Where to, Next?

It’s an odd feeling when multiple forecasts play out all at once.  It’s exciting, probably not unlike drawing several royal flushes in a row.  Except, in the case of the markets, it has less to do with the luck of the draw and everything to do with detecting how the house has rigged encouraged a particular outcome.

DXY is about to tag the next lower target we set back on May 1, 2017.

EURUSD is within .0043 of the target we set on Jan 8.

And, USDJPY just reached a target we set last October.

On the bond side, the 10-yr note has slightly overshot our 28.56 target from Jan 10...

…which could potentially accelerate the yellow channel bottom tag posted on Jan 31.

Perhaps the most satisfying results have been on the equity front.   After many false alarms during the Great Meltup of 2017, we wondered on Jan 30 why we weren’t getting the usual instantaneous recovery and included 2703 to our downside case for SPX.  We added 2732 and 2533 on Feb 2.  SPX nailed our 2533 target a week later (2532.69.)

As SPX was tumbling on Feb 6, however, an analog became apparent [see: Analog Watch.] If it played out, the bounce from the upcoming lows would be very sharp and VIX would collapse from its then current value of 49.21 to 19.10 (refined on Feb 7) by Feb 14.

After SPX bottomed at our 2533 target, we set 2765 on Feb 14 as our initial upside target.  This was modified on Feb 12 to 2719.   Earlier this morning, SPX reached 2717.66 — a nice 184-pt bounce from our buy signal at 2533.  While a day late, this qualifies as pretty decent outcome.  And, we’re not done yet.

My point in presenting the above isn’t to toot my own horn (okay, maybe just a little.) Rather, it’s to point out that by understanding the motives and methods of those pulling the levers, and paying attention to chart patterns, Fibonacci patterns and analogs, reasonably accurate forecasts can be made.

I heard a financial commentator say, this morning, that higher interest rates must not be that big a deal.  The 10-yr was pushing 3% and stocks were soaring, so all the anxiousness we saw over the past couple of weeks was overdone.

This is one of the silliest things I’ve heard all week.  To this, I would say don’t confuse the ability of algos (which, as we saw last week can push stocks in both directions) to rescue markets with an economically sound framework.

The corollary, of course, is don’t confuse the market with the economy.  The US might well be way in over its head, with $100 trillion in obligations (most of which would cost more to meet if rates continue to rise), a growing budget deficit, and consumers who are piling on debt in order to keep up with actual inflation.

But, that doesn’t mean the party is over — at least, not yet.

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