As Fed chair, you can hope that your message will be well received — even if it seems a little nonsensical.  I imagine these thoughts were foremost in Janet Yellen’s mind yesterday as she took the microphone.

If, however, you’re peddling the snake oil that the timing is right for a rate hike (with 0.9% GDPNow) and that inflation isn’t yet a problem (even though it’s quadrupled in the last four months), then you’ll be very glad to have a friend in Chicago working the VIX button — your insurance policy.

Even as Yellen’s most non-sensical answer landed like a thud amongst the friendly crowd of “journalists” VIX was in the midst of a 15% plunge.  It was enough to keep stocks on the rise and from performing a basic backtest, the type of which has been commonplace before central bankers took control of the “markets.”

continued for members…

Yes, VIX broke trend again — and didn’t let up overnight — which has maintained a 4-pt ramp job in addition to the original breakout.

Oil played a part, ramping above the SMA200 late in the session when stocks needed a special boost.  It remains above the SMA200, but has also backtested the .786 white channel line.  The jury is out, but I’m looking for another leg down if, for no other reason, than the still yawning disparity between March 2016 and March 2017 prices.

Note that CL has broken down through a small TL.  If it drops through the SMA200 at 48.72 as well, then we’ll know the downside case still has potential.

USDJPY, which positively nailed our downside target yesterday, sure seems to indicate a desire for equities to drop.  Otherwise, we would have seen a nice bounce at 113.14.

As mentioned above, ES is up a few points overnight and is making a show of backtesting the .618 that it so callously sliced through.  The H&S Pattern isn’t officially dead, but that’s certainly the message.  Might we get even a backtest of the purple channel?

And, then there’s SPX.  VIXs overnight collapse made sure it broke out of the falling purple channel, and VIX and CL together kept it on the rise until the close.  It had plenty of chances to pull back, but VIX was being very actively managed and dipped every single time.

Yes, the purple channel broke down on Tuesday.  But, on Wednesday, it was right back in the running.  This leaves us with a quandary.

Have TPTB given up on the idea of backtesting the yellow channel top and the biggest Fib level to still matter?

The chart below shows the 10. 20. 50. 100 and 200-day moving averages (red, white, blue, yellow and thick red.)  Note that, since the US election, every time the SMA10 in red has flattened or (horrors!) declined, SPX has rallied sharply.Lately, it’s happened the very same day — as was the case yesterday.

We can argue all we like about whether it should, about why the fundamentals don’t support it this time, and about how SPX should complete a backtest here.  The reality is that until we see additional signs of weakness, this pattern can’t be ignored.

I remained short at the close yesterday because I think the Fed bounce was overdone.  While I’d love to see 2335 or 2350 play out, I’m less excited about the prospects than I was before this latest move.

Clearly, someone on the other side of the trade was okay with a backtest.  Otherwise, USDJPY would not have been plunging as it did.  But, CL has been particularly stubborn.  Whoever is punching the VIX button has also ignored the backtest tradition.  There’s simply no way to know who which of the (possibly several) camps will win out.

One thing for sure: the further away we get from 2335, the less likely any camp will be to allow that big a drop.

It’s 10AM now, the time the initial ramp usually starts to fall apart if it’s going to.  SPX has been riding its SMA10/20 higher, only hinting at a breakdown.  If CL can break below its SMA200, VIX can hold the yellow channel bottom, and USDJPY doesn’t suddenly bounce higher, then it has a chance.

If it does, the initial target is the .618 at 2383.4.  Should that fall, we have support at the purple channel bottom at 2372 (at the close) in addition to the SMA10 at 2373.34 and the SMA20 at 2368.49.  Only after all that support is cleared would SPX be able to backtest the yellow channel top at 2350sih and the 1.618 at 2335.

Stay tuned.

I meant to post this earlier for our new members who might be wondering about VIX’s “yellow channel.”  Here’s the big picture……and the close-up, showing the breakdown of the red channel (which allowed SPX to break out after the post-election rally) and the onslaught of attacks on the yellow channel bottom (the yellow arrows.) I count at least 15 incursions where VIX started from above the channel bottom and subsequently dipped or closed below it.

On an aside, note that SPX just backtested the white Flag Pattern at the purple .618.  A drop through this level should provide a little hope for our short position.

Here’s the same chart with the various levels of support indicated.  This is your chance to cover and go golfing if you don’t want to live dangerously and see if this plays out.Note that CL is below its SMA200, but hasn’t strayed far.

Not to get anyone’s hopes up, but VIX is rising (very slowly) from the yellow channel bottom.  I wouldn’t go so far as to call it a bounce just yet.

UPDATE:  10:46 AM

CL has bounced back above its SMA200 and CL is backing off its earlier, minuscule gains.  In other words, they’re both trying to provoke the algos into getting a bounce from SPX — resulting in a mere backtest.  

Again, if you don’t want to take the chance of another ramp (remember, OPEX is tomorrow) this is your last warning.  The way it would typically play out is to wait for the SMA5 10/20 to arrive, then plunge VIX down through the yellow channel bottom at 11.2.  Works nearly all the time.

In this case, the objective would likely be the purple .886 at 2395.69 — if there’s any downside opportunity left.  If not, then we’d see SPX climb the red channel to 2400+ – possibly around the close.

I’m an optimist, so I’m going to give it a bit of time to see if our short position plays out.  I’d use any pop above the approaching SMA5 20 as a signal to bail.  While we wait, I’m going to sign off for an hour or two and work on updating some other charts.

A reminder to our new members…if you’re an active trader (about 1/4 of our members) and would like notices of important intraday updates, be sure to follow our private channel @pebbletrades on Twitter.  This will produce a follower request that I will then approve.  If your Twitter handle doesn’t resemble your name, just drop me a message so I know who you are and can approve you.

If you just want notices of occasional charts and general thoughts, then @pebblewriter is the channel to follow.

UPDATE:  3:19 PM

A few hours later, and nothing much has changed — except we did get some confirmation that the ES channel is drawn absolutely correctly — at least as far as TPTB are concerned.  Note the double tap on the 5-min chart below.

It’s the yellow channel top in the chart below.

SPX has mostly gone sideways since the red channel broke down.  While this is bearish on the face of it, it also clears the way for a higher target should it decide the backtest the rising red channel.

USDJPY continues to be weak, and even dipped well below the .618.

CL — doing whatever it takes…  It’s actually down 0.08%, though the intraday rally makes it look like a good thing.

And, VIX is bumping along — never more than a 10-20 cents from the yellow channel bottom and still below all of its moving averages.
CL should come down further.  But, with tomorrow being OPEX, it might not happen until next week.  And, that leaves the door open for an overnight ramp.  As always, only hold short if you can hedge or deal with the possibility of a gap higher overnight.

 

 

 

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