With May contracts in the rear view, we wondered whether oil markets would revert to some sense of normalcy.  A steep contango continues, however, with June contracts assuming the role of the panic stricken expiration month.

Futures tested our initial downside target yesterday, the Fib 2.24 extension at 2728.79, and bounced overnight… …as oil and gas prices bounced sharply off our downside targets……and VIX collapsed after tagging our backtest target.The question, as is often the case, is whether the relief rally can continue once equities’ cash market reopens.  And, will SPX ever get to test its own critical support?

continued for members…ES’ rising purple channel is no more, and this morning’s bounce is (so far) merely backtesting its .500 Fib and SMA10.

While, SPX only got within 24 points of its 2.24 at 2703. SPX should backtest its own SMA10 and .500 Fib on the open, meaning both it and ES have their work cut out for them.  A failure to retake this resistance would confirm the channel breakdown.Meanwhile, we’re seeing some drama over in USDJPY which “broke out” above its little red TL and its rapidly plunging SMA10……but is getting very close to a bearish death cross. The SMA50 is only .09 above the SMA200 and is falling fairly quickly.  If stocks are to avert a significant downturn, USDJPY should shoot higher to avoid such a bearish signal.

Oil’s bounce, while significant, has not regained major support just yet. And, I’m having a hard time seeing why it should continue absent major intervention by OPEC, the Fed, or a believable tweet by the President – though I can’t imagine what that might be or how it could overcome the massive physical oversupply.

CL is back above its 1998 lows… …but still has its 2001 lows at 17.12 and the white channel bottom at 20.50 to contend with.  Anyone playing the bounce should employ tight trailing stops.RB’s bounce is a little more easy to understand/believe as several states are fixed to reopen and driving presumably picks up.  It’s currently up about 20% after nailing our .886 target yesterday. Although back above the purple and white channel bottoms, it is running into the SMA10. I would take profits here at .69, but would get long again if it is able to push through.

The 2s10s has partially recovered from yesterday’s .345 lows and is pushing 40 bps.  It’s supportive of stocks, but only if it hugs that red TL all the way up to 49 bps where it crosses the white TL on May 20. If it breaks down again, it’s bearish. If it breaks out above the white TL, it’s very bearish.The 2Y remains rock steady at 20 bps……but the 10Y continues to flirt with the idea of a breakdown.  A drop to our next downside target at 1.54 would, in the absence of a sharp breakdown in the 2Y, result in another inverted situation.A closeup of the 10Y shows lower lows following the initial bounce on Mar 9, with the .886 still untouched… …the 1.272 extension intersecting the purple 1.618 at 1.54, and the 1.618 intersecting with the yellow channel bottom at -1.39.And, remember, a drop below 17 bps in the 2Y would almost certainly send stocks into a tailspin.

Note that COMP is back above its SMA200 – though just barely – and has held its channel midline for now. While, DJIA has given up the red channel midline – not to mention its 2.24 extension. Bottom line, the equity picture is fairly muddled right now. It’s pretty clear that SPX and ES are channel-tilting — which usually means delaying any more downside until additional support arrives on the scene.

This period reminds me of the incessant stalls and tweet-inspired ramp jobs surrounding the China trade deal — though the Fed is very much involved this time and the economic fundamentals are absolutely dreadful.

I think we’ll go lower and SPX will get a chance to test 2703. And, if 2703 fails then we’ll get a shot at ES 2155/SPX 2138.  The most immediate signal will be whether ES/SPX can regain their SMA10s and .500 Fibs.

But, I also remain in awe of the efforts the Fed has taken and will continue to take to prop up stocks. Just now, I heard that Fannie Mae and Freddie Mac will buy loans in forbearance from originating banks – a whole new chapter in the cash for trash saga.

UPDATE:  3:45 PM

ES and SPX have both melted up through their SMA10s, but VIX has yet to drop through its SMA10 – setting up a very mixed bag going into the close. What’s more, USDJPY’s 50/200 cross seems virtually assured. I’m probably being overcautious, but I would be nervous about chasing this bounce. If stocks are meant to keep going, there’s no reason for VIX not to slump below 41.40 in the next 15 minutes.SPX’s SMA10 for today is shaping up as 2796.60ish, and ES is right at 2794.40. Both could give them up before the close – especially if VIX bounces at all.

UPDATE:  4:00 PM

ES has dropped back through its SMA10, while SPX closed 1.28 above its. VIX managed a tiny bounce – either a bearish sign or a good head fake, as it would be quite easy for VIX to keep the party going. I’ll start posting the updated forecast page shortly.