Another VIX-inspired, holiday weekend ramp in the futures in the face of dismal headlines… What a shock. Not.
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Tag: fed
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Nothing New
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VIX’s Important Test
Futures are up sharply on a better than expected jobs report: up 4.8 million, and the unemployment rate dropping to 11.1%. Initial claims came in at 1.43 million, with continuing claims rising slightly to 19.3 million.
The direction didn’t surprise anyone, but the numbers surprised most. The reopening of most of the country over the past month has produced the desired results. It remains to be seen whether the spike in coronavirus cases in half the country will put a dent in the trend.
Back on June 12 [see: Is it Safe?], we alerted members to a development in VIX, which had recently broken out of a falling channel from March and was nearing a 10/20 cross.
It’s tough to see on the chart above, but VIX’s SMA10 was just about to cross above its SMA20 – a bullish sign for VIX and bearish one for stocks. If VIX is hammered today, the bullish cross can be avoided. If stocks’ meltup is to resume, we could still see VIX backtest its broken white channel or the yellow trend line off the 2018 lows which is nearing the SMA200 currently at 24.89.
As it turned out, that’s exactly what happened. After the jobs numbers this morning, VIX tumbled to tag its SMA200 and the yellow trend line from the 2018 lows. This completes a 42% drop which produced a 200-pt (6.7%) rise in SPX.
The big question, of course, is whether this important support will hold.continued for members… (more…)
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Another Day, Another Test
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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Charts I’m Watching: Jun 22, 2020
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?continued for members… (more…)
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The Holding Pattern
Futures are heading for another test of the 2.618 Fib extension at 3076.93, the fourth since last pushing above it on Monday.
There are numerous targets below, but that would mean cooperation from the algos – a rare commodity these days. The bearish case, however, is growing stronger every day.continued for members… (more…)
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Powell: What Did I Say!?
I saw an interesting interview on CNBC this morning where the guest observed how important overnight trading was to the market’s overall performance. Andrew Ross Sorkin offered data that if one bought the S&P 500 at the close of each day of trading and sold at the next morning’s open, they would be up 650% since 1993. If, instead, they bought at the open and sold at the close, they would be down 3%.
This observation won’t surprise any of our members, who are well-versed in the market’s increasingly endemic ramp jobs over the past 12 years. So far so good. The problem with the interview came when a rationale for the effect was offered: one should be compensated for taking overnight risk. Mike Santoli then chipped in, adding another explanation: more news happens outside of market hours than during. Ugh. And, it was going so well…
Let’s be clear about one thing: markets are manipulated, and it’s almost always intentional. Sometimes it’s quite obvious and effective, such as the announcement of a enormous new round of QE on March 23. This particular one was ridiculously obvious, as it came at 8am on the day the Dow would complete a 38% crash to test its Nov 9, 2016 lows (the day after the presidential election.)
The rest of the time, it’s done so discretely that most observers are unaware of the actual machinations. We discuss the whys and wherefores every single day, as understanding the motives and means provides an excellent road map for our forecasts.A great example is our VIX chart, which has exhibited an orderly collapse since it reached our Fibonacci .886 target at 80.3 on March 16.
The declines most often come in the after-hours, before the cash market opens. This prompts the algos to buy futures, which results in a gap higher on the open as the rest of the machines kick into gear (index funds, ETFs, quants, etc.) The fundamental crowd, which accounts for only 10% of volume, brings up the rear.It’s notable then that after bouncing at its 200-DMA and a trend line off its 2018 lows, VIX finally departed from this channel (the yellow arrow above) last night.
This allowed our favored scenario to play out as described yesterday.
I’m leaning toward a correction beginning today, but am unsure whether the channel bottoms at ES 3076 and 3122-3135 will hold or not. It depends a great deal on what Powell says later today.
Bottom line, Powell’s comments weren’t terribly uplifting as he essentially confirmed that a rebound is not just around the corner. The problem is the fallout from the coronavirus – which the rest of the world is beginning to understand has not gone away — not even with the Fed’s best efforts.
As to the markets… so far, so good. The key, of course, will be what happens if/when it reaches the 2.618 Fib extension at 3076.93.
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The Hits Keep Coming
It’s the last day of a short week packed with more important economic data — which the market has managed to ignore so far. Today might be a little different, as the spike in the savings rate and the collapse in consumption confirm a troubled road ahead for the strong consumer narrative. Gee, could 25% unemployment actually begin to matter?
Ignore the spike in personal income, as it reflects the massive government stimulus checks sent out last month.
The PCE deflator also surprised, plunging almost to 2009 levels. 
So far, the futures have managed a muted reaction, with a likely falling wedge setting up following yesterday’s reversal at our channel midline target.
But, with China trouble, riots in Minneapolis, and Trump taking a swing at social media darlings, maybe the data will matter for a change.continued for members… (more…)
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Update on Bitcoin: May 28, 2020
I’ve only posted about BTC once before, back on Mar 23 in response to a member request [see: FOMC Embraces MMT.] The Dow was about to test its 2016 election day lows and, not coincidentally, the Fed had just unleashed QEinfinity.
The post went as follows:
Two major chart patterns jump out at me: first, the obvious triangle pattern on the weekly arithmetic chart (it isn’t there on the log chart) suggests BTC should bounce from here and return to the top trend line (which failed, BTW, to hold a recent tiny breakout.) It currently stands around 9,925.
Second, the daily log chart shows a TL was broken last week but BTC has since rebounded back above it. For those wondering, the retracement of the rise from the Dec 2018 lows to the Jun 2019 highs reached about 81%. Had the TL held, we’d be looking at a Fibonacci 78%.
If you believe that BTC will necessarily rise (as gold will) as QE explodes, the charts support a continuing bounce. If you believe the FOMC will do whatever it takes to support the USD and crush surrogates such as BTC and GC, then keep an eye on that TL (5,000ish) as a fairly clear stop level.Having spent a few hours studying Bitcoin, I promptly forgot about it. I don’t really follow it, and believe it’s at least as heavily manipulated as everything else. Probably more. But, thanks to member John K., I was encouraged to take another look.
As it turned out, BTC did continue its bounce and went on to test the top trend line, reaching 9917.25 on May 8. It was an impressive 100% move from the March lows.
Of course, now it’s back at overhead resistance – the same trend line from December 2017 which halted the 2017 and 2019 rallies.
We’ll take a look at the potential for a reversal or a breakout.continued for members… (more…)
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Inflation Craters
Headline CPI fell 0.8% MoM – the biggest drop since 2008…
…thanks primarily to plunging energy prices.
Core CPI fell 0.4% MoM, the biggest drop since it began being tracked in 1961.
The details show strong upticks in food and medical care but weakness almost everywhere else.
Like almost all economic data lately, the algos have chosen to ignore inflation, as VIX dropped another 7.7% from its overnight highs. For the moment, nothing else seems to matter much.VIX has fallen from 47.77 to 26.37, a 45% decline, since ES backtested its 2.24 Fib extension on April 21. SPX has climbed a total of 8% during that time – with the great majority of its gains on overnight ramp jobs driven by plunges in VIX.
Today, the algos are also watching the bond market quite closely, as the Fed is slated to dip its toe into corporate bonds – including junk bonds – for the first time.
What could go wrong?continued for members… (more…)
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Yield Curve Warning
In a bit of a delayed reaction to Treasury’s announcement of its $3 trillion borrowing needs in Q2, the 2s10s has pushed above the white TL connecting all-time lows – a clear warning, should it last, for equities.
Meanwhile, CL backtested its Feb 2016 lows and USDJPY broke down at about the same time that ADP announced another 20 million job losses (roughly in line with Friday’s NFP.) All of this came on the back of dismal earnings from market darling Disney.continued for members… (more…)
