USDJPY provided the lift last night, making a bid to break out of the falling white channel.  The key is whether it can break through the SMA20.

SPX reacted, belatedly, at the purple .618 (1943.33) as expected.  The futures indicate a bounce to backtest it.  From there, we’ll have to see whether the yen and Nikkei can provide the usual boost.

Ordinarily, we’d look for a minimum reaction at a major .618 to at least the .500 – usually lower.  So, a backtest of 1943 and then a continuation lower would make sense in an unrigged market.  But, this rally — being completely manufactured by central bankers and the carry trade algos — might have other plans.

UPDATE:  1:45 PM

This is really getting old.  Today’s rally has nothing to do with CAT, MMM, OXY or anything even remotely related to the economy.  The reason stocks have vomited higher is, as usual, the yen carry trade which is fueling the algos.  Note how USDJPY spurts higher every time SPX even thinks about digesting its gains.  The pair blew though its .618 and 20-day moving average, and the rising white channel in order to prevent SPX from experiencing any pullbacks of any consequence.

Watch USDJPY spurt higher when SPX reaches its SMA100 at 1961.22.

GLTA.

This could break either way.  But, as ZH pointed out earlier, VIX has never, ever, declined 10%+ for three days in a row.  I’m thinking at least a breather, and maybe something much bigger.

The trend line coming up from the lower left corner that SPX is backtesting connects some rather noteworthy lows — make that every noteworthy low of the past 5 1/2 years.

Nothing much new from last week.  We remain in a slowmo meltup based entirely on rumors of more easing by central banks — all without confirmation, not to mention actual “flow.”

The USDJPY lost its rising channel overnight, and should continue to settle lower within the falling white channel.

Last night’s ES ramp, courtesy of an unnamed source within the ECB, has the futures up 12 points which, if it holds on for another 30 minutes, should finally get SPX up over the SMA200.

Next resistance is at 1913-1919 — at which point I would look for a backtest of the SMA200.  The case for lower lows than we saw on Oct 15 diminishes with each passing day during which the algos manufacture a slow, steady drip higher.

UPDATE: 2:20 PM

Thanks to the algos, no backtests today.  No impact from earnings, or anything else.  In fact, USDJPY and VIX just helped SPX slice through the SMA20 without even a hiccup.  The .618 of the drop from 2019 to 1820 is up ahead at 1943.99.  FWIW, it also represents the top of the falling channel from 2019.  This should be stout resistance, but given the brokenness of this “market,” who knows?

If there is a reversal, don’t be surprised if — like the majority of the gains — it happens in the after-hours, when investors aren’t around to pile on.

Friday’s ridiculous maybe-we’ll-delay-the-end-of QE ramp job carried over into the Sunday session, boosted by Abe’s proclamation of increasing the Japanese public pension plan’s holding of equities from 12 to 25%.  But, it ran into a dose of reality this morning with IBM’s dismal earnings announcement.  At present, the futures are off slightly, even though the TOPIX was up nearly 4% in Japan’s Monday trading.

Today should shape up as a battle between the carry trade and real live earnings, with SPX’s SMA200 still around 1906 and multiple lower targets as detailed over the past several sessions.  Though VIX made an impressive move last week, it appears unfinished to me.  Though, as Thursday and Friday demonstrated, patterns are no match for the power of the FOMC/BOJ punchbowl.

After today’s QE market goosing, there are supposedly only 3 more POMO days left.

Note that VIX’s decline backtested the purple channel top, which has held so far.

More Fed/ECB/BoJ-speak, overnight ramping.  The futures indicate a nice bounce higher — which is to be expected on OPEX.  Perhaps a backtest of the SMA200 or broken white channel?  The downside targets remain the same.

UPDATE: 4:15 PM

And, there you have it.  Up 30.25 on SPX, 263 on DJIA.  Someone asked me yesterday whether it was time to start panicking, given the strong sell-off.  As long as central bankers are willing to mortgage our future in order to keep “markets” from crashing…the risk is limited.  In my opinion, TPTB engineered this sell off as a lever to force the Fed’s hand, “look how bad things will be if you take away QE!”  The Fed reacted predictably, with hawks and doves alike buckling under the pressure.  It’s pathetic, really.  But, I don’t see it changing any time soon.

Will stocks continue the decline next week?  I still like 1770-1798 by the 22nd.  FWIW, today counts as a channel midline backtest.  But, though ES backtested its SMA200, SPX hasn’t yet (though it did backtest the broken white channel bottom as we suggested earlier this morning.)  So, it could go either way.  It all depends on what the showrunners have in mind.

As always, keep an eye on USDJPY, which is almost completely responsible for the intra-day moves.

Have a great weekend, everyone.

SPX tagged our target at the white .886 yesterday and rebounded sharply.  As discussed, though, the grey Fib charts remain a potential path to further downside: the .786 at 1798 and the grey .886.

But, with several Fed Prez speaking today, don’t be surprised if the jawboning furthers yesterday’s bounce.

More later.

UPDATE:  11:45 AM

Stocks got a nice bounce thanks to rumblings of QE4 by Jim Bullard.

But, they’ll have trouble keeping the bounce going without USDJPY, which has backtested and is currently stuck below its SMA50.  Note that it’s still north of the grey channel midline, though.  So, we have to treat that as support for now.

Note that the gray channel dates back to late 2010, so this might serve as a significant line in the sand.  But, then again, so is SPX’s 1.272 extension at 1823.   Former overhead resistance  — which was ignored on the way up — don’t be surprised if it becomes formidable support.

Stay tuned.

Gentlemen, we have capitulation.  10-yr note yields just plunged below our rising channel of support, blowing through our 2.02% target.

And, SPX just backtested its 1.272 Fib at 1823.

Cue USDJPY for emergency hockey stick operations.  All Fed presidents, report to CNBC for an optimistic, dovish interview.  Mr Buffet, please report to makeup.

Should be a heck of a bounce from here.

USDJPY continues to struggle, giving up the .382 Fib overnight.  The next potential support is the SMA50 at 106.06 and the combination of Fibs at 105.5.

The more troubling development for Mr. Market is the bond market.  The 10-yr note futures shot through the previous high overnight, complicating the prospects of a quick resolution to the market’s correction.

While ES successfully backtested its SMA200 yesterday, SPX didn’t quite make it — fading in the afternoon as has been its habit of late.

There are a number of potential downside targets from a Fib and chart pattern standpoint.  The keys remain the unraveling yen carry trade and interest rates.  I’d keep a close eye on each — particularly when the plunges take place during market hours in less controllable circumstances.

Note that while we might see a reversal today on the white Fibonacci grid — the .786, .886 or the 1.272 itself — we still have to deal with the grey grid, which suggests the possibility of a drop to the .786 at 1798 or the .886 at 1770.

I will be out of the office for the rest of the day, but will check in from time to time.  GLTA.

VIX’s channel midline tag has been a long time coming.  Also, note the TL connecting the previous highs.

Obviously, these patterns don’t mandate a incipient reversal (rally in stocks); but, they’re a pretty strong hint.

Note, also, 10-yr notes could be topping here just above the .886 of the drop from May 2013.

SPX overshot its SMA200 by a wide margin.  A backtest at this point would mean a 30-pt rally.  Note the completed Butterfly Pattern at the purple 1.272 and the TL of support from 6/12 and 8/7.  If bonds and USDJPY play ball, it could happen.

If it doesn’t, and a selling panic develops, I’m looking for 1834-1837.  And, of course, the larger scale 1.272 at 1823 is teed up nicely for a backtest.  Having paid scant attention to 1823 on the way up, a strong reversal there would be a nice way of emphasizing the “bullishness” of this drop.

One strong argument for 1823 is CL, which is breaking down and appears headed for 64.38, with a potential bounce at 74.02.I will be out of the office tomorrow, Wednesday the 15th, on personal business but will try to post early in the morning.  GLTA.