What a way to start off the year. The SPX Premarket appears to have gapped down to challenge the 2-hour Cycle Bottom support at 2011.42. It appears the cash market may open beneath that support. However, there could be an attempted bounce there, should support hold. Should the decline break through and exceed the prior lows, the damage may be severe, since there is no visible support to the Head & Shoulders neckline near 1880.00.

The source of the trouble? ZeroHedge reports, “It all started off relatively well: oil and US equity futures were buoyant on hopes Iran and Saudi Arabia would break out in a bloody conflict any minute boosting the net worth of shareholders of the military industrial complex, and then, out of nowhere, like a depressed China in a bull shop, the "mainland" crashed the party following a terrible manufacturing PMI report, which sent Chinese stocks sliding slowly at first, then very fast.”

JPMorgan very quickly jumped onto the bear bandwagon by issuing this report, “It didn't take long for the momentum-chasing fundamental strategists to readjust their immediate stock price targets on the heels of the i) failure of the Santa Rally and ii) the worst start to the year in Chinese stock market history. Case in point, moments ago JPM's equity strategy team released its first note for the year in which it says that "we take the view that equities are unlikely to perform well on a 12-24 month horizon" adding that "the regime of buying the dips might be over and selling any rallies might be the new one."

TNX wasted no time gapping down to its 50-day Moving Average at 22.19. Again, there is support and, if it holds, there may be some consolidation beneath the Triangle formation. However, should support break, there may be a much larger flow into Treasuries.

We should be cognizant of the Head & Shoulders neckline at 19.60 that may be broken during this decline.

VIX futures are currently challenging the spike high left last Thursday. More likely than not, it may go beyond that to challenge the 2-hour Cycle Top.

Last week we left both the VIX on a confirmed buy and SPX on a confirmed sell, despite the Hi-Lo “buy signal” which I suggested was a fake-out move.

USD appears to be treading water this morning.

It had been challenging its 50-day Moving Average at 98.42 earlier during the weekend, but the current futures reading is at 98.73.

The telling measure is USD/JPY, which has declined to 118.70 in this hour’s Forex trading. This is the lowest it has been since October 14 and August 24. It tells us that the Yen carry trade is unwinding. This source of liquidity is suddenly disappearing and threatening market liquidity.

Gold reached a high of 1079.00 in the morning futures market. It would have to exceed the prior high at 1081.40 for a breakout. I am currently neutral on Gold.

A breakout may lead to a challenge of mid-Cycle resistance at 1136.45 over the next two weeks.

Regards,

Tony

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