The trouble with low-volume meltups driven entirely by algos is that they lack a strong foundation.  So, troubling economic, political or military news often unwind them — after hours, of course.  Such was the case with yesterday’s melt-up.

There’s no shortage of bad news this morning: a new UK election, horrid factory output, oil’s production cut in danger, disappointing housing starts…oh, and the backdrop of potential thermonuclear war.

USDJPY dutifully ramped back above the SMA200.  And, WTI studiously avoided completing a bearish H&S Pattern.  VIX, of course, shed over 8% intraday — just because.  It was enough to run some stops and put bears on edge.  But, it wasn’t enough to break the negative trend that’s pervaded since the 2400 top.

continued for members…

Look for the SMA5 200 to fall on the opening, with the real test coming at the purple channel midline at 2340.  If that should fall, then the white midline at 2338.45 is just below.

Note that USDJPY is hanging on to the bounce, even though it’s back below the SMA200.  CL is clinging to the .707 and H&S neckline.  And, VIX, is backtesting the broken yellow channel.  It hasn’t been enough to keep futures from plunging 8 points overnight.

UPDATE:  9:33 AM

VIX has reversed off the SMA5 200 as SPX reached the white midline. We should see a bounce here.  How much of one is an open question, as I still like the 2300-2306 target.  But, the bulls will want to test the purple channel top up at 2352.  

Note that the SMA10 is at 2351.88 — which makes for a desirable target.  It will depend largely on VIX — which has nothing but empty space below it — and USDJPY — which can help a lot by scooting back above the SMA200 at 108.88.  We’ll just assume that CL will continue to ramp.  It’s now testing its SMA5 200.

UPDATE:  9:48 AM

This seems like a good place to hop off.  ES just reached its SMA5 200, and SPX its SMA5 10.  VIX is at potential support, and USDJPY is reversing off a little TL that keeps it below its SMA200.  Naturally, if ES can push through its SMA5 200, I’d consider reopening a long position.

UPDATE:  9:56 AM

CL is ramping up past its SMA5 200.  It’s an obvious ploy to prop up stocks, but it usually works if they’re willing to push it high enough. VIX is also dropping through support.  Back to long here.  The key will be getting SPX past 2348.  This would represent a breakout for ES (purple channel) and sets up a potential IH&S for both SPX and ES (targeting the red .786 at 2367.98 in SPX.)

Here’s the IH&S for SPX.

UPDATE:  10:09 AM

SPX is backing off the neckline on USDJPY weakness and VIX strength.  Only CL is working to push it higher.  This looks like a fail, but it’s hard to say just yet.  I’d revert to short below 2344.

UPDATE: 10:27 AM

Quick update…SPX is being propped up at the SMA5 200 again, this time by VIX being capped at the white channel top and SMA5 200 and USDJPY catching support at the white TL.  If VIX can drop down to the SMA10 at 14.06, it would probably be enough to get SPX past the neckline.  Otherwise, this feels like a delaying tactic.  The next test should be whether a bounce from here can push through the SMA5 10 at 2343.63.

UPDATE:  11:08 AM

Taking a quick break.  Watch your stops with the SMA5 20 approaching.

UPDATE:  11:16 AM

SPX is inching back above the SMA5 20 on VIX weakness and CL threatenign to break out again.  This is especially tricky with the euro close coming up shortly.  I continue to favor the downside case, here.  But, I’m willing to jump ship if we see signs of a concerted effort toward a breakout.  Right now, all I see is an attempt to prop things up.

UPDATE:  11:38 AM

Finally getting some action here as USDJPY and CL are both breaking down.  Only VIX, which is still stuck at its SMA5 200, is preventing a breakdown (so far.)

UPDATE:  1:12 PM

SPX has been going sideways for a while, and just pushed above its SMA5 20.  I’d cover here and revert to cash.

This is the chart that has me concerned.  VIX backtested the broken white channel and the SMA5 200, which was all well and good and facilitated SPX’s SMA5 20 tag.  But, now VIX is dropping through the earlier low in order to push SPX above its SMA5 20 — meaning it could have plans for a more meaningful bounce or recovery.

If VIX backs off this dip, or USDJPY reverses off the red TL below, then I’d be happy to revert to short if SPX dips back below the SMA5 20.

UPDATE:  1:20 PM

ES just backtested the red TL from earlier.  SPX hasn’t broken out past its falling red TL, so there’s a chance we’ll get a reversal here.    USDJPY seems to support the idea, even if VIX doesn’t.  I’d keep a close eye on USDJPY, as a breakout — along with VIX dropping further — should be able to break SPX out.

Given how gently this is being done, however, I wonder if the breakout will terminate at the SMA5 200, constructing a falling channel such as is shown below.  I’ll look for an opportunity to short at 2341ish at 1:35PM or so.

UPDATE:  1:36 PM

Here’s the SMA5 200.  I’d try shorting here just for grins.  50:50 shot.  We’re going to need CL to reverse sharply.  Obviously, if it slips any higher, we’re headed for the neckline at 2349 and SMA10 at 2351.88.

UPDATE:  1:42 PM

VIX still slipping, SPX still easing higher.  I’d revert to long here with very tight stops.  Note that CL has reached potential resistance again.  We’ll get a test on this position once the SMA5 10 catches up with the SMA5 200 around 2PM.

UPDATE:  2:25 PM

Quick update on the breakout…

I’m going to take a 30-min break.  Will be back around 3pm.

UPDATE:  2:51 PM

SPX just dipped below the SMA5 100 as VIX rose above the red TL and USDJPY is slipping.  I’d dump the long position on any further weakness — unless it recovers back above the SMA5 10 in the next few minutes.

UPDATE:  2:56 PM

Might be a head fake, but I think ES’ SMA5 200 is going to spur another downturn here.  I’d revert to short here with tight stops.

Note that USDJPY’s breakout has broken down and looks likely to explore new lows.

UPDATE:  3:24 PM

Giving up on this short position as SPX popped back above the SMA5 10 again.

UPDATE:  3:34 PM

It seems likely we’ll get a plunge or a spike higher in the next 30 minutes into the close.  Given that USDJPY is up against resistance and CL hasn’t been able to break out, I’d guess our downside case is still intact.  But, that doesn’t mean we won’t get a melt up.   I’d try a long position here with very tight stops just in case.  Regardless of how it closes, however, I’d want to be short overnight for those able to hedge or deal with the gap risk.

UPDATE:  3:45 PM

VIX is pushing hard, but SPX just doesn’t want to rally.  Note that CL is back to the red TL that represents a breakout opportunity.  API inventory is due out after the close, so we might get a timely bump here.  Again, I’d not want to be long overnight — but, short for those who can hedge or deal with the gap risk.

UPDATE:  3:52 PM

Not making any headway.  I’d revert to short here for those intending to hold overnight.  Otherwise, it’s time to go to cash.

 

 

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