PPI Beats Expectations

Continuing the string of data arguing against a rate cut, PPI and Core PPI both came in hotter than expected. Core increased 2.3% from August 2018.Futures, which are in levitation mode after a sharp intraday recovery yesterday, barely noticed. Virtually nothing has changed from yesterday’s forecast. Though, we have an important EIA report coming out at 10:30am which should help determine whether oil can continue its improbable bounce following John Bolton’s resignation.

continued for members…USDJPY rallied to the top of the falling white channel……while NKD threatened a breakout again.

The real action though is in CL, which is again threatening a breakout after dipping on Bolton’s resignation. Holding above the SMA100 at 57.66 is enough to prop up stocks. Dipping below it will get the correction started. Remember, EIA inventories come out this morning. ES’s 60-min chart……and, SPX’s daily chart…With a closeup of the target options.SPX had a perfectly nice megaphone pattern going until the last few minutes of the session… …when VIX collapsed. Note that VIX has dropped as low as it can without completing a small H&S Pattern. Like CL’s “breakout,” this would be hard for the algos to miss…UPDATE: 10:35 AM

The latest report sees a healthy draw in crude but a minor one in gasoline. Finished gasoline actually experienced a slight build. All together, the data probably represents shifts in production based on potential effects from Hurricane Dorian.

So far, CL is softening ever so slightly.

VIX is getting a slight bounce… …while ES is retreating from its .886.UPDATE: 11:53 AM

The retreat obviously didn’t last, and ES and SPX are busy tripping stops… …while VIX has officially double-tapped the bottom of the flag pattern. This is a critical moment for stocks, as CL, USDJPY and RB are all signalling a reversal which VIX is working to prevent.

While CL is off to a good start, it needs to drop through its SMA200 (56.19) to even get stocks’ attention and below the red TL to put them in reverse.Likewise, RB has given up most of its breakout but needs to drop back through 1.56 to make a difference.

This is obviously not going along with the analog. Even with the later Jul 30 start, today would be Day 30, a full 8 sessions after the Day 22 reversal in 2015. On the other hand, 2015 Day 22 saw a tag of the .886 retracement from Day 0 to Day 13. Could things be so bent on reaching that retracement that the day count is being ignored? I loathe the idea, but it’s also possible that stocks are already locked in the pre-FOMC ramp even though we’re still a full week away.

My original thinking was that we’d follow the 2015 path and put in one big, scary 7% dip that would help motivate the Fed to cut rates. We’ve seen it before when a rate cut was looking iffy. This is a course of action even the White House could endorse.

I’m not ready to give up on the dip just yet. If CL can simply drop down and tag our 47.55 or 45.12 target, I’m pretty sure we’d get the reaction the analog indicates — especially if USDJPY were to back off as well.

UPDATE: 3:35 PM

CL has stalled at the yellow TL and VIX keeps nudging lower. ES is approaching its .886 Fib at 3000.57 — an obvious turning point. But, again, it’ll depend on VIX’s purple flag holding its ground……CL breaking down……and USDJPY not breaking out.

I have to take off a little early today, but will post a wrap up later this evening.

UPDATE: 20:43

I woke up at 3am this morning, expecting to see the market well on its way to 2800. Instead, we got another day of melting up. SPX closed at 3000.93, a few points shy of its .886. ES raced up 20 points north of its .886 — which, if it reverses, will be a proper reversal candle.

Tomorrow morning, the ECB will issue its next monetary decision and Draghi will give his last press conference as Grand Poobah. And, all I can think of is “what if they don’t cut rates or ratchet up QE?” Would the market be disappointed? What if the ramp job over the past few days was all about getting stocks high enough so the disappointment can be limited to SPS 2792? Will they bail out our analog with a last second plunge as on Aug 23? Could SPX tumble 208 points in two days?

I don’t know the answer to these things. But, I’m pretty sure I’ll be up by 3am again. FWIW, here’s the chart I posted after adjusting the analog for Fibs and channels on Aug 5.

Here’s a close-up.