This has been one of the more satisfying years since I first began writing pebblewriter 7 1/2 years ago.  Yes, our forecasts have been accurate. But, it was even more gratifying that the themes we identified earlier in the year (oil’s collapse, interest rates topping out, CPI tumbling, etc.) played out as expected.  They were excellent guideposts to equities’ outcome.

In short, it’s been a trader’s market.  A buy-and-hold investor would have a 40-point loss (as of Friday’s close) to show for all her sleepless nights.  A trader who simply paid attention to the 200-DMA and the Fib extension, on the other hand, would have done much, much better.

By accurately anticipating the moves in currencies, oil and gas, interest rates and VIX, which are instrumental in driving the algos which determine so much of each session’s outcome, we have been on the right side of most of the moves – correctly identifying most of the major turning points.

Since futures reached our next downside target last night, we’re faced with another such opportunity.If SPX had simply held 2703 in October, or even tagged our 2579 target around the election as we forecast two months ago [see: All Good Things], it would have had a decent chance of continuing higher after a bounce to 2800.But it bounced prematurely, and in coming back to tag the right downside target is threatening to complete (ES already has) a large, bearish Head & Shoulders Pattern.  Here’s that same chart from Oct 11 with the interim price action filled in.

So, what’s it going to be?  The usual stick save, or a 380-pt plunge?

continued for members…

The pattern targets 2255ish, which is just below the white 1.618 at 2280 and just above the yellow 1.618 at 2138. Will we get a bounce here, or will the pattern play out?  As usual, we look to our algo drivers for an answer.  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 (but, not necessarily RB.) The 2Y’s drop would also accelerate. And, COMP and AAPL would reach their potential downside targets.

If any of those things don’t go the bears’ way, and SPX is mosre likely to bounce.  I’d put VIX and USDJPY as the most likely party spoilers.  But, obviously, there have been plenty of market-moving headlines from the oil and gas sector.

With API due out tomorrow and EIA on Wednesday, I wouldn’t count them out.  The only complication is that a resurgence in oil/gas prices would spoil the argument that inflation is too low to justify more rate hikes.

The biggest risk to the H&S from playing out  is obviously the Fed.  In just 9 days, they’re likely to hike one more time and, if markets are still looking dicey, downplay any additional hikes in 2019.

Some will look at a halt to hikes as bearish, as it will echo the growing chorus of recession calls.  But, in the end, the market likes easy money and low rates.

I have meetings most of the day, today, but should be able to post more after 2pm this afternoon.  Watch for VIX to pop above 24.12 and then 25.70.  And, watch USDJPY closely if it reverses this morning’s gains and tests 112.23 again.  For CL, the line in the sand is 49.50.

GLTA.

UPDATE:  9:54 AM

Running out the door, but SPX just officially tagged our neckline target.

Keep a close eye on VIX.  It broke out in order to push SPX lower.  If it retreats below the red TL, then we’ll likely get a nice bounce.  If it holds 24.12, then SPX should see more downside.UPDATE:  3:15 PM

SPX dipped down below the H&S neckline, coming within 4 points of its white .886.It briefly returned to even on the day, but is suffering from VIX’s failure (at least yet) to break down……and CL’s weakness.  While a VIX breakdown is just plain bullish for stocks, CL is a different story.  A breakdown would be bearish from an algo standpoint, but bullish from the standpoint of arguing against further rate hikes. USDJPY’s bounce stopped at the SMA10/20, so there is little reason for the bulls to get excited about it until it does. COMP still argues for additional downside.  The big picture shows how important this morning’s lows are.