Yesterday, we asked in the lead-up to the FOMC announcement and presser:

Is there [a Fed game plan] which can keep inflation high enough (but, not too high), prop up the US dollar, keep interest rates under control, keep the market elevated and actually improve the economy?  Not likely.

Today, we have a definitive answer: no.  The 10Y is plunging……so, the US dollar is finally cracking. As expected, this is doing a number on USDJPY……which is doing a number on futures, currently off about 30 points.  This will put SPX back below its 2.24 and at a critical support point.

If you’re looking for a silver lining, don’t look at FB.  After ping-ponging between the channel line, the H&S neckline and its SMA200, it’s faltering again after Zuck’s fumbled apology….…which means COMP’s sharply rising channel will break down on the open.  Fasten your seat belts, folks!

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ES found support at the white channel midline which helped it out on Day 14 and Day 6.  This is a big deal, as it’s provided critical support many times since Nov 2016.  Each of its failures, with the exception of Aug 2017, resulted in large drops for ES (approx. 60, 60 and 100 points.)If it can hold here, SPX might be able to get away with fleshing out its rising channel at 2677ish in order to maintain a somewhat bullish trend.VIX is heading back up toward a second backtest of its channel bottom.

While CL and RB should be starting to worry about March CPI numbers.

It’s somewhat gratifying that investors are starting to wonder about longer-term economic consequences.  But, this drop is all about the algos. They don’t like to see USDJPY plunging.

But, it’s going to be hard to keep the DXY up where it is in the face of falling interest rates — which are necessary in order to prevent the economic picture from going south.

Stocks have also depended on the continuing meltup in CL and RB for support.  But, the YoY rise has become ridiculous — over 20% in each.

Unless every other component is plummeting, we’ll be looking at a higher CPI increase again — that is, unless they fall back to earth in the next week.  Basically, stagflation.  It’s already on everyone’s minds, especially with the yield curve already signalling elevated recession risk.Toss in the threat of a trade war with China and another budget deadline tomorrow night and things start to look a little dicey.

I believe TPTB will step in an prevent things from going downhill, but you never know.  I’d keep an eye on VIX, which the bulls will want to remain below 21.10, and FB, with 162 being an important line in the sand.

Note: if SPX’s rising white channel breaks down, then our analog which promised new highs into early April is likely kaput.  There’s a stark difference between the 50 bps decrease in Fed Funds on Sep 18, 2007 [see: This Time It’s Different] and the current tightening regime.  Aside from VIX, the gimmicks which have kept stocks rising the past 16 months are severely hamstrung.

I have to be out for a few hours this morning, but will check back in after lunch.

GLTA.

UPDATE:  11:15 AM

Quick update on TNX, DXY and USDJPY…

USDJPY has already tagged its .618, so dropping through the white channel midline opens up much lower targets.  Remember, popping back up to tag the broken white channel was important to the upside case.TNX has a great deal of downside potential, but has been driven higher by inflation fears (looking at you, CL and RB) and then propped up by TPTB in order to keep DXY from melting down any further.

What DXY has needed for the past two months was a tag of the purple channel bottom.  The Feb plunge scared the crap out of TPTB, so they’ve been nursing it along, hoping they can prop it up long enough for the channel bottom to reach the .618 at 88.423.

But, traders are right to question whether that’s feasible, now.  And, if so, there’s no help for stocks from USDJPY.

UPDATE:  11:25 AM

Even though FB is obviously being propped up, COMP is suffering some spillover effects — a FAANG contagion of sorts.  Now I’m reading that John Dowd has resigned — more risk from the political front.  Can VIX hold here?

If not, ES has tepid support at 2665.27 and 2635.29 and SPX way down at 2612.97, followed by the .146 at 2582.36.  Note the SMA200 is up to that level now.  It’s the lowest SPX can go and still find reasonable support. UPDATE: 3:49 PM

The white channel has broken down, with VIX poking up through overhead resistance and COMP having backtested the red midline…scary things all around.  SPX 2612 and 2582 look fairly likely at this point.

DXY has backtested former support, now resistance.CL has reversed sharply, though not quite as much as it advanced yesterday.

If SPX gets to the SMA200, there is a logical rising channel, shown in yellow, that would result. It sure isn’t terribly bullish.  Though, it’s interesting that the top of it reaches the .886 at 2834.09 around Day 39.  Probably means nothing, but interesting.  At this point, a 250-pt rally in the next two weeks seems quite unlikely.

About the only positive things I see are that FB still hasn’t broken down below the channel line……and, SPX and ES are coming up on the .618 retracement of their rise from the Feb lows. (2635.53 and 2635.29 respectively.)

It certainly appears as though the 2007 analog is kaput.  But, I’ll study it a little more before making the official pronouncement.