Over the past two days, I suggested the USDJPY was breaking out in anticipation of weakness from another algo driver — CL.

We’ve seen VIX do a pretty good job of preventing big sell-offs.  If a rate rise seems imminent, we should see the dollar strengthen and, potentially, a breakout in USDJPY — which would help…. Rest assured, when CL finally does start plummeting, USDJPY will be spiking higher to try and compensate. The yen carry trade has been dormant, but is far from dead.

Indeed, the USDJPY has broken out of the falling channel it’s been in since last November (even as Japan’s Abe — accused of being a currency manipulator — pals around with his accuser over the next few days.)  But, CL has continued to rally, too — in the face of huge inventory builds as reported by both the API and EIA.  And, of course, VIX is also setting records (for the level of intraday absurdity and manipulation  – more on that later.)

Is this the breakout we’ve been waiting for, or is it the calm before the storm?

continued for members…

ES reached another potentially important Fib level overnight……even as VIX flatlines……and CL ramps — but, only to the .886 of its latest decline and an important channel top.

If they can keep the rally alive (ES is currently up 4 points) then SPX has potential to to 2321, followed by 2330.  Otherwise, we have no shortage of downside targets.

I think this is the end of the line for CL.  But, with headlines like this morning’s out of the IEA (NOT the EIA, which just reported the second largest inventory build in history) suggesting everything is awesome for oil, it’s easy to see that there are strong, opposing forces battling over the future of oil prices.

The IEA, OPEC and other industry cheerleaders would love nothing more than to see CL break out of this falling channel.  While, the Fed desperately needs it to reverse strongly if they’re going to keep the inflation genie in its bottle.

The alternative viewpoint is that inflation is here, we might as well make the most of it.  Obviously, the US (and, everyone else, really) has too much debt to cope with a return to interest rate normalcy — which would become the base assumption if next week’s CPI number starts with a “3.”

But, they also have too much invested in stock prices going higher (literally, for the BoJ and SNB) to allow a sell-off.  Hence, VIX’s headlong race to zero — as it doesn’t affect inflation or interest rates.

But, how long can they keep bashing VIX by several percentage points per day?  Lately, the tactic has become to ramp it higher overnight, when equity futures are easily supported, so that it has further to drop the following day.  This is a tactic that has been used quite often in both USDJPY and CL — obviously in the opposite direction.

And, of course, there’s always the big plunges lower as we saw last Wednesday on FOMC announcement day.  But, one would think that TPTB would reserve VIX manipulation for those instances when strong support is needed to get SPX up over resistance or prevent a meltdown — neither of which is currently the case.

UPDATE:  1:51 PM

SPX is approaching the red 1.618 at 2321.88, also the intersection of the small white channel and the yellow midline.  This ramp started out with help from CL and VIX, but as CL ran out of room, USDJPY started to rally.

Now that VIX is bouncing higher, itUSDJPY is getting another bounce and is currently backtesting the SMA20.  It’s a tag-team exercise that’s working out pretty well for TPTB.  I suspect we’ll get a backtest of the red 1.272 at 2310 at some point — perhaps when the SMA5 200 arrives around the end of the session, or possibly Monday morning.

Though VIX’s rise through 10.85 would indicate it might happen sooner.  I’d revert to short on any sustained drop through the SMA5 20 currently around 2316.95.

UPDATE:  2:36 PM

SPX is dipping below its SMA5 20 and VIX, CL and USDJPY aren’t reacting.  I’d revert to short here for a possible dip to 2310 if it drops through the white midline at 2318.90ish.

UPDATE:  2:42 PM

Seeing VIX push ahead, and USDJPY selling off — not much response from CL.  I’d revert to short here with very tight stops.

UPDATE:  3:33 PM

SPX is pushing higher on VIX drop, CL sideways, and bounce.  Back to cash.

UPDATE:  3:47 PM

False alarm.  Back to short into the close unless you intend to stay in cash over the weekend.  As always, I recommend only holding short if you can hedge or otherwise deal with the risk of a gap up on Monday.  Initial downside targets are 2310 and 2308.  Not terribly confident on this, as SPX could easily land at the SMA5 100 at 1214, also the bottom of the rising white channel.  But, I’m sticking with the CL sell-off  theme for the time being.  I also believe USDJPY will at least backtest its broken channel, given the likely nature of Abe’s discussions with Trump.  VIX, of course, is the wild card.

 

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