A quick review for newer subscribers. We used this chart all summer to project a rally to test the January high and a possible ‘M’ double top. When SPX broke above the top of the red box and the January high and held it for a couple of weeks we were compelled to set a measured target of 3000+. In short, we were forced to abandon the favored plan, which was for a correction after the top-test in favor of a trip to 3000 in the near-term.
As you can see, the breakout is currently under threat. Let’s dial in a closer view. Bulls want to see the current level hold or the rally and the 3000 target would come into question. A weekly close below the January high would be a bad sign, although this did happen once along the way a few weeks ago. The VIX in the lower panel is doing what it did back in June during a market pullback. It is at the resistance created from that situation.
The SPX rally is intact but under threat. A weekly close below the top of the red box and a VIX breakout would indicate that a more significant correction than this so far routine pullback would likely be under way. The caveat to the bear case being that the trend line is still intact.
A significant caveat against the bull case however, would be in place if the Yield Curve continues to steepen. As you can see, it currently looks a lot more like it did when it kicked off the February correction than during the more routine market pullback in June. We should respect the trend as long as it holds, but be aware of significant internal problems with this market.