Futures are flat this morning as investors contemplate the flurry of headlines in the week ahead.It’s the same old, same old.  VIX continues to rally overnight, in order to have support it can break below in the morning.It’s one of the few positives in the charts — which otherwise feature a continuing slide in oil and gas and an indecisive USDJPY.

continued for members…

Two breakouts in a row, giving equities some room to backtest.

SPX has pushed above the white .886, meaning the gray .786 at 2800 and the gray .886 at 2834 are the next upside targets…

…assuming DJIA can push through its .618 at 25377.  If not, then I would expect it to at least backtest the gaggle of moving averages at 24770ish, about a 2.3% drop from 25377.  This would equate with SPX 2717ish.As an aside, GOOGL hasn’t pushed above its .886, even though COMP and the other FANGs have.USDJPY continues to linger below its SMA200 — I’m convinced so it will have an important rally in reserve in case it’s needed later this week. And, then, there’s oil and gas.  I did a little fine-tuning on the timing, but otherwise our downside targets are unchanged.We have a lot of economic news coming down the pike this week — not to mention Fed, BoJ and ECB meetings and the Korea summit.The biggest data point, IMO, is May CPI due out tomorrow.  I suspect it’ll be massaged down to 0.2 and 2.5% or so, and that oil and gas will continued falling enough to bring June’s figures down to an acceptable level.  But, the YoY number should be closer to 2.7% – even using the methodology which understates CPI.

The upshot: a replay of June 2011.  The 10s2s spread recently (56 days ago) tagged the trend line connecting its previous highs and lows.  We’ve looked at this many times.

The 10Y, at 2.96%, hasn’t been this high during an FOMC meeting since June 21-22, 2011 — six weeks after SPX had topped (May 2, 1370) and a few weeks before the US debt downgrade and severe market correction (-22% to 1074 by Oct 4.)

Let’s compare.  In June 2011, CPI was 3.56% — having risen pretty much in lockstep with oil prices (from 33 to 114) and interest rates between 2009-2011. 

But then, as now, interest rates that high were a problem.  With an average rate of 2.40% (in 2010) and $15 trillion in debt, interest expense was $454 billion in 2011.  Now, with over $21 trillion in debt, even our low, low rates of 2.276% (average in May) have pushed interest expense to all-time highs.In 2011, the decision was obviously made to reduce CPI before interest rates and expense got out of hand.  The fastest way was to reduce oil and gas prices. It wasn’t apparent to me at the time [see: Not Terribly Slick.] All I could think of was how it would potentially delay our analog from playing out.

Bottom line, the drop in CL matched the drop in SPX exactly: May 2 to Oct 4.  From SPX’s perspective…

…and, from CL’s.Note the similarities between the 2009-2011 and 2016-2018 channels in CL.TPTB are clearly better at propping up stocks these days.  So, a 22% plunge in SPX isn’t necessarily on the agenda – but, I think there will be at least some damage.  Regardless, a sharp drop in CL and RB is absolutely necessary if CPI and interest rates are to be kept under control.

More later.