It’s quad-witching Friday, which means we’ll likely see plenty of swings and plenty of head fakes in the light volume ahead.  Our analog remains on track, with no change in our outlook.

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Thanks to docjay for pointing out that gold is nearing the downside target from our Dec 5 Update.  A word of caution, though: GC is currently testing an important internal TL of support even as DX is testing important overhead resistance.

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Turns out the “Trump rally” wasn’t impervious to higher rates after all.  Our analog is on track, with further drops to come after a day or two of chop.  Our downside targets remain unchanged.

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It just dawned on the futures that there’s a rate rise on tap at a very suboptimal time.

PPI just came in at 0.4% — much hotter than the 0.1 – 0.2 expected.  Yet retail sales and industrial production were much worse than expected.  It’s another reminder that we’re likely heading down a path to stagflation.

And, we still have the EIA inventory report (yesterday’s API report was horrid) and a rate hike ahead of us.

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Another day, another overnight ramp job in the futures market.  They’re persistent, I’ll give them that.

Oil, which reversed at a logical spot yesterday, failing to hold its own Sunday night special, has rallied just enough to put ES back within striking distance of Sunday’s highs. Thus, SPX has a chance to reach or even top yesterday’s highs on the open — which is the whole idea.

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More news in the oil complex over the weekend as the non-OPEC players threw in with their OPEC counterparts and pledged production cuts which, like OPEC’s, will likely not help in the long run.  In fact, they just might find the cure is worse than the disease.

Sure, it was enough to drive prices higher in the here and now.

But, stocks have shrugged it off.  As is our central thesis, higher oil prices might be good for producers, but it’s a negative for central bankers who — tasked with balancing the inflation/interest rate scales — will have a difficult time preserving stock prices at the same time.

Rising rates in conjunction with growth and reasonable debt levels — no problem.  But, that ship sailed about $15 trillion ago.

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The great thing about analogs is that they tell you when a move will occur and which direction it will be in.  But, there are two not so great things about analogs: the moves aren’t always the same size as in the prior period; and, they don’t always make sense.

The most frustrating part about forecasting is seeing moves play out that are completely divorced from the economic fundamentals.  Such is the case, now, as the talking heads are coming up with all kinds of reasons for the ongoing rally except the ones that matter: oil and USDJPY are being ramped higher, and VIX forced lower when necessary, which has kept the algos in an unrelenting meltup.

Note that CL, for instance, has “broken out” of a series of falling channels as fast as it can construct them.  Having reached last night’s target right on time, it’s breaking out again.We’ll take a look at our current analog, and adjust a few price targets as needed.

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In our last update on RUT [see: Nov 11 Update] we noted that RUT was likely to break through to new highs.

…given that it’s Friday, and RUT is now only 14 points short of new all-time highs — we have another good argument for a gap to new highs on Monday.

RUT did, in fact, gap up to new highs on the following Monday, and has since gained another 6.3% in less than a month.  Can it maintain its momentum, or has it moved too far, too fast?

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Yes, VIX broke out of the falling channel it’s been in for the past week after coming within .10 of a likely bottom.  Yes, the ECB is tapering its QE.  Yes, the EURUSD is off over 1% so far.  And, yes, the USDJPY broke below SMA10 support. So, why, exactly, are futures still positive?

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Deutsche Bank has rallied 59% since our bottom call on Sep 27 [see: Deutsche Bank: Will it Survive?]  It’s all the more impressive since it has occurred against a backdrop of the troubled European banking industry.

Several weeks ago [see: Deutsche Bank – All Better?] we called for a 7% correction following a Butterfly Pattern completion and were promptly rewarded with a 7.6% drop.

We’re now at another one of those nifty inflection points here at 18.78 where DB should at least put in a meaningful pause, and possibly much more.

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Note that DB has left a trail of gaps in its ascent, with the most recent at 16.68 — an 11.1% drop from 18.77.  I would, therefore, set an interim downside target of 16.68-16.90 on or about Dec 15-16.  If the fallout from the FOMC decision isn’t too bad, DB should continue on up to 20.43 in mid-Jan.

If DB makes a meaningful reversal here, the rising white channel I’ve sketched in should take form – opening the door to a deeper backtest and fleshing out the rising white channel. It emerges from the falling red channel around Jan 13 at 14.30ish.  But, the more conservative target would be the midline at 16.90.

GLTA.