Sven Henrich via Northman Trader

Like the mini Iran crisis earlier in the month the coronavirus is already ignored as markets are once again rallying hard today and in process are crushing all volatility. Gap, ramp and camp, the standard script.Another mini dip soon to be forgotten? Or a dead cat bounce?

Markets became short term oversold and a bounce makes sense.
Notable that after 3 months of rallying the first serious down day has prompted immediate calls for Fed soothing and reassurances:

Yes, these are the markets we have. They can’t handle a single down day without running to their sugar daddy.

Likewise the PBOC will flood markets with liquidity when Chinese markets open again.

That’s how fragile and dependent financial markets have become. Expecting and receiving constant intervention help to avoid and minimize any downside. The lender of last resort has become the primary driver of markets always eager to please and hence market participants do not even worry about any sustained downside knowing the Fed will always be there:

“The market sell-off could reach 10%, but most analysts expect much less because of Fed backstop”

Be that as it may yesterday’s sell off has produced something we cautioned in $VIX 46: A breakout in the $VIX:

Zoom in on the chart and you can see how clean the breakout has been:

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Today’s rally then is about retesting this breakout. The forces of intervention in their fanatical mission to contain and control all market volatility under the auspice to “calm markets” will aim to get $VIX back into its controlled state, i.e back inside the pattern zone.

Tonight we have $AAPL earnings and then the soothing Fed meeting tomorrow. The results of both will likely drive the next direction in volatility.

For a proper technical correction to sustain itself sellers will want to see the trend line defended and then for the $VIX to gain strength.

While markets had a quick pullback that made them short term oversold today’s rally is starting to alleviate these short term oversold conditions and is levitating markets back toward broken resistance.

A dead cat bounce? We’ll know more after $AAPL’s earnings and following the Fed meeting. For now the $VIX has had a break out and investors are on notice. Should the efforts to control and contain volatility fail then lots more volatility is coming our way.

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