The algos are very happy with the way VIX is melting down.
continued for members…
ES’ 3.618 is in the rear view, only important as support now.
But, this doesn’t mean that the risk is gone. Note that SPX has reached the top of the yellow channel from 2008.
Needless to say, there’s some wiggle room in the placement of a long-term channel like this.
And, as we discussed a while back, this sets up a significant battle between the chart’s channel pattern and the algos – which are taking their cues from VIX’s latest collapse.
Judging from the fact that VIX made a higher low and USDJPY pulled back from its .886…
…I believe ES will go ahead and backtest its 3.618 before attempting to make more headway. From ES 4051 back to the 3.618 at 3998 is 53 points, while SPX’s current 4061 to its 3.618 is 105 points. This obviously complicates things and raises the possibility that SPX just won’t backtest – too risky for ES to drop back below 3998.
USDJPY’s stance is also reflected in NKD, which is now making a very robust backtest of the purple TL. Perhaps significantly, it has not made a higher high.
Elsewhere in currencies, we’re still seeing DX strength and EURUSD shuffling along sideways. EURUSD will need to break down or bounce at some point, but that point need not arrive until Apr 20.
And, note that SI has recovered to back above its SMA200 and, at least for the moment, back above its SMA10 as well. This is a very tantalizing move for the hopeful bulls. I wish I could say it’s proof of a recovery, but I don’t have that much confidence in it at this stage. The lower targets are starting to drop out of the picture as we discussed in our last SI/GC update, but the red fan line remains an anchor until SI can string together at least a few good days in a row.
We’ll want to keep a close eye on CL/RB as well. It’s looking increasingly apparent that last week’s “breakout” was indeed a head fake.
I think TNX also bears watching. It has risen in sync with CL – the reflation trade, etc. If CL tumbles here, I would expect TNX to soften as well.
UPDATE: 3:45 PM
For a while, VIX actually topped the SMA20. Now, however, it looks like it’s tanking into the close – although up on the day as the overnight action is disregarded.
As a result, ES has given up hardly any of its 60+ point gains on the day – despite the big drops in CL/RB and the lack of progress in USDJPY.
