Though it is getting a little monotonous, I’ll never get tired of saying that we’re about to tag our next downside target.
The past two weeks of downside have been a great recruiting tool for chart patterns and this website in particular.
A note to prospective members…we’re currently offering auto-renew monthly subscriptions at half-off the first month. To sign up, CLICK HERE.
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SPX needed about 22 points downside to reach the support of its SMA50, a rising channel bottom, and a falling channel bottom. ES, which finally reached our 2655 target from last week [see FOMC: Endgame] is currently off 30 points.
At this rate, SPX will breach its support on the open, especially if USDJPY doesn’t bounce here at its new lows.
Is it time for bulls to get nervous?
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Yesterday’s setup for the e-minis looked pretty straightforward: a drop through the 200-day moving average and backtest of the 2.24 Fibonacci extension at 2729. Futures had already dropped through the 200-DMA and were heading south when the dismal retail sales data dropped.
I hedged my bet, redrawing our daily downside target to include the 10-DMA — just a few points below the Fib extension.
Fifteen minutes into the session, as ES reached 2730.25, the headlines started dribbling in. Fed Governor Lael Brainard publicly commented that QT should end this year, ahead of schedule. Larry Kudlow commented that there was a glitch in the retail sales data. Mnuchin felt all warm and fuzzy about the trade talks.
Faster than you could say “Plunge Protection Team” ES reversed course and SPX closed the day with a gain. But, the move didn’t feel finished. As I wrote at the end of the day:
ES looks likely to test its SMA200 all over again. But, will it make it on down to the 2.24? Its SMA10 will probably be up to 2728 by tomorrow morning, adding additional support.
I guess the market fairies were listening, because that’s exactly what happened overnight. ES dipped to 2729 right as the SMA10 was arriving on the scene, then spurted 27 points higher — breaking out of the falling white channel in the process.
The algos are in full support mode at present, though a few charts suggest a pop and drop is in the cards if VIX doesn’t pull off a game changing plunge.
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Rumbling toward the end zone, the bears ran into the bulls’ best defender: VIX. As ES tagged our channel-line target a day ahead of schedule (and, therefore at a lower price)…
…VIX took the opportunity to plunge back below its 200-DMA. 
Fortunately, we saw it coming a mile away courtesy of DJIA, which signaled the end of the decline with a precisely executed (random walk, my ass) tag of its 200-DMA. As usual, the refs pretend not to notice when the bulls are caught cheating…
This sent SPX back above its 2.24 Fib at 2703 just in time for the close. All things considered, it was a successful goal-line stand.
Unfortunately for the bulls, however, VIX couldn’t hold its stance overnight and is back above the 200-DMA as ES tests yesterday’s lows. And, rates are itching to tag our next downside target — a headwind for stocks.
The algos will have their work cut out for them today.
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With the overconfident bulls emboldened by the 200-day moving average looming just above, the bears have run a trick play and have the goal line in sight.
To be sure, there are half a dozen defenders in between here and a score – starting with 380-lb All-Pro VIX. Its 200-DMA at 16.54 is now resistance, and it has a reputation for cheap shots.
Thanks to exhaustive scouting, though, our yield curve model suggests there’s a weakness in the defense that offers bears a clear path to the end zone — if they don’t fumble the ball.
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Nothing much has changed since yesterday. SPX bounced around in our target zone, coming within a few points of its SMA200 as VIX went nowhere.
The one notable exception was AAPL, which after tagging our downside target on Jan 3 $from last November [see: AAPL Discovers Gravity] reached our upside target yesterday. 
We originally charted this upside target on Jan 3 [see: Update on AAPL, Jan 3] and the IH&S pattern reinforced it three weeks later. Had AAPL not reversed, the additional downside potential was substantial.
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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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SPX and ES had no trouble reaching our initial downside targets — a backtest of their January highs. We wondered, however, whether the SMA20s, loitering just below, might come into play.
Sure enough, ES tagged its SMA20 with ease. But, emini traders strongly resisted a drop through the SMA20 – bad mojo, don’t you know.
So, SPX only reached 2867.29, just shy of the SMA20 at 2866.27. And, faster than you can shout “help me Clarence!” SPX bounced the 16 points we anticipated, just like it did on Wednesday.
It was a near miss..or, was it? As we discussed on Tuesday…
One little trick we often see on days when it’s difficult to convince the machines to sell/short down to an obvious bounce point such as the SMA10 is to drive the price merely to where the SMA10 will be tomorrow. The SMA10 will likely increase by another 5 points tomorrow, so getting within 2-3 points is potentially “good enough.”
As luck the algos would have it, today’s SMA20 came in at…wait for it…2866.27. January highs and SMA20 were both tagged. 
So, all is well, right? Not so fast. Futures are currently off 10 points, banks are tanking, oil and gas are slipping, FB is scurrying toward the basement and TSLA has tumbled 15% since Tuesday’s short call.
In the distance, sirens. A mob of nervous investors crowds the door. Might the Building & Loan actually be in trouble?
Thanks to overeager algos, the S&P 500 has thus far ignored the threats of tariffs, political turmoil, emerging market meltdowns, rising interest rates and historically high multiples. None of that matters as long as corporations can borrow cheap and repurchase their own shares, VIX can be hammered when necessary, the dollar continues rising and oil/gas prices don’t crash.
If any of those support mechanisms falters, however… Well, we’ve seen what can happen. Keep an eye on 2867.29.
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When unexpected unpleasantness unfurls, you can count on central banks to pull out all the stops. Such is the case with the British election results which, like Brexit, have wreaked havoc on FX markets.
EURGBP, having broken down from its rising red channel dating back to mid-2015, was well on its way to a perfectly nice backtest at .80ish. Instead, it’s backtesting the broken red channel itself. Hence…the stop pulling.
It should start with nice bounces from USDJPY and CL — which, as discussed yesterday, have already reached interim bottoms — and, of course, a sharp plunge by VIX.
Look for USDJPY to pop through its SMA200 for good measure… 
…and CL at least hold its own in the midst of strong selling pressure.
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Markets tend to moves higher on Fed minutes days, even if the news isn’t all that positive. It’s all about convincing investors that the FOMC has their best interests at heart — that all they’re worried about is making sure that stocks continue to rally.
Today’s session is slightly complicated, then, by ADP employment which came in much higher than expected: 263K versus 175K. Theoretically, this puts pressure on the FOMC to raise rates and/or trim their balance sheet faster than anticipated. But, central banks have many tools at their disposal to ensure that the complication doesn’t become a problem.
S&P 500 futures are up 6.5 points, but right to Fib resistance. 
Can the Fed spin a hawkish set of minutes into something positive for stocks?
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