Sometimes, the narrative gets a little ahead of reality.  The latest data out of Japan and the euro area suggest the narrative was on a different planet.It’s been difficult to be patient – waiting for markets to catch down with hard economic data.  But, we got our first taste of reality in quite a while yesterday, with more to come in the days ahead if/when SPX 2703 breaks down.

So far, “when” has a solid lead on “if”:  USDJPY is tumbling, VIX is on the rise, and oil and gas might have finally lost their momentum.  With Fed minutes coming out later today, will we finally see some acknowledgement of the inflation problem?continued for members…

Aside from EURUSD, things are looking pretty dicey for the bulls.

Futures are hanging on to the nonsensical rising white channel.  If/when it fails, the SMA200 is back in play.  The most logical timing would be early next week, when it would allow a backtest of the falling white channel.But, 2703.75 lines up with SPX’s 2703.62 — the 2.24 which has provided support for the past couple of weeks.  Until it breaks down, the bears will get no joy.COMP still hasn’t broken out, and looks more likely every day to attempt the long-awaited SMA200 tag.  Today, it aligns with SPX 2551ish.The top of VIX’s falling wedge isn’t clean, so I’ve drawn two potential tops.  A move above 15.07 would be a good confirmation of sub-2703 SPX to come.USDJPY might have gone a little higher, but maybe saving that for the “recovery” after a backtest?RB – finally going to rescue CPI?How is TSLA hanging on?

From a macro standpoint, the yield spread model continues to flash warning signs.  It’s important to remember that this is not a short-term trading signal.  The first 2007 top came 4 months after the last bounce off the white TL; the second came 6-7 months after.But 10-Y rates are due for a tumble, as seen by ZN finally beginning to break out.10:15 AM

In addition to two channel backtests, SPX has just about closed its gap.  This is usually where the bounce peters out if it’s going to — which I believe it will. UPDATE:  11:07 AM

Surprise builds in RB and CL… …have them on the defensive. UPDATE:  11:40 AM

The more I look at ZN, the more I feel we’re about to see a sharp downdraft in equities and rally in bonds.  The critical threshold will come at 119’180 – the .500 Fib and a TL from last September.  Such a move could bring TNX back to the 2.6-2.85 range very quickly – as early as next Tuesday or Wednesday. And, if those levels didn’t hold, we could be looking at 2.4%.

UPDATE:  12:00 PM

Things seem to be slowing down a bit, with 2703.62 or lower possibly not occurring until later in the day or at the close.  Note that VIX has reached good support at the lower wedge line and SMA5 200.  I expect SPX to continue lower.

In the meantime, I’m going to do some other charting — probably gold.  I’ll check back in in a couple of hours.

GLTA.

UPDATE:  1:59 PM

ES has traced out a nice triangle ahead of Fed minutes. A breakout is bullish, while a breakdown is obviously bearish.

UPDATE:  2:10 PM

The minutes came in a little more dovish than most expected — saying inflation isn’t a concern — stressing a “symmetric” target (translation: we won’t wig out if it exceeds 2% – which it has and will.)

Stocks have broken out of the little triangle set up earlier – bullish in the short run.  Note that SPX has now officially closed the gap on what feels to me like short-covering algo trading. Bonds are holding their own.

My gut tells me this is a head fake and won’t last.  I’d fade stocks at these levels.

UPDATE:  4:00 PM

Perfectly good resistance at the SMA5 200 (and, a TL) was violated by VIX poking down below its support TL.  It was a decent recovery from a pretty ugly open, so bullish on its face.  Still, my gut says we’re going lower.Note that ZN broke through the initial TL resistance. CL and RB held support — but, not terribly convincingly.Last, USDJPY bounced off its lows — but, is hanging just below its SMA10 and SMA200. Could be a head fake, but doesn’t feel like it.  Today was a fairly typical Fed minutes day, with a VIX-based rescue that made everything look bullish.  But, bonds rose and yields fell.  The dollar should follow along, which won’t help stocks much at all.Lots to think about tonight…  have a nice evening.