Unintended Consequences

We posited yesterday that after over a year of constant bond market manipulation (the latest instance), TPTB had broken the link between lower interest rates and lower stock prices.  It was a strong positive correlation that we wrote about quite some time ago in forecasting a stock market correction (that obviously never happened.)

2015-06-04 TNX v SPX wkly 0700That correlation worked both ways insofar as rising interest rates were often (but, not always) a sign of a recovering economy and, hence, stock market rally.  The correlation broke down altogether in early 2014 when interest rates fell, but stocks continued soaring.

We wondered whether it would, thus, be difficult to reestablish the correlation (or, at least the perception thereof) in the event that rates continue to rise (and, bond prices fall.)  The past two weeks have suggested it might just be.

2015-06-04 ZN v ES 60 0606Yesterday’s call to short SPX at 2121 worked out well, and — with the eminis currently off 10 points — our downside targets are looking better by the minute.  Factors?

China broke down again — and, recovered again — overnight.  Screen Shot 2015-06-04 at 6.13.30 AMWhile, CL is again faltering.  The rising wedge that became the rising red channel is now a broken channel, and CL is solidly back in the month-old falling white channel (though the rising purple channel bottom isn’t far below at 57.59ish.

2015-06-04 CL v ES 60 0724The only question is whether USDJPY will get another stock-saving bounce off the red trend line (neckline?) that’s prevented a more serious sell-off over the past week.

2015-06-04 USDJPY v ES 60 0606Updated SPX charts in a moment…

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