Futures reached new all-time highs overnight, ostensibly on hopes that the FOMC will cut rates in July.  While I’d never discount the importance of Fed guidance, futures were initially reversing lower until oil and VIX opened the door.

First, there was VIX’s breakdown through a very obvious TL.  Algos eat this stuff up.

If that wasn’t enough, VIX put a “shot across the bow” at 4am……when ES had the audacity to balk at making new highs.Then there was CL, which broke out of its falling channel on Tuesday and has ratcheted higher ever since — even breaking out of its rising wedge a short while ago — again, when ES threatened to reverse before reaching new highs. War with Iran might not be good for people (or other living things.)  But, it’s great for algos which feed off of ramping oil prices to produce higher highs in equities.

The more interesting development is the breakout in gold……and the expected drop in the 10Y — which should test 2.00% this morning. As we anticipated, the 2s10s is widening….…thanks to the fact that the 2Y is dropping even faster than the 10Y. Stocks might be ignoring it for now, but this is the most bearish scenario that could play out.

continued for members…

It’s quite possible we’ll get a marginal new high and pull back as occurred on May 1.  But, if SPX can top and hold 2954.13, then there’s a clear path to the 2.618 at 3047.34.

Unless the goal was to merely register a new high (quite possible) CL could pop as high as the cluster of moving averages at 58.54-59.17. 

While RB looks potentially restrained by the falling white channel drawn off the existing red TL.

On the currency front, USDJPY has finally reached our next downside target — the red .618 at 107.57. And, EURUSD is again threatening to tag its SMA200.These moves have allowed DX to test its channel bottom and purple TL again.  A breakdown remains a possibility… …which is why GC is popping so sharply this morning.  We’ve talked many times about the IH&S, which has been setting up for a couple of years.UPDATE:  1:20 PM

Nice reversal so far…

UPDATE:  3:35 PM

So far, things are definitely not shaping up as they did when stocks made new highs on May 1.  Then… …and, now.Of course, the end of a quarter coming up a week from tomorrow.  So, there’s a good chance stocks are already in quarter-end tractor beam mode.

Much will depend on whether oil and gas can maintain the ramp job — which will depend, of course, on Trump’s ability to navigate the Iran mess.  A 6% gain in oil prices is pretty powerful stuff for the algos and could overwhelm CL’s inclination to reverse at a logical spot such as the backtest indicated below.It also helped that VIX was able to reverse sharply, though big SPX drops have been launched from lesser spots.In bears’ favor, USDJPY has slipped through support.  It remains to be seen whether the .786 or .886 can hold.It sure seems to me like DXY wants to break down here — which would normally be bearish. But stocks didn’t really care much when EURUSD broke out and closed outside the channel top on Jun 7.Summing up: It looks like we’re destined to close above the old highs.  But, I wouldn’t put a lot of faith in a big move from here.  The sidelines looks like a very reasonable place to be.