When COMP bounced at 10,572.33 on Friday, a mere 7.19 above its June 16 lows, it might have struck some as a coincidence.  It wasn’t.

It was a well-coordinated effort to ensure that new lows were avoided – at least for the time being.The usual culprit: VIX.  For the 6th session in a row and the 12th time since Jan 24, 2022, VIX tested and retreated from the same trend line – an occurrence the algos have been well trained to respond to with a bounce.  The June 13 test went further, producing a huge bounce because it also broke below two significant trend lines of support as well as producing a bearish (bullish for stocks) alignment in moving averages.

Yesterday’s huge plunge in VIX similarly wreaked havoc with moving averages – postponing (at least) an imminent 50/200 cross.  Will this short squeeze rally follow the same playbook?

continued for members…

A closeup of VIX shows the 50/200 cross is safe for now, with VIX dropping below the SMA10 which is threatening to roll over.

To the extend that VIX is able to remain below the yellow TL – and, now, the purple channel top – the bounce will likely continue.ES has about 45 points to go before it breaks out of the falling purple channel again – just below the 20% correction line at 3795.  If I had to pick a place for a reversal, that’s it.

For SPX, the channel top is around 3785.Much will depend on the bond market. TNX is slipping toward a TL off its Aug 2 lows – about where the SMA20 is at 35.65.

The correlation with RB has broken down during August and September, and faces additional uncertainty from the upcoming OPEC+ meeting which futures have already decided will result in a 1MM barrel/day production cut.

The other development which bears watching is the euro. It has shot up through the .786/1.272 Fibs and appears headed for another test of its SMA50. It has been a long time (Apr 2021) since EURUSD pushed meaningfully above the SMA50 so we’re mindful of the likelihood that this won’t last. But, given the ECB’s dire straits with respect to energy prices, don’t be surprised if a continuing rally in CL results in a compensating rise in the euro.

Depending on how the yen conducts itself…

…we might even get a SMA50 tag out of the DXY……as well as GC and SI (its SMA200.) If OPEC+ effectively raises oil/gas prices this week, reducing the odds of inflation tapering as quickly, will markets shrug it off?  Perhaps not, as the Fed and other central banks are still caught well behind the curve. But, the bears won’t get an all-clear until VIX is allowed to rally to new highs.

Stay tuned.

continuing…