As we slowly make our way toward the end of Q2, we continue to see tests of important support. They are usually followed by sharp bounces despite the growing evidence that a selloff is right around the corner.
Will today be the day the market finally takes the plunge?
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When does “it’s over” mean it’s not over? When the market plunges 65 points, of course.
The 2% hiccup came when Fox’s Martha MacCallum asked Trump advisor Peter Navarro whether John Bolton’s claims that Trump delayed imposing sanctions on China over its policy of interning Uighur Muslims would jeopardize the China trade deal. Navarro, fresh off accusing China of deliberately seeding the virus in the US by sending “over hundreds of thousands of Chinese citizens here to spread [it] around…” didn’t equivocate.
“Do you think that the president — he obviously really wanted to hang on to this trade deal as much as possible and he wanted them [China] to make good on the promises because there had been progress made on that trade deal,” MacCallum told Navarro. “But given everything that’s happened … is that over?”
“It’s over,” Navarro responded.
ES quickly plunged below its SMA10 and 2.618 Fib, but was promptly rescued by a plunge in VIX and spikes in CL and USDJPY which, not so coincidentally, popped back above its SMA10.
In all the turmoil over 9.2 million sickened and 475,000 killed by COVID-19, the ongoing social unrest, and an economy which is arguably teetering, it’s sometimes easy to forget the China trade deal and the months during which the market took its cues from the daily press briefings and chopper talk quips about how magnificently negotiations were going.
With the White House amping up its rhetoric over China’s culpability for the pandemic, I imagine Navarro’s initial assessment was the honest one.
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Futures are off slightly this morning as ES has backtested the channel it meant to break out of on OPEX Friday. Today marks the beginning of the last seven sessions until the end of Q2 – traditionally a period of flat or rising prices.
Can the seasonal trend offset the growing list of bearish fundamental and technical factors?
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Two steps forward…in order to accommodate a big step back.
We’ve seen it countless times in the lead-up to Fed meetings, GDP reports and, lately, jobs data. With May unemployment expected to top 20% (it’s unofficially already there) after another 7.5 million joined the jobless ranks…
…the market’s caretakers put a 58-pt cushion into the market. ES’ 10-day moving average, for instance, is about 87 points below last night’s highs. Had ES instead fallen 87 points from yesterday’s lows, it would mean a risky test of its 200-DMA.
It’s gratifying to see scores of analysts come to the realization that the markets are being heavily influenced (a more accurate word is manipulated) by massive Fed stimulus. But, as members know, this has been going on for years – particularly as stocks reach key levels of overhead resistance.
With the Dow finally joining SPX in reaching its 200-DMA on Wednesday and several key components (e.g. AAPL) taking great pains not to break out to new highs, it seemed as though we might get at least a pause in the meltup, maybe even a correction.
Our yield curve model confirmed it yesterday with the 2s10s breaking out above all recent highs except that seen in late March.
Now, we’ll have to wait and see whether the algos, being directed this morning by USDJPY, VIX and CL, are intent on notching new highs or will, temporarily at least, reconcile with the real world.
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There’s a lot to unpack this morning, as several targets were tagged overnight. USDJPY finally popped up to tag its 200-DMA…
…which enabled ES to come within 1.43 of our 3076.93 target – the 2.618 Fib extension of the drop between 2007-2009. I thought this was going to happen over the weekend, but better late then never.
It’s been a while since we had a nice pop and drop. Stay tuned.
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Apparently AAPL slashing guidance is inconsequential and Bill Gates, who is predicting 10 million deaths, is some sort of conspiracy theorist – because the market continues to ignore the coronavirus story. Perhaps somewhere down the line the investing world will come to realize what we’ve known for years: stocks have become increasingly easy to manipulate.
Lately, it has been VIX’s constant smackdowns below various measures of support and the perennial games played with currencies which have directed algos to buy every dip. With oil and EURUSD having reached important downside targets, the formula might change somewhat. But, at what point will the game be obvious to all?
Futures are off about 15 points, not even 1/2% after a slew of dreadful headlines over the weekend.
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It’s now been almost a month since we posted our analog-based forecast [see: Analog Watch July 15.] If it’s valid, we should see a sharp selloff over the next few days which ushers in 9-12 months of increased volatility and losses. From that post:
Ideally, an analog provides exceptionally accurate forecasts of a very significant move. I think this could be one of those and that stocks are on the cusp of the biggest drop since the Great Financial Crisis.
With currencies and VIX on board, all we need is for oil’s bounce to fizzle in order for the bears’ party to get started.
Next up…lower lows?
If it’s not valid, we’ll know very soon.
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We would almost always expect a big bounce off SPX’s 200-day moving average. Despite yesterday’s dip below the 200-DMA, the index dutifully crept back above it in time for the close. And, the futures are currently showing an 8-point gain.
Yet, if an analog I’ve been watching and our yield curve model are correct, this bounce won’t last. Stocks could be sharply lower by Monday.
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Things are playing out as expected, with ES coming within 5 points of our next downside target (the SMA200) overnight.
The chart receiving the most attention is the 10Y, which broke below 22.94 and is on its way to our 21.72 target.
The one which should be receiving the most attention is SPX, which closed below its H&S Pattern neckline — adding credence to our lower targets.
Though it seems like more, 2776 will represent a 5.5% drop since our short signal at 2940 on Apr 30 [see: FOMC – Endgame.] Things will get really exciting if/when SPX fails to bounce.
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It’s now been five days since futures bounced out of the falling white channel. It still seems fairly likely it was just a delaying tactic, as various currency pairs, commodities and indices are sliding toward our next targets.
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