A lot of people get that wrong.  They talk about drilling for oil.  But, what’s the point, when you can just spoof for it instead?

[If you’ve missed our previous discussions of spoofing, the WSJ recently put out a nice article and video discussing it in some detail.]

Crude light stumbled badly yesterday morning after the news came out that oil inventories had risen at the fastest rate since 2001.  It dropped below $50, breaking a little trend line that it’s been climbing since the 27th.

Stocks were none too happy with this development.  SPX promptly fell about 23 points to tag our target from Monday — the 20-day moving average.

If the past is any indication, SPX isn’t quite ready to make its next major move….l’m looking for SPX to move lower before moving higher, with the likely target being a test of the SMA20.

Since oil’s drop had caused stocks to also drop, it stands to reason that a recovery in oil would also trigger a recovery in stocks.  At least that’s the way algorithms work.

Sure, there is some economic logic baked in there somewhere: rising oil prices eventually contribute to higher profits in the oil complex.  But, generating higher profits takes more than a few minutes. And, stocks were getting beat up pretty badly.

Enter the oil-fueled algorithm and its vehicle: the spoof.  As Nanex’s Eric Hunsader points out, oil is being kept afloat by orders that are placed by those with no intention of being filled.

Like ES, USDJPY, and other financial instruments/assets, it’s an effective way to temporarily boost prices.  Done cumulatively, it’s an effective way to keep prices on an upward track — even in the face of horrid fundamental supply/demand news.CL, having led stocks lower, suddenly spiked 5% on the very worst day of fundamental supply/demand news in 14 years.  Stocks — or rather the algos that drive stock prices — were only too happy to respond.

Oil now yields the floor to USDJPY, which spiked above the .618 at 120.11 this morning in order to save stocks’ bacon today.

EPILOG: 4:30 PM

To believe any of the above, you’d have to accept that TPTB are taking concrete steps to manipulate oil, currencies and securities prices.  It would mean price action that, on its face, is designed to prop up SPX.

Earlier, we talked about the importance of 120.11 for USDJPY (the yellow, dashed trend line.)  Don’t look now, but USDJPY not only slipped just past it, but closed slightly above it.

And, CL, which needed to maintain the rising red trend line from a week ago…  Guess what?  It could hold, but my money is on the fundamentals mattering this time.  In other words, I’d revert to short here for our 41.14-42.41 target range.

SPX acted pretty much according to plan yesterday — getting most of the way to our 2093.55 target before CL and USDJPY panicked and bounced higher into the cash close.  From yesterday’s members’ section:

My hunch is that we’ll see SPX decline to our 2093.55 target — particularly if USDJPY declines to flesh out the rising white channel (118.75ish, depending on when) or lower.

It’s a continuation of the theme posted on Monday:

 If the past is any indication, SPX isn’t quite ready to make its next major move….l’m looking for SPX to move lower before moving higher, with the likely target being a test of the SMA20.

CL has continued higher, but ran into the channel midline that might hinder further upside.

While USDJPY — after backtesting the broken red TL — has continued lower.

Assuming we get some follow-through this morning, what next?

If 2093.55 fails, then the SMA20 at 2088.3 is the next level of support.  That would leave an interesting potential H&S Pattern in place, with the dashed white line representing the SMA20 as the neckline.

updated chart in a few…

UPDATE: 9:37 AM

I think the target will be wherever SPX happens to be when USDJPY reverses and heads higher.  Currently, 119.08 looks like the most obvious target.  It’s on the thin red TL up from 118.33 and would intersect with the purple .618 Fib.

Note that a full .886 retrace of the rally from last Friday would hit the red target at 118.75 we identified yesterday as appealing.  Given that SPX is selling off pretty nicely with a minor downturn overnight, we can only imagine how big an impact that might have.

UPDATE:  9:54 AM

SPX has reached 2090.55 so far.  At this point, the neckline is plenty flat enough.  And, it has nailed the larger purple channel’s .786 line and very close to the small purple channel’s .236 line.

[A drop by CL to 50.17 would help SPX reach our actual target; but, this is probably low enough to get a bounce — at least into the european close.  It’s worth keeping an eye on.]

If the H&S should play out, it would target around 2060 — which is coincidentally (or not!) the SMA50 and might allow a backtest of the broken falling gray channel.

continued for members... (more…)

As we discussed yesterday, SPX may not be ready to make its next move.  The critical USDJPY Fib of 120.11 was tested and has rebuffed (for now) any further advances.

Likewise, VIX tested the .886 again and (for now) couldn’t penetrate it.

CL popped through the TL we discussed in the members’ section…

…which, with USDJPY’s temporary move higher than 120.11, was enough to boost stocks higher on the day.

It’s difficult to overstate the importance of USDJPY’s actions.  Two of the previous rejections resulted in 100+ point declines for SPX.

The third didn’t, but on that occasion USDJPY merely backtested the broken pennant top, and SPX was further aided by oil’s rebound and some nifty VIX monkey-hammering that broke the rising trend.

continued for members… (more…)

Friday saw a repeat of the SMA10 test, but this time SPX closed slightly below that support.

The futures are holding their cards close to the vest this morning, with ES off about 1 point.  USDJPY is going mostly sideways…

…while CL — off 1.5% — continues to hint at a retreat to the .786 or .886.

We’re examined the timing of breaching important resistance many times over the years.  If the past is any indication, SPX isn’t quite ready to make its next major move.

continued for members… (more…)