Almost three months ago, we saw most major indices and quite a few stocks backtest their 200-day moving averages. One notable exception was the NASDAQ Composite.
COMP came with 1.1%. But, it ran out of time when, as expected, SPX, DJIA, RUT, etc. all bounced off their SMA200s. 
It had another chance on Apr 2, but that opportunity was scuttled by Jim Bullard and Larry Kudlow’s dovish comments. This time, it missed by 0.8%.
Our thesis all along has been: (a) the broader indices wouldn’t advance until COMP had a chance to tag its SMA200; and (b) said dip would wait until the SMA200 reached recent lows. The SM200 is now up to 6836.19, about 3.25% below yesterday’s close.
With April out of the way, it seems the coast is finally clear for a backtest. The only complication is that a 3.25% drop would put SPX way down at 2562 — a good 50 points below its SMA200. So, either things are about to get pretty crazy in the broader indices or we’ll have to wait a little longer for a milder dip.
There is a third alternative. With AAPL due to report after the bell, we could get a divergence between the two that allows a backtest that doesn’t clobber SPX quite so badly. That would take some pretty fancy footwork. But, there’s a logic to it, given that several of COMP’s leaders are trading below their SMA200s.
Of course, the other event the market is worrying about is the outcome of the FOMC’s meeting. They say Jay Powell is in the hawkish camp these days. I guess we’ll find out.
I’m sticking with our bearish outlook for now.
continued for members…
2562 is a perfectly legit target, as it would put SPX on a TL with the two recent lows as well as the white channel midline, the red .886, a .618 extension of the 2800 to 2553 slide, and the .886 gray Fib. That’s a lot of support.
But, again, this is a deep dive (50 pts) below the SMA200. And, it’s possible that SPX would have difficulty recovering. If so, then 2459-2469 is the next logical support. Much will depend on VIX, and its ability to stay within the falling yellow channel.
I suspect VIX will play an important role in things before it’s all over — simply because the Fed is boxed in. The market clearly hates the idea of higher rates. But, without them, how to keep the dollar high?
And, if the dollar falls, inflation is a worse problem. To me, the only solution is to hit oil/gas prices — which is perhaps why Trump is taking so long to announce next steps re Iran.
DXY is threatening to break out. And, if it pops through the purple channel line — it will have.
This should put USDJPY pretty close to its SMA200 – a typical reversal spot. 
RB and CL remain wild cards due to the Iran situation. But, if CPI is to come back under control and not necessitate a rate increase, they should drop. If they drop, inflation pressures ease without any additional DXY increase necessary.
Note that the 10s2s (the red line) has fallen back below its TL and is closing in on the much longer-term TL (gray) from 2000.
The first time it tagged it was on 4/7/2000, whereafter SPX fell 12% in the next week and 49% over the next 2 1/2 years. The next time it tagged it was on Nov 15, 2006, almost a year and 168 points before SPX peaked.
UPDATE: 10:30 AM
GC just tagged its SMA200 as DXY reached the channel line. Looking for a reversal here for both — ideally a sharp one. 
The only hitch is EURUSD, which has dropped through channel midline support.
And, USDJPY, which isn’t quite to the SMA200. So, it isn’t as clean as I would like.
I have a meeting coming up, should be back around 12 or 12:30.
UPDATE: 3:12 PM
Backtest and gap fill completed… I’ve been thinking about this for the past few days. If SPX is going to decline to the same extent as COMP, meaning a drop through 2600 as discussed above, then it would probably close pretty close to its SMA200.
At least, that’s the way I’d set it up. Otherwise, the 80-90 point plunge would be pretty unnerving. 
Note that AAPL has backtested its broken channel, but is hanging just north of its SMA200 — an early indication of more positive results than are expected…or a bull trap?
