Futures are up moderately on USD weakness. The EURUSD has backtested its recently broken red TL and its SMA10, sending the DXY back below a TL it was threatening to break above. This supports our thesis that the SMA200 is the most important target, but that the tag might wait until it reaches 1.087 or so.
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Yesterday’s stronger than expected ADP data and the Fitch downgrade did a number on stocks, with several indicators officially turning bearish for the first time in months. But, AAPL and AMZN, which make up over 10% of the S&P 500, haven’t reported yet. So, it might be a little early for bears to get excited.
We charted AMZN last week [see: Amazon – Can It Keep Delivering?] noting that it had reached important resistance and was overdue for a reversal.
It tested important support at its 50-day moving average yesterday which, if broken, could easily usher in another 10%+ to the downside.
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AMZN stock cares about its 200-day moving average. In fact, it cares a lot. When it pushed above its 2903 Fibonacci target in late 2020, it spent 8 months waiting for the SMA200 (the thick red line below) to arrive and another 11 months defending it.
When it finally broke down in January 2022, it began a plunge that ultimately exceeded 50%. Since January 2023, it has recovered nicely, clawing back above the SMA200 to the midline of the channel that dates back to the year 2000.
But, this leaves it at its 200-week moving average and overbought amidst negative divergence while long overdue for a backtest of its 200-day moving average. A backtest from current prices would amount to about 20% – though the SMA200 is on the rise.
It should be noted that AMZN has been more volatile than the overall market. But, it’s not hard to imagine a sharp decline in the third largest component of the S&P500 leaving a mark on stocks in general.
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Economic data came in as expected except for Philly Fed – a huge miss at -19.4 versus -5.0 consensus and -8.7 prior. But, it was the former dove turned chief hawk Jim Bullard who decided enough is enough, suggesting rates could reach as high as 7% before inflation is tamed. Futures were not amused.
It’s almost inconceivable that ES/SPX won’t tag their SMA200 or channel tops this time. But, even though OPEX is tomorrow, it’s looking that way at the moment.
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Yes, it was impressive. AAPL, FB, GOOGL and AMZN delivered big time. Yet, AMZN, the one that was best positioned to clean up, hasn’t yet broken above a key Fib level, let alone the top of the 20-year old channel which marked the July 13 reversal.
If it does, fine, bears should prepare for a long, long winter. But, until it does, this remains a dangerous moment for the recovery’s poster child.
While we’re at it, did anyone notice that after tagging yesterday’s downside target, futures bounced only to the .886 Fib? Or, that SPX is poised to pop and drop at its own .886 Fib?
Again, not a breakout.
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Note: CPI came in right on target: +0.6% unadjusted over the last 12 months. The MoM figure also rose 0.6% – driven, as expected, by the 12.3% increase in gasoline prices.
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The last time I wrote a post including all the FAANG stocks was in November 2018 [see: FAANGs – Now or Never.] Several of them FB, AAPL, AMZN, NFLX and GOOGL were in trouble from a technical standpoint. GOOGL, for instance, had just completed a death cross and the stock had broken down from a 10-year old rising wedge.
The S&P 500 itself was also in a bind, having dropped through its 200-DMA and struggling to remain above its 2.24 Fibonacci extension at 2703. As it turned out, it couldn’t. It shed another 14% (20% from the Sep 2018 highs) before being rescued by the Plunge Protection Team. Most of the FAANGs had similar troubles.
GOOGL, at 1071.05 at the time, dropped 24% from its July 2018 highs and tested its March 2018 lows and completed a huge H&S Pattern targeting 707 before magically finding its footing.
It has since piled on another 500 points, with two downturns along the way turning the rising wedge into a rising channel [it just needed a global pandemic and a horrible recession to help it along] which is once again offering overhead resistance. 
What about the rest of the FAANGs? Any other warning signs that we should be watching? Glad you asked.
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The headlines have been coming fast and furious over the last 24 hours. First, Trump’s tweet yesterday morning regarding trade negotiations with China touched off a rumor, declared false this morning, that a trade deal was imminent. But, SPX soared yesterday anyway.
Then AAPL’s earnings came out. The numbers were underwhelming; and, the company’s announcement that they’d no longer report unit data was very poorly received.
The chart we put up yesterday prior to the close [see: All Eyes on AAPL] showed substantial downside potential…
…which after-hours trading is confirming.
Then there was this morning’s payrolls data: a 250K increase with a 3.1% increase in average hourly earnings. While no doubt It’s exactly the sort of data the Fed needs to justify further rate increases in the face of the collapse in oil and gas prices — the last piece of the puzzle.
Gasoline has now fallen over 20% since our Oct 3 short call and tagged another downside target yesterday.
Oil is off over 16% and just broke beneath horizontal and channel support. To be sure, it will keep October’s CPI low and will delight voters driving to the polls on Tuesday. But, like the employment data, there are repercussions.
By the way, I have updated our oil and gas forecasting results, available at the links below.
I hope to post currencies, VIX and gold later today or this weekend.
Futures melted up to backtest the SMA200 early this morning and have since fallen 16 points to the algo-darling SMA5 200. It remains to be seen how the mixed messages being sent up from Washington and Cupertino will play out. But, for now, I’m leaving our targets in place.
For the moment, at least, VIX’s 50/200 cross is on again.
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That’s a relief! For months, pundits have been arguing whether the Fed needed to hike interest rates three times or four times this year — you know, because of all the growth coming down the pike.
Fed Über-Dove and “Man Who Thinks Market Integrity is Overrated” Jim Bullard just announced that the correct number is zero. That’s right. Everything is perfect just like it is.
Amazingly, and quite by coincidence, this pronouncement occurred on the exact same day that several stock market indices were in danger of falling below a very important technical level of support: their 200-day moving averages. As we discussed on Monday, falling below the SMA200 isn’t usually very healthy for markets.
For visitors and new members, this seems like a good time to take a walk down memory lane. This isn’t Mr Bullard’s first rodeo. Nor is it the first time “someone” did something clever to ensure the market’s continued ascent.
The S&P 500 illustrates the phenomenon quite well, having experienced a number of such fortunate events at crucial times. 
October 2014 – Bullard!
Bullard appeared on Bloomberg to explain that another round of QE might be in order. As “luck” would have it, this enabled SPX to reverse right as it reached important Fibonacci support, ending a 9.9% tumble and narrowly averting an official correction.
Big assist from USDJPY, which soared 16% over the next 7 weeks in spite of the fact that more QE should have weakened the US dollar. The Yen Carry Trade in all its glory.
August 2015 – USDJPY!
This 12.5% correction was set up by USDJPY falling back below a critical Fibonacci level (the .618 at 120.11) in the wake of SPX reaching a key Fibonacci extension (the 1.618 at 2138.)
We had correctly forecast the top [see: The Last Big Butterfly] but it was unclear whether or not USDJPY could remain above 120. SPX plummeted when 120 finally fell but, as “luck” would have it, was (temporarily) rescued by USDJPY’s bounce back above it.
February 2016 – Oil!
The price of West Texas Intermediate Oil (CL) had fallen 77% between Aug 2013 and Feb 2016. While this crushed inflation to a manageable level, it made investors in and lenders to energy-related companies pretty nervous.
As “luck” would have it, CL bottomed out on Feb 11, 2016 — the exact same day that SPX reached that critical Fibonacci support level of 1823. CL doubled over the next four months, and SPX rebounded sharply. By accurately forecast the bottom in oil, we could confidently call a bottom for SPX [see: USDJPY Finally Relents.]
June 2016 – USDJPY!
Stocks plunged in the wake of the Brexit vote. As “luck” would have it, USDJPY — which had used CL’s rally as an opportunity to reset — picked this particular day to bottom out and spiked 8% higher over the following month.
Futures had sold off by 6.5%, but by the time SPX opened the next morning the recovery was well underway. It was soon back above its recent highs and the critical 1.618 extension at 1.618. In other words: new all-time highs.
November 2016 – Trump*! Unfortunately for stocks, the US election results weren’t conducive to a rally. Once Trump’s election became apparent, futures plummeted over 5% in a matter of hours. SPX had bounced off its SMA200 a few days earlier. Unless something was done quickly, it would drop through this key support the following morning.
As “luck” would have it, USDJPY picked this particular day to bottom out. It spiked 5% over the next few hours and 18% over the next few weeks — a supersized version of the exercise which had saved stocks post-Brexit.
And, if that weren’t enough, VIX — the widely accepted indicator of fear and volatility — plummeted even as futures were plunging. It’s the equivalent of calling your insurance broker to cancel your homeowner’s policy as a hurricane bears down on your beach house. How very, very “lucky” indeed.
Futures recovered almost all of their losses by the time the cash market opened the following morning. VIX went on to shed over 50% of its value and broke down through trend line support (above, the white arrow.)
Stocks were soon registered new all-time highs. The talking heads called it the “Trump Rally” and attributed the gains to the incoming president’s pro-business orientation and deal-making acumen. But, I think it deserves an asterisk…on account of the incredible “luck” involved [see: Why the Trump Rally is a Fraud.]
The SPX chart isn’t labeled as such, but the rise from 2138 to 2703 (the next major Fib level) wouldn’t have been possible without continued support from oil and VIX. After doubling in value, CL proceeded to construct a well-formed rising channel (below, in purple) that was very supportive of stocks. It oscillated between the channel’s top and bottom like clockwork — until December 2017. We’ll come back to that.
Also during that time, VIX was trying something new. After years of occasionally bouncing off the bottom of a long-term channel (below, the yellow arrows) it decided to plunge below that channel bottom and spend 80% of its subsequent days in the cellar — reaching new all-time lows in the process.
This sent a strong all-clear signal to stocks (or, at least the algos that trigger stock purchases) that the coast was clear. It was completely safe to buy stocks, which they did — producing a rally that accelerated all the way up to the 2.24 extension at 2703.
December 2017 – Oil!
At that point, oil’s breakout (remember the purple channel above?) and the onslaught of new, daily lows in VIX combined to give SPX the boost it needed to climb above that resistance. I mean, how “lucky” can you get? It popped above 2703 and tacked on another 6.3% for good measure.
Unfortunately for stocks, though, there was a practical limit to how high CL could go without creating problems. Someone had forgotten that higher oil prices mean higher inflation. And, higher inflation means higher interest rates. And, when you’re $21 trillion in debt and pass a tax bill and budget that greatly widen the deficit considerably…higher interest rates are not exactly lucky [see: Why Higher Interest Rates Are a Problem This Time.]
Between that realization and a growing disconnect between price and supply & demand, CL had to drop. When it did, and the (dashed, red) trend line from August 2017 finally broke down, stocks didn’t take it well.
SPX plunged almost 12% over the next two weeks, one of the sharpest corrections ever. Luckily, the SMA200 was there to catch it. A few days later, CL popped back above its channel top and SPX recovered to back above 2703.
As the bounce began to fade, we had a surprise message from Bullard that “too many rate hikes could slow the economy.” It was enough to extend SPX’s bounce for another few weeks. But, ultimately it slipped back down below 2703 to tag its SMA200 again. And, again. And, again. And, again.
By then, DJIA and RUT had finally risen to the point where they could tag their SMA200s as well. SPX bounced at our 2561 target. Investors were in luck! Until this morning.
April 2018 – Bullard!
Apparently, someone forgot to explain to the Chinese that we were supposed to win the trade war (winning them is easy!) This morning, we found out that China had the gall to fight back. When I was woken by an price alert at 3:15 this morning, the futures were off 55 points. SPX would open back below its SMA200.
But, the futures didn’t know what they were up against!
Then came Larry Kudlow, the guy who in May 2008 called the impending Great Financial Crisis a “non-recession recession.” Some people might have misunderstood; but, obviously he meant it would be much worse than a recession. (I can’t wait to find the pot of gold!)
As “luck” would have it, the market was quite pleased with all this positive scuttlebutt. ES, once down 55 points, closed up 34 points. SPX and the Dow rose about 1%. RUT added 1.30%. And, COMP — which never did tag its SMA200 — popped 1.45%. Take that, 200-day moving average!
Bounces are nice, whether driven by oil, the USDJPY or Fed cheerleaders. This one got SPX back above its SMA200, which is a good start. Next comes the 2.24 Fib, which SPX has crossed some twenty times in the past two months. Can it rise back above and stay there this time?
Oil’s limitations haven’t disappeared. Managing inflation and interest rate expectations will continue to dominate its price action. Lately, the market has a very narrow range within which it feels comfortable.
USJDPY is threatening to break out from a falling flag pattern, but one has to wonder why it hasn’t done so already. Japan got no love from Trump in the trade war chatter to date. It’s quite possible they’re done cooperating with currency intervention.
VIX, after popping back above the yellow channel bottom in dramatic fashion in February, has fallen back to a trend line (red, dashed) from its January lows. Every time it pops above the trend line, SPX stumbles. Every time it drops below it, SPX rips. 
Today, it tagged it and reversed lower – hence the day’s gains. It has plenty of additional downside potential, with the potential to drive stocks back above 2700. But, again, it hasn’t done so yet.
It makes one wonder whether SPX will be allowed to put in a lower low in order to make the corrective wave look a little more conventional and give COMP a shot at its SMA200. We have oodles and oodles of downside targets if SPX’s SMA200 should fail. That white dot at 2138 in the chart above is there for a reason [see: More Where That Came From.]
There are countless other factors I haven’t even mentioned: our yield curve model (which tentatively turned bullish today), 10yr note rates, the US dollar’s buoyancy, various momentum indicators, and the continuing sagas of FB, TSLA, AMZN and DB — all of which have played a role in the market’s gyrations (mostly of the bad luck variety.)
Whatever happens, it’s hard to imagine we could reach new highs without plenty more luck. Trade safe, and stay tuned.
Currencies are relatively quiet this morning in the midst of a slew of earnings and economic data. The dollar looks like it could hit our downside target of 79.50 – 79.59 from Jan 25 [see: Update on DX] this morning if the yellow channel holds, but note that its midline intersects with the bottom of the white channel (support) just below current levels.
EURUSD looks like a lock to tag the 1.618 at 1.3490 we’ve been tracking the past few days.
This e-mini chart caught my eye this morning…
With the overnight slide of 8 points, the e-minis give the impression of a broken channel and back test. Now, it might be one of those dips from which we quickly recover as occurred on the 16th. But, for those playing the intra-day moves, this bears watching.
This ES channel equates to the small purple channel within the larger white one on SPX. So, as yesterday, watch the channel midline for signs of something more significant. It’s currently around 1498.30.
The 15-min RSI should see a bounce at the red trend line if the trend is to remain on track.
As we discussed yesterday, there is a great deal of economic data due out this week. But, all pale in comparison to the FOMC announcements following their two-day meeting getting underway right about now.
Last we heard, dissension was growing over how and when to throttle back on QE. The language that alarmed the Dow 20,000 crowd:
While almost all members thought that the asset purchase program begun in September had been effective and supportive of growth, they also generally saw that the benefits of ongoing purchases were uncertain and that the potential costs could rise as the size of the balance sheet increased. Various members stressed the importance of a continuing assessment of labor market developments and reviews of the program’s efficacy and costs at upcoming FOMC meetings. In considering the outlook for the labor market and the broader economy, a few members expressed the view that ongoing asset purchases would likely be warranted until about the end of 2013, while a few others emphasized the need for considerable policy accommodation but did not state a specific time frame or total for purchases. Several others thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013, citing concerns about financial stability or the size of the balance sheet. One member viewed any additional purchases as unwarranted.
Needless to say, an increase in hawkish rhetoric could really do a number on this rally.
Odds are we’ll see another day like yesterday, with market makers shuckin’ and jivin’ to try and convince us a larger move is underway — the better to shake loose some of our hard-earned money. But, I unless we see a huge miss on economic data or earnings, I don’t expect any fireworks until Bernanke steps up to the microphone (though much of the juicy stuff will have to wait for the minutes to be released.)
UPDATE: 10:00 AM
The Conference Board’s Consumer Confidence Index came in well below expectations: 58.6 vs expectations of 65 and Dec 2012’s 66.7. Most of the rise in pessimism was the result of worsening job market conditions. Those expecting more jobs in the months ahead dropped from 17.9% to 14.3%. Twenty-seven percent expect fewer jobs — unchanged from last month. A full 22.9% (up from 19.1%) expect their incomes to decline.
Briefing.com tracks the data and puts it in a nifty little chart (reflects data through December.) There are a lot of potential interpretations here, but to me it comes down to “expectations coming back in line with reality.”
And, though I don’t have the time to construct a chart, I’m pretty sure that expectations — the yellow line — have tagged the top of a descending broadening wedge (megaphone) while present conditions have formed a garden variety falling channel. Both appear to be at or near their upper bounds, meaning a breakout or a fall is imminent.
Global Economic Intersection posted an interesting article last month that showed the relationship between consumer confidence and past recessions. Definitely worth a read for those who pay attention to such things.
So far, the market is pretty much shaking it off, with a dip to the white channel midline the extent of the reaction. If the midline holds yet again, there’s a good chance we’ll hit our upside target later today or tomorrow.
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