Go Time for Bears if 12000 on NQ Falls

NQ still battiling in that area. I'm encouraged by the collapse in the peso though. It gave way intraday and is below where I first said to short it.

Nice Wicks on the Peso

I am focused like a laser on USDMXN because it is very correlated with the VIX Index over the longer term and it looks a hell of a lot like February 2020 with a break below pattern (the green line in 2020) before an explosion higher. There are also possible double-wicks off support if today's move holds.

New Currency Enters the Crash Chat

The gap down isn't on the SlopeChart yet, but it takes it right near resistance on the right triangle pattern. Not a breakout yet, but only a day or two away if the trend continues in this direction.

A Bearish Chart Reverses

The Mexican peso breaking down was one of the most bearish charts I'd seen because it is highly correlated with VIX. Inversely with the peso, positively with the USDMXN cross. 

Since this has become a failed breakout, this is now a strongly bullish signal for the overall stock market and a sign that VIX may decline in the coming weeks. It is volatile enough that it could traverse the entirety of the pattern over the next month. A decline to the red support line would require a 3.6 percent decline in USDMXN, a decline of 5 percent takes it to longer-term green support. 

The two don't move one-to-one. MXN had been overshooting VIX lately for example. The best time for correlated charts with weak short-term signals (palladium and Nasdaq being one of the worst with a time lag as long as a year) are when one of them generates a strong signal on its own. Peso broke down the past couple of days and now reversed. VIX didn't confirm the breakdown in the peso. Now the breakdown has reversed. As far as this relationship goes, that's a fairly strong bullish signal for stocks here, and a bearish one for USDMXN and VIX.

Eh Boo Boo, Look at That Peso

One of the most bearish charts around keeps signaling more bearishness: Mexican peso. For whatever reason, this chart is highly correlated with VIX. Lower peso is associated with higher VIX. Peso has broken support, dollar has broken resistance.

Gasoline Price Change Since End of 2020

Highest to lowest increase: USA, China, UK, Italy, Germany, Mexico, Japan.

Portfolio & Biotech Update, Fake CPI Boosts Squeeze Odds

If symmetry holds, XBI takes a run towards $87 tomorrow. I have a little left on the position, as my calls were for July 15.

My main holdings now are long TLT and SMH, short oil. The XLC trade goes on, but it is far OTM and not a significant amount of capital. Notice the correlation of QQQ and TLT, or below SMH and TLT. The seeds are there for a rally and if the relationship between TLT and SMH holds up, and TLT hits my target of around $120, OTM calls on SMH are dirt cheap. That's a lot of pieces and SMH can plummet with the whole market even as TLT rallies, but if I'm right...

The market plunged into the close. The peso has a clean breakdown and it is positively correlated with VIX:

A crash window is open. However, the rallies have been sold into the close on most days. Going back to what I've been saying the past couple of weeks, a big rally could be building because nobody believes a large rally is possible, not bears, not bulls. I also suspect there is frontrunning of what everyone knows will be a very bad CPI report. Witness crude and copper today as evidence.

There also was a fake CPI number going around. I don't know if that impacted the sell-off or not late in the day. CNBC was reporting on it, so maybe. If yes, my expectation of a squeeze tomorrow goes up. The number was obviously fake because a quick calculation showed it would take a 2.44 percent month-on-month increase, which ain't happening. How stupid is CNBC? The Cleveland Fed Nowcast rounds to 1 percent mom and 8.7 percent yoy. The market is very jittery and could go in either direction, but my gut says the market goes up. And if not, I have USO and TLT for a reason.

Everything Back to Expected Path

ZB and NQ are green today (NQ is bouncing between green and red this AM), CL is very red. When thinking about the Fed hiking 75 basis points and blowing up the world, NQ is the most likely to break from this pattern. CL most likely to stick to the script.

USD has broken out vs Mexican peso. This could open the next phase of selling in emerging markets.

Teh 2s10s inversion went even more negative and the euro is approaching 1.0000 versus the U.S. dollar.

Now if only the yen would suddenly rally...

Event Horizon: 3875 is Alive; King Dollar is Out For Blood

Sometimes I drop lines and I don't even know why, and this is one of them. I've seen other traders with other targets in the neighborhood, such as 3850 being a big one. ES was banging away at 3875 last night though (I adjusted the line from 3874.75 in light of this) and was there again in the morning. 3850 is the bottom line for bulls today, bear fun gets started below. Above 3900 and the fun starts for bulls with a caveat: 3950 has to break. There's no upside coming unless that happens. Rangebound until something breaks.

I was buying TLT calls at the end of last week and so far, so good. The inverse H&S sketch intersects the horizontal support line on July 26, one day before the FOMC announcement. I am hoping ZB is already rallying by then, but that should be the end of the line for rally hopes for both stocks and bonds.

The yen has been my worst trade of the summer so far, along with XLC. Both related because a market rally won't really get going until some trends reverse. Both are also countertrend trades against the primary bear market. I looked at currencies last night. The picture worsened overnight. My bear alarm bells are ringing looking at the Mexican peso, here with VIX inverted:

The FX market is becoming a major concern here, to the point where the Federal Reserve should be getting concerned based on their "financial conditions" model. This is a bear market and all these currency moves are expected, but the faster they happen, the greater the possibility that something major breaks, a la Thailand in 1997. 

The CPI and earnings season kickoff are on Thursday and Friday. The Fed meeting is sixteen days away. Markets are entering the Event Horizon. I'm rather confident, geopolitical screwups aside (unfortunately a far too high probability), that oil will be down and long-term bonds up when this period is over. Stocks can rally from here and continue well into August. Stocks can sink and then rally around or after the Fed meeting, and continue into August. Stocks could sink and plummet after the Fed meeting if the Fed ignores all evidence of deflation/disinflation/recession, with no end in sight until a "pivot." If I get more bearish, I'll target oil and energy stocks. For now, I still expect a larger rally is building.

Yen Opens Door to Currency Chaos

The case for global market carnage strengthens with the breakdown in the yen. There is no resistance until 175.

The euro hasn't followed to a new low yet.

CNY also broke out versus yen.

Euro/yen.

KRWJPY

USDCNY in a nice bullish pattern if the yen isn't going to reverse.

CNYEUR looking like a potential bullish base. There's still a case for massive CNY deval, so if euro looks like potential trash versus yuan...

The peso is at risk of a breakdown. It is inversely correlated with VIX.

I'll repeat a question I've been asking the past couple of months: how does the Federal Reserve restore price stability when Western governments are destroying their economies with sanctions? What are the central banks supposed to do? Yes, they screwed up with QE and rates too low for too long. Events then trapped them and they were too timid in hiking rates and starting QT. Jay Powell can't ignore Europe and Japan for much longer. If he takes rates up and DXY follows, he risks blowing up Japan like Thailand in 1997, which would take down the world unlike in 1997. Or he risks exterminating the euro because neither the Russians nor Saudis will want a rapidly collapsing euro for their energy exports. They will demand dollars or gold.

All the Blips Look Bullish

The Mexican peso is highly correlated with VIX, bounced off my support line. Yen down, yield curve steepening, bonds up broadly, crude down. Pretty much everything is as I expected. Stocks have also bounced. However, none of these exhibit follow through moves yet. I want to see the S&P 500 Index above 3850 and moving to points north.