Last week completed the backtests we’d been expecting, with ES, SPX, COMP, DJIA and NKD all holding important technical support.While the fundamental picture might not justify these prices, the algos are satisfied. And, until price discovery reemerges (if it does), the algos are all that matter.

continued for members…

We started last year looking for a repetition of past cycles and channels and were rewarded in kind. In October, however, TPTB apparently decided that the downturn was a little too severe. Channels were broken out of and cycles were just plain broken. At this point, the exercise becomes one of shifting the narrative: preserving the breakout in a way that’s consistent with the fundamentals from the coming months as inflation gradually settles back to a level that markets are comfortable with.

It doesn’t mean there won’t be any continuation. We’ll keep an eye on the XLU cycle, for instance, as an indicator of the confluence of economic strength as tempered by rising interest rates. Charts will be a little messy for the next several days as I try to clear away some of the irrelevant drawings. But, bottom line, the coast should be clear for some sideways chop with an upward bias until the next big market disaster occurs.

The key underlying factor keeping the markets’ plates spinning: VIX.

A close second: currencies. The ECB and BOJ have joined forces to ensure that the rise in DXY is mild enough to avoid contaminating the optimism around fundamental economics.  It started with EURUSD’s breakout of a very well-defined falling channel in October.

The drop since the yellow channel backtest has been mild enough to create some wiggle room for future prop jobs.

And, no surprise, USDJPY has managed to deposit the NKD atop its SMA200. GC and SI haven’t fared that well, with GC back to a key TL and channel line… …and SI back down to its SMA200 and channel midline. I suspect that currencies will remain in a very quiet trading range for the next few months.  Even BTC seems to have settled down.CL remains in a well defined falling wedge that should see it remain fairly stable. Not even the much touted China reopening seems to have mattered…

…except to the energy equities which continue to diverge. While RB still seems likely to backtest its SMA200 before continuing to sell off.The net effect on bonds has been to extend the inversion – the only safe direction for the Fed to go.  Remember, it’s a sudden collapse in the 2Y which would undo the inversion and cause a severe equity crash.

As of this morning, the 2Y is pushing to new highs. More later…