VIX toyed with important support all day yesterday, keeping equities in the dark as to the next steps.As a result, ES spent the entire day continuing to dip below its SMA10 and SMA20 — even closing below a nice little trend line off its earlier highs as VIX refused to dive below the all-important yellow channel bottom.

It was all for naught, however, as the usual ramp job stepped in around 1am.  It should allow SPX to tag yesterday’s 2470.58 target on the open.  After that, however, the picture gets a bit muddled.

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So far, the bounce is going pretty much as expected.  VIX continues to tumble, USDJPY continues to rebound, and CL continues to sell off.  About the only surprise so far is that traders seem to have taken Dudley’s nonsensical hawkishness to heart.

Given the hesitation USDJPY initially showed in reversing, however, it’s just what the doctor ordered and has left our rebound right on track.continued for members… (more…)

It was fun while it lasted.  After 23 straight sessions of VIX being suppressed below its long-term channel bottom, we finally got a taste of real volatility.  This morning, VIX is off over 15% and screaming back toward its recent lows in the absence of any further provocation from our Tweeter in Chief.Has the risk of all-out nuclear war disappeared?  Only time will tell.  But, for now, the algos are happy — as they have been with each tag of the falling white channel top.  SPX’s rising red channel — dented but not broken — remains intact.

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SPX reached both of our downside targets yesterday, closing slightly below our 2440.81 target at 2438.17. It was a nice 50+ point gain from our short at 2490.10 on Tuesday [12:18 Update], and came reasonably close to Wednesday’s forecast.The slight overshoot did little damage to our rising red channel.  Bulls are no doubt more concerned about inflation, which disappointed again in July.   CPI came in at 1.7% (1.8% expected) and core remained at 1.7% (in line.)

As we expected, energy prices were key, turning in a 3.4% YoY increase.

Needless to say, traders are more skeptical than ever that the Fed will find reason to hike any time soon.  The USD is sliding again — except against the yen, of course.  The plunge in USDJPY lasted just long enough to facilitate a tag of the red .886 Fib.Between that bounce and VIX’s reversal at the white channel top, futures are up over 10 points from their overnight lows.  In other words, our expectation of a bounce appears to have been correct.  The trick will be in maintaining it.The USD might not be much help to stocks — though we do have two Fed speakers on tap to explain why a rate hike is still a great idea.

Instead, oil and VIX will likely drive whatever bounce we get, with CL having tagged our 48.10-48.16 target range overnight.It’s a tough assignment, with headline risk still weighing heavily on real people and algos.  As we discussed yesterday, if the rising red channel doesn’t hold, it could be a long way down.

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As we discussed last month [see: Jul 14, 2017 Update] the Nikkei faced important overhead resistance at the .886 Fib retracement at 20306 (an error, should have read 20286.)  As I noted at the time:

At SPX prepares to make a new all-time high, we have to take note that NKD has not yet pushed through its .886. Does this matter? Well, yes and no.

According to the harmonics gods, we should be looking at a Bat Pattern reversal which takes NKD down to at least the .618 Fib at 18698.  [That], however, would require that several channel lines be broken, not to mention the SMA200.If there’s one thing the BoJ hates, it’s a drop through the SMA200. They wouldn’t even a allow a tag… back in March when they decided that holding the 2007 highs was more important.

20306 is the critical line in the sand. If NKD can push above it, then 20990 and 21459 look pretty good. If not, the next support is at the SMA100 at 19539 and then the SMA200, currently at 18959.

Almost a month and 700 points later, NKD is breathing down the neck of the SMA200 (now at  19260.) It took some pretty impressive maneuvers, including a rare 2% drop today.The timing is understandable.  Japan is one of several targets in the line of fire between a dangerous crackpot (who, in addition to blurting out whatever incendiary thought pops into his head, could very well act on a whim and start a nuclear war) and Kim Jong-un.

Today’s action begs the question: is the BoJ ready and willing to support the NKD here, or is there more to come?

With the USDJPY currently sitting right at support, I think it’d take a shooting war for NKD to break down here. I suspect USDJPY will bounce strongly (not sure the pretext) and NKD will rise along with it after tagging the SMA200 around 19,290 in the next 24 hours.

If it drops through the SMA200, then all hell has broken loose in the markets (and, possibly in the Korean Peninsula.)  In that case, the next support is the .618/.786 combo at 18631-18687.  Below that, only April’s lows at 18255 and the .500 at 17903 stand between NKD and the abyss. GLTA.

SPX slightly overshot (1.38 pts) our initial downside target yesterday before VIX was reigned back in, prompting an halting recovery for the remainder of the session.

With futures currently off 12 points, yesterday’s lows are going to be tested again — with an excellent chance of tagging our next downside target unless USDJPY bounces strongly off our target at 109.457.continued for members… (more…)

What a difference a day makes.  Yesterday started off with the usual VIX ramp that turned into yet another breakdown below support, sending SPX to new all-time highs.  Our Blusterer-in-Chief turned that around in a jiffy.

Moments after we adopted a short position at 2490.10, he raised the rhetorical stakes with North Korea, promising fire and fury (oh, and power) if they dare threaten the US again (which they promptly did…again.)

Part of equities’ problem this morning is VIX, which (live by the sword…) is back at our yellow channel bottom yet again.  Moving above it would leave a mark.

The other problem is yen strength, which sent USDJPY to within 0.10 of our downside target before it was called on to help stabilize things.Assuming nuclear holocaust doesn’t envelop the markets in the next few hours, we have some interesting targets to consider.  The most obvious is the purple .886 at 2463.46.  Beyond that, things would get really interesting.

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Did you hear it?  Even on a day like yesterday, with ridiculously low volume, VIX was still whispering in algos’ ears, “look how much I’ve fallen….in fact, I just broke down…time to buy.”

Never mind the fact that its regular overnight ramp job (when futures are easily propped up) was the only reason it had room to fall.  And, never mind the fact that the “breakdown” was manufactured for the algos benefit.  They love this stuff all the same.

It was enough to levitate SPX out of its falling channel (the purple arrow) and, then, above trend line resistance (the yellow.)continued for members… (more…)

Can anything derail the daily drip, drip, drip of higher prices?  Just last week, we had a whiff — just a hint of a tiny pause.  But, this morning, SPX is knocking at the door again – threatening a small breakout that will dash that scenario.  I can hardly wait (sarc.)

Instead, we’ll turn our attention to the supporting cast in this drama: DXY, CL, USDJPY and, of course, VIX.  I wonder (not really) if it’ll break trend to the downside again…continued for members…

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If you’ve enjoyed the past few days, you’ll probably enjoy today as well.  The market seems to be in maintenance mode, with just enough algo-juicing to prevent anything really nasty, but not quite enough to make any meaningful headway.

Yes, VIX, I’m looking at you.

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