I’m sure you get almost as tired reading it as I do writing it.  SPX will make new highs today on yet another crash in VIX.  The latest came courtesy of a rising channel (below, in purple) which has ever-so-conveniently broken down.  The algos are feasting on its remains.

When the channel broke down the first time on the 31st, SPX was able to break out of its falling channel.  When it broke down again (16.6% off Friday’s highs) yesterday, SPX was able to come within pennies of its former highs.

Today’s 2-3% additional decline in VIX should be enough to establish new highs. While hardly a new development, one has to wonder: just how long can this go on?

continued for members…

First, a look around the “markets…”  ES has already made new highs.Upon SPX making its new high, the case for a tag of its lower 1.618’s and the SMA200 is greatly diminished — which is the whole point, after all.  Instead, we’re meant to focus on the 1.272 and 1.618 to the upside.

With new highs in the bag, USDJPY and DX might be able to reach down and tag their lower targets at this point: USDJPY at 106.306 or even 103.178 and DXY at 88.682. Once DXY and USDJPY have bottomed out, they’ll be ready for a strong bounce that will allow CL and RBOB to decline for the next week or two.

The big question for equities is whether they’re resurrecting the red channel — now that it’s been rejoined — or whether the white one will suffice for now.  I suspect we’ll run into resistance at the white channel top where it intersects the 1.272 at 2510.87 and that the 2.24 tag at 2537 will wait until the white channel crosses it around Oct 25.This presumes, of course, that we don’t get into a shooting war with North Korea — or, anyone else, for that matter — and we are able to avoid any other black swan events along the way.

We’ve obviously seen a series of breakouts and backtests of falling channels over the past couple of years.  I find it interesting that the most recent backtest never actually occurred.  It failed to reach the falling white channel or the rising red TL (the yellow arrow.)  I’m going to take the next few hours and study each of these backtests, quantifying the time periods and percentages involved to see if I can come up with an analog that would be helpful in predicting them.

In the meantime, look for SPX to backtest 2490.87 when the SMA5 20 arrives.  If it drops below that, we could easily be looking at a backtest of the latest broken channel (red) which would put it at 2475ish and constitute a decent short.  But, I don’t really expect them to allow it.  We have some important economic data coming out in the next few days with CPI on Thursday.  So, the direction isn’t exactly cast in stone.  There’s still a potential path lower, even with the new highs.UPDATE:  3:30 PM

SPX has been in defensive mode all day, taking great care not to give up its new highs.  I’m still intrigued by the idea that the USD will dump on Thursday when CPI comes out.  As we discussed the other day, the spike in gas prices won’t have much of an impact on August CPI.

Is it possible traders will be so disappointed that the remaining dollar bulls capitulate?  There is a path for VIX that would make some sense.  It just involves a new, slightly flatter rising channel.  And, GC still has room to run up and tag 1380. Food for thought, anyway.  The downward falling Fib grids are kaput, but that hasn’t always meant much.  We have a new high, and that’s all that matters.

The counter-argument is being made by USDJPY, which has put together a pretty impressive rally over the past two days.  It’s either a change of direction or a very good head-fake.

ES isn’t quite so sure…and, neither am I.Note that COMP never did make a new high… …and, even though RUT putting a nice rising channel together, it’s far from new highs. Something to think about…