SPX completed the H&S Pattern yesterday, and dipped to within 4 points of the white .886 retracement for good measure.  As we wrote yesterday, several things needed to happen in order for the H&S to play out:

For a breakdown, we’d want to see VIX break out and not retreat from the red TL.  We’d also want to see USDJPY reverse course and the dashed red TL break down. Ideally, we’d also see CL break down.

VIX did not break out, but got hammered at the same exact same trendline which has cut short the last four rallies.USDJPY bounced at the red TL and, for good measure, broke out above the latest TL of resistance.  And, CL didn’t break down. And, while SPX’s subsequent bounce ran out of juice at a point of overhead resistance at the close, the algo drivers have been at it again this morning.  Futures are up another 30 points.

The pols have thrown fuel on the fire by suggesting (yes, again) that the trade situation has improved.  But, this morning’s PPI report hints at lingering inflation and interest rate problems.  As expected, energy went a long way toward turning down the heat.  But, PPI still came in hot.As such, all the talk about fewer rate hikes in 2019 must be questioned.  Alternatively, oil needs to drop even further.  Neither option will get the bulls where they want to go.

continued for members…

The algos are telling us to forget the death cross and H&S Patterns, focus on the big rising white channel.

It exists in ES and SPX.  If SPX can maintain its bounce with further declines in VIX and a breakout in USDJPY, it has upside targets of the 2703 and its SMA200 at 2761.If it can keep the rally going, the next major milestone remains the 2.618 at 3047.  But, if the trade problems don’t go away, the dollar swoons (fairly likely if rate hikes go away), oil continues dropping (fairly likely if core inflation comes in hot), earnings comps come in underwhelming, AAPL drops to 144, the 2Y plunges and 2s10s continues dropping… bottom line, there are many factors which would trip up the rally.COMP…still making us wait.As discussed before, CL still looks vulnerable.  PPI bolsters this argument.  CPI is due out tomorrow.  If CPI is too hot (argues for more rate hikes) then expect RB to break down as well.  This would be dangerous, though, as RB has already reached the bottom of its channel. The currency picture is anyone’s guess.  All I know is that a rally up through resistance would benefit the bulls.  A drop back through the red TL to, say, the SMA200, would facilitate the bears. The purple channel has joined the white channel in breaking down.  So, the whole exercise is looking fairly perilous at the moment.  But, never count the central bankers out.  All it would take is a rally up to and past 115.59 to keep stocks rising.

DXY is clearly being propped up.USD has shown no interest in rallying vs the euro.  If I had to bet, I’d say it’s much more likely to swing up and tag the SMA200 at some point in the near future — perhaps when the next dovish Fed statement comes out next week. UPDATE:  11:52 AM

SPX has closed its gap from this morning and came very, very close to backtesting its SMA5 200.  ES already tagged its.  If SPX’s rally is going to fail, this is typically the place – a drop through the SMA5 200 at 2643.44.USJDPY is agitating for higher…

…while VIX is backtesting a red channel line and presumably heading for the next lower target at the channel midline.  BTW, this is a flag pattern – typically a continuation pattern.  But, since it’s VIX, we won’t make that assumption.  We’ll see what happens and go from there.More later.

UPDATE:  3:20 PM

Lots of twists and turns, today.  VIX is still in the driver’s seat, dropping through another fan line just a few minutes ago.  Note that SPX is near completion of a little IH&S — not terribly well formed, but valid. Remember we’ll have API inventory data after the close, and EIA data tomorrow.I have to duck out a little early today.  I’m still leaning toward a leg lower — due mostly to COMP, AAPL and DJIA — but wouldn’t bet the house on it.

GLTA.