Yesterday’s rally was so lackadaisical that it was hard to see it as having much staying power.  Today we’ll find out, as USDJPY has already broken down and CL has reached another potential turning point.

In fact, the only thing reliably driving the futures higher at the moment is our old friend VIX.

A Bloomberg article published yesterday talked about how unreliable VIX has become as a measure of risk.  True, but I look at it differently.  I see VIX as a very good indicator of where central planners are trying to push the market.

Formerly an indicator, it has become yet one more tool with which they can goose stocks — often in contradiction to the news flow.  One of our astute readers pointed out yesterday that a red candle in VIX matched up with a red candle in SPX.  Unfortunately, this has become a common occurrence.

But, rather than bemoan the market’s brokenness (busted…I still do a lot of that), I see it as a tool with which to discern TPTB’s intentions.  Deny it if you like, but there is very obviously a script that central bankers and their lackeys tinker with on a daily basis.  Their one imperative: a happy ending.

If we can sneak a peek ahead at the next few pages, we’ll continue to do well even as fundamentals and formerly reliable indicators fail us.

continued for members…

USDJPY has nearly reached our downside target after falling out of the rising channel it’s been in since Sep 26.  If it ever backtests the channel it broke out of on Oct 3, it could drop as low as 100.60. 

SPX has a chance to backtest the falling white channel at 2135ish.  Or, it could keep going and try for our downside targets — my preferred scenario.

But, the futures are up 3-4 points, so we could get a small bump at the open that reaches as high as the gray .886 at 2146.37.  After that, I’ll be watching USDJPY and CL again.

CL rejected the H&S that would have meant much more downside, but also reversed last night at the white .886.   While the pattern suggested is a Butterfly up to 52.21, this would upset the inflation apple cart.  They’ll only do it if they intend for stocks to break out  — or are determined to prop them up at current prices.

Remember, EIA crude inventory will be released at 10:30.  If it refutes yesterday’s API inventory plunge, we could see some fireworks.

UPDATE:  10:50 AM

EIA reported a 5.247M barrel draw, so CL spiked up to very near our upside target.  I’d look for a reversal here, which should mean a reversal for SPX here at 2146.37.  If you’re not holding short on a swing trade, this is a good spot to take a shot at it.

Note that CL is officially above the purple neckline from July 2015.  This is a critical overhead resistance.  Simply put, a failure to reverse below it means inflation.  That doesn’t mean, however, that we can’t get intraday pushes — just enough to goose stocks when necessary.  Remember, CL never quite reached its .786 at 54.76.

UPDATE:  12:47 PM

Pulling the plug on the short here at 2146.11, as VIX just keeps notching lower.  Next stop should be 2153ish, followed by 21163.34. 

This seems to be the channel that’ll be used.  A backtest of the falling white channel is looking less and less likely.

Nothing but VIX is pushing SPX any higher at this point.  CL has already reversed at our upside target. USDJPY is doing its usual intraday rally, to be undone later.   VIX, however, keeps inching lower knocking SPX higher a few pennies at a time — just enough for the algos to run some stops and stay ahead of the SMA5 10.

The Fed’s Beige Book is coming up at 2PM ET.

UPDATE:  2:41 PM

SPX needs to catch support here if the uptrend is to continue.  But, CL is settling lower and VIX is on the rise.  Watch your stops.

UPDATE:  3:20 PM

It dipped a little lower than the white channel bottom in what was a head fake.  CL is selling off, now.  But, I imagine everyone expects it’ll hold at the red SMA5 200 at 51.43.  It might initially, at least until 4:00.  After that, I wouldn’t bet on it.  However, USDJPY and VIX are supporting SPX for the time being.

UPDATE:  3:31 PM

It’s struggling to hold on here, and USDJPY is the only thing responding.  Probably time for a VIX dump down to 14.1.  Even so, I’m not firmly convinced it’ll hold up overnight.  I’d close the position here 2146.75 and sit it out.

I’m leery of shorting it, as the SMA10 is just below at 2144.54 and the SMA100 is just below that at 2141.70.  But, nothing wrong with shorting for scalpers who use tight stops.  SPX didn’t make a new high today, so technically the downside targets are still in play.  Even a backtest of the latest falling white channel would be around 2130 – a nice 16 points lower.

Here’s the chart that’s keeping me guessing right now.  The yellow .886 at 99.606 shows to be around Oct 31.  It’d surprise no one.  However, we could also get a long-overdue backtest of the broken purple TL at the SMA20 around 96.54.   It’s been over two weeks since DX even touched its SMA10.  In my book, it’s too hard to call — and, with potentially serious implications.  

Consider that GC has been sitting at or even below its SMA200 ever since Oct 6.