It would be unusual in normal times for stocks to drop on OPEX or a Quad Witching Friday. Given the massive stimulus inflating the markets, these are far from normal times.
ES broke out of the falling channel it’s been in since June 10, primarily on the VIX breakdown and oil breakout we’ve been expecting. The big question, given that we have a quarter end coming up, is how far equities will go.
continued for members…
We still have all the bearish signals we’ve had for the past few days – all the 10/20 crosses, for instance, with VIX being the most important at this point. So, I still see this as a bump before the dump.
Oil has now broken out of the purple channel too and is nearing our 41.05 gap close target, but holding short of its Jun 7 highs for now.
While, RB is sneaking up on its SMA200 at 1.3478. 
USDJPY is slipping lower, but hasn’t really let loose yet. Although the little rising white channel has broken down, the falling white midline is still holding. I still expect a dump, but would switch sides with any move back above the SMA10.
EURUSD continues to slip, with that potential golden cross – the SMA50 creeping up towards the SMA200 – the biggest threat to the downside case.
As a result, we’re seeing DXY continue to rise, but not yet explosively.
As stated above, it’s tough to say how much upside this bounce has left. I still feel the .886 is probably the upper limit, but I expect a downturn beginning on Monday which could limit the upside to less than the Jun 8 3233 highs.
This leaves us in wait and see mode, with the very real risk of a continuing meltup on Monday. This morning’s breakout is a warning to bears, but a pop above ES 3156 would trigger even more short covering.
One of the more interesting charts continues to be the Dow. It gapped above its SMA200 (the thick red line) on Jun 5, and gapped back below it on Jun 11 where it tested its SMA100 and bounced back up to its SMA200 on Jun 16.
It has spent all week threatening to break out again, but has so far held back – seemingly by design — which suggests that SPX and ES won’t pop up to test their .886s but will merely linger in this range, possibly until the end of June. By then, SPX’s and DJI’s SMA50s might have caught up to their SMA200s but not necessarily crossed above. I continue to believe the Fed and other central banks are not committed to new all-time highs at this time.
That means ES/SPX has potential upside of less than 2%, and downside potential of much, much more than that – particularly if, as I expect, more cities and states start to pull back on their reopening plans.
About the only index I see breaking to new highs is COMP, which appears likely to tag the 2.24 at 10122.32 that it just missed on Jun 10.
Bottom line, I’m much more comfortable being short at this point than being long.
Stay tuned.
UPDATE: 1:40 PM
Stocks are falling on news that Apple is closing 11 of its retail stores – probably in North Carolina, South Carolina, Florida, Texas and Arizona – due to Covid-19 concerns. Remember, ES 3076 is the line in the sand…
UPDATE: 3:50 PM
Pretty much the same as a couple of hours ago… I think we’ll finally see some real action in the currencies next week. If stocks continue to hold up, it’ll probably be up to VIX and CL.
