Lots of calls and emails yesterday from folks wondering how the hell the market could be up so strongly in the face of the violent unrest in D.C.

When the capitol was breached, shortly after 2pm, the S&P 500 was already up 55 points on the day.  This came on the heels of a sharp 22-point plunge on the open.  Altogether, the S&P 500 rallied 78 points from the daily lows before finally topping out.

We know why this happened. As is so often the case, the algos were directed to erase any signs of dissatisfaction with the events of the day: an abysmal ADP employment reading, FOMC minutes, a brewing constitutional crisis, etc.

Note the slight breakdown of the futures around the time ADP employment (-123K vs prior month +304K and +120K consensus) was released at 8:15.  Now, see if you can tell when Fed minutes, which the Fed obviously knew reflected a less than rosy assessment of the economy, were released.

I’ve marked it in case it’s not obvious.  Note that it didn’t stop until ES had made a new all-time high (by 1.5 points at 2:15.)Now, here’s what happened to VIX as the market opened and the day progressed.  The breakdown of a falling red channel and the 10-day moving average are pretty common and effective algo signals. I’ve marked the release of the Fed minutes with a yellow arrow. As fate would have it

Sure, there’s too much liquidity in the markets thanks to central banks’ obvious agenda to prop up stocks. But, the cash on the sidelines we always hear so much about didn’t suddenly materialize yesterday at 9:30.

Let’s be honest about what’s really moving markets like this: the systematic and deliberate crushing of volatility which, in turn, signals the machines to buy anything that isn’t nailed down. It happens over and over – and especially when the market’s protectors fear a potential downturn.

As I wrote yesterday…

Either this is the start of a chart-busting rally, or things are about to get very ugly right as ES’ 50-day SMA has reached its Dec 21 lows.

continued for members…

The breakdown was averted and ES is on its way to making new highs as the market is about to open.

The charts are a bit of a mess, as the next higher Fib target at 4136.15 intersected with the yellow channel top and backtest of the broken rising white channel back around Dec 22.  Recall we saw the same thing happen in early 2018. Right now, it’s all about crushing volatility (with a bearish 10/20 cross still being threatened)… …and a sharp (slightly premature) bounce in the USDJPY. Don’t be surprised if it peeks through the SMA50 – a trick that always accompanies big upticks in stocks.EURUSD is still backing off its .886……so, DXY is still hanging in there for now – 14 sessions now since it reached the .886.Several 10/20 crosses (bullish and bearish) have already happened in the VIX futures since Dec 21. It’s currently in a bearish alignment (bullish for stocks) in contrast to the cash index’s .22 bullish (bearish for stocks) alignment. VXF21 is a very short distance away from recent lows – an easy antidote to any further bearish news.On the bond front, the 10Y continues to slip higher – driving the 2s10s higher as a result. I wrote yesterday that the yield curve model has been early before, but it has never failed.  In doing a deep dive on the charts, I have to amend that statement.

Note that the current bounce in the 2s10s has been driven solely by a rise in the 10Y – while the 2Y has flatlined.  This is highly unusual. I had to go all the way back to 2009 to even find a period where the 2Y traded in a tight range for any significant period of time while the 10Y increased at a sharp rate.What I discovered is pretty profound, but I’m still in the midst of charting it out. Here’s an initial installment, but I have several more to post.

Note that the left and right scales on the first chart are different. 10Y traded in such a tight range, it’d be hard to see the fluctuations otherwise.Unfortunately, I might not have time to do so until tomorrow morning. We have a 15-year old sweetheart of a family cat who is slowly dying of congestive heart failure. She took a turn for the worse over the weekend and we’re kinda scrambling to see what can be done to keep her going. I’d appreciate any prayers/kindly vibes anyone wants to send her way.

On top of that, my youngest daughter is in the throws of college applications. So free time in the evening for charting will be pretty hard to come by for the week or two.

More later.