targets across the board.Yesterday’s PPI numbers got the ball rolling.  Today’s CPI should finish things off.

The only questions left to be answered are how bad CPI will be and whether or not ES and SPX’s H&S Patterns will play out.

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As we expected, PPI soared in October — reaching 2.8% largely on increases in fuel prices.  Note that this is higher than it’s been since March 2012. Interestingly, the data did nothing to help DXY, whose rising channel broke down last night.

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Between the GE dividend cut, the tax bill (still DOA), and the trouble brewing in the Middle East, it looks like the other shoe could finally drop this morning.  It’s sad that a 60-pt drop should be so exciting.  It’s only about 2.3% – hardly the “end of the bull market” as one headline put it.

If 2533 holds (2536 in SPX) the bull market is alive and well.  If it drops any further…well, we’ll cross that bridge if/when we come to it.The dollar continues to falter, mostly the USDJPY heading lower.

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There was something for everyone, yesterday.  ES plunged 30 points from its highs – exactly halfway to our 2533 target, sending VIX past our initial upside target and within sight of the next.  At that point, VIX plunged 14%, sending ES 21 points higher to nail our bounce target.At this point, it’s off about 7 — bouncing off the SMA20 (now at 2571.64) and nearing the SMA10.  All in all, it’s been a pretty wild ride – one that I suspect isn’t quite over.  While the dollar seems to have stabilized for the moment, USDJPY is clinging to support by its fingertips.

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It’s a morning chock full of interesting charts — the perfect setup for the day we’ve been looking for a pullback [see: A Nod to Black Monday, It’s Alive, etc.]  Of course, SPX has continued to melt up since then, so the original 2536 target is looking pretty far-fetched at this point.

The first interesting chart is the Nikkei, which took a break from its straight-up channel to tumble 935 points.The culprit, of course is USDJPY.  It fell below its SMA10 and SMA20, which was no big deal when it occurred within the rising channel.  But, the channel appears to be breaking down, which is quite another kettle of sushi.Ordinarily, CL and RB would start ramping higher in order to offset the USDJPY drop.  But, they’ve all been ramping together, lately.  As we discussed yesterday, there are repercussions when this happens.

The price of oil in yen is up 76% since Jan 2016.  Heating oil is up 80%.  Japan, as broke as they come, is facing a decision: shore up the economy or the stock market.

Speaking of oil, did anyone catch the interesting Financial Times article about the Saudi oil reserves misdirection?  It’s behind a paywall, but ZH excerpts it nicely.  Orbital Insights is calling BS on the kingdom’s inventory report, suggesting there’s a lot more still in storage than the jawboning Saudis would have us believe.

The next most interesting chart is VIX.  Members will recall we placed a rather lofty target on its chart for today.

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