July retail sales came in at 0.0%, a goose egg, versus expectations that were generally around 0.1-0.2%. These data aren’t adjusted for inflation, however, so the “real” change was another drop.

Markets seem to care at the moment, with ES off nearly 1%.  But, our charts had already called for a reversal yesterday after reaching upside targets across the board.

With Fed minutes coming out at 2pm ET and VIX still unable to push past the considerable suppression that has been applied at the 10-day moving average (20.51), bears should continue to exercise caution.From a fundamental standpoint, this retail sales report is horrible. It’s disappointing because it’s flat rather than up, of course. But, it’s much worse because it’s not bad enough to sway the Fed from inflation fighting.  We’ll get a peek at their minutes in a few hours, but suffice it to say this bad news is just plain ol’ bad.

continued for members…

We are still at a crossroads where stocks could easily be manipulated higher. If I worked at the Fed or a large hedge fund or commercial bank trying to protect its long book, I’d certainly be looking to push stocks just slightly higher in order to break the backs of all the shorts out there.

I will take the original analog path off the charts soon, but have left them up there in an effort to get a sense of the timing of future moves. Note that the forecasted last leg down (which was interrupted by the VIX breakdown) called for a low not far from the date that SPX ended up making a high. This is sometimes significant, so bear with me while I noodle over it for a few more days. The bigger picture for VIX – it’s still broken down with potential to break below even longer-term support. Currencies are working to prevent any worse bloodshed, with USDJPY trading higher (of course) and the euro doing its best not to collapse any further.

Oil and gas are off slightly, but will need to continue lower if we’re to see another CPI decline for August. This leaves TNX still in limbo, back above its neckline and dotted blue trend line, but edging higher very slowly. I don’t believe we’ll see a sharp rebound. Rather, I think we’re locked in to a sideways pattern for a while even as we’re subject to a sharp decline if stocks implode.

Remember, the key to preventing an implosion is preventing a spike in the 2s10s, which typically means preventing the 2Y from plunging faster than the 10Y.

Stay tuned…