The Big Picture: Jun 19, 2017

With the FOMC, BoJ and ECB actions behind us, this seems like a good time to review the big picture.  This morning’s USDJPY, VIX and CL moves are, perhaps, the perfect reminder for how we got here, and where we’re going.

Note the strong correlation between USDJPY and ES broke down on May 24 when the dollar ran into trouble.  It was a dicey time for stocks, as oil had reached our upside target (yellow arrow) and was heading south.What enabled stocks to break out then, and maintain a floor afterwards?  VIX, which had spiked from 10.50 to 16.30 between May 16-18 — a rare trip back above the long-term yellow channel bottom — was hammered back to single digits on the 24th.And, so, the cycle continues.  When one algo driver falters, another takes its place.  How long can this go on?  Will it always work?  We’ll look at the mechanism, and the repercussions for traders in today’s big picture.  We might even delve into some underlying economics.

But, first a shout out to members J.H. and T.M. for posing some great questions this past week.  I’m convinced the pebblewriter readership is the smartest, most thoughtful group of investment professionals out there.  These two gentlemen are real students of the markets, and do a great job of keeping me on my toes.

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