It was one of those nutty days, again.  In their attempt to rescue the Dow from BA (which bounced after closing the gap as expected, perhaps dipping into its $20 billion buyback kitty)……the algos left some ridiculous patterns on our charts.  Witness the Dow, which was setting up for a perfectly logical backtest of its 200-DMA based on BA’s pre-market crash.Though I get tired of saying it, the primary culprit was VIX — which has cratered over 27% in the past 48 hours.The broad indices were only too happy to follow VIX’s lead — putting stocks right back at the same resistance they faced in mid-February.

continued for members…

SPX broke out of its falling channel, and then some.We’ve contemplated the establishment of an IH&S pattern with the yellow, dashed TL as the neckline.  The right shoulder isn’t very well developed.  But, given that ES bounced off its 2.24 and both SPX and ES are back above their SMA200s, it would be wise to position for that possibility.

ES offers a better view of the binary nature of this bounce.  It wouldn’t take much more to put it over the hump.  Both SPX and ES already retraced to their .786s.  A drive up to the .886s would complete their IH&S Patterns and signal the bulls to take over.  So, it’s interesting that the ramp job is holding short here — with all the momentum on the bulls’ side. VIX’s decline was very emphatic.  And, recall that it bounced short of its purple .886 at 13.14 the other day.  In other words, it isn’t necessarily done with its downside.There are still a few bearish indicators.  First, CL and RB are still up against overhead resistance. The currency picture is still bearish – at least in the short term. And, TNX has yet to play out.And, our yield curve model is still bearish.This reminds me a lot of the 2011 top when a perfectly clean falling channel was repeatedly broken — first to the upside……then, after it was redrawn, to the downside (and a test of the SMA200)……and, finally, to one that wasn’t a very good channel to all but which accomplished the backtest that was needed and which involved a drop through the SMA200.

The IH&S Patterns on SPX and ES are in perfect position to play out.  It would take very little effort at this point.  Yet, it’s not happening — which begs the question “why?”

I believe very little happens in the markets without being planned.  So, I can only assume that a breakout is not part of the plan at this time.  If ES pops above 2800 and SPX above 2808, I’ll take it all back and declare this the start of another leg up with only the .886 at 2873.16 and the former high at 2940.91 standing in the way.

UPDATE:  12:13 PM

ES is sitting right at 2800 – so no more clear than it was several hours ago.I appreciate everyone’s patience while I work on my research regarding a very cool analog I recently discovered.  It is more complex than I thought, and I keep getting interrupted by life stuff.  It will likely be tomorrow before I’m ready to present it.

In the meantime, here’s the chart that started it all.I’m going to sign off for the rest of the day — or until I get it finished.

GLTA.