Thirty years ago today the DJIA plunged 508 points (22%) in a single day, sending traders and money managers scurrying for cover and analysts for an explanation.

I was trading a (well-hedged) options-based risk arb portfolio at the time and remember well going toe to toe with my compliance department, which had panicked and wanted to liquidate everything in sight.

Less than two years later, the market had recovered those losses.  While academics continued to argue over the causes of the meltdown, investors soon forgot all about it.

Since becoming a chartist, I’ve revisited that period many times.  And, the patterns are exceptionally clear.

Why did the Dow stop dropping at 508 points?  Simple.  It was an attempt to keep the rising price channel from breaking down completely.

Why were stocks so overheated in the first place?  Again, the pattern is pretty clear. The breakout from the 1965-1984 triangle was very sharp, never even backtesting the triangle.  In reality, the 1987 crack was a backtest (albeit a dramatic one) of the .236 channel line in a channel dating back to before the Depression.Investors are understandably curious as to whether today’s market bears any resemblance to the 1987 one and, if so, whether a similar tumble might be in store.  My take: yes and no (with a caveat.)

continued for members…

(more…)

DXY’s spurt is fizzling at the moment, determined to at least close yesterday’s gap.  The action should soon shift to oil and gas as yesterday’s dip in CL was misplaced.  Crude experienced an outsized draw while RBOB inventories continued to increase.I continue to look for a resolution in the next week or two.

continued for members… (more…)

With John Taylor purportedly gaining in the running for next Fed chair, the US dollar shot past overhead resistance this morning.  In the process, it rejoined the rising channel from which it broke down and leapt back above the falling white channel midline.

This is an aggressive move which, if it holds, changes the calculus for a number of charts.

continued for members… (more…)

Riding a bounce in oil and gas and the latest breakdown in VIX, S&P futures are up 2.25 this morning.  Nice blurb from Bill Blain on ZH this morning, echoing pretty closely what we’ve been saying for the past year or two.  Combine a market increasingly playing follow the leader (indexers, ETFs, algos, etc.) and central banks with all the tools necessary to keep the algos going, and you have to wonder: can anything stop the meltup?

continued for members… (more…)

CPI came in at 2.2%, the lower end of our range.  At we showed last week, this was accomplished at least, in part, by deliberately understating the actual increase in gasoline prices for the month of September.  It was further depressed with the magical “seasonal adjustment” applied by the BLS.

Core CPI came in at 1.7% (vs 1.8% expected) which has dollar bulls understandably unnerved.  Note that the rising white channel dating back to Sep 7 has finally broken down.

continued for members… (more…)

As expected, PPI shot up for September, coming in at 2.6%.  Also as expected, the spike is being blamed on energy prices which are, in turn, being blamed on Hurricane Harvey.

While the logic is legit, it remains to be seen whether oil and gas prices will remain in their ramped-up states once investors do the CPI math.  I remain bearish on both, but especially RB.

continued for members… (more…)

USDJPY tagged our next downside target yesterday at the same time that VIX came within .05 of our next upside target.  Given all that, you’d think SPX might have finished in the red rather than 6 points in the green.  And, it would have, had CL not spiked higher on a leak of OPEC’s latest goal-seeked supply-demand “data.”While SPX closed positive for the day, the pattern is looking positively moribund — desperately in need of a growth story that rings true.  If it’s going to backtest anything at all, the algos certainly haven’t gotten the word.

continued for members… (more…)

One way or another, algos keep on finding a way to spark a rally in the hours leading up to the open.  Yesterday, it was a VIX dump (that didn’t last.) Today, it’s a rally in oil and gas futures.

Yet, as CL’s chart shows, these have been bounces on the way to lower prices.  At some point, you’d think actual investors would notice.  Unfortunately, they’re outnumbered by computers that disregard the logic and intent behind “breakouts.”continued for members… (more…)

Today’s a bank holiday, but most markets are open — albeit with very low volume.  Thus, it’s a great day to slip in a little ramp job through resistance while no one’s watching.   VIX’s 8% plunge off Friday’s highs got things off to a good start.  But, has since bounced back and is approaching our upside targets.  continued for members… (more…)

Everyone expected the hurricanes to affect job growth, but I didn’t see many forecasts of an actual contraction. 

It remains to be seen what happens beyond the initial knee-jerk data.  But, for now, the currency markets are going crazy — with the dollar and USDJPY spiking higher in an attempt to offset the plunge (well…the 2017 version at least) in equity futures.

The positive side of this development is that gold, oil and gas are following our playbook nicely.

continued for members… (more…)