I wanted to title today’s post “Snow Job” in honor of yesterday’s FOMC minutes.  But, it felt a little snarky, even for me.  If you haven’t read the minutes, here’s a quick synopsis:

We don’t understand why inflation’s not at 2% yet, but we’re going to continue to raise rates anyway. We will continue to raise rates until we decide not to. The economy might get a bump from the tax legislation. But, odds are the corporate tax savings will go toward M&A and more stock buybacks [bigger bubbles!]

Stocks might have been buoyed by the comments, but the real story was the latest collapse in VIX (-19.4% since Tuesday night) — a collapse which has come in handy as DXY’s FOMC minutes rally lasted all of 30 seconds. It’s now continuing its slump toward our next downside target.

As we’ve discussed, the big question is whether it can catch support here at a key channel line and Fib level. The answer lies with the S&P 500 futures.While SPX reached and shot through its 2.24 extension (of the drop from 1576 to 666 between 2007 and 2009), ES is till 7 points away (2728.79.) If TPTB pull out all the algo igniting stops today like they did yesterday, we’ll see it leapfrog through 2728 and usher in another few months of melt-up.

If, on the other hand, ES reverses off the overhead resistance, it’ll be because USDJPY, CL and RB stop ramping and VIX is allowed to bounce up to where it belongs at 16.12.  Which will it be?

continued for members…

Here’s the big picture for ES……and, the close-up.  Note ES is about to reach the top of the rising white channel, which in turn is nestled within the bottom 1/4 of the rising purple channel.  And, yes, the red channel which broke down last week has been resurrected.Traditionally, even 2.24 Fib extensions can provide meaningful resistance.  In this day and age, however, it’s more likely to be viewed as an obstacle to be overcome.  Because SPX just gapped through its 2.24, this is technically bullish for ES — making it less likely to reverse.And, if TPTB intend to prevent it from reversing, don’t look for RB, CL and USDJPY to all reverse any time soon.  While plenty powerful, VIX can’t swing it all by itself.

UPDATE:  10:45 AM

ES just reached out 2728.79 target.  Decision time for the algo masters…UPDATE:  3:20 PM

I’ve had a few questions regarding oil’s continuing rally.  From a chart standpoint, CL has pretty clearly broken out of the rising purple channel.  The rally beginning on Dec 26 pushed through the channel top and 1.272 Fib.  And, yesterday, the TL from Apr 2016 was also broken as CL is pushing toward the 1.618 at 63.39.

IMO, this was part of the effort to get ES and SPX up to their 2.24 extensions discussed above and yesterday.  It included a rally in USDJPY (even though DXY dropped) and, obviously, the smackdown on VIX.

I don’t know whether TPTB will be satisfied with a reversal at ES 2729 or they’ll go for a breakout.  If it’s a reversal, then CL’s breakout is a headfake that will soon reverse itself.  If it’s a breakout, then CL will probably not reverse until it’s time for a backtest of ES 2729.  CL could accommodate that with a reversal at the 1.618 of 63.39.

Unlike CL, RB has not broken out of its large rising channel.  This is because RB increases translate very rapidly into consumer inflation — which is not acceptable to the FOMC.My gut tells me that ES and SPX will pull back modestly here, and CL and RB will get a chance to reset.  But, price action suggests it might not come to pass.

A friend asked me to take a look at the SCO chart.  SCO is a leveraged short ETF that tracks crude.  So, as CL rises, SCO drops.  Note that SCO dipped below its .886 Fib on Tuesday — about the same time CL was breaking out.  Potential new channel?  Not a bad fit, but it doesn’t do much for me one way or the other.  The H&S Pattern is BS, as CL obviously can’t drop another $90.

The Fib action is a bearish development (for SCO, not CL.)  But, I don’t want to read too much into it.  First, leveraged ETF’s don’t always play nicely with charts and Fibs.  The leverage factor leads to an increase wasting away of value from options/futures in the attempt to track well.

Secondly, see the discussion of CL above.  This is clearly a deliberate attempt to prop up stocks as well as an effort by oil folks to see prices break out.  Once the objective is reached, CL should settle back down (absent a major escalation in Iran or elsewhere.)

I don’t have a specific target, but anything below SCO 24.55 is problematic.  If it rises back above it, SCO is a decent bet for some nice returns (with stops, of course.)