Futures are up sharply on a better than expected jobs report: up 4.8 million, and the unemployment rate dropping to 11.1%. Initial claims came in at 1.43 million, with continuing claims rising slightly to 19.3 million.

The direction didn’t surprise anyone, but the numbers surprised most. The reopening of most of the country over the past month has produced the desired results. It remains to be seen whether the spike in coronavirus cases in half the country will put a dent in the trend.

Back on June 12 [see: Is it Safe?], we alerted members to a development in VIX, which had recently broken out of a falling channel from March and was nearing a 10/20 cross.

It’s tough to see on the chart above, but VIX’s SMA10 was just about to cross above its SMA20 – a bullish sign for VIX and bearish one for stocks. If VIX is hammered today, the bullish cross can be avoided. If stocks’ meltup is to resume, we could still see VIX backtest its broken white channel or the yellow trend line off the 2018 lows which is nearing the SMA200 currently at 24.89.

As it turned out, that’s exactly what happened. After the jobs numbers this morning, VIX tumbled to tag its SMA200 and the yellow trend line from the 2018 lows. This completes a 42% drop which produced a 200-pt (6.7%) rise in SPX.The big question, of course, is whether this important support will hold.

continued for members…

It’s hard to imagine that VIX won’t at least bounce here, meaning that this morning’s highs will likely not be bested as the day progresses. But, what about Monday? Note that at these levels, VIX’s SMA10 is back below its SMA20 – the unwinding of the bullish cross (bearish for stocks) we discussed back on June 12.Note that the previous bounces off the yellow TL and the SMA200 didn’t bode well for stocks.

ES has obviously broken out of the proposed falling white channel. At the very least, we’ll need to redraw our falling white channels for VIX and ES.

We added the larger, purple falling channel for SPX back on Jun 11 after VIX broke out of its falling channel, but certainly didn’t expect to be back at the channel top so soon.

Very little has changed on the currency front. USDJPY’s white flag pattern has still broken down and has been backtested. The little red TL has also broken down. And, EURUSD is still poised for a big drop, likely producing a big jump in DXY.Oil and gas are still trending sideways – showing gains on the day simply because they are recycling lower overnight. They are not making higher highs, at least not yet.

June’s EIA gas price data is now in, and we saw a 12.95% increase over May’s prices – signaling rising inflation for the month. CPI is due out on Jul 14.The 10Y spiked higher after the numbers, more fully backtesting TNX’s broken flag pattern. This resulted in a bump in the 2s10s to as high as .537……not a breakout but preventing a breakdown.Will VIX break down through the SMA200?  I can’t say. The last time it bounced, on June 8, SPX fell 8.2% over the next week, closing below its own SMA200 on the 11th and needing two more sessions to get a meaningful bounce off of it. It was tested again on the 26th and 29th.

With this morning’s push to slightly higher highs than we got on Jun 19, we could certainly be looking at a very shallow A-B-C corrective wave 2 of 3 with a 3rd of a 3rd yet to come. But, VIX has certainly been able to stave off such declines in the past.  As I write this, VIX’s SMA10 and SMA20 are both at 31.68. ES’ SMA10 is 23 points below its SMA20, and SPX’s is 19 points below.

I’m always hesitant to suggest a directional move over a holiday weekend. This one is no different, particularly with such open and obvious efforts by the Fed and Treasury to prop up stocks. But, until VIX breaks below its SMA200, the rally from March 23 has to be considered a corrective bounce – meaning more downside to come.

More later.

UPDATE: 3:35 PM

VIX is bouncing so far, so ES/SPX are backing off their highs. ES made a higher high – 3156.50 versus 3156.25. SPX’s higher high is a little more obvious. Neither quite reached its .786 retracement of the Jun 9 highs.I’ll be really annoyed (but not surprised) if ES closes at the white channel top (the .618 at 3113.79) which proved to be no resistance at all.Everything else is very much unchanged from this morning.  FWIW, VIX’s SMA10 remains above its SMA20: 31.77 versus 31.73. A side note…I don’t know why everyone is so worked up about yield curve control. Except for a brief spike and 2 brief dips, the 2s10s has remained in a very tight range since mid-March.  This is not happenstance. I plan on taking Monday off, but might sneak in my big picture post on that day depending on how the weekend goes. I wish everyone a safe and enjoyable holiday weekend!