You can tell, because it almost always starts with these little rising channels which accommodate the wild swings between gains and losses and, more importantly, steer them higher. In the charting world, this rising channel is also known as a flag pattern. It’s a continuation pattern which merely interrupts the downturn until it resumes.

It’s helpful in that it provides clear parameters as to whether or not the rescue is working.  If ES remains in the rising channel and recovers some of the broken Fib levels, we’ll know it’s working. If ES drops through the bottom of the rising channel, we’ll know it’s not.

This one brought ES back above the important support level we discussed on Friday, our 2947 target – which ES has tagged and/or crisscrossed about 11 times since Friday afternoon.

The usual tools are being employed to try and support futures here. The question, of course, is whether the rescue will be successful.

continued for members…

The fundamentals of this market are downright scary. We were already greatly overpriced in a flat earnings environment. I haven’t heard a cogent argument yet as to why the coronavirus won’t bring economic growth to a standstill in the US and around the world.

So, what we’re witnessing is a battle between the algos and common sense which, in this case, had been winning so far.

The bigger picture for ES – note the falling white channel is the primary direction unless ES breaks out of it.

The big picture for SPX shows why this is an important moment for stocks, and why the 2703 level is even more important.  We’ll start with a quarterly chart and zoom in.VIX is being positioned for a breakdown, which would give a boost to stocks – perhaps when it reaches the top of the falling channel around 3000-3005. CL overshot ouf 45.12 target but has mostly recovered at this point – though it’s hardly a convincing recovery – sitting right on top of the purple channel bottom.

Likewise, RB reached our downside target and is trying to muster a bounce.The currency picture is bearish, with USDJPY clinging to support at our next downside target and looking for all the world like it will give way.If the channel (flag pattern) breaks down, USDJPY is likely to do what it’s done three times before and tag the .707 Fib – or worse.  The yen strength, of course, is dragging down the DXY at a time when the euro has been strengthening. At this point, however, EURUSD has backtested overhead resistance just north of the SMA200. So, it should be watched closely for signs of a reversal or breakout. If DXY breaks down, which it just might, it will add to stocks’ troubles. The bond market is still very negative for stocks right now – except for the potential for a strong reversal. ZN has reached our highest target at 135’155.  This is the highest it has ever been, having previously reached it in July 2012.The daily chart for TNX shows not a lot of support below current levels.Meanwhile, the 2Y is breaking down further and approaching our next downside target at 0.65. A drop through .65 would be terrible for stocks as it would lead to a blowout in the 2s10s.

We’ve looked at this phenomenon many times. But, if the 2s10s blows out, it almost always results in a big meltdown in stocks.

It’s on the cusp of a breakout right now.Last, the 30-yr is falling off the face of the earth. This is very disturbing to markets as it smacks of desperation.

Last, gold is hanging on to TL support. Though it pulled back from last week’s pop, it still has potential up to 1710-1735.

A review of the case for SPX 2703/ES 2728 as posted on Friday:

On Friday, ES and SPX both closed back above those previous highs, but the lower targets still make sense. Consider that many past corrections were almost exactly 20% peak to trough.

I’ve posted this chart many times showing the effect on stocks of the 2Y dropping through significant trend line or horizontal support.We just had another incident where the 2Y dropped through significant support at 1.4%. I’ve been carping about it for a week or more.  Here’s the closeup of the above chart. Since very little happens (is allowed to happen) in the markets without some sort of plan, isn’t it interesting that a 20% drop from their recent all-time highs would produce ES 2718 and SPX 2714.82.

Remember, the 2.24 extensions I’m obsessed with are at ES 2728.79 and SPX 2703.62 – exactly 19.68% and 20.33%. Pretty darn close for a coincidence, right?

Also, remember that ES’ 2.24 of 2728.79 is less than 1 point away from its .618 retracement of the rise from 2316.75 (Dec 2018 lows) to the 3397.50 highs.more later…

UPDATE:  11:50 AM

ES has just broken out of the falling white channel, which puts it on a path to backtest the SMA200 at 3048.67. SPX is in a similar situation, with its SMA200 and 2.618 Fib at 3047 just overhead. The driver: VIX, which as discussed earlier this morning, has broken down. To be sure, these are algo-driven moves which are inspired by speculation regarding Fed intervention. Maybe they will, maybe they won’t.  Keep an eye on VIX, as a bounce back above the TL would be quite negative for stocks.

UPDATE:  3:48 PM

No bounces back above the TL for VIX. In fact, it backtested the TL and is heading lower again… …which, combined with a bounce in CL and USDJPY…

…is just enough to get SPX and ES marginally back above their SMA200s. This is technically bullish, and the algos could take over from here and ramp things up even higher by the close. If nothing else, it’s a solid demonstration of how effective the algos can be. It’s a very good V-shaped rally — which still has the potential to be a head fake if a dose of reality (ugly headlines) sneaks past the government censors.

Just to be clear, SPX is up 128 points (4.3%) on nothing more than the hope that Powell et al are about to cut rates a little more – news that was already priced into the bond market.