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ES came within 2.75 of our next downside target yesterday before getting a bounce that lasted most of the day. It was only after the cash market closed that it got another shot at 2871.25. Ultimately, it was saved by the bell.
Thursdays are rarely cycle lows, meaning today could be another day of watching paint dry. And, there is a significant chart pattern that could save stocks from another day like yesterday. We’ll take a look.
continued for members…
Here’s the problem, evident only in ES: the white channel shown just below yesterday’s lows.
SPX has no such issue with a big, rising channel. It has already broken down.
In fact, it’s backtesting its flag pattern and .618 — strongly suggesting further losses to at least the SMA200.
VIX is also showing a fair amount of weakness, dropping back below its .618.
And, AAPL has an opportunity to bounce on its channel bottom.
While ZN has recovered, but just barely.
Bottom line, I’m concerned about an extended bounce here — even though I think it will ultimately fail. If the PMI number is “great” then yesterday’s ES lows were already close enough to their target. If it’s not, then we should see ES 2871.25 and, potentially, a much bigger drop.
Yesterday, we had to wait for the dismal Mfg. PMI data before a bounce fell apart. This morning at 10AM, we get the Service PMI. Service accounts for 80% of the economy, so it’s arguably a more important number. It has held up much better so far.
The other factors… CL is looking weak again, though it has reached potential channel support on the 5-min chart.
USDJPY has dropped nicely overnight, but is bouncing at this time and threatening to break out of a little wedge.
NKD should ultimately test its cloud and .382 at 20835ish. But, for now, it has SMA100 and SMA200 support at 21173 which could prove problematic.
If our analog has recovered from the missed downturn on Day 32, it calls for a drop to at least the SMA200 as early as today.
Stay tuned…
UPDATE: 10:01 AM
ISM came in at 52.6 vs 55.3 expected. Stocks are tumbling.
UPDATE: 10:33 AM
If you’re wondering why futures are suddenly bouncing, check out VIX — which without reason suddenly reversed just shy of making a higher high. Your friendly neighborhood PPT in action.
UPDATE: 11:38 AM
Sure does get old…still, I’m flabbergasted hearing the guys on CNBC say the rebound was due to Trump’s comments re China trade. Trump’s comments came about 10 minutes after the rebound had started. And, this is the same old pattern we’ve seen a million times when a decline is going too far and/or too fast.
This probably means the drop to the SMA200 won’t happen until either Friday or Monday morning — though it could happen at any moment throughout the day.
The expectations of a drop to the SMA200 were very high, meaning there were some pretty big bearish bets in the options markets. By interrupting the decline, the MMs just flushed a bunch of weak bears out. If the rest of the decline is postponed until Monday, scores more will see their puts expire worthless tomorrow.
ZN’s rally has been cut short, though it is still within striking distance.
NKD and USDJPY bounced at the next downside targets, but should go further once it’s time. 
Ditto for RB, which tagged our .786 target at 1.518 and should get a nice bounce here.
CL had to settle for climbing back above the TL it broke down through. As long as it can remain above the TL, it is a buy.
As to SPX, it has backtested its flag pattern again so will probably not make much higher highs. 
I suspect it’ll go sideways the rest of the session, tagging the flag one last time when its SMA5 200 finally declines to 2900ish near the close. At that point, ES can spurt up to 2905ish just to scare off any would-be bears foolish enough to place an overnight bet.
When the time is right, VIX should still spike up to at least 23.62 or 26.59. Again, it could be in the next few minutes, late tomorrow, or Monday.