We asked yesterday “can the FOMC really be comfortable with very loose financial conditions?”  Apparently so.  Powell turned in one of his most dovish performances ever. The markets, already primed for a breakout, celebrated with a very definitive breakout.

Whether intentional or not, Powell turned dovish on the day that ES completed a golden cross (the 50-day moving average passed above the 200-day.) It can’t help but further inflame a market already on fire. If they can keep the VIX beatdown going, it might even last.

continued for members…The big picture shifts dramatically as long as VIX cooperates. Yesterday’s golden cross will last at least a few more days, no matter what. Only if VIX rebounds sharply do the bulls have to worry about a serious downturn…

…except that DJIA still hints at a backtest of its SMA200. Even SPY, the most hesitant to break out, has capitulated. With the breakout having already occurred, there is little need to keep the currency games going. EURUSD should finally reverse, and USDJPY should be able to proceed with its drop. DXY, which has overshot to the downside, should recover.

GC and SI should be able to finally reverse.

CL and RB are both still on the bubble – both holding on to little trend lines off the December lows. At this point I would expect that prop job to end.

Though, the fact that TNX finally backtested its SMA200 complicates things.

Note that TNX also backtested the midline of the large, well-defined red channel.XLU, which first alerted me to the patterns in SPY, says there’s a cycle low coming around mid-Feb.

Here’s a close up, which shows the very strong correlation between XLU and SPX until SPX’s breakout last week.

Here it is charted next to TNX. We can see that the sharpest drops in XLU have corresponded with sharp rises in TNX – exactly what you would expect, as yields and prices move in opposite directions. If the XLU cycle model holds, then yields should rise sharply over the next two weeks – not break down.

continuing…